Employee Free Choice Act

Will the NLRB Push Big Labor’s Agenda?

by Ivan Osorio on November 4, 2010

in Agenda for Congress, Economy, Employment, Labor, Regulation

Organized labor expended enormous amounts of resources and effort to give Democrats control of Congress in 2006 and the White House in 2008. For this considerable investment, union leaders hoped to get a rich return in enactment of the so-called Employee Free Choice Act (EFCA) — which, in its current form, would:

  1. Effectively eliminate secret ballots in union organizing elections;
  2. Enjoin federally appointed arbitrators to impose contracts on newly unionized companies that could not reach agreement with the union after 120 days; and
  3. Increase employer penalties for unfair labor practices, which include actions resisting unionization that would be legal in other contexts, such as promising to raise wages.

Now, with the Republican takeover of the House of Representatives and the Democrats’ Senate majority considerably narrowed, the clock is running out fast on Big Labor’s legislative agenda. As a result, Democrats in Congress will probably try to enact as many items on their union allies’ agenda as possible during the lame duck session. As I noted yesterday, we could see:

  1. A version of EFCA without its politically toxic card-check provision;
  2. A version of EFCA with card-check replaced with a different organizing mechanism favorable to unions, such as expedited elections or electronic voting;  or
  3. EFCA’s three sections being split off and attached to other legislation.

Moreover, as hopes for organized labor’s agenda fades in Congress, unions and the Obama administration are likely to shift the fight toward the National Labor Relations Board (NLRB). With Craig Becker and Mark Gaston Pearce, both recess-appointed by President Obama, sitting on the Board, the unions have a good chance of getting administratively what they couldn’t get legislatively.

Becker, a former associate counsel with the Service Employees International Union (SEIU),  failed to get Senate confirmation, largely due to previous writings in which he stated that employers should have no say in the organizing process.

Pearce hasn’t been as controversial, but he recently gave indication of being as dismissive of employers’ free speech rights — and of what the Board might try to accomplish. On October 21, at a labor law conference in Boston, Pearce said that he believed that the time period between the filing of an organizing election petition and the actual election should be “as brief as possible.” Shorten that period enough, and you end up with “ambush” election, in which employers barely get an opportunity to respond to a union organizing campaign.

Pearce’s comment suggests the possibility of the NLRB doing an end run around Congress. EFCA opponents in Congress should take the threat seriously, and counteract it if needed.

For more on labor, see here and here.

Killed by Pension Accounting

by Ivan Osorio on October 18, 2010

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Labor, Regulation

Think accounting rules are a boring topic? You wouldn’t if the fate of your business rested on it. Indeed, a rule change may be coming soon that may expose the huge liabilities many companies face as a result of their participating in some grossly underfunded union pension funds. In a straightforward, non-boring manner, Washington Examiner columnist Mark Hemingway breaks it down.

On Nov. 1, the Financial Accounting Standards Board (FASB) ceases to take public comment on a new rule requiring that companies more accurately report liabilities they have from participation in multiemployer pension plans. Unless FASB is persuaded otherwise, the rule takes effect Dec. 15.

There are some 1,500 multiemployer pension plans in the United States, which are unique to unions. In these plans, multiple companies pay into the pension plan, but each company assumes the total liability.

Under “last man standing” accounting rules, if five companies are in a plan and four go bankrupt, the fifth company is responsible for meeting the pension obligations for the employees of the other four companies.

What this means is that companies with union labor often have pension liabilities that are several multiples higher than the pension expenditures they report — the Kroger grocery store chain shocked analysts last year when it disclosed its multiemployer pension liabilities more than doubled in a year to $1.2 billion.

Ratings agencies such as Moody’s and Standard and Poor’s have been highlighting the lack of transparency in union pension plans. Now Wall Street wants union businesses to be upfront about their liabilities.

FASB’s new rule could effectively wipe out the paper worth of many companies, especially in the trucking and construction industries. Once banks and creditors are aware of these staggering pension liabilities, it will make it nearly impossible for union businesses to get loans, credit lines or bonding.

If forced to report their true liabilities, hundreds — perhaps thousands — of companies will scramble to get out from under their union obligations.

UPS did precisely that three years ago, opting to pay $6.1 billion to withdraw from the Teamsters Central States Fund. That’s right, UPS decided that $6.1 billion was less costly than the Central States Fund’s liabilities! The last-man standing rule made the situation especially bad. As Bloomberg reported at the time, “The Central States Fund has suffered as several unionized trucking companies have failed or been acquired during the past decade, leaving UPS and other remaining employers to bear greater liability for retirees covered.”

