A Review of Labor Contracts, the Labor Negotiations Process, and Costing Issues
By Cabot Dow
Cabot Dow Associates
Reasonable People Make Reasonable Agreements - G. Richard Shell
The purpose of this HR Advisor is:
- to suggest a framework for review of existing labor contract issues and provisions
- to suggest some guidelines (a/k/a punchlist) for navigating the labor negotiations process
- to offer some resources for costing out labor contract provisions, both from the standpoint of cash as well as paid time off
A. A framework for review of existing labor contract issues and provisions
In getting started for another round of negotiations, we would suggest that employers take the time to identify the historical context as to why existing provisions in its labor agreements were agreed upon in the first place. Identify Legal issues that will need to be addressed, e.g. compliance with the Affordable Care Act (ACA) and Fair Labor Standards Act (FLSA). Get finance involved. Cost out (i.e. "Dollarize") all contract provisions on a line by line basis, in the short and long term, both direct and indirect. Cost out all contract language that drives Wage costs (e.g. shows up on W-2), Overtime provisions, "minimum staffing" provisions or practices, Paid Time Off provisions and Pension- related provisions (e.g., 401(k), 457, MEBT, etc.). Know the cost of cash-out provisions (e.g. sick, vacation, holiday leave, Kelly hours, etc.). Know the cost of release time for union negotiations and who pays.
Now is the time to determine how the Patient Protection and Affordable Care Act (ACA) will impact the bargaining process this year, going forward. The ACA was signed into law by President Obama on March 23, 2010. Beginning in 2015, the ACA mandates apply to employers with 100 or more full-time employees. Beginning in 2016, the ACA mandates apply to employers with 50 or more full-time employees. Full-time employees are employees working 30 hours per week, on average, or at least 130 hours in a month.
Hours of service not only includes hours worked but also hours for which an employee is paid but does not work, such as vacation, holiday, illness, disability, jury duty, military duty, or leave of absence (up to a maximum of 160 hours for any continuous period).
So, it is time to know what ACA issues and impacts need to be bargained and for having a plan for doing so in the next few months and addressing the following concerns:
|For engaging labor groups now, not later, as mutuality and collaboration is needed
|For providing Affordable Health Care
|For avoiding Taxes, including Cadillac Taxes -- a 40% Excise Tax starting 2018 on health plans that cost above $10,200 (single) and $27,500 (family)
|For Cost shifting to contain the cost of plans
|For dealing with premium increases
|For dealing with the loss of Grandfather status
|For addressing coverage for spouses and dependents
|For issues pertaining to wellness programs
|For dealing with Full-time v. Part-time employees in the labor agreement
|For addressing ACA timing and notice requirements
|For having flexibility in contract language to comply (including mid-contract changes)
|For dealing with the potential of interest arbitration.
Next, we would suggest review of language that has an affect on the organization's legal responsibility (positive and negative) and that has an affect on management's ability to manage efficiently and meet customer needs. Critique the adequacy of the no strike clause in the labor contract(s), including whether there is a provision that defines a "strike" broadly and holds the Union liable for damages. Read over the management rights clause to determine if the language includes such rights as the right to maintain efficiency of operations, the right to direct, schedule, discipline employees for cause; the right to issue rules and regulations and take all reasonable actions not prohibited by law or agreements of the parties. Re-write clauses that limit supervisors or managers from doing their job. Re-write provisions in the management rights article that serve to nullify the right to management to act without first negotiating the decision with the Union. Tune up grievance procedures to meet industry standards. For example, this would include reasonable time lines and arbitration provisions, including a clear understanding that the employer and union, respectively, will bear the costs of presenting their case, including attorney and witness fees. Fix language that requires management to discipline an employee within a certain amount of time, even if management did not have knowledge of the policy violation. Beware of layoff language that is based strictly on least amount of seniority regardless of its effect on the organization or programs. Most Unions understand this practical solution.
