MRSC has joined with Bruce Schroeder, Employment/Litigation Attorney, Summit Law Group, Mark Busto, Attorney, Sebris Busto James, Eric Svaren, Principal, Groupsmith, Inc., and Cabot Dow, Labor Relations Advisor, Cabot Dow Associates to bring you the "HR Advisor" article series on employment and labor law issues affecting Washington local governments. The "HR Advisor" will feature a new article each month with timely HR management information and advice you can use.*

By Cabot Dow
Cabot Dow Associates

Comparisons of compensation for like jobs is a criterion of fundamental importance in labor negotiations, mediation and interest arbitration. Why? Because all parties at interest derive benefit from them and the public is likely to support the outcome.

UCLA Professor Irving Bernstein, 1954

Introduction

In the past, labor has been riveted on how best to capitalize upon what other employers (a/k/a "comparables") have negotiated when it comes to total compensation, i.e. wages, benefits and hours of work. At the same time, employers have been discussing ways to avoid undermining each other in the "comparables" game, knowing the importance of this criterion to labor unions in the negotiations process - not to mention that external comparability is one of the criterion listed in some form in most interest arbitration statutes.

This column will focus on how negotiations budgets are now forcing comparables to take a back seat to finances. A diminishing emphasis is necessarily being given to comparables by negotiators, mediators and interest arbitrators. Common sense and financial constraints are reshuffling the weights given to factors normally or traditionally used in establishing wages, hours and conditions of employment.¹ It is likely that comparables will regain their importance as economic conditions improve. In the meantime, external comparability is not likely to be given the kind of weight that it has received in years past. The economy and internal equity seem to have overtaken external comparability for the time being.

New Meanings

As times change, parties sometimes find themselves using the same words as in the past, but giving them new meanings. The term "wicked" used to mean a bad thing. Now, the term "wicked" often means a good thing. Similarly, the term "comparability" used to refer to "catching up to" what comparables are paying in wages and benefits for the same or similar job classifications. Today, it is more likely "comparability" refers to "keeping up with" incremental changes in wages and benefits or maintaining the status quo. The first scenario addresses an improvement in ordinal ranking. The second scenario expresses an interest in "keeping up with the pack" or "protecting what we have".

Looking Back at Comparability

Historically, the most significant factor in public sector labor negotiations and interest arbitration has been external comparables, meaning the wages, hours and terms and conditions of employment of similar public employees in comparable or similar size units of government.² Many statutes providing for interest arbitration contain external comparability as a factor. For example, Washington statutes (dating back to the 1970's) covering binding interest arbitration for uniformed personnel have included such guidelines as the following:

For employees listed in RCW 41.56.030(7) (e) through (h), the panel shall also consider a comparison of the wages, hours, and conditions of employment of personnel involved in the proceedings with the wages, hours, and conditions of employment of like personnel of public fire departments of similar size on the west coast of the United States. However, when an adequate number of comparable employers exists within the state of Washington, other west coast employers may not be considered.

UCLA Professor Irving Bernstein, a well-known arbitrator who was active in the middle of the last century made the following statement in the year 1954 in his writings on wage arbitration:

Comparisons are preeminent in wage determination because all parties at interest derive benefit from them. To the worker they permit a decision on the adequacy of his income. He feels no discrimination if he stays abreast of other workers in his industry, his locality, his neighborhood They are vital to the union because they provide guidance to its officials upon what must be insisted upon and a yardstick for measuring their bargaining skill. In the presence of internal factionalism or rival unionism, the power of comparisons is enhanced. The employer is drawn to them because they assure him that competitors will not gain a wage-cost advantage and that he will be able to recruit in the local labor market. Small firms (and unions) profit administratively by accepting a ready-made solution; they avoid the expenditure of time and money needed for working one out themselves. Arbitrators benefit no less from comparisons. They have the appeal of Precedent and awards based thereon are apt to satisfy the normal expectations of the parties and to appear just to the public.³

In short, area comparisons of like jobs is a criterion of fundamental importance in interest arbitration.

In some statutes, such as those of Wisconsin and Oregon, there are a hierarchy of factors arbitrators are required to consider, comparability being one. A sample hierarchy looks something like this:

1. The interest and welfare of the public.
2. The reasonable financial ability of the unit of government to meet the costs of the proposed contract giving due consideration and weight to the other services, provided by, and other priorities of, the unit of government as determined by the governing body.⁴
3. The ability of the unit of government to attract and retain qualified personnel at the wage and benefit levels provided.
4. The overall compensation presently received by the employees, including direct wage compensation, vacations, holidays and other paid excused time, pensions, insurance, benefits, and all other direct or indirect monetary benefits received.
5. Comparison of the overall compensation of other employees performing similar services, both in the public and private sectors, with the same or other employees in comparable communities.
6. The changes to the cost-of-living in the region, as measured by government entities.
7. What the parties have agree themselves to do, often labeled "stipulations".

