MIT’s Thomas A. Kochan  and Arnold Zack, past president of the National Academy of Arbitrators, have penned a piece in “Roll Call” this week attempting to justify Sec. 3 of the Employee Free Choice Act (EFCA). This is the provision of the bill that would allow for government arbitrators to impose the terms of the first labor contract on newly unionized private employers.

In this piece they claim:

If passed, the Employee Free Choice Act would assign a mediator by the Federal Mediation and Conciliation Service as soon as a new unit is certified to support the negotiations by offering the full range of mediation, education, and facilitation services helping the parties reach a voluntary agreement.

Not exactly. The EFCA dictates in Sec.3 that the NRLA would be modified to add: `(2) If after the expiration of the 90-day period beginning on the date on which bargaining is commenced, or such additional period as the parties may agree upon, the parties have failed to reach an agreement, either party may notify the Federal Mediation and Conciliation Service of the existence of a dispute and request mediation. Whenever such a request is received, it shall be the duty of the Service promptly to put itself in communication with the parties and to use its best efforts, by mediation and conciliation, to bring them to agreement.

… contrary to those who argue every case will go to arbitration, the presence of arbitration encourages and enhances the ability of the parties to reach voluntary agreements in negotiation and mediation — and incidentally does so without imposing on employees or employers the risks and costs of a strike to get a contract.

While it may be true that not every case will go to arbitration, the possibility of binding arbitration fundamentally changes the nature of collective bargaining. Under the EFCA one party can unilaterally request that the FMCS become engaged in the mediation and arbitration process would create an environment not conducive to mutual negotiations. Instead, both parties will have a greater tendency to position themselves for arbitration during collective bargaining.

James Sherk at the Heritage Foundation responds to an attack from Media Matters for America against a Heritage video that explains why the Employee Free Choice Act’s binding arbitration provisions  are so bad. The post, “Fact Check: Media Matters Wrong on Card Check Facts,” notes several misrepresentations from Media Matters (yeah, bit surprise). More importantly, Sherk provides a good primer on the distinctions between public sector arbitration and EFCA’s imposed government arbitration. To wit:

Most public sector arbitration decisions decide disputes in renewing an existing contract – not in writing a new contract from scratch. Both parties have already settled fundamental issues such as the sort of seniority or promotion system that will be used, the job classifications for employees work, and the benefit types employees earn. The main issue in dispute is how much workers will earn, not how the department will be (re)structured. The arbitrators also have clear standards and guidelines they must use to make their decision.

This hardly work flawlessly. In many cases arbitrators make bad rulings that cities cannot afford. One arbitrator’s ruling nearly bankrupted Detroit in the late 1970s, forcing the city to lay off one fifth of the police force and igniting a crime spree. In other cases taxpayers must simply pay out because the government never goes bankrupt – it just raises taxes to cover higher costs.

EFCA, however, has none of the limited safeguards contained in public sector arbitration. Read the bill. It only applies to new contracts, before any issues like promotion procedures and work duties have been settled. The government arbitrator would impose those, without the benefit of a previous contract to look back on. And unlike public sector arbitration there are no standards for the arbitrator to use. None at all.

The upshot is that union negotiators would make extreme demands, hoping the government-mandated arbitrator splits the difference. Binding arbitration works against good-faith negotiating.

The Wall Street Journal (subscription) today reports, “Provision to Ease Unionization Likely to Drop Out of Bill.” The lead:

Senators are working on a compromise version of a labor-organizing bill that will likely drop a contentious card-signing provision in favor of a speedier union election process, according to people familiar with the talks.

And another key paragraph:

Compromise talks are being led by Sen. Tom Harkin (D., Iowa), the bill’s lead sponsor in the Senate. Kate Cyrul, a spokeswoman for Mr. Harkin, declined to comment on details of the compromise being discussed. But she said the senator “remains confident that we can address these issues without compromising the core provisions of the bill.”

Compromise talks with WHOM? Senator Kennedy? Bernie Sanders? The SEIU and AFL-CIO? The only other Senator mentioned in the story is Specter. The premise is faulty: Negotiations between two Democrats, the lead Senate sponsor of the bill (S. 560) and a past cosponsor of the bill, Senator Specter, hardly represent the makings of a compromise.

Especially if you retain the “core provisions of the bill,” which are designed to force unionization on employees and employers who do not want union representation.

• EFCA Report, “WSJ: Sen. Harkin Shopping EFCA Compromise; 21-Day Elections, More Mediation“
• Senator Specter’s March 24th floor statement outlining his objections to the Employee Free Choice Act.

