Lesson 12
Collective Bargaining and Labor Relations
12.1 Overview
The main source of negotiating leverage for unions is the ability to strike, which interrupts
production, sales, and profits. In the end, however, such conflicts must be balanced against the
common interests that bind workers and companies together. Worker jobs and income, as well
as company profits, depend on the two parties being able to cooperate to assure the ability of
the company to be competitive and survive.
12.2 Learning Outcomes
At the end of this lesson, you should be able to:
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Describe what is meant by collective bargaining and labor relations.
Identify the labor relations goals of management, labor unions, and society
Describe the major labor–management interactions: organizing, contract negotiations,
and contract administration.
12.3 Course Materials
Topic 1: The Labor Relations Framework
John Dunlop, former secretary of labor and a leading industrial relations scholar, suggestedin
the book Industrial Relations Systems (1958) that a successful industrial relations system
consists of four elements: (1) an environmental context (technology, market pressures,
and the legal framework, especially as it affects bargaining power); (2) participants, including
employees and their unions, management, and the government; (3) a ―web of rules‖
(rules of the game) that describe the process by which labor and management interact and
resolve disagreements (such as the steps followed in settling contract grievances); and
(4) ideology.1 For the industrial relations system to operate properly, the three participants
must, to some degree, have a common ideology (e.g., acceptance of the capitalist system)
and must accept the roles of the other participants. Acceptance does not translate into
convergence of interests, however. To the contrary, some degree of worker–management
conflict is inevitable because, although the interests of the two parties overlap (e.g., survival of
the firm and thus survival of workers‘ jobs and investors‘ profits), they also diverge in key
respects (such as how to divide the economic profits between workers and investors).
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MANAGEMENT
One of management‘s most basic decisions is whether to encourage or discourage the
unionization of its employees. It may discourage unions because it fears higher wage and
benefit costs, the disruptions caused by strikes, and an adversarial relationship with its
employees or, more generally, greater constraints placed on its decision-making flexibility and
discretion. Historically, management has used two basic strategies to avoid unionization.9 It
may seek to provide employment terms and conditions that employees will perceive as
sufficiently attractive and equitable so that they see little gain from union representation. Or
it may aggressively oppose union representation, even where there is significant employee
interest. Use of the latter strategy has increased significantly during the last 30 to 40 years.
If management voluntarily recognizes a union or if employees are already represented
by a union, the focus is shifted from dealing with employees as individuals to employees
as a group.
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LABOR UNIONS
Labor unions seek, through collective action, to give workers a formal and independent
voice in setting the terms and conditions of their work. Table 14.1 shows typical provisions
negotiated by unions in collective bargaining contracts. Labor unions attempt to represent their
members‘ interests in these decisions. Without adequate union representation, not only worker
wages, but also their safety and welfare, are more likely to be put at risk. This is particularly true
in low-wage economies where regulatory protection may also be lacking.
Topic 2: THE NATIONAL LABOR RELATIONS COMMISSION
The National Labor Relations Commission is a quasi-judicial agency tasked to promote and
maintain industrial peace based on social justice by resolving labor and management disputes
involving local and overseas workers through compulsory arbitration and alternative modes of
dispute resolution. The NLRC is a subsequent part of the Department of Labor and
Employment where its policies and programs [2] are coordinated. The commission dates back to
the commonwealth period, when the contract labor law act was passed in the United States
Congress on January 23, 1885, it was then implemented in the Philippines on June 6, 1899.
RULES OF PROCEDURES
The Labor Code of the Philippines which is part of article 218[6] of the revised penal code has
issued the NLRC the following set rules for handling its cases:
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Rule 1 – Title and Construction, only signifies the title of the governing rules.
Rule 2 - Definition of Terms, defines the legal terms used in the terms and phrases defined
in Article 212 of the Labor Code shall be given the same meanings when used in NLRC
cases.
Rule 3 - Pleadings, notices and appearances, signifies that the parties involved will be
given due notice for any impending proceedings.
Rule 4 - Venue, assignment and disposition of cases, advises that cases which Labor
Arbiters will file the case in the regional arbitration branch that has jurisdiction over the
workplace unless there are justifiable reasons why it should be filled elsewhere. An example
of this would be a sensitivity of a case where one party is in danger.
Rule 5 - Proceedings before Labor Arbiters, signifies that the Labor Arbiters shall have
exclusive jurisdiction to hear and decide all cases involving labor issues.
