Mandatory Interest Arbitration in the Private Sector

By David Broderdorf

Although private sector employers covered by the National Labor Relations Act (NLRA) have an obligation to negotiate with union representatives, employers have no obligation to reach an agreement with these representatives. This fundamental tenet of U.S. labor law—that neither employer nor union must agree to any proposal—would be altered under the proposed Employee Free Choice Act (EFCA). The House bill, already passed, would allow for mediation and ultimately binding interest arbitration if a first contract was not reached within 90 days of initial bargaining between the two parties.

Traditional NLRA policy: Promoting freedom of contract.The concept of an outside third party, especially the government or an interest arbitrator, establishing contractual terms for employers and unions challenges policies fundamental to the NLRA since its passage in 1935. Although section 8(d) of the NLRA requires a “mutual obligation . . . to meet at reasonable times and confer in good faith,” the H.K. Porter Co. v. N.L.R.B. decision in 1970 articulated the principle that parties are free not to reach agreement. The factual pattern of organizing and bargaining between H.K. Porter Co. and its employees was perhaps a quintessential example of an employer engaging in illegal and bad faith negotiation tactics. The Supreme Court wholly rejected the imposition of a contractual term on the employer, even after H.K. Porter had engaged in bad faith negotiation in violation of the NLRA. The court “recognized from the beginning that agreement might in some cases be impossible, and it was never intended that the Government would in such cases step in, become a party to the negotiations and impose its own views of a desirable settlement.” The remedial powers of the National Labor Relations Board (NLRB) simply do not allow it or interest arbitrators to impose labor agreements on unwilling parties—the NLRB can only require the parties to sit down and talk in good faith. Building on the Supreme Court’s holding in H.K. Porter, later in 1970 Ex-Cell-O Corp. v. NLRB found that the NLRB was not even authorized to “make whole” employees who were financially harmed by the employer’s refusal to bargain in good faith.

Under current law, the NLRB and the courts may have one “loophole” for imposing contractual terms on parties that have not officially agreed to such terms. The method is based on a good faith versus bad faith bargaining distinction, where a party has previously agreed to a specific proposal in good faith and then later retracts that agreement in bad faith. However, the principles of freedom of contract and the absence of government involvement in determining contractual terms remain fundamental aspects of private sector labor relations under the NLRA.

Interest arbitration limited to the public sector. The Federal Mediation and Conciliation Service (FMCS), an agency supporting voluntary resolution of labor conflicts, promulgates an arbitration policy stating, “[v]oluntary arbitration and fact-finding are important features of constructive employment relations as alternatives to economic strife.” Although the use of grievance arbitration to resolve contractual interpretation disputes is commonplace in the private sector, turning over the creation of new terms and conditions of employment through interest arbitration has mainly been relegated to the public sector.

One should recognize that interest arbitration is not a mandatory topic of bargaining under the NLRA. Current federal law not only does not require the use of interest arbitration, it does not even require the parties to talk about voluntarily agreeing to such an arrangement if a future dispute arises during negotiations. Parties instead use economic pressure and economic weapons, such as the strike or lock-out, to move the parties toward agreement over contractual terms.

Rationale for labor law reform in support of mandatory interest arbitration. According to the supporters of the EFCA, employees not only face significant opposition to the formation of unions at work, but they face significant opposition to union success during first-contract negotiations. This means that of the relatively few employees that succeed in forming unions, almost one-third do not achieve a collective bargaining agreement within a reasonable time. Is mandatory interest arbitration the best solution for these employees to receive a first contract?

The EFCA sweeps too broad a brush and applies mandatory interest arbitration on employers that have not violated any laws and that have engaged in good faith bargaining. Roughly 68 percent of newly organized workers already achieve a first contract through negotiations under the traditional NLRA framework. If the EFCA became law, an artificially created time limit of 90 days could alter the bargaining process for both union and employer in this category that would normally achieve first contracts. At least some parties would feel pressured to quickly move through important and complex issues and settle for language that may not reflect their true positions.

Of the roughly 32 percent of newly organized employees who do not achieve a first contract, a portion of those corresponding employers may be engaging in good faith bargaining—but may be negotiating from a position of solid economic strength. An employer in this position can negotiate in good faith without giving in to union demands based on freedom of contract. Such a setup is part and parcel of what free collective bargaining is all about. The EFCA proposal to impose mandatory interest arbitration in these good faith bargaining situations may artificially enhance a union’s power by guaranteeing a contract not earned through traditional negotiations.

On the other hand, when employers engage in bad faith bargaining or refuse to bargain, the legal “level playing field” has been skewed to the point that alternative remedies and labor law reform incorporating mandatory interest arbitration are necessary. Consequently, I propose altering the language of the EFCA to remove mandatory mediation and interest arbitration for all first contract negotiations and instead utilize these tools, as remedies, once the NLRB has found bad faith bargaining or a refusal to bargain. In these circumstances, an employer has shown that it most likely will not be reasonable and negotiate sincerely with a union.

Applying specific standards to mandatory interest arbitration proceedings in first contract disputes . The author recommends the following as the only factors for arbitrators to consider, with information produced solely by the parties with respect to mandatory interest arbitration of private sector disputes: First, the stipulation of the parties (the arbitrator must learn what would be acceptable to both sides in order to build a sustainable long-term relationship); second, the Consumer Price Index and the overall cost of living in the area where the work is performed; third, a comparison of corresponding wages, benefits, and terms and conditions of employment within the firm and with comparable firms or industries in geographical areas with similar economic conditions, considering the size of the employer, the skills, experience, and training required of the employees, as well as the difficulty and nature of the work; fourth, the financial condition of the employer and its ability to incur changes in labor costs while continuing to maintain its competitive market position, meet its contractual obligations, provide job security and equivalent treatment for all its employees, and return a reasonable profit; and finally, industry best practices for fostering labor-management partnership, including joint initiatives to improve employee engagement, satisfaction, productivity, and overall business success.

For More Information About the Section of Labor and Employment Law

- This article is an abridged and edited version of one that originally appeared on page 323 of The Labor Lawyer, Winter/Spring 2008 (23:3).

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- Periodicals: The Labor Lawyer, journal, published three times per year; Labor and Employment Law, newsletter, published quarterly; substantive committee newsletters, published biannually.

- Books and Other Recent Publications:

The Developing Labor Law: The Board, the Courts, and the National Labor Relations Act, 5th ed., with 2008 Cum. Supp.; Employment Discrimination Law, 4th ed.; The Fair Labor Standards Act, with 2007 Cum. Supp.; The Family and Medical Leave Act, with 2008 Cum. Supp.; Wage and Hour Laws: A State-by-State Survey, with 2007 Cum. Supp.; Age Discrimination in Employment Law, 2007 Supp.; Covenants Not to Compete: A State-by-State Survey, 5th ed., with 2007 Supp.; Employee Benefits Law, 2d ed., with 2008 Cum. Supp.; Equal Employment Law Update, Summer 2007 ed.; Employee Duty of Loyalty, 3d ed., with 2008 Cum. Supp.; How Arbitration Works, 6th ed., with 2008 Cum. Supp.

David Broderdorf is a 2008 graduate of the Georgetown University Law Center. He may be reached at

Copyright 2009

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