Presidential Emergency Board 243 October 13-20, Summary Of The Union Coalitions Arguments And The Board s Recommendations

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1 Presidential Emergency Board 243 October 13-20, 2011 Summary Of The Union Coalitions Arguments And The Board s Recommendations Elizabeth A. Roma Guerrieri, Clayman, Bartos & Parcelli, PC 1625 Massachusetts Ave., NW, Suite 700 Washington, D.C eroma@geclaw.com (202) The Nation s Class I rail carriers and many smaller regional carriers engage in coordinated national negotiations with the unions representing their employees in a process known as national handling. The last collective bargaining agreements between the carriers and labor organizations became amendable on January 1, After the carriers and 11 of the 12 unions representing railroad employees bargained to impasse, Presidential Emergency Board 243 was convened by the President in October The 11 rail unions worked together in a unified manner before the Emergency Board. While there is much that can be said about the bargaining process, the hearing before the Board, and the Board s final recommendations, this paper is limited to providing a brief summary of the unions position on core issues before the Board and the Board s treatment of those issues. I. BRIEF HISTORY. Under the Railway Labor Act ( RLA ), when labor and management fail to reach an agreement on their own, both in direct talks and in mediation, the National Mediation Board ( NMB ) may recommend to the President that an Emergency Board be appointed to investigate and report regarding the dispute. 45 U.S.C As past Presidential Emergency Boards ( PEBs ) have consistently recognized, the role of the Board is to make recommendations that can form the basis of a voluntary settlement between the parties, thereby avoiding interruption to commerce caused by a strike or the possibility of Congressional legislation setting contract terms. In other words, the Board should recommend a settlement that the parties could have made voluntarily. See PEB 234 Report, at 3 (Sept. 21, 1997) ( [W]e deem it vital to the nation and to the parties to report our conclusions as to how the bargain should have been structured had the parties been successful in their... bargaining ). Two rail union bargaining coalitions appeared before Presidential Emergency Board 243. One coalition consisted of five organizations: the American Train

2 Dispatchers Association ( ATDA ); International Brotherhood of Electrical Workers ( IBEW ); International Association of Machinists and Aerospace Workers ( IAM ); the Transportation Communications Union ( TCU ), including its Brotherhood of Railway Carmen ( BRC ) division; and the Transport Workers Union ( TWU ). Collectively, this coalition represented approximately 34,609 rail employees. 1 The other coalition, the Rail Labor Bargaining Coalition ( RLBC ), consisted of six organizations: the Brotherhood of Locomotive Engineers and Trainmen ( BLET ); Brotherhood of Maintenance of Way Employes Division ( BMWED ); Brotherhood of Railroad Signalmen ( BRS ); International Brotherhood of Boilermakers and Blacksmiths ( IBB ); National Conference of Firemen and Oilers ( NCFO ); and the Sheet Metal Workers International Association ( SMWIA ). Collectively, the RLBC represented approximately 55,898 rail employees. The 11 organizations affiliated with these two coalitions represented a wide range of crafts and classes. Rail employees are broadly divided into two groups: operating crafts and non-operating crafts. The operating crafts are those employees whose work involves the actual operation of trains, such as engineers and conductors. BLET was the only operating craft organization before the Board. The carriers remaining operating craft employees were represented by the United Transportation Union ( UTU ), which was not a part of any bargaining coalition, and had reached an agreement with the carriers prior to the convening of the PEB. Among the carriers remaining non-operating employees were workers in the carriers engineering departments, represented by the BRS and the BMWED, who maintain the signal systems and the right of way, buildings and structures, respectively. Other non-operating employees, who worked in the carriers locomotive and railcar shops known as shopcraft employees included members of the IAM, IBB, IBEW, NCFO, SMWIA, TCU-BRC and TWU. Also before the Board was the ATDA, representing dispatchers responsible for locomotive movement. II. CORE ISSUES BEFORE THE BOARD AND THE BOARD S TREATMENT OF THESE ISSUES. The two rail coalitions before the Emergency Board, who represented a total of 73% of rail employees, worked together at the PEB level and agreed to develop a joint PEB Proposal, submit a joint pre-hearing submission and present a joint argument at the hearing. The 11 rail unions were able to agree on several core arguments and proposals to address jointly before the Board. First, the unions argued that the general health of the 1 Along with Joseph Guerrieri, Jr., and Carmen Parcelli at our firm, the author represented this union coalition before Presidential Emergency Board 243. The other union coalition, the RLBC, was represented by Roland Wilder and Stephen Feinberg of Baptiste & Wilder, PC. 2