Rule 6 – Appeals, it signifies where to submit an appeal after a case has been decided and
this area also advises both parties of the timeframe given for an appeal to be submitted.
Rule 7 - Proceedings before the Commission, this rule suggests that the process flow of
each case proceeding from the time a case is filled towards the decision or further into the
motion for reconsideration.
Rule 8 - Execution proceedings, signifies the rules to take place after decisions have been
done and how the winning party could claim the damages incurred.
Rule 9 - Certified cases, signifies that the NLRC's cases are certified by law and any cases
which happened within the proceedings are considered final unless appeals are made.
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Rule 10 – Contempt, signifies that committing any act of misbehaviour in the presence of
the Chairman or any Commissioner or Labor Arbiter will herby be given an additional
penalty.
Rule 11 – Injunction, illustrates the injunctions that may happen within a labor case.
Rule 12 - Commission seal and records, and powers and duties of Commission officials,
illustrates the notices to be given, how archives may be accessed and duties of the officials and
employees of NLRC.
Rule 13 – Effectivity, indicates that these rules are in effect 15 days after August 31, 1990
which means that these rules were officially used starting September 15, 1990.
An important characteristic of a union is whether it is a craft or industrial
union. The electrical workers‘ and carpenters‘ unions are craft unions, meaning that the
members all have a particular skill or occupation. Craft unions often are responsible
for training their members (through apprenticeships) and for supplying craft workers to
employers. Requests for carpenters, for example, would come to the union hiring hall,
which would decide which carpenters to send out. Thus, craft workers may work for many
employers over time, their constant link being to the union. A craft union‘s bargaining
power depends greatly on the control it can exercise over the supply of its workers.
LOCAL UNIONS
Even when a national union plays the most critical role in negotiating terms of a
collective bargaining contract, negotiation occurs at the local level as well as over work rules
and other issues that are locally determined. In addition, administration of the contract is
largely carried out at the local union level. Consequently, the bulk of day-to-day interaction
between labor and management takes place at the local union level.
The local of an industrial-based union may correspond to a single large facility or
to a number of small facilities. In a craft-oriented union, the local may cover a city or a
region. The local union typically elects officers (like president, vice president, treasurer).
Responsibility for contract negotiation may rest with the officers, or a bargaining committee may
be formed for this purpose. Typically the national union provides assistance, ranging from
background data about other settlements and technical advice to sending a representative to
lead the negotiations.
UNION MEMBERSHIP AND BARGAINING POWER
At the strategic level, management and unions meet head-on over the issue of union
organizing. Increasingly, employers are actively resisting unionization in an attempt to
control costs and maintain their flexibility. Unions, on the other hand, must organize new
members and hold on to their current members to have the kind of bargaining power and
financial resources needed to achieve their goals in future organizing and to negotiate
and administer contracts with management.
Structural Changes in the Economy
At the risk of oversimplifying, we might say that unions have traditionally been strongest
in urban workplaces (especially those outside the South) that employ middle-aged men
in blue-collar jobs. However, much recent job growth has occurred among women and
youth in the service sector (in contrast to the manufacturing sector) of the economy.
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Although unionizing such groups is possible, unions have so far not had much success
organizing these groups in the private sector. Despite the importance of structural
changes in the economy, studies show that they account for no more than one-quarter of
the overall union membership decline.
Increased Employer Resistance
Almost one-half of large employers in a survey reported that their most important labor
goal was to be union-free. This contrasts sharply with 60 years ago, when Jack Barbash
wrote that ―many tough bargainers [among employers] prefer the union to a situation
where there is no union. Most of the employers in rubber, basic steel and the automobile
industry fall in this category.‖ The idea then was that an effective union could help assess
and communicate the interests of employees to management, thus helping management
make better decisions. But product-market pressures, such as foreign competition and
deregulation (e.g., trucking, airlines, telecommunications), have contributed to increasing
employer resistance to unions.15 These changes in the competitive environment have
contributed to a change in management‘s perspective and goals.
Associate Union Membership - A form of union membership by which the union receives dues
in exchange for services (e.g., health insurance, credit cards) but does not provide
representation in collective bargaining.
Corporate Campaigns - Union activities designed to exert public, financial, or political pressure
on employers during the union-organizing process.
Topic 3: Union and Management Interactions: Contract Negotiation
THE NEGOTIATION PROCESS
Richard Walton and Robert McKersie suggested that labor–management negotiations could be
broken into four subprocesses: distributive bargaining, integrative bargaining, attitudinal
structuring, and intraorganizational bargaining. Distributive bargaining focuses on dividing a
fixed economic ―pie‖ between the two sides. A wage increase, for example, means that the
union gets a larger share of the pie, management a smaller share. It is a win–lose situation.
