Public Sector Interest Arbitration What is it and How does it Work

Transcription

1 Public Sector Interest Arbitration What is it and How does it Work By Ronald C. Smith Labor Relations Manager Des Moines Water Works 2201 George Flagg Parkway Des Moines, IA

2 Public Sector Interest Arbitration What is it and how does it work Introduction The purpose of this paper is to provide those public sector human resource professionals, faced with interest arbitration for the first time, with a better understanding of what interest arbitration is and how the process works. In addition to covering what comprises interest arbitration I will discuss the perceived value of interest arbitration and the actual arbitration process. In the section on the arbitration process I will cover some tips on how to prepare and present an interest arbitration case plus what to expect from the arbitrator s decision. History Before I get into the details of interest arbitration it might be helpful to review a little history of collective bargaining in the public sector. The National Labor Relations Act exempted state governmental bodies and political subdivisions (cities, counties, special districts, etc.) from the definition of employer. Therefore these public entities are not within the scope of the federal labor laws. The result of this exclusion meant that laws related to collective bargaining in the public sector were developed on a state-by-state basis. According to Will Aitchison in his book Interest Arbitration the general thrust of the state laws governing public sector collective bargaining fall into three models: Binding Interest Arbitration, Meet and Confer and Bargaining not required. The focus of this paper will be on the binding interest arbitration model. What is Interest Arbitration? Interest arbitration, in its simplest terms, is a process whereby a union and an employer, after reaching impasse in their labor agreement bargaining process, must submit their dispute to a neutral third party for final and binding resolution. Interest arbitration differs from grievance arbitration in that interest arbitration refers to disputes arising out of the labor agreement bargaining process whereas grievance arbitration relates to disputes under an existing contract. 2

3 Of those states that require mandatory interest arbitration some have additional steps that both parties must go through before submitting an issue to interest arbitration. Fact finding and mediation are two of the more common steps. Fact finding is a process where a neutral third party hears evidence presented by the employer and the union, makes findings on this evidence and then recommends what terms and conditions should be contained in the new labor agreement. Contrary to the arbitrator s decision in an interest arbitration the fact finder s recommendations are generally not binding and can be rejected by either party. It is worth noting that while the fact finder s recommendations are generally not binding, the recommendations can be binding in some states and can be an option that the arbitrator can choose as their decision in other states. Mediation is the process where a third party mediator is brought in with the purpose of working between the two parties to reach a voluntary settlement of the open issues. With mediation neither party is required to accept any of the mediated proposals. Interest arbitration decisions can take on several forms depending on the applicable state law, however in general they fall into three basic categories; last best offer issue-by-issue, last best offer total package and traditional issue-by-issue. In last best offer issue-by-issue format the arbitrator is limited in their decision to selecting the final proposal of the employer or the union on each disputed issue. With the last best offer total package the arbitrator is limited to choosing between the final offers on all disputed issues as a package, or in some states the arbitrator can select the fact finders recommendation. In the third category, traditional issue-byissue, the arbitrator is not bound by the final proposals of either party or the fact finding report but can formulate their own solution. Whichever format is required the arbitrator s final decision will become a part of the new labor agreement. While the interest arbitration laws vary from state to state most contain these common sections: 1. A Policy Statement as to why interest arbitration is necessary. Typically this section will say something about the public employee s prohibition against striking and the need for an alternative way to resolve contract negotiation disputes. 2. A process as to how the parties can request interest arbitration. Usually either party can request arbitration and this section would normally contain any requirements that the 3

4 parties must go through before reaching binding arbitration such as mediation and fact finding. 3. The process of how an arbitrator(s) is selected. a. Some state laws require a panel of arbitrators. Michigan law requires that each party select an arbitrator and the State Employment Relations Commission provides the parties a panel of three additional arbitrators allowing each party to strike one name thereby ending up with the three member panel. b. The Iowa law requires a single arbitrator. That arbitrator is mutually agreed to by both parties and if not the Iowa Public Employee Relations Board will provide a list of five arbitrators with each party alternatively striking a name until only one remains. 4. The timing of the hearing and how it is to be conducted. Due to the fact that the parties may be up against contract expiration or budget deadlines the timeline for conducting the arbitration is usually very aggressive. 5. How the findings are to be determined.(last best offer issue-by issue, last best offer total package or the arbitrators own formulation) and when the findings need to be published. 6. The factors to be considered in findings. This section is probably the most significant section of any interest arbitration law. This is where the law outlines the instructions to the arbitrator(s) as to what factors they shall use as a basis for their findings. These factors are the ones that each party must ensure they address if they hope to be successful in interest arbitration. Again while these will vary from state to state the following examples from Michigan, Iowa and California are what typically would be found in this section. a. Michigan The arbitration panel shall base its findings, opinions and order upon the following factors, as applicable: i. The lawful authority of the employer ii. Stipulations of the parties iii. The interests and welfare of the public and the financial ability of the unit of government to meet those costs 4