Usually, an arbitrator need not use other factors because the above seven factors provide sufficient information to come to a reasoned decision.

A number of well-known arbitrators in Washington State have embraced the "most likely outcome of negotiations" doctrine in weighing statutory criteria to arrive at a decision. A quote from Fred Rosenberry's recent arbitration decision in City of Bellevue and IAFF Local 1604 (2011) is a good example:

The significance of external comparability lies in the theory that the outcome should be where the arbitrator believes the parties would have agreed had they settled the contract themselves without third-party intervention. This is with the thought that interest arbitration is an extension of the collective bargaining process, many arbitrators, including this Arbitrator, consider what takes place at the bargaining table an attempt to craft an award that would be a realistically predictable outcome of good faith bargaining to complete agreement.⁵

An interesting exception exists in Minnesota's Pay Equity Act.⁶ The most weight is given to internal comparables, meaning the wages, hours, and terms and conditions of employment of other employees of the same public employer.

As Arbitrator Charles La Cugna stated in a City of Kent case:

The arbiter must interpret and apply the legislative criteria in RCW 41.56.460. The arbitrator must not only interpret each guideline, but he must determine what weight he will give to each guideline in order to arrive at a "total package" because only the "total package" concept can measure the real effect of the arbitrator's decision. The task is not easy. He must attempt to fashion an acceptable and workable bargain, one that the parties would have struck by themselves as objective and disinterested neutrals. This point is crucial. Dispute settlement procedures that culminate in binding arbitration make it easy for each to bypass negotiations, mediation and fact-finding in the hope that an arbitrator might award to one party what it could not gain through the process of free and robust negotiations. The award must reflect the relative bargaining strength of the parties. The award cannot be a "compromise" much less "a splitting of the difference" because such an award would favor the party which advances extreme demands and takes an intransigent position. City of Kent and Kent Police Officers Association (LaCugna, 1980)

In the past, arbitrators have given significant weight to comparables data when deciding what the parties would most likely agreed upon if they stayed at the bargaining table and were able to reach agreement without third-party intervention. Presently, legislative bodies and arbitrators are giving less weight to comparables and more weight to the cost of the total package and its relationship to budgets and the cost of health care.

This forces the parties to negotiate in the real world of common sense and consequences.

THE PRESENT EFFECTS OF THE ECONOMIC TIMES

Comparability and Interest Arbitration

Interest arbitration awards issued since 2010 show a decline of the prominence of comparability and an incline in the prominence of internal equity and the economy.

1. City of Poulsbo (Greco, May 2011): Average settlement using comps, rather than ordinal ranking, was given primary weight along with the "City's financial situation"
2. City of Poulsbo (Greco, May 2011): Average settlement using comps, rather than ordinal ranking, was given primary weight along with the "City's financial situation"
3. Lewis County (Gaba, July 13, 2011): Internal equity given primary weight, rather than comparables
4. Union Gap (Miller, August 19, 2011): Comps were identified but given limited weight
5. City of Bellevue (Rosenberry, September 17, 2011): Internal equity was given the most weight rather than comparables; cost containment in health care is a "fact of life"
6. Pierce County (Wilkinson, February 7, 2012): Economy and internal equity factors were given the most weight rather than comparables
7. Clark County Sheriff's (Patrol Deputies) (Lankford, July 2012): Significant weight given to "economic downturn" in limiting wages rather than comparables; arbiter award premium sharing when there was none
8. Tri-Met and ATU 757 (Gaba, July 2012): The last best offer package proposed by the employer was awarded by arbitrator to (a) adjust pension benefits for newly-hired employees and (b) to control its health benefit costs by implementing a variety of plan redesigns. Arbiter Gaba could not "split the difference" under Oregon Law and was limited to looking at the total package of each party. The Arbitrator Gaba awarded Tri-Met's last best and final offer.

Arbitration awards in other states having similar statutes as Washington and Oregon are also watched closely. For example, Illinois Arbitrator Edwin Benn opined (2009) that when the economy is down, "...the comparability factor ... must yield to the other factors cited in the statute."⁷

[I]t still just does not make sense at this time to make wage and benefit determinations in this economy by giving great weight to comparisons with collective bargaining agreements which were negotiated in other fire protection districts at a time when the economy was in much better condition than it is now. There is no doubt that comparability will regain its importance as other contracts are negotiated (or terms are imposed through the interest arbitration process) in the period after the drastic economic downturn again allowing for "apples to apples" comparisons. And it may well be that comparability will return with a vengeance as some public employees make it through this period with higher wage rates which push other employee groups further behind in the comparisons, leaving open the possibility of very high catch pu wage and benefit increases down the line. But although the recovery will hopefully come sooner than later, that time has not yet arrived. Therefore, at present, I just cannot give comparability the kind of weight that it has received in past years.⁸

Opposing opinions are also offered from time to time. A good example is a quote from Wisconsin Arbitrator Fred Dichter (2008):⁹

There must be more than a showing that nationally the economy is down. Instead, the key to determining whether this factor is applicable in a particular proceeding is to determine how this locality is faring when compared to other surrounding localities. Is its economy more depressed than others? If it is, this factor applies and this Arbitrator has so found in the past. On the other hand, if the economy in the locality Involved is faring better than its comparable neighbors, then (sic) this factor cannot be used to justify an offer that would on balance be lower than what was given by its comparable neighbors.