B. Punchlist (Guidelines) for navigating the labor negotiations process
1. Prior to Entering the Negotiations Process:
Table 1 provides a series of actions that should be taken before entering the negotiations process on a new or successor labor agreement:
|Clarify the employer's philosophy re labor relations
|Establish Financial Targets (short and long term)
|Establish an Overall Labor Policy (including Guiding Principles and Philosophy)
|Identify Employee Relations issues that will need to be addressed
|Identify Legal issues that will need to be addressed
|Identify Operational issues that will need to be addressed
|Sum up with clear and specific statement of goals with standards and norms to go by
2. Prior to Receiving the Union's Proposals:
Table 2 suggests what an employer's negotiations team should look like, a framework for a broader support system, and assignments for members of the employer's negotiations team:
|A Budget expert
|An HR Expert
|Clarify roles of managers and supervisors in the process
|Conduct in-service training sessions for supervisors and managers
|Establish a larger management group to assist in arriving at proposals and responses, and communicate employee concerns to negotiators
|Establish a small caucus group (including the CEO for negotiating team to work with on an ongoing basis)
|Labor relations expert (or liaison with labor attorney)
|Select a spokesperson and a recorder
|Select any observers
|Select management back-up groups (for guidance to negotiating team)
Table 3 identifies some important topics members of the employer's negotiations teams need to be prepared to address:
|Clarify what constitutes a legitimate role of shop stewards
|Determine how broad the net for identification of other "comparable" employers than those recently used; this includes both public and private employers in the area
|Establish guidelines for furnishing non-confidential information and information requests to those making such requests
|Explain permissive conduct with respect to union activities to all concerned
|Explain prohibited conduct with respect to union activities
|Explain the relevant statutes, charter, ordinance, resolution and personnel rule provisions, and their interpretation
|Identify unauthorized comments by employer staff or elected officials
|Limit the use of City time/facilities for union-related activities
|Take care to avoid communications that would come off as threats to labor
|Uniform application of collective bargaining agreement(s) and practice(s)
|Update salary and other benefit survey data
|Update what Non-Discrimination looks like, i.e. protected classes
|Write down employer's negotiating interests, positions and objectives
Table 4 provides a list of useful payroll and economic data for the budget expert to notebook and make available to all members of the employer's negotiations team:
|Average bargaining unit wage
|Compile current payroll costs for each bargaining unit
|Cost of salary range movements in forthcoming year
|Employee distribution on the salary schedule (e.g. current step placement)
|Holiday Leave accruals or cash-outs by bargaining unit
|Number of employees, by classification in the bargaining unit
|Number of single, one dependent, multiple dependents for benefits coverage
|Sick Leave accruals for employees displayed by bargaining unit
|Total up all base wages
|Total wage related items by item (e.g., retirement, overtime, "incentive" pay)
|Update data as to recent settlements
|Update paid leave time usage by bargaining unit
|Update the employee profile for each unit, e.g. hire dates in current position
|Update use of CPI formulas (if used in lieu of fixed wage adjustments)
|Vacation Leave accruals for employees displayed by bargaining unit
3. Review with designated operating management group the current CBA, MOUs, LOUs established practices subject to negotiations
Table 5 offers a list of review items that should be assigned to members of the employer's negotiations team so the process is linked to its affecting on operations and to the employer's duty to bargain over wages, hours and working conditions.
|Anticipate union demands
|Awareness of content in Union websites as to union emphasis and labor concerns
|Be aware of actions passed at union conventions and conferences, including themes
|Compile a list of grievances filed by Union
|Establish coordination channels with other employers in area
|Identify excessive cost items that are off the reservation (abnormal) compared to industry standards
|Identify problems caused by ambiguous provisions?
|Identify problems caused by practices not supported by contract language
|Identify provisions restricting management's right to act
|Identify provisions restricting management's right to act served
|Know what provisions adversely affect department efficiency
|Know what provisions result in grievances
|Look for the same or similar demands by same union in another employer
|Review other employer's negotiations, MOUs and "brainstorm" new ideas
4. Analyzing Union Demands:
Table 6 identifies a framework for analyzing proposals that the Union brings to the bargaining table, often a result of an information gathering process involving its members. Each demand should initially be analyzed with the items and questions listed below in mind. This will assist the employer in making counterproposals to union proposals.
|Affect on ability to manage efficiently and to provide customer service
|Affect on employer's legal responsibility
|Affect on upcoming negotiations with other employer groups
|Cost (direct and indirect, short-term, long-term)
|Is the cost of the proposed solution reasonable in relation to the problem?
|Is the cost reasonable in relation to the total cost impact of the settlement?
|Is the proposal free from adverse operating effects or unanticipated costs, now or in the future, and does it infringe on management's rights to act?
|Is the proposal the same size as the problem, e.g. be aware of overkill.
|Make a list of questions to be asked on every union proposal (e.g. is there a real problem, is it a continuing problem, is it general in nature or specific and limited.
|Make an employer proposal and determine if the proposal will fix or change the problem.