5 iv. Comparison of wages, hours and conditions of employment of the employees involved in the arbitration proceedings with the wages, hours and conditions of employment of other employees performing similar services and with employees generally: 1. In public employment in comparable communities 2. In the private employment in comparable communities v. The average consumer prices for goods and services, commonly known as the cost of living vi. The overall compensation presently received by the employees, including direct wage compensation, vacations, holidays and other excused time, insurance and pensions, medical and hospitalization benefits, the continuity and stability of employment, and all other benefits received vii. Changes in any of the foregoing circumstances during the pendency of the arbitration proceedings viii. Such other factors, not confined to the foregoing, which are normally or traditionally taken into consideration in the determination of wages, hours and conditions of employment through voluntary collective bargaining, mediation, fact-finding, arbitration or otherwise between the parties, in the public service or private employment b. Iowa The arbitrator shall consider, in addition to any other relevant factors, the following factors: i. Past collective bargaining contracts between the parties including the bargaining that led up to such contracts. ii. Comparison of wages, hours and conditions of employment of the involved public employees with those of other public employees doing comparable work, giving consideration to factors peculiar to the area and the classifications involved. iii. The interests and welfare of the public, the ability of the public employer to finance economic adjustments and the effect of such adjustments on the normal standard of services 5

6 iv. The power of the public employer to levy taxes and appropriate funds for the conduct of its operations c. California The arbitration panel, unless otherwise agreed to by the parties, shall limit its findings to issues within the scope of arbitration and shall base its findings, opinions, and decisions upon those factors traditionally taken into consideration in the determination of those matters within the scope of arbitration, including but not limited to the follow factors, as applicable: i. The stipulations of the parties ii. The interest and welfare of the public iii. The financial condition of the employer and its ability to meet the costs of the award iv. The availability and sources of funds to defray the cost of any changes in matters within the scope of arbitration v. Comparison of matters within the scope of arbitration of other employees performing similar services in corresponding fire or law enforcement employment vi. The average consumer prices for goods and services, commonly known as the Consumer Price Index vii. The peculiarity of requirements of employment, including, but not limited to, mental, physical, and educational qualifications; job training and skills; and hazards of employment viii. Changes in any of the foregoing that are traditionally taken into consideration in the determination of matters within the scope of arbitration. 7. The final section of most interest arbitration law relates to the finality of the decision. In other words the decision of the arbitrator(s) is final and binding upon the parties and may be enforced through court action. What can be arbitrated? Only those items determined by the state collective bargaining law to be mandatory topics for bargaining would be subject to the interest arbitration process. These topics would 6

7 generally include wages, hours, vacations, insurance, holidays, leaves of absence, shift differentials, overtime compensation, supplemental pay, seniority, transfer procedures, job classifications, health and safety matters, evaluation procedures, procedures for staff reduction and in-service training. Some states have certain topics that the parties are prohibited from negotiating. For example in the State of Iowa retirement systems are excluded from the scope of negotiations. Is there Value in Interest Arbitration? Since many state laws require the use of interest arbitration, whether it is a valuable tool may be a moot point. However it is clear from material that has been written on interest arbitration that it brings value to the public sector contract negotiation process from at least 3 different angles. 1. It allows a skilled neutral third party to resolve disputes concerning the contents of collective bargaining agreements that the parties could not and for the most part these decisions have not been challenged. 2. It allows for a speedy and economical resolution of disputes compared to strikes or work slowdowns. 3. It is less likely to damage the relationship between the parties since the party that is not happy with the decision will most likely blame the arbitrator for the outcome rather than the other party. Even though it is clear that interest arbitration can bring value to the negotiation process one must still face the decision of whether to take an issue to arbitration. Sometimes it may make sense to work harder to reach an agreement than to have a third party make that decision for your organization. Before making a decision to take an issue to arbitration one needs to weigh the risk of the arbitrator deciding against your position. If your state law requires the arbitrator select the last position of one of the parties you will need to look at how far apart the two positions are, keeping in mind what comparables (more on comparables later) are doing and decide if you can get an agreement by moving a little rather than chancing that the arbitrator will select the union s position. If the arbitrator, by law, can select a middle ground ask the question; Are you better off offering the middle ground rather than go through the time, effort and money to arbitrate? If your state laws requires the arbitrator to select the last best offer on all open 7