In City of Southgate Michigan and POLC, Southgate Patrol Officers Ass'n, the arbitration panel applied the statutory criteria and give primary weight to internal comparability and the economy rather than external comparables.¹⁰

There is a certain common sense quality about the following Lankford quote in Kitsap County:

In short, the comparability drivers for 2010 and 2011 are substantial, although the CPI increases over that period were modest. But the reasonableness of a pay increase must be measured at least in part against the financial conditions of the County at that time and against the compensation shifts experienced by other County employees. The comparability numbers for those years are not so great as to justify pay increases for Corrections Officers for a period when their co-workers were suffering reduced hours and the County was reducing its level of services and eliminating programs. I must agree with the County's proposed pay rate freeze for 2010 and 2011. The Guild argues strenuously that "ability to pay" should be addressed only in terms of the employer's current ability to fund increases for prior years, regardless of its financial condition during those years. Without addressing that question in the abstract, I cannot grant the Corrections Officers pay increases that would have been essentially paid for by give backs and reductions in hours suffered by other County employees during those difficult years. (Lankford, Kitsap County, Corrections, 6/1/12)

On the other hand, internal comparability and administrative efficiency are compelling arguments in favor of continuing the same coverages as the rest of the County workforce. Arbitrator Jane Wilkinson (NAA) particularly stressed internal parity in her Pierce County Deputy Sheriffs award in February of 2012; and FJ Rosenberry reached a similar conclusion in his September, 2011 award for Bellevue Firefighters, quoting a 1982 award by Howard Block (NAA) addressing proposals for special medical benefit packages: "Deviations from a uniform benefit pattern can be disruptive to employee morale. In short, comparisons among employee groups of the same employer are no less important than comparisons with other employers." The record here does not justify such a departure for Guild Corrections Officers.

Arbitrator Jamie Siegel in Pacific County, Deputy Sheriffs, May 2, 2012, included the following statement in her opinion:

"The statute does not specify how much weight to give any of these standards or guidelines, leaving that determination to the arbitrator's discretion. With respect to RCW 41.56.465(1)(e), although each case has unique considerations, arbitrators traditionally consider the following: ability to pay, recruitment and retention, and internal equity."

The weight arbitrators give to internal equity varies depending on the issue involved and the economic circumstances. As Arbitrator Jane Wilkinson described, during difficult economic times when it becomes necessary to ask all employees to make sacrifices, internal parity can be a valid consideration: "Obviously, it does nothing for the morale of one employee segment to accept, for instance, a wage freeze, and then see another group receive a whopping increase, no matter how deserving the latter group is of that increase." City of Redmond and Redmond Police Association, PERC No. 16791-I-02-387 (Wilkinson, 2004).

Comparability and Last Best Offer Package Arbitration

With the economic changes come renewed interest in looking at different interest arbitration models that weigh comparability differently. A number of states have already adopted last best offer package arbitration rather than the last best offer "issue by issue" form of interest arbitration such as that still in place in Washington State under RCW 41.56, Washington State Collective Bargaining Statute. Last best offer arbitration is not new as Connecticut, Iowa, Maine, Minnesota, Oklahoma, Oregon, Pennsylvania, and Wisconsin, use last best offer arbitration as a means of resolving contract-based disagreements with public safety employees.

Last best offer package arbitration is to be contrasted with procedures covering an employer's final offer set forth in the Taft-Hartley Act. "Last best offer arbitration" is a forced choice method of conflict resolution which substantially limits the authority of the arbitrator and forces both parties to put their "best foot forward". The arbitrator is not permitted to mix and match the offers of the parties. Under the last best offer package (forced choice) form of arbitration, one factor is more likely to tip the scales than a blend of factors.¹¹

Last best offer by total package prohibits any arbitral compromise between final offers, it is much riskier for the parties than conventional interest arbitration. Designers of final offer arbitration predicted that the very terror of last best offer arbitration by total package would assure its nonuse, but the practical reality is that the "winner take all" design of final offer arbitration by total package does not necessarily facilitate settlement.