5. Establishing Negotiating Goals and Authority
Under guidance and direction of the CEO, thoroughly prepare for extended executive session(s) with elected officials to establish their role, general negotiating goals and review upper limits of overall authority
Determine the extent to which to include the top management cabinet in the development of overall strategy for labor negotiations
Explain the negotiations process to the elected officials, the "whys" and "hows" of their policy direction and underlying role in support of the process.
It is also important to know what the negotiation team's upper authority is for total compensation package and core concerns of elected and management officials on non- economic items.
If ordinal ranking in the market is part of the policy-making process, provide the CEO with all relevant information and a summary of the survey data before presenting a package to the election officials for action.
Be aware of the effects concessions may have on the budget and priorities established by the elected officials.
Be aware of permissive subjects of bargaining, as provided in Table 7, which provides a list of items which do not have to be negotiated with the Union or which the employer cannot insist that the Union negotiate. Negotiations may take place on such items, but engagement by either party is not required. For example, if the employer decides not to discuss the issue, the Union must drop it (at least before reaching impasse).1
|Access to interest arbitration for contracts not covering positions eligible for interest arbitration (e.g. police officers, firefighters, ems)
|Allocation of unanticipated funds
|Assignment of duties and content of job descriptions
|Citation of employee for violation of State Law
|Contractual waivers (but be aware of management rights exception)2
|Creating or participation in advisory committees
|Employee evaluations and relate policies for evaluation of employees
|Employee suggestion systems
|Employment qualification standards
|Going out of the business (e.g. change from city-only dispatch to county-wide
|Hiring of temporary or seasonal employees
|Implementation of new technology (e.g. computer, causing loss of positions)
|Insurance carriers and reserves
|Procedures for dealing with substance abuse to maintain a safe working environment
|Promotions outside the bargaining unit
|Removal of a confidential employee from the bargaining unit
|Reorganization increasing number of positions
|Restricting Union access to grievance procedure
|Retroactivity prior to certification of a bargaining unit
|Services offered by employer
|Staffing level decisions (unless safety is involved)
|Subcontracting required by law
|Supplemental retirement benefits for LEOFF employees
|Use of volunteers for work not normally performed by bargaining unit members
|Work performed by confidential employee previously within the bargaining unit
6. Establish Communication Procedures to be Followed During Negotiations:
Table 8 is a reminder of the types of communication procedures that should be followed during negotiations.
|Communications to other managers not at the bargaining table
|Communications with caucus group(s), e.g. involving designated supervisors
|Communications with CEO
|Communications with designated management group
|Communications with elected officials updating the status of negotiations
|Communications with payroll office regarding items that affect payroll procedures
|Communications with employees providing factual negotiations process updates
7. Punchlist for Initial Meeting with Union
Table 9 is a reminder of the types of subjects that should be addressed with the Union at the outset of the bargaining process for a new or successor contract.
|Address how release time of employees will be paid (employer, union, split, etc.)
|Confirm authority of employee or union committee
|Create and prepare an opening statement (whether oral or in writing)
|Decide on length of meetings and future meeting dates
|Establish agenda for meetings or how future agendas will be set
|Find out if you have the union's total package on the table
|If paid release time is involve, establish a reasonable cap stated in total number of hours employer will pay; decide method of ratification and adoption of agreement
|State employer's philosophy towards negotiation
|State that agreements are tentative subject to final agreement on all items
|Try to set cutoff date for negotiations issues and goal for finishing
8. Negotiating Process
Table 10 offers guidelines for the employer's spokesperson to follow during the bargaining process:
|Clarify employee organization proposals and get rationale (refer back to "Analyzing Union Demands", which is in Table 6 above)
|Explain to the Union the rationale for management interests or positions
|Request employee organization's answer to management's proposals.
|Restate all agreements as they are reached
|Submit management proposal and counterproposal package in writing
|Write up all tentative agreements as soon as possible; initial and date, unless tentative
9. Crisis/Impasse Negotiation
Table 11 addresses guidelines for the process if and when parties are in mediation and approaching impasse.