8 positions it becomes even more critical that you weigh the risk of what might end up in your contract. Keep in mind that the arbitrator is not likely to select your position if you are asking for dramatic changes that run counter to your bargaining history or what comparables are doing. Preparing an Interest Arbitration Case Once the decision has been made to take an issue or issues to interest arbitration and the arbitrator has been selected here are the key steps to follow in preparing your case. 1. Clearly identify what issue or issues are being arbitrated. Usually these are fairly obvious and in many cases can be stipulated by the parties. 2. Next make sure you know all of the factors that the arbitrator must take into consideration in making their decision and how to address each one. These factors will vary from state to state but most contain those listed on pages 4-6 item number 6. For purposes of this paper I will discuss the each of the factors related to the State of Iowa laws. Factors that Arbitrators must Consider State of Iowa: The arbitrator shall consider, in addition to any other relevant factors, the following factors: a. Past collective bargaining contracts between the parties including the bargaining that led up to such contracts. This information should be relatively easy to compile since it relates to your organization and its bargaining history. For this factor you will want to provide the arbitrator with the bargaining history related to the topics being arbitrated including the information from the negotiation process that led to the arbitration. For example if you are arbitrating the employer s contribution to the cost of health insurance you will want to provide such things as the history of what the employer has contributed both in terms of actual dollars but also as a percentage of the total cost and the employee contribution. If there were significant changes to the insurance coverage which drove certain cost increases you will want to note that. In this example you will want to include your current bargaining information as to where both parties started and where they ended up. As with all of the factors you will want the exhibits to support the position that your offer is the most reasonable. When presenting this material you 8

9 will want someone to present it that is very familiar with the topic and its history, preferably someone who has been at the bargaining table during this negotiation. One caution concerning the evaluation of bargaining history, if there has clearly been a settlement pattern on a specific subject and you want to significantly deviate from that pattern you will need to present very compelling data to convince the arbitrator to vary from the pattern. In the case of the employer s contribution to health insurance the compelling data may be that the company introduced a new and less expensive health care plan. b. Comparison of wages, hours and conditions of employment of the involved public employees with those of other public employees doing comparable work, giving consideration to factors peculiar to the area and the classifications involved. Information for this factor should be available through public entities websites, a state public employee relations board, or through your personal contacts with other public organizations. Author Will Aitchison in his book Interest Arbitration states that; One of the most important elements for analysis under public sector collective bargaining laws are the wage and benefit structures in jurisdictions that are comparable to the city, county or other governmental body under study. He goes on to say that comparability is likely to be the deciding factor. One prominent arbitrator stated that Comparisons are preeminent in wage determination because all parties at interest benefit from them. For these reason I will discuss this factor in more detail than the others. There are a number of factors that can be used when determining whether another city, county or organization should be considered a comparable. Some of these factors are: i. Population of the area being served; i.e. city, county, customers - This factor is important in terms of the demand or variety of services that would need to be provided, the potential for other job opportunities and the potential for tax or other revenue ii. Physical proximity to the other city, county or organization This factor is important in terms of the greater potential of economic and social 9

10 interaction. In the cases of border cities or counties the geographical comparables may even lie in another state. iii. Physical proximity to a major Metropolitan Area This factor is important when searching for comparables because it not only helps define the labor market but also influences the job functions of the employees in those jurisdictions. iv. Assessed Valuation of Property For those entities that are funded in part by property taxes this is a very important factor. It relates to the entity s ability to pay, the economic vitality of the entity and has been linked statistically to wages and salaries. v. Number of Employees This factor can be used not only in terms of raw numbers but also in terms of a per capita basis. For example if one were arbitrating a case concerning the fire department employees you would want to look at the number of fire employees per capita rather than using the total number of city employees. Also the ratio of employees per population may be an indication of the work load per employee. Regardless of how you come up with the comparables or which criteria you use the key to convincing the arbitrator is to be able to provide a rational and thorough explanation of why the specific comparables were selected. It is not enough to simply say these are the comparables or to expect the arbitrator to connect the dots and come to the same conclusion as you did, you must provide the rational that will connect and make sense to the arbitrator. Once you have developed your list of comparables if the arbitration issue is wages the next step would be to select the benchmark classification(s). This classification(s) will be used as a representative of the entire bargaining unit throughout the proceedings. In law enforcement this is typically the top-step police officer, deputy sheriff or trouper. In fire agencies it is the top-step firefighter. In entities without these units a good rule of thumb is to use the classification which contains the largest number of employees. The caution with using this method is that the organization must be sure that the rest of the 10