As Hemingway notes, it is largely to shore up such failing pension funds that organized labor worked so hard for passage of the so-called Employee Free Choice Act — its card-check provision would enable unions to organize new members without the hindrance of a secret ballot election, while its binding arbitration provision would make it easier to impose pension liabilities on employers. He also rightly notes that the fight over EFCA isn’t quite over yet, and Republicans need to be on guard during the upcoming lame duck session of Congress.

Businesses should be even more on guard. As Brett McMahon of Miller & Long Construction (whom Hemingway also cites) described it, for a business, facing millions in new multi-employer pension liabilities would be “a good time to start liquidating.”

For more on union pensions, see here.

SEIU and the Shareholder Resolution Weapon

by Ivan Osorio on January 27, 2010

in Economy, Employment, Labor, Politics as Usual

At Biggovernment.com, blogger Mandy/Liberty Chick has a good, concise account of the rise of shareholder resolutions as a favorite tool of organized labor. By leveraging their pension funds to purchase shares in companies they are trying to organize, unions can bring pressure on those companies, usually as part of a corporate campaign — a coordinated attack on a company’s reputation and ability to do business. She focuses specifically on the use of shareholder resolutions by the Service Employees International Union (SEIU), which has recently emerged as arguably the most powerful union in America.

Utilizing your proxy vote and providing feedback to the board as an active shareholder is a good thing!  But as others have noted, the potential for abuse also exists, if union shareholders engage the board for purposes other than their pension investment interests. Drucker (and lawmakers in the 1970’s) expected that shareholders and their trustees would either engage to positively affect the stock, or they’d sell it if they didn’t like the company’s management.  Perhaps it is this observation that SEIU’s Andy Stern has seized upon. Rather than sell the stock, maybe Stern wants to control the companies in which his pension trust is invested.  It may have less to do with protecting pension investments and more to do with unionizing workers at those companies.

You Don’t Want a Union?  This is My Baseball Bat & I Call It “Shareholder Resolution”

Of all those companies that have been SEIU’s protest targets, most have been the very same corporations in which the $1.9 billion SEIU Master Trust and some of parent Change to Win Investment Group’s $217 billion are invested. Is it also coincidence that many of these corporations were also the very targets of SEIU unionization efforts?

In early 2009, Andy Stern and Anna Burger wrote to the White House and Congress, demanding a list of financial reforms be legislated immediately, including a central regulator, and control over executive compensation and bonuses.  Then in April, SEIU Master Trust director Stephen Abrecht sent a letter to 29 financial firms in which the trust holds investments, demanding that the companies’ directors investigate more than $5 billion in paid bonuses that SEIU says were based upon false metrics. Among those firms on the list were AIG, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Citigroup, PNC Financial Services and others.

Shortly thereafter, SEIU proposed a number of shareholder resolutions to the boards of many of the companies on that same list, requesting everything from ousting CEOs or board members to controlling employee compensation structures.  Meanwhile, outside on the streets, SEIU’s protests were often coordinated with company meetings and events.  As banks and the U.S. Chamber of Commerce fought against the Employee Free Forced Choice Act legislation, SEIU levied shareholder resolutions against them and issued more demands to Congress for immediate consumer protection and financial reform.

When Anna Burger then testified in front of the Congressional Financial Services Committee in September, not only did she push for a central bank regulator and other financial reforms, but she concluded her testimony by calling for the unionization of bank workers, insisting that the bank workers could then “speak out in protection of consumers” without fear to prevent future crisis.

Not surprising, since SEIU has had its eye on unionizing bank workers for quite some time, placing repeated pressure on banks for years and conducting endless rounds of their infamous corporate campaigns.

The bullying aspects of such tactics is bad enough. Even worse is the effect that using pension funds for objectives other than increasing shareholder value can have on the funds themselves — and on the workers who depend on those funds for their retirement. As Diana Fuchtgott-Roth, former chief economist at the Department of Labor, notes in her study of union pension fund performance, published by the Hudson Institute, “an analysis of the financial status of individual pension plans shows that collectively bargained pension plans perform poorly when compared to plans sponsored unilaterally by single employers for non-union employees.”

The rise of private equity has hindered unions’ ability to wield the resolution weapon. In the case of SEIU, it has forced it to become more aggressive in other corporate campaign tactics, including street protests, such as one in October during the American Bankers Association meeting in Chicago, “where some of the protestors dressed in Grim Reaper garb chased down meeting attendees, brandishing cleavers and butcher knives emblazoned with bloody-looking slogans.”

