Public Sector Bargaining: Moving Towards an Uncertain Future

Vol 35. No. 4

By

Wm. Michael Hanna is a partner at Squire Sanders (U.S.) LLP and heads the firm’s employment safety and health practice. He can be reached at William.Hanna@squiresanders.com.

Kathleen M. Portman is an associate at Squire Sanders (U.S.) LLP and focuses her practice on general labor and employment matters. She can be reached at Kathleen.Portman@squiresanders.com.


Collective bargaining is a paradigm built on the concept that an inherent imbalance of power exists between an employer and an employee. Originally introduced in 1935 in the Wagner Act, private sector employees were granted the right to unionize, bargain, and strike. The Wagner Act, however, did not apply to local, state, or federal employees. As a result, the living standards of public sector employees fell dramatically below their private counterparts, leading to decades of public outcry to rectify the disparity. In response, Wisconsin became the first state to grant similar rights to public sector employees. Currently, most states have followed suit and provide at least some measure of collective bargaining rights to public employees.

Now, over 50 years later, campaigns in Ohio and, yes, ironically, Wisconsin have reached center stage in their efforts to reduce public employee bargaining rights. While the rationale behind limiting collective bargaining rights is primarily built on recession-induced state budget deficits, it is also worth noting that public sector employees possess significant advantages over private sector employees. These include not only the protection of civil service laws but, as noted by the U.S. Supreme Court in its 1977 decision, Abood v. Detroit Board of Education, public sector employees have more influence in the decision-making process than that possessed by employees similarly organized in the private sector. It is these unique protections that form the impetus for recent legislative and nonlegislative movements to limit or reduce the public sector union’s ability to negotiate wages and benefits.

With this background in mind, we turn to the recent legislative efforts in Wisconsin and Ohio as a framework for discussing the growing trend of limiting public sector bargaining rights.

Starting the Trend: Wisconsin and Ohio

The irony behind Wisconsin’s Budget Repair Bill sitting center stage in the debate surrounding public sector collective bargaining rights is readily apparent. Signed into law by Republican Governor Scott Walker, the Budget Repair Bill severely limits public sector collective bargaining as a means of addressing a projected multibillion-dollar budget deficit. In what may be the most publicized attempt to restrict bargaining rights for state employees, Wisconsin’s Senate Democrats fled to Illinois in an effort to stymie the passage of the legislation; however, the Republican majority found a procedural means of passing the legislation, which was made law on March 11, 2011, and which went into effect on June 29, 2011. The bill requires public employees to contribute 5.8% percent of their salaries to cover pension costs and 12.6% of the average cost of annual premiums for health insurance. The bill also limits wages for most public employees, by which wages can not exceed a cap based on the consumer price index, unless approved by a referendum. Local law enforcement, including fire department employees, state troopers, and inspectors are exempt from these changes.

Not long after Governor Walker signed his bill into law, which is currently the subject of numerous legal challenges, Ohio Governor John Kasich, also a Republican, signed Senate Bill 5 into effect on March 31, 2011, which greatly reduced the collective bargaining abilities of Ohio’s state employees.

Even before the controversy surrounding Senate Bill 5, Ohio was immersed in a true economic crisis. With a projected billion dollar deficit and the loss of 450,000 jobs over the past five years, public sector employers in Ohio began looking for creative ways to address the effects of decreasing state funding.

Senate Bill 5 changed the landscape of Ohio’s 1983 collective bargaining law by expanding the scope of topics that management could refuse to negotiate about. In addition, the bill banned the use of strikes, adding a deduction of “an amount equal to twice the employee’s daily rate of pay” for each day an employee was considered to be on strike. Performance-based pay systems were introduced by the bill, in lieu of automatic pay raises based solely on seniority. The bill also set a floor of 15% for employee contributions toward health-care costs and a 10% contribution rate toward pensions and established new limitations for paid time off and reductions in force.

Supporters of Senate Bill 5, including Governor Kasich, argued that the bill would help close the gap in the state’s budget, while opponents argued that the bill was more akin to a political assault on the rights of middle-class workers. Senate Bill 5 was signed into law by Governor Kasich on March 31, 2011. But the Ohio Collective Bargaining Limit Repeal (Issue 2) appeared on the November 8, 2011, general election ballet, as a veto referendum, where it was defeated by a margin of 61% to 39%.