|Check with CEO and Elected officials periodically to make sure that negotiations team is expressing their firm position
|Check to resolve all minor issues at the same time major issues are resolved
|Educate the management team and elected officials as to the illegality of employee work stoppages (back up by pertinent case law and court decisions)
|Know the pros and cons of making a "last, best and final offer", which is usually precursor to unilateral implementation (if not ratified)
|Review pros and cons of lawful communications to employees when employees are being kept in the dark, negotiations are protracted, and when approaching
|With the active involvement of management team, establish procedure for documenting any damages caused by employee work stoppages so that Union knows it will be held liable (since public employee strikes are illegal)
|With the elected officials, estimate the detriment of no agreement compared to the detriment of making a concession and their tolerance for impasse, which includes interest arbitration for police and fire bargaining units
C. Resources and strategies pertaining to costing labor contract issues and provisions both from the standpoint of cash as well as paid time off
1. Costing Parameters
Table C-1 assumes that parameters for bargaining have been secured by the employer's chief negotiator and shared with the employer's negotiations team. It is important for the employer to take credit for concessions already made and employ creativity in crafting a mutually acceptable agreement with the Union that balances the interests of both parties. The employer will want to know how its offer compares to settlements or offers others are making in the industry.
|Establish bargaining cost parameters (a/k/a budget for negotiations)
|Take credit for the cost or value of concessions already made
|Discuss creative cost options for getting to "yes"; still staying within parameters
|Discuss the use of a costing model in comparing your "total package" with others
|Discuss communications with the negotiator and use of costing authority
|Take time for questions and dialogue regarding costing labor agreements
2. Costing Team
Table C-2 identifies the detailed components of costing, communicating costs to the Union, how to know if the employer's offer is within budget and consistent with market- driven principles.
|Apply a cost to contractual overtime, over and above what the FLSA requires?
|Be aware of language that drives up Health & Welfare costs beyond the termination
|Communicate how you are costing the package with the Union?
|Do not include CPI formulas that survive the termination date of the agreement
|Dollarize the cost of Holidays, Kelly Days, Vacations, & Sick Leave in your costing model
|Have a CPI formula that adjusts for a negative CPI. Charges the cost of Health and Welfare from year to year against the wage package?
|Know the cost of the Union's vs. Managements proposals (at any given time), including the monetary value of the proposal to the employee(s).
|Know the cost of your total package compared to the cost of your comps (in light of
|Know what a status quo contract costs, over the next 1, 2, 3 years, e.g., with longevity/step increases, vacation increments, sick leave liability, insurance (MOB)3, and statutory requirements (e.g. LEOFF or PERS contributions).
3. Obvious Costing Issues
Table C-3 provides a sampling of contract components to which dollars are relatively easy to attach.
|Base Wages and Overtime
|Premium Pay (tied to assignments, shift schedules, education, certifications, etc.)
|Lump sum payments
|Health Insurance (i.e. medical, dental, vision, life, disability)
|Pension Contributions (LEOFF, PERS, MEBT, 401(k), etc.)
|Hours of Work
|Funding Post-Retiree Medical
|Clothing, footwear and cleaning Allowances
4. Not so obvious costing issues:
Table C-4 provides a sampling of contract components to which dollars are not quite as easy to attach as those in Table C-3. Nevertheless, the components in Table C-4 affect payroll costs in the form of number of FTEs, coverage, risk management, creeping costs affected by years of service and leave accrual systems.
|Acting Pay or Working-out-of-Class Pay
|Alternative Work Schedules
|Attendance incentives and Cash-out Programs
|Automatic Step increases
|Breaks and Meal Periods
|FLSA vs. Contractual Overtime
|Off Duty Employment Liability
|Paid Meal Periods
|Prevailing Rights or Past Practice Clauses
|Quartermaster Uniform Systems
|Raising caps on comp time accumulation
|Raising caps on sick leave accruals
|Raising caps on vacation leave carryover
|State-Mandated Pension Contributions
|Uncapped Health Insurance Contributions
|Workers Comp Benefits & RCW 41.04.500-550 (LEOFF II)
5. Some Professional Resources:
Suggested Reading in Getting Prepared for Negotiations:
- Bargaining for Advantage, Negotiation Strategies for Reasonable People, G. Richard Shell, Director of the Wharton Executive Negotiation Workshop, 2006, Penguin Books
- Negotiate to Close: How to Make More Successful Deals, Gary Karrass, 1985, Simon & Schuster.
- Negotiating a Labor Contract, Charles S. Loughran, Exq., BNA Books, 3rd Edition, 2003.
1Consult with legal counsel as to PERC authority on such items listed as permissive. However, an employer may advance to interest arbitration on a management rights clause, which includes waivers of union rights, in negotiations for a new or successor contract.
2However, an employer may advance to interest arbitration on a management rights clause, which includes waivers of union rights, in negotiations for a new or successor contract.
3MOB = The cost of maintenance of current level of benefits, without a cap on employer costs
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