Integrative bargaining has a win–win focus; it seeks solutions beneficial to both sides. So if
management needs to reduce labor costs, it could reach an agreement with the union to avoid
layoffs in return for the union agreeing to changes in work rules that might enhance productivity.
Attitudinal structuring refers to the relationship and trust between labor and management
negotiators. Where the relationship is poor, it may be difficult for the two sides to engage in
integrative bargaining because each side hesitates to trust the other side to carry out its part of
the deal. For example, the union may be reluctant to agree to productivity-enhancing work-rule
changes to enhance job security if, in the past, it has made similar concessions but believes that
management did not stick to its assurance of greater job security. Thus the long-term
relationship between the two parties can have a very important impact on negotiations and their
outcomes.
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Intraorganizational bargaining reminds us that labor–management negotiations involve more
than just two parties. Within management, and to an even greater extent within the union,
different factions can have conflicting objectives. High-seniority workers, who are least likely to
be laid off, may be more willing to accept a contract that has layoffs (especially if it also offers a
significant pay increase for those whose jobs are not at risk). Less senior workers would likely
feel very differently. Thus, negotiators and union leaders must simultaneously satisfy both the
management side and their own internal constituencies. If they do not, they risk the union
membership‘s rejecting the contract, or they risk being voted out of office in the next election.
Management, too, is unlikely to be of one mind about how to approach negotiations. Some will
focus more on long-term employee relations, others will focus on cost control, and still others
will focus on what effect the contract will have on stockholders
MANAGEMENT’S PREPARATION FOR NEGOTIATIONS
1. Establishing interdepartmental contract objectives: The employer‘s industrial
relations department needs to meet with the accounting, finance, production, marketing, and
other departments and set contract goals that will permit each department to meet its
responsibilities. As an example, finance may suggest a cost figure above which a contract
settlement would seriously damage the company‘s financial health. The bargaining team needs
to be constructed to take these various interests into account.
2. Reviewing the old contract: This step focuses on identifying provisions of the
contract that might cause difficulties by hindering the company‘s productivity or
flexibility or by leading to significant disagreements between management and the union.
3. Preparing and analyzing data: Information on labor costs and the productivity of
competitors, as well as data the union may emphasize, needs to be prepared and analyzed.
The union data might include cost-of-living changes and agreements reached by other unions
that could serve as a target. Data on employee demographics and seniority are relevant for
establishing the costs of such benefits as pensions, health insurance, and paid vacations.
Finally, management needs to know how much it would be hurt by a strike. How long will its
inventory allow it to keepmeeting customer orders? To what extent are other companies
positioned to step in and offer replacement products? How difficult would it be to find
replacement workers if the company decided to continue operations during a strike?
4. Anticipating union demands: Recalling grievances over the previous contract, having
ongoing discussions with union leaders, and becoming aware of settlements at other companies
are ways of anticipating likely union demands and developing potential counterproposals.
5. Establishing the cost of possible contract provisions: Wages have not only a direct
influence on labor costs but often an indirect effect on benefit costs (such as Social Security and
paid vacation). Recall that benefits add about 46 cents to every dollar‘s worth of wages. Also,
wage or benefit increases that seem manageable in the first year of a contract can accumulate
to less manageable levels over time.
6. Preparing for a strike: If management intends to operate during a strike, it may need to line
up replacement workers, increase its security, and figure out how to deal with incidents on the
picket line and elsewhere. If management does not intend to operate during a strike (or if the
company will not be operating at normal levels), it needs to alert suppliers and customers and
consider possible ways to avoid the loss of their business. This could even entail purchasing a
competitor‘s product in order to have something to sell to customers.
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7. Determining strategy and logistics: Decisions must be made about the amount of authority
the negotiating team will have. What concessions can it make on its own, and which ones
require it to check with top management? On which issues can it compromise, and on which
can it not? Decisions regarding meeting places and times must also be made.
MANAGEMENT’S WILLINGNESS TO TAKE A STRIKE
Management‘s willingness to take a strike comes down to two questions:
1. Can the company remain profitable over the long run if it agrees to the union’s
demands? The answer is more likely to be yes to the extent that higher labor costs
can be passed on to consumers without losing business. This, in turn, is most likely
when the price increase is small because labor costs are a small fraction of total
costs or there is little price competition in the industry. Low price competition can
result from regulated prices, from competition based on quality (rather than price),
or from the union‘s organizing all or most of the employers in the industry, which
eliminates labor costs as a price factor.
