After Card Check, Don't Forget Binding Arbitration

Those who think the government under President Obama has done a fine job managing the banking sector and the auto industry will be glad to learn that government’s duties may be extended to managing the wages, vacations, health-care plans, and pensions of newly unionized workers.

Legislation passed by the House of Representatives and awaiting Senate action would require the Federal Mediation and Conciliation Service to set up arbitration panels to craft contracts between unionized workers and firms, if they can’t come to an agreement on their first collective bargaining contract within 120 days. These mandatory arbitration contracts would, by law, hold for two years.

This legislation, entitled the Employee Free Choice Act, has been in the news for allowing workers to choose to join unions by checking a card circulated and retained by the union—hence the name “card check”—rather than through a secret-ballot election, as required since the 1935 National Labor Relations Act.

Card check has run into opposition because it opens the possibility of union intimidation. Union officers can visit workers at home, and they will know who signed and who refused. This is precisely why organized labor wants to end the secret ballot. It seeks to reserve for itself the intimidation it accuses employers of practicing.

The outlook in the Senate for getting 60 votes for a bill that includes card check is murky. Forty senators, all Democrats, are cosponsors, but several Democrats oppose card check, including Blanche Lincoln of Arkansas, Diane Feinstein of California, and Arlen Specter of Pennsylvania.

Although the card check portion of the bill is unlikely pass to the Senate, the mandatory arbitration portion is more popular, so some are proposing removing card check from the EFCA, and leaving mandatory arbitration and increased employer penalties for interfering with union elections

Unions want mandatory arbitration, this less-noticed provision of the bill, because they believe that the threat of arbitration, followed by the arbitration itself, will force employers to pay better compensation packages. More generally, organized labor, whose share of the private labor force has fallen to 7.6 percent, needs victories—in Congress and then at the bargaining table—to demonstrate to unorganized workers that unions are potent and can help them.

Employers oppose arbitration on the grounds that it could require them to pay excessive compensation to workers, eventually forcing firms out of business. The contrast between the financial position of the unionized Big Three Detroit auto companies and the non-unionized transplants in the south shows how unionization affects the bottom line.

Binding arbitration could have even more pernicious consequences than ending the secret ballot. It would allow an undefined arbitration board, appointed by the Federal Mediation and Conciliation Service, itself headed by a political appointee, to set compensation packages for firms and workers that they would be forced to accept.

Unlike voluntary arbitration, the parties would not have an opportunity to choose members of the panel, nor would they have recourse to a higher authority, such as the courts, if they were dissatisfied with the results. Workers could be required to accept lower salaries and less vacation than they could get elsewhere, and firms could be forced into unproductive agreements that could eventually lead to bankruptcy.

With just a few lines of legislative language, Congress would revoke for newly-organized firms the principle of free collective bargaining—that employers and unions may walk away from a contract they find unsatisfactory.

The bill does not specify who would pick the panel or how many members it would have, because the Mediation Service would write the regulations. The panel would not have to be industry or regional experts, familiar with the firms in a particular part of the country. The bill is unclear on how the arbitration panel would gain information it needs to decide worker compensation—not only wages, but also vacation, sick leave, promotion opportunities, discipline, and pensions.

The arbitration panel would not have to take into account compensation policies of rival firms, surely a relevant factor. A newly-organized firm could find that its costs were set higher than its competitors, leading to loss of market share and the need to downsize. Except, of course, that downsizing would undoubtedly be strictly regulated under the terms of the contract.

The banking and auto crises have shown us that it’s hard to keep political expediency or favoritism out of economic decision-making. Former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke reportedly pressured Bank of America CEO Ken Lewis not to reveal crucial financial details about Merill Lynch to shareholders. And President Obama attacked hedge funds for wanting to keep shares of Chrysler assets that are legally theirs, while giving the United Auto Workers 55 percent of the company.

Because neither employers nor workers should be forced to participate in contracts against their will, there’s nothing more dangerous than allowing the government to impose binding arbitration on workers and companies. Senators of both parties have wisely rejected card check, and they should also reject binding arbitration.