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The Employee No Choice Act

Now that Barack Obama has won the presidency and Democrats control both houses of Congress, a major sea change in …

Now that Barack Obama has won the presidency and Democrats control both houses of Congress, a major sea change in labor relations law is afoot. Thus far the Employer Free Choice Act (EFCA) has sailed under the radar of CEOs, whose agenda includes taxation, energy, free trade, health care and the nagging worries over the ever widening bailout. But unless the Republican minority is able to bottle up EFCA in the Senate, the landscape in labor law will change, decidedly for the worse.

To date, most of the controversy has swirled around the Act’s card-check provision. But CEOs and public analysts have overlooked its greater threat-interest arbitration. That key provision authorizes a panel of arbitrators to dictate a “first contract” lasting two years that will govern all aspects of the employment relationship. The arbitrators set terms not only for wages and work conditions but also for the hot-button issues of job security and outsourcing, and much more.

These two provisions dovetail with each other in dangerous ways. Under EFCA, an employer is duty bound to recognize one-or many-unions that have obtained authorization cards from 50 percent plus one of the workers in any given bargaining unit. At no point will the National Labor Relations Board organize and oversee any election to determine whether they want union representation. Opponents and the employers would have no chance to present their case before the union is installed. Indeed, EFCA would not allow workers who signed cards early in the process to withdraw them if they changed their minds. Only forged cards are discarded.

Any rational CEO will push hard with nonstop antiunion campaigns to counteract this threat. But card checks are easier to organize than to block. Once the union is chosen, EFCA stipulates a three-step procedure that lasts 130 days, after which either side can demand arbitration. The union must be recognized within 10 days after gaining its card-check majority. Negotiations then run for 90 days, followed by mediation for 30 days. After that cycle, a panel of arbitrators will be selected, under future rules that the Federal Mediation and Conciliation Service will design. Those arbitrators are empowered to flesh out all the book-length terms of that first key contract, terms never put to a vote of the rank and file. A statute promoted in the name of free choice brooks no worker debate over the selection of the union or the ratification of the union contract. The Employee No Choice is a more accurate title. 

Why Push Now

What is the justification for so radical a reversal? The 1935 New Deal Congress that passed the original Wagner Act insisted that “the essence of collective bargaining is that either party shall be free to decide whether proposals made to it are satisfactory.” Under that regime, the unions have experienced rough sledding in the past 50-plus years, as their share in private markets has fallen from around 35 percent in 1954 to about 8 percent today. The common union complaint blames this decline on the pervasive role of unfair labor practices in the form of employer coercion and discrimination against union members.

This claim is false. The basic rules governing union elections have not changed in more than 50 years. The major source of decline in unionization stems from the massive contraction in unionized firms unable to meet the competition from their nonunionized rivals, domestic or foreign. Between 2000 and 2008, the NLRB conducted about 17,870 recognition elections, of which unions won 10,148, or about 56.8 percent. The 1.253 million workers voting yielded a net of 585,150 newly minted union members. But even if every election had produced a union victory, the 1.253 million new members would have been dwarfed by the attrition of more than 2.6 million workers from established units. Nor is there any evidence that employers engaged in systematic illegal conduct during these elections, most of which the NLRB concluded quickly and without major incident: almost 95 percent of the union elections are held within 56 days of filing the petition, while the issue is still fresh in workers’ minds.

No, the real union objection is that the argument on the antiunion side is too persuasive, even under the Marquis of Queensbury rules that make it an unfair labor practice for the employer to threaten retaliation to the workers who vote to join a union.

It is no secret that most employers oppose unionization; CEOs, however politic, should stress that they do so for the best of reasons. Unions impose administrative headaches, higher wages, strains on good will and reduced flexibility for innovation. I am aware of no benefit that a union can offer in the realm of employment relations that the employer cannot get more effectively elsewhere. No matter how persuasive these reasons, current law denies an employer the right to refuse to bargain with the union.