11 classifications in the bargaining unit are not greatly out of pace from the benchmark classification in term of wages. Once you have all the data from comparables develop your exhibits and testimony to tell your story. c. The interests and welfare of the public, the ability of the public employer to finance economic adjustments and the effect of such adjustments on the normal standard of services. If the arbitration issue is an economic one then the ability to pay for the levels of benefits or wages requested can be a factor for the arbitrator to consider. Because this can be a very complex issue involving budgets, projected revenues and expenditures and a myriad of financial issues related to the resources of the organization along with the state of the local economy this argument should not be entered into lightly. Justifying this position to an arbitrator can be time consuming and unless a significant portion of the data, without question, supports your position you may spend a lot of time with minimal results. Also due to the complexity there is a school of thought that arbitrators do not give it as much weight as other factors. Following the review of 265 interest arbitration cases decided over a ten-year period, authors Timothy D.W. Williams, Marianne McCartney, John Abernathy, Martin Haney and Walter Ellis in their 1984 publication titled; Ability to Pay: A Search for Definitions and Standards in Interest Arbitration, published by the University of Oregon Labor Education Research Center presented guidelines for employers to follow when presenting a case of inability to pay. I have summarize those guidelines below: (see the publication for the full text) i. If you think you may have an issue with the ability to pay raise the issue during negotiations so that the bargaining record will show the concern early in the process ii. Be prepared to provide clear evidence of the community s overall poor economic condition. iii. Be prepared to show history of failed attempts to raise revenue through a tax levy etc. including the margin of defeat. 11

12 iv. Be prepared to show significant reduction in revenue along with the reasons and how the loss in revenue will not be overcome with other revenue gains. v. Be prepared to show evidence of employee layoffs and program reductions. Be ready to show an overall reduction in the total employees and that the programs lost were not just transferred to another public or private entity. vi. Be prepared to provide significant evidence that essential programs (police, fire, water, etc.) are being threatened with elimination by the required expense increase to cover the requested increase in wages or benefits. vii. If there are multiple bargaining units you must be able to show that this particular unit has not been impacted to the same degree as other units. viii. Your documentation must be clear and concise and you must have the testimony of expert witnesses to provide the necessary analysis. 3. The power of the public employer to levy taxes and appropriate funds for the conduct of its operations. The assumption on the part of the arbitrator will be that the employer has the wherewithal to raise funds to pay for its operation so this factor will only be considered significant if there are existing legal restrictions on the employer s ability to raise taxes or other funds. 4. The State of Iowa requires that arbitrators consider the above 4 factors but it also leaves the door open for other factors by using the phrase; in addition to any other relevant factors. One other relevant factor that is often used in Iowa interest arbitration cases is the Cost of Living. In some states such as Michigan and California arbitrators are required consider this factor. The index that is most commonly used is the Consumer Price Index published by the Bureau of Labor Statistics. Again as with the other factors the purpose of presenting this data is to show that your proposal has the most validity based on the increase in the cost of living. If you are asking the arbitrator to consider the cost of living factor you should consider the following steps: a. Selection of the appropriate consumer price index. There are two separate indexes; the CPI-U for all urban consumers and the CPI-W for all wage earners 12