The precarious state of union pensions is a motivating factor behind unions’ aggressive campaigning in favor of the misnamed Employee Free Choice Act (EFCA), which would allow unions to corral in more members into paying into their pension funds. EFCA’s card-check provision, which would effectively eliminate secret ballots in organizing elections, has proven politically unpopular. However, EFCA’s binding arbitration hasn’t received as much attention.

This provision would enjoin a federally appointed arbitrator — who would be unlikely to know much about the company — to impose a contract after 120 days if the newly unionized company’s management and the union representing its employees could not reach an agreement. This would give union negotiators who don’t get what they want in negotiations an incentive to hold out for arbitration, in the knowledge that they would be certain to do no worse than management’s final offer.

EFCA supporters have been trying to sell this provision as a guarantee of reaching a first contract, but in reality it would take the actual negotiating between the parties out of the contract process. Thus, an employer could find itself facing huge new liabilities in the form of pension obligations.

For more on pension fund activism, see here, here, and here.

For more on SEIU, see here, here, and here.

Say No to EFCA in 2010

by Ivan Osorio on December 29, 2009

in Economy, Features, Labor, Regulation, Zeitgeist

The first calendar year of the Obama administration draws to a close with organized labor not achieving its top legislative priority: the horribly misnamed Employee Free Choice Act (EFCA). Given the amount of palm-greasing that was required to get reluctant moderate Democratic senators to vote to end debate on Obamacare, it’s unlikely that those same moderate Democrats — especially Arkansas’ Blanche Lincoln — would be eager to expose themselves even more to the criticism that they are shifting to their party’s left.

That doesn’t mean that union-supported Democrats are going to stop trying. We should expect to see “compromise” proposals that replace EFCA’s most controversial provision, the “card check” provision that would effectively do away with secret balloting in union representation elections, with some form of “expedited” election process, or possibly take out card check and leave the rest of the bill intact.

Any such “compromise” would still be economically costly. No EFCA supporters have even entertained the possibility of shedding the bill’s binding arbitration provision, which would impose contracts on newly unionized companies. It would do so by enjoining a federally appointed arbitrator to impose a contract if the company’s management and the union have been unable to reach an agreement after 120 days. This would encourage the union to press for maximal demands, in the knowledge that they are very likely to get nothing worse than management’s final offer.

Worse, binding arbitration could impose huge liabilities on a newly unionized companies without the management having a say. One particularly dangerous liability would be the obligation to pay into dangerously underfunded union pension funds. EFCA would allow unions to keep these funds going — for a time — by corralling in new workers into them. Like all such Ponzi schemes, this is bound to crash some day. Keeping it going longer and with more workers would only make the future losses worse — and endanger more workers’ retirements.

This is the point EFCA opponents need to drive home in 2010.

For more on EFCA, see here.

Elaine Chao: Union transparency “more important than Beck;” EFCA “terrible”

by Ivan Osorio on August 25, 2009 · 6 comments

in Economy, Labor, Regulation

Today, at the Heritage Foundation blogger briefing, former Labor Secretary Elaine Chao described the union transparency requirements introduced during the Bush administration as “more important than Beck.”

The U.S. Supreme Court’s 1988 decision in CWA v. Beck is crucial in protecting individuals’ First Amendment right not to be forced to pay for speech or political activity with which they disagree. Under Beck, workers who are required to pay for union representation may reclaim the portion of their dues that are not used for representation purposes — which usually means the portion of their dues used for politics.

Of course, individual workers need to know precisely which portion of their dues is going to politics, which is why accurate and complete union financial reporting is important to rank-and-file members. Organized labor’s leadership fought the new requirements, claiming that they would impose huge administrative costs, but in fact the costs have been minimal for organizations as large as national labor unions.

Those financial reports are now available at unionreports.gov. Current Labor Secretary Hilda Solis, whose appointment was criticized because of her close ties to organized labor (including on this blog), could prove her impartiality by continuing and expanding this program — and she does have a lot to prove, given her past overwhelming support from unions.

Asked about the Employee Free Choice Act (EFCA), Chao described it as an effort by unions to turn the tide on their declining fortunes. “They are losing membership and clout, and they want to change the rules of the game,” she said. She added that Democrats in Congress, who got considerable help from organized labor in gaining their majority in 2006, and expanding it in 2008, want to reward that loyal constiutency.

Noting that EFCA’s first provision, which would have made secret ballots a dead letter in union organizing elections, might be dropped in the  of popular opposition, she warned, “but do not be comforted or assuaged, because the other amendments of this bill are anti-democratic, as well.”

She referred to EFCA’s binding arbitration provision, which would enjoin a federally appointed arbitrator to impose a contract on a newly unionized company if management and the union could not reach agreement on a contract after 120 days. Thus, “the union can hold out and not negotiate, because theyknow that after 120 days, the government will come in.”