The effectiveness of the employer rhetoric, however, does not rest on any demonstration of how unions will hurt the firm and its shareholders. Employers succeed because they can hammer home the idea that unionization is not in the interest of workers if it slows down business expansion or increases the risk of layoffs or bankruptcy. Workers are right to take to heart the grim declines in the unionized automobile, steel and rubber industries. They also know nonunionized firms in the retail industry have run circles around their unionized rivals. Unions can’t offer a good deal for workers who bear the costs of dues; the risks of strikes, layoffs and bankruptcy; and diminished prospects for advancement. The only firms that lose out to unions are those whose management teams forget the fundamentals of good labor relations. No wonder union leaders want to bypass discordant voices that could easily tip the balance against them. 

A Question of Abuse

What is so troubling about EFCA is that its supporters who decry today’s NLRB elections overlook the far greater abuses of any card-check system that is tantamount to giving a new union a powerful claim on firm assets. The stakes, therefore, of unionization under EFCA are far higher than they are under current law that allows employers to “just say no” to union demands. The EFCA contains no institutional checks to guard against union intimidation or misrepresentation. Precious cards can be collected under the veil of secrecy and presented to the board for instant approval, without the employer or dissident workers learning of a secret campaign. Armed with these cards, an astute union enjoys large latitude in picking a tailor-made prospective bargaining unit in which it holds that bare majority. Yet neither an employer nor dissident workers challenge the union selection or force an election no matter how many workers sign cards against the union. Right now, unions frequently lose elections even after they have obtained signed cards from most workers. Just as in politics, the secret ballot is a powerful antidote to corruption from either side. 

Forcing Agreements

Once the secret ballot is eliminated, what of the negotiations that follow? Here both sides bargain, as it is sometime said, in the shadow of the law. An Obama Department of Labor will have sole responsibility to fill in the gaps. All it takes is an odd number of arbitrators and interest arbitration will have a pro-union tilt. The threat of arbitration will force management to make concessions to avoid the worse result of a far-ranging arbitral decree. The situation will get more confused if multiple unions are able to unionize different parts of a nationwide firm.

Union advocates dismiss these concerns, insisting that public sector negotiations have worked well under compulsory arbitration. But the comparison fails for several reasons. First, the public sector negotiations take place within a highly articulated statutory framework that limits discretion and sets arbitral procedures. Most of the negotiated agreements have working templates because they are updates of existing agreements, not the creation of new ones.

Second, union advocates are wrong to say these public service agreements are successes. All they can show is that compulsory arbitration avoids strikes. They can’t show that these agreements lead to an efficient public service.

Third, public sector and private sector agreements differ markedly in scope and pace. Public unions in different locales are not in direct competition with each other. They all work for governments that can cushion their errors by using their taxing power. Public entities don’t get involved in acquisitions, spinoffs and mergers. Private firms face these and many other problems, and they run the risk of a sharp loss in market share and profits if their arbitrators impose an untenable first contract, while their direct competitors operate be union free.

But how will a firm negotiate under EFCA? In the dark, of course. No one in or out of government has a clue how to conduct arbitration in the private sector. Yet the onslaught of mandated arbitrations will depend on arbitrators who have no knowledge of the industries with which they deal, if they have any idea of how to arbitrate at all. The confusion will be compounded because the EFCA does not allow for a transition period before its arbitral rules are put into effect. And when the two years expire, a donnybrook is likely to arise as employers refuse to renew losing contracts, which could lead to strikes in the short term and claims to extend interest arbitration to all contract renewals. EFCA could lead to the partial nationalization of all unionized firms. The immediate job for CEOs is to play tough defense to prevent the passage of a statute that promises to lay siege to every firm in the U. S. They dare not be caught napping.

Richard A. Epstein is the James Parker Hall Distinguished Service Professor of Law, the University of Chicago, and the Peter and Kirsten Senior Fellow, The Hoover Institution. He has consulted for employer groups of EFCA.

About richard a. epstein

Richard A. Epstein is the Laurence A. Tisch Professor of Law, New York University, the Peter and Kirsten Senior Fellow, The Hoover Institution, and a senior lecturer and the James Parker Hall Distinguished Service Professor of Law Emeritus at the University of Chicago. He is a recipient of the 2011 Bradley Prize. He writes extensively on topics of business and labor, property rights, health care, and liability.