Manda­tory la­bor ar­bi­tra­tion

The Washington Times Weekly - - Commentary -

Ru­mors in Wash­ing­ton hint that the Em­ployee Free Choice Act is in trou­ble. The pub­lic out­cry against the card-check sys­tem ap­par­ently has taken its toll. One sign of the unions’ weak­ness on this is­sue is their de­lib­er­ate ob­fus­ca­tion of the is­sue. The se­cret-bal­lot elec­tion would re­main “avail­able” un­der the act, ac­cord­ing to no less an au­thor­ity than Rachel Mad­dow. But of course it would be avail­able only at the op­tion of the union and never the em­ployer, which means that were this pro­vi­sion to be­come law, se­cret­bal­lot elec­tions would go the way of the dodo bird.

So now it ap­pears that unions may be pre­pared to scrap the card check — if they can sal­vage the more in­sid­i­ous por­tion of the EFCA, its com­pul­sory ar­bi­tra­tion pro­vi­sion.

Here is what the key pro­vi­sion says: Once me­di­a­tion has failed, the Fed­eral Me­di­a­tion and Con­cil­i­a­tion Ser­vice “shall re­fer the dis­pute to an ar­bi­tra­tion board es­tab­lished in ac­cor­dance with such reg­u­la­tions as may be pre­scribed by the Ser­vice.” The ar­bi­tra­tion de­ci­sion then binds the par­ties for two years.

For the lay­man, here is what it means: An out­post of the La­bor Depart­ment, the me­di­a­tion ser­vice, will set the terms of all new la­bor con­tracts in the United States. It will do so un­der pro­vi­sions that are un­de­fined un­der the act. The FMCS will have sole au­thor­ity to pick the ar­bi­tra­tion panel, which will have the power to draft, on its own ini­tia­tive, detailed con­tract pro­vi­sions, ta­bles and ap­pen­dices that can run to more than 1,000 pages. The ar­bi­tra­tors’ de­ci­sion will be fi­nal: The EFCA al­lows nei­ther em­ploy­ers nor unions to ap­peal ar­bi­tra­tors’ de­ci­sions to a neu­tral ju­di­cial body.

No one has the slight­est idea how this bill would work in prac­tice. Ar­bi­tra­tion is com­mon in la­bor re­la­tions, but only for griev­ances un­der con­tracts in an en­vi­ron­ment that gives both par­ties con­trol over the ar­bi­tra­tion pro­ce­dures and the se­lec­tion of ar­bi­tra­tors.

In con­trast, in­ter­est ar­bi­tra­tion re­quires a panel of ar­bi­tra­tors to draft a con­tract from scratch to cover ev­ery is­sue: wages, ben­e­fits, over­time, lay­offs, trans­fers, griev­ances, work rules and the like. There is, un­for­tu­nately, not a sin­gle per­son in the United States who has any ex­pe­ri­ence deal­ing with th­ese mat­ters be­cause no busi­ness in pos­ses­sion of its fac­ul­ties has ever sur­ren­dered ev­ery key man­age­ment func­tion to un­in­formed func­tionar­ies who are clue­less about the op­er­a­tion of the busi­ness.

Unions claim that im­pos­ing this un­tried sys­tem of the pri­vate sec­tor is just a walk in the park. Af­ter all, com­pul­sory in­ter­est ar­bi­tra­tion is used in the pub­lic sec­tor in ex­change for sur­ren­der of the right to strike. On one hand, the anal­ogy should send chills down the spine. One ma­jor source of rigid­ity in pub­lic la­bor mar­kets is con­tracts that make it im­pos­si­ble to re­struc­ture es­tab­lished op­er­a­tions in new ways.

More­over, gov­ern­ment agen­cies do not merge, in­tro­duce new prod­uct lines and adopt new tech­nolo­gies to keep pace with ri­vals in a com­pet­i­tive mar­ket. As gov­ern­ment ar­bi­tra­tors dither in de­cid­ing on terms for that ini­tial two-year de­cree, the global com­pe­ti­tion will hob­ble the firm’s eco­nomic prospects, lead­ing to mas­sive losses and job lay­offs.

Be­cause the EFCA spells out no op­er­a­tional pro­ce­dures or sub­stan­tive stan­dards, it is any­one’s guess what terms the ar­bi­tra­tors might choose. One pos­si­bil­ity is that the ar­bi­tra­tion pan­els will sim­ply take ex­ist­ing union con­tracts from so-called com­pa­ra­ble busi­nesses and ap­ply them to the ini­tial two-year pe­riod spec­i­fied in the bill. That ap­proach would evis­cer­ate com­pe­ti­tion in la­bor mar­kets.

Two busi­nesses in the same mar­ket niche may have to­tally dif­fer­ent modes of in­ter­nal or­ga­ni­za­tion. Even if both FreshDirect and Pea­pod de­liver gro­ceries to peo­ple, each has a com­pletely dif­fer­ent strat­egy as to how to run the back end of its busi­ness. Im­pos­ing the work rules from the first busi­ness on the sec­ond could lead to an in­ter­nal up­heaval. It would de­stroy the di­ver­sity and cre­ativ­ity vi­tal to pri­vate en­ter­prise if an ar­bi­tra­tor is able to say, “Well, you know that Pea­pod does it this way, so FreshDirect, you now have to fol­low suit.”

Such ar­bi­tra­tion de­ci­sions likely to stem from the EFCA would have a dis­as­trous ef­fect on the ex­pan­sion of small busi­nesses and the con­tin­ued suc­cess of ma­jor firms.

Our la­bor mar­kets are in dis­tress, and the sit­u­a­tion will only get worse. Sen. Tom Harkin of Iowa de­fends this hor­rific mix by not­ing that the orig­i­nal Na­tional La­bor Re­la­tions Act was passed when the un­em­ploy­ment rate was high, so why not all, or part, of the EFCA? The an­swer is sim­ple: be­cause the un­em­ploy­ment rate would get higher still.

The Obama ad­min­is­tra­tion thinks it could build its new uni­ver­sal health care cov­er­age on the cur­rent sys­tem of em­ployer ben­e­fits. It will have a rough time if it lends an ounce of sup­port to the EFCA’s covert pro­gram of na­tion­al­iza­tion. The cur­rent la­bor laws are far from ideal, but it is best to leave them as they are for now.

Richard A. Ep­stein is a pro­fes­sor of law at the Uni­ver­sity of Chicago and a se­nior fel­low of Stan­ford Uni­ver­sity’s Hoover In­sti­tu­tion. He is the au­thor of “The Em­ployee Free Choice Act: Free Choice or No Choice for Work­ers,” just re­leased by the Man­hat­tan In­sti­tute.

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