Unions share part of management‘s concern with long-term competitiveness
because a decline in competitiveness can translate into a decline in employment
levels. On the other hand, the majority of union members may prefer to have higher
wages, despite employment declines, particularly if a minority of the members
(those with low seniority) suffer more employment loss and the majority keep their
employment with higher wages.
2. Can the company continue to operate in the short run despite a strike? Although
―hanging tough‖ on its bargaining goals may pay off for management in the long
run, the short-run concern is the loss of revenues and profits from production
being disrupted. The cost to strikers is a loss of wages and possibly a permanent
loss of jobs.
Under what conditions is management most able to take a strike? The following factors are
important:
1. Product demand: Management is less able to afford a strike when the demand for its
product is strong because that is when more revenue and profits are lost.
2. Product perishability: A strike by certain kinds of employees (farm workers atharvest time,
truckers transporting perishable food, airline employees at peak travel periods) will result in
permanent losses of revenue, thus increasing the cost of the strike to management.
3. Technology: An organization that is capital intensive (versus labor intensive) is less
dependent on its employees and more likely to be able to use supervisors or others
as replacements. Telephone companies are typically able to operate through strikes,
even though installing new equipment or services and repair work may take significantly longer
than usual.
4. Availability of replacement workers: When jobs are scarce, replacement workers are more
available and perhaps more willing to cross picket lines. Using replacement workers to operate
during a strike raises the stakes considerably for strikers who may be permanently replaced.
Most strikers are not entitled to reinstatement until there are job openings for which they qualify.
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If replacements were hired, such openings may not occur for some time (if at all). In some
cases, companies can use managers to temporarily replace striking workers.
5. Multiple production sites and staggered contracts: Multiple sites and staggered contracts
permit employers to shift production from the struck facility to facilities that, even if unionized,
have contracts that expire at different times (so they are not able to strike at the same time).
6. Integrated facilities: When one facility produces something that other facilities need for their
products, the employer is less able to take a strike because the disruption to production goes
beyond that single facility. The just-in-time production system, which provides very little
stockpiling of parts, further weakens management‘s ability to take a strike.
7. Lack of substitutes for product: A strike is more costly tothe employer if customers have a
readily available alternative source from which to purchase the goods or services the
company provides.
Topic 4: Union and Management Interactions: Contract Administration
GRIEVANCE PROCEDURE
Table 14.11 Steps in a Typical Grievance Procedure
Employee-initiated grievance
Step 1
a. Employee discusses grievance or problem orally with supervisor.
b. Union steward and employee may discuss problem orally with supervisor.
c. Union steward and employee decide (1) whether problem has been resolved or (2) if
not resolved, whether a contract violation has occurred.
Step 2
a. Grievance is put in writing and submitted to production superintendent or other
designated line manager.
b. Steward and management representative meet and discuss grievance. Manage
ment’s response is put in writing. A member of the industrial relations staff may be
consulted at this stage.
Step 3
a. Grievance is appealed to top line management and industrial relations staff repre
sentatives. Additional local or international union officers may become involved in
discussions. Decision is put in writing.
Step 4
a. Union decides on whether to appeal unresolved grievance to arbitration according
to procedures specified in its constitution and/or bylaws.
b. Grievance is appealed to arbitration for binding decision.
Discharge grievance
a. Procedure may begin at step 2 or step 3.
b. Time limits between steps may be shorter to expedite the process.
Union or group grievance
a. Union representative initiates grievance at step 1 or step 2 on behalf of affected
class of workers or union representatives.
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Although the negotiation process (and the occasional resulting strike) receive the
most publicity, the negotiation process typically occurs only about every three
years, whereas contract administration goes on day after day, year after year. The
two processes—negotiation and administration—are linked, of course. Vague or
incomplete contract language developed in the negotiation process can make administration of
the
contract
difficult.
Such
difficulties
can,
in
turn,
create
conflict
that
can spill over into the next negotiation process.Furthermore, events during the
negotiation process—strikes, the use of replacement workers, or violence by either
side—can lead to management and labor difficulties in working successfully under
a contract.
Arbitration - A procedure for resolving collective bargaining impasses by which an arbitrator
chooses a solution to the dispute.