UPDATE (11:25 a.m.): Much more detail in this New York Times story, “Lines Shift a Bit on a Senate Labor Bill.” Snap elections appears to be labor’s fall-back, i.e., depriving employers of an opportunity to make their case.

A refresher: Two types of arbitration are subject of policy discussions these days in Congress and on this blog.

• Binding arbitration: As proposed in the Employee Free Choice Act, binding arbitration would impose the equivalent of a two-contract — work rules, salaries, benefits — on businesses and unions if negotiations over first contract negotiations continue past 120 days. These terms would be mandated by a government-appointed, outside arbitrator.
• Pre-dispute arbitration: The common practice, including in many consumer contracts, that provide for non-judicial venues for resolving contract disputes. Business groups generally support this sort of arbitration, because it leads to quicker and less expensive outcomes by keeping the disputes out of the courtroom, away from attorneys whose seek to ring up billings, awards and settlements.

The American Association for Justice — the trial lawyers lobby — HATES pre-dispute arbitration, and has made killing it one of their lobbying priorities. Accordingly, Sen. Russell Feingold (D-WI) last week introduced S. 931, the Arbitration Fairness Act, a bill that bans predispute arbitration in business contracts with consumers. (Opening statement, text.) The legislation is the Senate companion to H.R. 1020 introduced by Rep. Hank Johnson (D-GA). (More rom the Green Bay Press-Gazette)

Just in time for the Senate bill, the American Association for Justice released a new opinion survey claiming that the public dislikes binding arbitration. The AAJ-led Fair Arbitration Now Coalition also held a news conference announcing the survey conducted by the Democratic polling outfit, Lake Research Partners, but it’s a laughable example of a survey that found what it set out to find. From the news release:

“The findings show clearly that Americans strongly oppose forced arbitration, and they see the Arbitration Fairness Act as a remedy. Not only is there real intensity to this view, but it traverses traditional partisan divides,” said Lake Research Partners President Celinda Lake. “Forced arbitration clauses – which are buried in the fine print of employment and consumer contracts – are another example of corporations taking advantage of ordinary Americans. The public supports the Arbitration Fairness Act because equal justice under the law is a core American value.”

Our emphasis.

Sen. Russell Feingold (D-WI) last week introduced S. 931, the Arbitration Fairness Act, a bill that bans binding  (predispute) arbitration in business contracts with consumers. (Opening statement, text.) The bill came in with seven cosponsors.

Sen. Feingold and his cosponsors are also all sponsors of S. 560, the Employee Free Choice Act, a bill that mandates binding arbitration between business and outside unions that are trying to organize them.

The American Association for Justice, aka the trial lawyers’ trade association, has lobbied heavy to ban arbitration. Last week the AFL-CIO announced the AAJ’s support for the Employee Free Choice Act that mandates binding arbitration.

Mandate, ban, mandate, ban, mandate…The head spins.

Michael Barone in the Sunday D.C. Examiner, “Beware of mandatory arbitration in Card Check,” with an excellent one-paragraph summary of the potential consequences.

Arbitrators might very well impose terms and conditions similar to those in existing union-negotiated contracts. Those might include not only wages that would reduce a business’s profits, but also generous fringe benefits and thousands of pages of detailed work rules. Private employers might be forced into funding union pension plans with their massive long-term liabilities. Detailed work rules would mean adversarial negotiations between company foremen and union shop stewards over even the most minor changes in work procedures.

Jennifer Rubin at Commentary, “Where Is Card Check?,” contemplating possible new strategies by the anti-EFCA business forces if a Specter-endorsed “compromise” is proposed. First, bipartisan reform. Second…

The second is to go after the premise that any of this is needed at all. EFCA has been a solution in search of a problem, resting on the questionable notion that unions are losing “market share” not because of worldwide trends against unionization or because of younger worker’s lack of affinity for unions but because of nefarious actions by employers. This requires some sober discussion and fact-finding hearings, which may not be in the offing in a Democratic-controlled Congress where the hearings are likely to be stacked heavily in favor of pro-union witnesses. Nevertheless, business groups would be wise to start educating lawmakers and the public if they want to burst the myth that the solution to Big Labor’s woes is more federal legislation.