The controversy surrounding Wisconsin’s Budget Repair Bill and Ohio’s Senate Bill 5 (Issue 2) had a profound effect on public sector bargaining. The threat of each legislative measure caused unions to scramble to extend or sign new contracts before the effective date, making significant concessions in an effort to insulate bargaining unit members as long as possible. This provided some assistance to public employers, who enjoyed more bargaining power during this period, but they continue to search for additional methods of addressing fiscal challenges.

The Cause

Another impetus behind the legislative efforts to reduce public sector bargaining rights reflects the fundamental belief that many governmental entities either cannot or will not take the necessary steps to rein in their union contracts. This is likely because private sector negotiations often have bottom-line drivers, such as productivity and profitability, neither of which are substantial factors in public sector negotiations, which are often driven by political and social pressures. Moreover, unlike the private sector, which produces products or materials, many services of public sector employees, for example, providing a system of public education, are integral to a community’s well-being. As a result, many public employers are unwilling or unable to take a hard-line bargaining position that may lead to a strike and interruption of public services. The ramifications of this bargaining dynamic are that many public employers will agree to a contract that fails to address the systemic changes that are needed to reflect that community’s economic reality.

Similarly, public sector unions understand that given the current state of the economy, their present agreement is the best agreement that they will have for the foreseeable future. Thus, unions make a concerted effort to preserve the status quo, ensuring that bargaining unit members continue with the same wages, benefits, and working conditions until a new contract is reached. With the absence of any motivation on the part of unions to negotiate a new agreement, public employers are faced with endless bargaining tactics and the corresponding expenses associated with enforcing the duty to bargain.

When viewed in the light of these two factors, it is clear why current legislative efforts are being made to limit or eliminate unions’ ability to negotiate wages and benefits and to weaken their ability to prolong the status quo.

The Butterfly Effect

In addition to the legislative efforts in Wisconsin and Ohio, a multitude of other states have introduced legislative or nonlegislative efforts to restrict the collective bargaining rights of public employees. This article does not address each state’s efforts to restrict public sector bargaining rights; rather, a few select states will be discussed to demonstrate a growing trend throughout the United States toward reining in the bargaining rights of public sector employees.

In Idaho, a bill that restricts the collective bargaining rights’ of unionized teachers was signed into law by Republican Governor C.L. “Butch” Otter in early March 2011. The bill will keep 12,000 teachers from bargaining about their salary and benefits. It also eliminated tenure and introduced a merit-based pay system. Similar to Issue 2 in Ohio, Idaho’s Teachers’ Collective Bargaining Veto Referendums, which were filed on March 18, 2011, will be on the November 6, 2012 ballot.

Similarly, Alaska State Representative Carl Gatto introduced a bill in March 2011 that he described as mimicking the Wisconsin legislative effort to keep intact bargaining rights for wages but to strip them of items such as benefits, hours, and working conditions. Legislative history reveals that the bill has subsequently been withdrawn.

In Indiana, Governor Mitch Daniels signed S.B. 575 in April 2011, a bill that limits the collective bargaining rights of teachers unions. The law went into effect on July 1, 2011, but two key provisions went into effect immediately. First, current teacher contracts may not extend past the budget biennium. Second, districts may not collectively bargain teacher evaluation procedures or criteria. The bill will still allow teachers to be involved in evaluation procedures and criteria through required discussions with school corporations.

New Jersey Governor Christie signed into law in December 2011 an amendment to the state’s fire and police interest arbitration law capping wage increases. Included in the salary cap are longevity pay, step increments, and other similar elements of compensation. Likewise, New Jersey lawmakers voted in June 2011 to enact a sweeping plan to cut public worker benefits, approving a broad rollback of benefits for 750,000 government workers and retirees.

Nonlegislative actions have also been used to address state budget deficits through collective bargaining. In June 2011, New York Governor Andrew Cuomo reached a deal with the state’s largest public employee union, saving thousands of state jobs through the use of unpaid furloughs, wage freezes, and increases to health insurance premiums. Conversely, Connecticut workers rejected a deal meant to produce $1.6 billion in labor savings over two years. The deal called for wage freezes for two years, followed by 3% annual raises for three years and a guarantee of no layoffs for four years, plus concessions on pensions and health care. As a result of the failure to reach an agreement, the governor predicted layoff notices in the immediate future and the loss of jobs for 7,500 or more workers.

Conclusions

As history has shown, the pendulum regarding the collective bargaining rights of public sector employees appears to be in constant motion. Although the vulnerability of public sector employees, in the wake of the Wagner Act, started a cross-country movement to provide collective bargaining rights, the unique protections of public sector employees and harsh economic realities have caused the pendulum to swing in the opposite direction.

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