The most formal type of outside intervention is arbitration, under which a solution is
actually chosen by an arbitrator (or arbitration board). In some instances the arbitrator
can fashion a solution (conventional arbitration). In other cases the arbitrator must
choose either the management‘s or union‘s final offer (final offer arbitration) on either
the contract as a whole or on an issue-by-issue basis. Traditionally, arbitrating the
enforcement or interpretation of contract terms (rights arbitration) has been widely
accepted, whereas arbitrating the actual writing or setting of contract terms (interest
arbitration, our focus here) has been reserved for special circumstances. These include
some public sector negotiations, where strikes may be especially costly (such as those by
police or firefighters) and a very few private-sector situations, where strikes have been
especially debilitating to both sides (the steel industry in the 1970s).
What criteria do arbitrators use to reach a decision? In the most common case—
discharge or discipline—the following due process questions are important:
1. Did the employee know what the rule or expectation was and what the consequences
of not adhering to it were?
2. Was the rule applied in a consistent and predictable way? In other words, are all
employees treated the same?
3. Are facts collected in a fair and systematic manner? An important element of this
principle is detailed record keeping. Both employee actions (such as tardiness) and
management‘s response (verbal or written warnings) should be carefully documented.
4. Does the employee have the right to question the facts and present a defense? An
example in a union setting is a hearing with a shop steward present.
5. Does the employee have the right to appeal a decision? An example is recourse to
an impartial third party, such as an arbitrator.
6. Is there progressive discipline? Except perhaps for severe cases, an arbitrator will
typically look for evidence that an employee was alerted as early as possible that
behavior was inappropriate and the employee was given a chance to change prior to
some form of severe discipline, such as discharge.
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7. Are there unique mitigating circumstances? Although discipline must be consistent,
individuals differ in terms of their prior service, performance, and discipline record. All of these
factors may need to be considered.
COOPERATIVE LABOR–MANAGEMENT STRATEGIES
Jack Barbash described the nature of the traditional relationship between labor and
management (during both the negotiation and administration phases) as follows:
“Bargaining is a love–hate, cooperation–conflict relationship. The parties have a
common
interest in maximizing the total revenue which finances their respective returns. But they
take
on adversarial postures in debating how the revenue shall be divided as between wages
and
profits. It is the adversarial posture which has historically set the tone of the
relationship.”
Topic 5: Labor Relations Outcomes
The effectiveness of labor relations can be evaluated from management, labor, and
societal perspectives. Management seeks to control costs and enhance productivity and
quality. Labor unions seek to raise wages and benefits and exercise control over how
employees spend their time at work (such as through work rules). Each of the three parties
typically seeks to avoid forms of conflict (like strikes) that impose significant costs
on everyone. In this section we examine several outcomes.
STRIKES
Table 14.14 presents data on strikes in the United States that involved 1,000 or more
employees. Of the 11 large strikes in 2014, five were in health care (nurses) and two
were in education (teachers, professors). So most of the strikes involved white-collar
employees. Because strikes are more likely in large units, the lack of data on smaller
units is probably not a major concern, although such data would, of course, raise the
figure on the estimated time lost to strikes. For example, for the 1960s, this estimate
is 0.12% using data on strikes involving 1,000 or more employees versus 0.17% for
all strikes. Although strikes impose significant costs on union members, employers,
and society, it is clear from Table 14.14 that strikes are the exception rather than the
rule. Very little working time is lost to strikes in the United States (with annual work
hours of 1,800, less than 6 minutes per worker and less than one hour per unionized
worker in 2014) and their frequency in recent years is generally low by historical
standards.
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PRODUCTIVITY
There has been much debate regarding the effects of unions on productivity.79 Unions
are believed to decrease productivity in at least three ways: (1) the union pay advantage causes
employers to use less labor and more capital per worker than they would
otherwise, which reduces efficiency across society; (2) union contract provisions may
limit permissible workloads, restrict the tasks that particular workers are allowed to perform, and
require employers to use more employees for certain jobs than they otherwise
would; and (3) strikes, slowdowns, and working-to-rule (slowing down production by
following every workplace rule to an extreme) result in lost production.
PROFITS AND STOCK PERFORMANCE
Even if unions do raise productivity, a company‘s profits and stock performance may still
suffer if unions raise costs (such as wages) or decrease investment by a greater amount.
Evidence shows that unions have a large negative effect on profits and that union coverage
tends to decline more quickly in firms experiencing lower shareholder returns, suggesting that
some firms become more competitive partly by reducing union strength. Similarly, one study
finds that each dollar of unexpected increase in collectively bargained labor costs results in a
dollar reduction in shareholder wealth.
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