“There is nothing in this bill that is worth salvaging,” she said. “This bill is terrible, in that it is employed by the Demorats to reward their allies.”

For more on binding arbitration, see here.

The Wall Street Journal on the Union Pension Debacle

by Ivan Osorio on July 27, 2009

in Bailout Watch, Economy, Labor

Two weekend Wall Street Journal editorials sum up well the ticking time-bomb of underfunded union pension funds. First, the dire state of many union pension funds:

On average, the asset to liability ration at so-called multi-employer plans, which union funds make up the bulk of, stood at 66% in 2006, according to the Pension Benefit Guaranty Corporation. By contrast, single employer plans, basically most company-provided pensions, were funded at 96%.

And on who will pick up the tab when these plans implode:

[T]his week the federal Pension Benefit Guaranty Corporation took over the pension liabilities of Delphi, the auto-parts spinoff of GM that has been working its way through Chapter 11 since 2005. As with the previous taxpayer rescues, this one includes a special favor for the United Auto Workers.

Under the agreement, the PBGC will assume some $6.2 billion in pension liabilities from Delphi, including both hourly and salaried employees.

[...]

When the PBGC was created in 1974, Democrats running Congress assured everyone there was no taxpayer risk because the agency would be funded by fees from pension plans, as well as by the assets of plans the company takes over. But like Fannie Mae, we are learning that sooner or later these government guarantees always come due. Now the PBGC has a $33.5 billion deficit even before Delphi, and more bankruptcies are headed its way.

For union pensioners, this gets worse. The PBGC guarantees maximum annual payment for someone with 30 years of service is a mere $12,870. By contrast, for single-employer plans, the annual guarantee is $54,000 per year.

The perilous state of union pension funds is a major motivator for organized labor to push as hard possible for enactment of the so-called Employee Free Choice Act, especially its binding arbitration provision, which would empower a federally appointed arbitrator to impose a contract on newly unionized companies. Such contracts could easily include millions in new liabilities in the form of payment obligations into severely underfunded pension funds.

For more on the PBGC, see here.

For more on union pension funds, see here and here.

For more on binding arbitration, see here and here.

NRO on EFCA’s Binding Arbitration Provision

by Ivan Osorio on July 21, 2009

in Economy, Labor

Today’s National Review Online editorial looks at the so-called Employee Free Choice Act’s arbitration provision, which would subject newly unionized companies to having a contract imposed on them by a federally appointed arbitrator.

The worst provision — worse, in fact, than the card-check gambit itself — would allow the National Labor Relations Board to impose contracts on businesses that cannot come to an agreement with a union. If a union enters the picture and the owners of a business are unable to negotiate a satisfactory contract, then the NLRB is empowered to impose “binding arbitration,” meaning that the government will write the contract and force the firm to abide by its terms. This amounts to extortion.

EFCA’s card check provision, which would allow unions to circumvent secret ballots in organizing elections, met considerable public opposition. But organized labor is not giving up on binding arbitration, which would allow unions bosses to corral more companies into paying into some severely underfunded pension funds.

For more on EFCA’s binding arbitration provision, see here and here.

Union Pension Fund Bailout Taking on a New Form

by Ivan Osorio on July 17, 2009

in Bailout Watch, Economy, Labor, Regulation

Senate Democrats and organized labor leaders are reportedly near a deal on removing the card-check provision from the s0-called Employee Free Choice Act (EFCA). That provision, if enacted, would have made secret ballots in union organizing elections a dead letter.

Naturally, it generated a lot of opposition. Having lost that public opinion battle, Big Labor is now trying to push through the other parts of the bill, including its bindig arbitration provision, which would subject newly unionized companies to the whims of a federally appointed arbitrator — who is unlikely to be knowledgeable about a company’s operations.

Union chiefs and their Congressional allies are still trying to salvage some form of easier organizing method from the old card check provision’s wreckage. As The New York Times reports, “key senators are considering several measures. One would require employers to give union organizers access to company property. Another would bar employers from requiring workers to attend anti-union sessions that labor supporters deride as ‘captive audience meetings.’”

Whatever “compromise” emerges from this round of sausage making, it is almost certain to include binding arbitration as it stands in the current bill. Binding arbitration could impose not only onerous work rules, but millions in new liabilities on companies, including payments into severely underfunded union pension funds.

For the unions that have mishandled those funds, this would constitute an indirect bailout, as more employers are corralled into paying into those funds. Yet no one should expect unions’ management of their pension funds to improve, since they have shown no indication of ending their established pattern of shareholder political activism, which has done nothing for shareholder value.