Mickey Kaus comments:

Part of the problem, of course, is that some anti-card-checkers (not me!) have pretended they don’t oppose greater union power–they just object to eliminating the secret ballot, etc.. But now it’s time for a debate on whether more (and more powerful) Wagner Act unions really are a good thing. If business can’t yet make the case that they aren’t–at a time when the unionized auto industry has collapsed under the weight of its own rules and the unionized urban public schools are flailing to reverse their contract-protected incompetence– when can they make it? ….

More from Kaus, “You Can Count on Specter!”

Former House Speaker Newt Gingrich has a column in today’s Politico, “Arbitration the real threat in EFCA,” that raises important objections to the binding arbitration provisions in the Employee Free Choice Act. However, the Speaker repeats a mistake we’ve seen elsewhere, that is, that legislation would force politicized, National Labor Relations Board arbitrators into the employer-union negotiation process.

Here’s the relevant passage from the text of the bill, S. 560, specifically Sec. 3, “Facilitating Initial Collective Bargaining Agreements.” Our emphasis.

`(2) If after the expiration of the 90-day period beginning on the date on which bargaining is commenced, or such additional period as the parties may agree upon, the parties have failed to reach an agreement, either party may notify the Federal Mediation and Conciliation Service of the existence of a dispute and request mediation. Whenever such a request is received, it shall be the duty of the Service promptly to put itself in communication with the parties and to use its best efforts, by mediation and conciliation, to bring them to agreement.

`(3) If after the expiration of the 30-day period beginning on the date on which the request for mediation is made under paragraph (2), or such additional period as the parties may agree upon, the Service is not able to bring the parties to agreement by conciliation, the Service shall refer the dispute to an arbitration board established in accordance with such regulations as may be prescribed by the Service. The arbitration panel shall render a decision settling the dispute and such decision shall be binding upon the parties for a period of 2 years, unless amended during such period by written consent of the parties.’.

The Federal Mediation and Conciliation Service is NOT the National Labor Relations Board and it’s not the Department of Labor, it’s an independent agency within the Executive Branch. Its arbitrators are not permanent agency appointees. As the FMCS explains (in a 2006 publication):

The Federal Mediation and Conciliation Service (FMCS) maintains a roster of approximately 1,400 arbitrators, who are experienced practitioners with backgrounds in collective bargaining and who meet FMCS arbitration requirements. To be listed on the roster, FMCS will determine whether the applicant:

• Is experienced, competent and acceptable in decision-making roles in the resolution of labor relations disputes; or
• Has extensive and recent experience in relevant positions in collective bargaining; and
• Is capable of conducting an orderly hearing, can analyze testimony and exhibits and can prepare clear and concise findings and awards within reasonable time limits.

Binding arbitration is a terrible, terrible idea. But strong opposition to the binding arbitration provisions in the Employee Free Choice Act should not be interpreted as denigrating the current FMCS-appointed arbitrators. The FMCS’s arbitration process now occurs largely out of public eye and from what we can gather, appears to be effective.

Note how the service now emphasizes “voluntary arbitration” in its publications. The Employee Free Choice Act would make a company’s operations — wages, benefits, work rules — subject to binding arbitration, leading to a potentially life-or-death decision about those operations being made by a third party. That’s unacceptable.

(Edited at 4:42 p.m. for clarity.)

Below in our animated presentation of binding arbitration under the Employee Free Choice Act, we have an employer wondering about being forced to pay into a bankrupt union pension fund. It’s a serious issue.

Ivan Osorio of the Competitive Enterprise Institute reports on some of the pension issues following comments made by Brett McMahon, a Virginia contractor, who discussed the 120-day period between the opening of contract negotiations and the imposition of binding arbitration:

Osorio, at The American Spectator:

McMahon describes this 120-day period as “a good time to start liquidating,” since newly unionized companies would then be required to enter into union pension funds, most of which are supposed to back multi-employer defined-benefit plans. “The problem’s they have no money,” he said.

Employers who wish to back out of such plans must pay a withdrawal fee, because, unlike single employer private pension funds, multi-employer funds are insured primarily by the participating employers, not the Pension Benefit Guaranty Corporation (PBGC). This is an especially bad deal for workers, who could face huge losses when their pension funds default. Unlike single employer plans, which the PBGC insures for up to $54,000 per worker per year, the PBGC can only pay out to a miserly $12,870 per year.

For the company, it means millions (in some cases billions) in new liabilities, which must be stated under FASB 157 mark-to-market valuation rules, which, as my colleague John Berlau has noted, force companies to overstate liabilities by making them price assets at what are essentially liquidation prices.

Thus, otherwise healthy companies can suddenly find themselves burdened with pension obligations they cannot support.

Choice!