Comparability is addressed in a variety of different ways in the following statutes. Unfortunately, there is not enough space in this Column to go into detail. However, it is useful to give the reader a perspective as to the type of final offer arbitration different state legislatures have adopted, as shown in Attachment 1.

Conclusion

For those management and labor relations professionals who are involved in collective bargaining, it is apparent that the economic changes have had a noticeable impact on the bargaining process including statutory impasse proceedings. The weight that negotiators and arbitrators give to general economic conditions and statutory factors varies but certain trends have emerged while final offer arbitration models and criteria are being re-evaluated.

While it is difficult to say with certainty, there is adequate evidence to support the proposition that, for the time being, the current trend is (1st) the local economy, (2nd) internal equity among employees of the same employer and (3rd) what comparables are negotiating. There is a noticeable inverse relationship between newly negotiated contracts and arbitration awards that focus on external comparability vis-a-vis contracts or awards that place emphasis on the economic outlook, sometimes clearly articulated.

The context is that tax revenues for many governments have been flat or even declined while health care and pension costs continue to climb. This has necessarily driven many governments to make the economy the driving factor in negotiations, seeking concessions in the forms of wage cuts or freezes, unpaid furloughs, and other forms of salary reductions. At the same time, the economy has driven labor to negotiate to protect what they have negotiated, fend off layoffs and maintain health coverage. To balance the table, negotiators and arbitrators have often decided that equal sacrifice among employee groups within the same jurisdiction is more important than comparing wages, hours and working conditions with comparable employers.

Attachment 1

Type of Final Offer Arbitration - Summary of State Statues

1. This Column was inspired by a law school article, written by Matthew J. Bartmes in 2010: Interest Arbitration in the New Economy. His article won first place in the 2010 Louis Jackson National Student Writing Competition in Employment and Labor Law, IIT Chicago-Kent College of Law. A copy can be downloaded using this link.

2. See ELKOURI & EKLOURI: How Arbitration Works 1365-91 (6th ed. 2003)

3. Arbitration of Wages Publications of the Institute of Industrial Relations (Berkeley: University of California Press, 1954), p. 54.

4. A reasonable operating reserve against future contingencies, which does not include funds in contemplation of settlement of the labor dispute, shall not be considered as available toward a settlement.

5. Arbitrator Fred Rosenberry in COB and IAFF Local 1604, 9/17/11. PERC Case 23780-I-11-0563; Other arbitrators embracing this guideline include: Carlton Snow; Robert Sutermeister; Charles LaCugna; Jane Wilkinson; Ken Latsch (Bellingham and Teamsters, 1997); Alan Krebs. http://www.perc.wa.gov. Also, Elkouri and Elkouri (2003)

6. MINN. STAT. 471.991-999.

7. See State of Ill. Dept of Cent. Mgmt. Svcs and International Brotherhood of Teamsters, Local 726, Case No. S-MA-08-262 (2009) (Benn, Arb)

8. North Maine Fire Protection District and North Maine Firefighters Local 2224 (2009) (Benn, Arb.)

9. See Oshkosh Professional Emplyees Union AFSCME Local 796-C and Ciy of Oshkosh, Dec. No. 32148-A, 5 (2008) (Dichter, Arb.), available online.

10. See City of Southgate and POLC, Southgate Patrol Officers Ass'n, Case No. D08 B-0158, 6-7 (2009) (Roumell, Chair), available online.

11. See http://articles.chicagotribune.com/1990-03-04/sports/9001190091_1_stephen-goldberg-arbitration-labor-law. Professor Carl Stevens of Reed College (1954-1990) is often credited with first proposing last best offer arbitration in the mid-1950's, now often referred to as "baseball arbitration".

HR Advisor Authors

Mark Busto, Attorney with Sebris Busto James, Bellevue, is a seasoned employment law counselor and litigator with a strong professional background in labor-management relations. He has represented employers in discrimination cases before judges and juries in both state and federal court and has arbitrated many labor and employment matters. More.

Bruce Schroeder is an employment / litigation attorney with Summit Law Group, Seattle. Bruce's practice is concentrated on representing management in the entire range of employment law matters. More.

Eric Svaren, Principal, Groupsmith, Inc., specializes in helping leaders and teams get traction—by facilitating change, clarifying strategy, strengthening trust, and improving communication. He helps individuals, teams and entire enterprises achieve breakthrough results. Eric is particularly known for his intensive intervention with teams, as well as his facilitation of high-stakes conflict situations, including multiparty mediation and labor contract bargaining. More.

Cabot Dow is President of Cabot Dow Associates, Inc. He offers more than 25 years of experience representing public and private sector clients in the full spectrum of collective bargaining matters, including negotiations, mediation and arbitration proceedings. Prior to entering the labor relations consulting field in 1975, he was the Assistant City Manager and Labor Relations Director for the City of Bellevue, Washington. More.

*The Articles appearing in the "HR Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research and Services Center.