Labor Relations Policy Development: New Balance is Smaller Concessions

This Advisor column was originally published in September 2011.

Local government budgets reflect the priority the public puts on essential services, many of which are delivered by public employees: law enforcement, firefighting/EMS, code enforcement, streets, parks and utility maintenance, emergency dispatch and office support.

With over 70% of government costs paid out for these types of public employees, a critical area for local government officials is to bargain smarter, adjust or create a new balance and figure out how to provide what the public expects within available revenues. This requires public officials to revisit labor relations policies, to modify public employer concession patterns, negotiate budget mitigation agreements with labor, and to more effectively utilize labor relations staff. Staff need updated parameters and authority to creatively navigate the waters of change.

The comparison of the old vs. new balance is the topic of this post. This post will focus on significant differences between past and present environments within which labor contracts are negotiated. Most labor and government leaders would agree that the tipping point altering economic concessions from greater to lesser has been reached.

Introductory Thoughts

• If employers want to maintain or improve the concession balance between management and labor, employers must utilize information from past negotiations; this must include both big and small concessions. If employers keep making costly concessions as they have in years past, they will need to make even more dramatic cuts in personnel expenditures and staffing in the coming years.
• When labor and management respect each other’s interests, ultimately the public benefits. Public officials can negotiate labor agreements that include concessions to labor, albeit smaller ones than in the past, while getting something of value in return for the public they exist to serve.

Implementation of Labor Relations Policy and Changes

What’s Different Now? What evidence is there that local governments have reached a tipping point likely to change how employers negotiate with labor? What are public officials doing to embrace change? What does a healthy course correction look like?

Public employees providing essential services have been represented by unions in Washington State for over 40 years. The difference now is that new expectations on the part of both labor and management have developed.

Examples of how expectations are changing

Health Insurance Premium Sharing. Unions proposing that employers pay a greater share of medical premium increases can no longer expect them to agree to this concession. Employers would expect unions to offset the cost of doing so. Instead, unions can expect public employers to absorb smaller amounts of medical premium increases than in the past, so that annual cost increases are closer to 5% than to 10%.

Health Insurance Plan Design. Unions proposing health benefit increases or no change to the health insurance plan design (in order to contain rising health insurance premium costs) can no longer expect the employer to agree to make this concession. Employees and their dependents utilizing greater medical plan services can expect to pay more. This is a small concession for labor to make in order to sustain quality medical coverage, particularly where the employer pays over 90% of the premiums. See Arbiter’s Decision in City of Bellevue and IAFF Local 1604, issued September 17, 2011. PERC Case. 23780-I-11-0563.

Paid Time Off. Unions proposing to increase paid time off can no longer expect the employer to agree to make this concession. Employers would expect unions to offset the cost of doing so. Employers are also expecting to have more control over the scheduling of paid leave (e.g., compensatory time off). Consequently, unions are agreeing that their members take unpaid leave as budget mitigation measures (a/k/a furloughs, unpaid holidays, etc.).

Management Rights. Unions proposing to eliminate or reduce management rights regarding decisions that affect the cost of doing business or prioritizing public services can no longer expect the employer to agree to make this concession. Unions are agreeing to management rights to make such decisions, as long as management agrees to bargain the effects. Unions realize that conceding to specific management rights to make personnel changes is a better alternative than reduced staffing or cuts in benefits.

Labor-Management Partnerships. Public sector unions now find themselves at the bargaining table protecting what they have negotiated in past contracts. They are making small (but meaningful) concessions to keep jobs and/or show they are in partnership with the employer rather than adversaries. Management is finding it necessary to renegotiate contract language, e.g., layoff provisions, to protect essential services. For example, the right to layoff out of seniority order in order to maintain a critical service (e.g., paramedics) or meet the needs of a program (e.g., water quality control) becomes more important now than ever.

Public Sector Labor Laws

Pressure on Management. Expectations on the part of both labor and management have changed to parallel the reality that the well is running pretty dry. The public sector labor laws promoting collective bargaining, as administered by the Public Employment Relations Commission (PERC), have increased pressure on management. PERC expects employers to negotiate to agreement or impasse before a change can be made. The alternative is to face the sanction from PERC of restoring the status quo and starting the process all over again, before a change can be made.

The Bargaining Process. Currently, the labor laws that have been adopted by legislators require public employers to bargain both the decision and effects of all but a few discreet subjects. While the employer has the right to make budget and entrepreneurial decisions, nearly every decision that affects management of human resources must be offered for negotiation with the union if it involves a change in working conditions. This does not mean management has to agree to what the union proposes but it does mean that management has to respect the union’s right to access the bargaining process before a change in a mandatory subject of bargaining can be made. See HR Advisor Issue – June 2010.

Bargaining Leverage. So, leverage that labor unions have to tie management up in long and involved processes has not changed. Actually, labor unions have become more sophisticated at using the leverage they have to resist what management wants to change and the Public Employment Relations Commission (PERC) has become more vigilant in requiring management to bargain before making changes. For uniformed personnel, this can also involve submission of the change to interest arbitration, a time consuming and expensive process.

This might not have been that big of a deal when significant increases in sales tax revenues, development fees, property tax revenues, B & O tax revenues were the norm, but when small increases (or even decreases) are the norm, the stakes are higher and something has to give.

It remains to be seen whether public sector bargaining laws will change with the times, either through public pressure or bi-lateral agreement. This would call for a new balance in legislation that would involve amendments to existing collective bargaining rights. This balance would most likely include reasonable limitations on what changes are subject to bargaining and what changes are not. Cite: Wisconsin experience.

Elected officials have the opportunity to send their representatives to the bargaining table with parameters that square with the reality of revenues being received by their jurisdiction and curtail compensation expenditures built into their jurisdiction’s budgets.

Labor and management are experiencing the tipping point that alters the nature of economic concessions. Economic concessions are small with unemployment high, inflation low, job turnover negligible, and number of applicants for public sector jobs at all-time highs.

What’s Important Now?

Expectations. When management went to the bargaining table prior to the Fall of 2008, the normal expectation was that base wage increases would be tied to the change in the consumer price index (plus something); more paid time off, more premium pays, annual within-range wage increases, 100% employer paid medical for employees, few or no layoffs, employee friendly work schedules, significant concessions with little or no off-setting contract provisions that assist the employer in return.

Concessions. Unions are making concessions that reduce pressure on the cost of employee compensation. We now see wage freezes or lump sum payments (in lieu of base wage increases), less paid time off, fewer premium pays, and smaller within-range wage increases. Employees now pay a higher percentage of health insurance premiums, see less job security (employee layoffs or unpaid days off in lieu thereof), and agree to work schedules that provide better coverage. Alteration of labor contracts through mid-contract negotiations is not uncommon in light of unanticipated changes in the balance between revenues and expenditures. MRSC can provide examples for readers.

The New Balance. It has yet to be seen how broad-sweeping the change will be and how the new balance of interests will be defined and how public employers and union representatives will influence the outcome in a collaborative and problem-solving manner.