For more on binding arbitration, see here.

For more on EFCA in general, see here.

Reason’s Shikha Dalmia on EFCA’s Binding Arbitration Provision

by Ivan Osorio on July 13, 2009

in Economy, Labor, Regulation

With Al Franken joining the Senate, public attention is again turning to the so-called Employee Free Choice Act (EFCA). In the weekend Wall Street Journal, the Reason Foundation’s Shikha Dalmia makes the case against EFCA’s binding arbitration provision, which has not gotten nearly as much public scrutiny as its now-infamous secret ballot-circumventing card-check provision.

As she notes, many state and local governments have extended compulsory arbitration to their employees, especially public safety workers, in exchange for their giving up the right to strike — to those governments’ subsequent chagrin.

Exhibit A: Michigan.

In 1969, the Wolverine State embraced a form of compulsory arbitration nearly identical to the one proposed in EFCA to resolve disputes with its police and firefighters. Years later, Detroit mayor Coleman Young — who had authored the original law as state senator — rued what he had done. “We now know that compulsory arbitration has been a failure,” he lamented to the National Journal in 1981. “Slowly, inexorably, compulsory interest arbitration has destroyed sensible fiscal management and has caused more damage to the public service than the strikes it was designed to prevent.”

Here’s why:

This process is supposed to install a contract expeditiously. But a review of 29 arbitration cases in 2005 and 2006 by the Michigan-based Mackinac Center for Public Policy found that the average time involved in a case was almost 15 months — not the four-and-a-half months that the law prescribed, defeating its whole purpose. Moreover, because an arbitration board doesn’t have to live with the consequences of its decision, it has no reason to come up with a workable solution — just one that is politically expedient.

This kind of arrangement has contributed to the dire fiscal situations in which many states and localities now find themselves. During the 1990s boom, increased tax receipts from economic growth enabled governments to pay increased wages and benefits imposed by arbitration. But as the economy turned south, tax revenues have gone down even as those commitments have stayed the same (or even grown).

And now organized labor wants to wrap this millstone around the necks of private employers.

Should EFCA pass, the costs of compulsory arbitration in the private sector will dwarf those in the public sector. That’s because businesses, unlike government, can’t just bill taxpayers to pay off unions. They have to compete.

In a dynamic economy, a business’s survival depends upon its ability to constantly cut costs and innovate. But a company forced into binding arbitration will be frozen for two years (the duration of the initial contract) from making any changes to any aspect of its business that is covered by the contract. Literally every issue — from its 401(k) contributions to its reliance on outside labor — could potentially become subject to review by a government panel that has neither the company-specific knowledge nor the incentive to turn a profit.

In fact, if some unions had their way, 401(k) contributions would be replaced with payments into critically underfunded multi-employer union pension funds. For newly unionized companies brought into these plans, this would represent tens of millions in new liabilities. For many of those companies, it could spell doom. And for what? To subsidize organized labor’s use of pension funds for political activism.

For more on EFCA’s binding arbitration provision, see here.

For more on EFCA in general, see here.

Motoring around the World on Motor City Workers’ Dime

by Ivan Osorio on June 15, 2009

in Economy, Labor, Politics as Usual

Detroit can astound even the most seasoned political cynic, and now it’s done it again. As the Detroit Free Press reports, the trustees of the city’s two public employee pension funds have been enjoying perks that even some CEOs would envy, apparently on the pensioners’ dime.

The trustees who oversee Detroit’s two public pensions, their lawyers and staff spent $380,000 over the past year circling the globe to attend conferences — often traveling in packs, with virtually no limitation on where they went or how often they traveled.

Trustee Ronald Gracia spent the most time on the road — billing the General Retirement System for $105,000 in travel, including three trips to Singapore and $18,600 on travel to Hong Kong, according to records provided by the pension funds.

The two public pensions, with 21 trustees, have guarded their travel records from scrutiny. The Free Press sued to get the records — which are actually only summaries from the past year.

The funds have yet to turn over actual receipts that would show, for instance, where trustees and staffers stayed and how they spent some of the money. Other documents have been destroyed.

Such apparent graft by public officials is hardly new, but today it should ring alarm bells about defined benefit pension funds in general, and union pension funds specifically. Many union pension funds today are severely underfunded, so any workers who could be made to join such funds should be concerned.

The so-called Employee Free Choice Act’s binding arbitration provision would do just that, by enjoining a federally appointed arbitrator to impose a contract on a newly unionized company that could include a provision for workers to join the pension fund of the union that now represents them, and for the employer to pay into it. (Thanks to Marc Scribner for the Free Press link.)

For more on pension funds, see here, here, and here.

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