13 and clerical workers. Since employees are wage earners the most appropriate index to consider seems to be the CPI W. b. Selection of the best measure within the CPI-W. The CPI-W is available as a national, regional or metropolitan area index. If data is available for a metropolitan area that is in close proximity to your location this should be your first choice. If there is not major metropolitan area in close proximity or the one that exists clearly has a significantly different cost of living you will need to utilize the regional data. In all cases it is important to make your case to the arbitrator as to why you choose a particular cost of living measure. c. Since the cost of living analysis is typically viewed as changes over time it is important that you select a base year from which to begin the analysis. The following are some base year selections that could be viewed as valid for the analysis. i. The base year of the start of the previous collective bargaining agreement ii. The base year of the start of the collective bargaining relationship with the union iii. The base year of the average date of hire for the members of the bargaining unit. As with the decision as to which index to use you will need to provide the arbitrator with the logic you used to select your base year. d. When presenting this cost of living data make sure the information is clear and easily understood. One way to accomplish this is to utilize a simple table showing the year, the CPI factor and the impact on employee s wages compared to actual wages. Presenting the Interest Arbitration Case Assuming that the issue is clear and you don t have to argue as to what is being arbitrated, you can present your case using the Why, What and How approach. 1. Start with your comparables. The why should show the arbitrator the rationale behind your selection of the comparables and the benchmark classifications. Lay out the exhibits and testimony in a logical and clear manner. One of the best ways to present this 13

14 information is in a table format. Spend enough time at the beginning to ensure that the arbitrator understands your rationale for selecting your comparables. If you used demographics or physical proximity don t just say that s how they were selected go into the detail as to the details behind your decision. For example you might have selected a certain city because the demographics in the areas of population, total employment, retail sales were a match to your city. The goal here is to get the arbitrator to the point of accepting that the comparables you selected make sense and are appropriate. You should assume that your union counterpart will do something similar so the better your logic and clarity on comparables the more likely your comparables will be given more credibility and weight in the final decision. 2. Then present the data. The what consists of the data from the comparables. Make sure it is in a clear and logical format and easily tells the story and gives the arbitrator information they can understand. As you prepare your data exhibits ask yourself the question, If I did not know and understand our organization would I be able to easily understand the data I am presenting. This is not a time that you want the arbitrator to be confused or ask a lot of what does this mean? questions. Again the use of tables to display your data makes this job easier. 3. Finally draw your conclusion. The how is your closing. Demonstrate to the arbitrator how the data you have presented on the comparables ties into and supports the organization s position in the arbitration. This is where you will want to tie the data directly to as many of the factors that the arbitrator must consider as possible. If you can show how the data fits with the past bargaining, the current economic situation for your organization and the other public entities you used as comparables and how your proposal is in the best interest and welfare of the public. Best case scenario would be that your logic for selection of the comparables was so good and the data so clearly supports your position that is it easy for the arbitrator to accept your conclusion. Regardless if you are in a state that requires the arbitrator to accept the last best offer or they can formulate their own solution the conclusion what you want is the arbitrator to decide in your favor. 14

15 Arbitrator s Decision Once the arbitration is finished you should expect to receive the arbitrator s decision covering the following items. 1. A well thought through final written decision on the disputed issues. Depending on the specific laws in your state their decision will be based on either the total package last best offer from either party or an issue by issue last best offer from either party or the arbitrator will formulate their own solution for each issue. 2. The written decision should explain the rationale behind their decision. 3. The decision should be received within the time limits imposed by the applicable state law. In Iowa the decision must be rendered within 15 days of the date of the arbitration. Summary When faced with interest arbitration here is a summary of the key factors that should help you prevail. 1. Understand the laws and regulations in your state to know: a. What can and cannot be taken to arbitration b. What factors the arbitrator must or can consider when making their decision. Address all of these factors when presenting your case. c. What must the arbitrator base their award. i.e. last best offer - total package, last best offer issue by issue, Arbitrator may formulate their own solution. 2. Use the upmost care in selecting the comparables and be prepared to clearly and logically explain your reasons for the selections. 3. Make sure that your data is easily understood and clearly supports your case. If any of your data could be interpreted to support the union case do not use it. 4. Don t assume that the arbitrator will immediately understand your information, present your case so that it tells the arbitrator a logical story and paints a clear picture that will lead to the conclusion that supports your position. 15

16 References: Interest Arbitration (Second Edition) by Will Aitchison, published by The Labor Relations Information System, Portland Oregon Ability to Pay: A Search for Definitions and Standards in Interest Arbitration by Williams, McCartney, Abernathy, Haney and Ellis published by the Labor Education and Research Center, University of Oregon Public Employment Relations Act, Code of Iowa Chapter 20 Michigan s Binding Arbitration Law MCL California s Binding Arbitration Law SB