3 railroad industry and its double-digit profits should be strongly considered by the Board when issuing its recommendations. Second, the unions disagreed with the carriers assertions that the agreement reached with the UTU set a pattern, which should dictate the parameters of any other agreements reached with the carriers. Finally, two core issues before the Board concerned wages and health and welfare and the unions proposed 1) a total wage increase of 19% over five years and 2) that health and welfare benefits remain essentially the same Health of the Industry. a. Position Before the Board. One of the overarching themes before the PEB was the carriers profitability, productivity, and ability to pay. Unlike many other industries in the United States today, the rail industry is thriving. As past Boards have found, when a carrier is a thriving enterprise, it is proper that the [c]arrier shares this success with its employees. PEB 226 Report, at 12 (Apr. 21, 1995); see also PEB 230 Report, at 13 (June 23, 1996) (when circumstances have dramatically changed for the better and the class I railroads have become extremely profitable, a case can no longer be made for [] wage restraint ). Similarly, [i]f employees are more productive, they should be rewarded. PEB 213 Report, at 22 (July 1, 1988). Under the circumstances before the Board, we submitted that the carriers extraordinary profitability must be afforded substantial weight, just as ability to pay has been given substantial weight in cases involving carriers in economic distress. See PEB 213 Report, at 18-19; PEB 200 Report, at (Mar. 30, 1983); PEB 114 Report, at 26 (Dec. 12, 1955). The carriers took the position that because they were not arguing inability to pay, profitability and productivity were irrelevant. Even if relevant, the carriers attempted to paint a darker picture of their finances and their economic outlook before the Board. Through their expert economic testimony, however, the unions demonstrated that the industry was enjoying greater success in terms of profitability and productivity than at virtually any other time in its long history as measured by every accepted economic metric. Moreover, the forecast in the opinion of every credible industry observer, supported by investors continued high confidence in the railroads, was for this strong performance to continue. For example, from , operating revenues for the Class 2 Additionally, the unions also sought: 1) an increase in vacation benefits and implementation of a pro-rata vacation accrual system; 2) supplemental sickness revisions that would fix the ratio of wages to benefits; and 3) a proposal to implement an information sharing requirement similar to that under the National Labor Relations Act. Each union also addressed its own craft-specific issues in written submission and testimony. For purposes of this paper, I will focus on the two primary issues before the Board: wage increases and health and welfare changes. 3

4 I railroads increased by 44%, but operating expenses rose less than 22% over the same period. This revenue growth coupled with cost constraint had resulted in double-digit profit margins for the four major carriers year after year: 10.8% in 2005; 12.7% in 2006; 12.4% in 2007; 13.2% in 2008; 12.8% in 2009; and 15.8% in In 2008 (the last year available), Fortune Magazine ranked the railroads in 5th place among all U.S. industry in terms of profit margin. Labor productivity among all Class I railroads had also continued to increase, rising at a rate of 2.6% per year from 2004 through Even during the Great Recession, the carriers performance remained strong and all evidence indicated that the strong performance would continue into the foreseeable future. The unions maintained that the carriers sustained economic performance and robust health should be the backdrop to their proposal and the Board s recommendations. ii. Board s Recommendation. While the Board summarized the carriers and unions respective positions regarding profitability and productivity in great detail, it did not directly address the issue in depth other than to say that it accepted the unions argument that by almost any relevant measure, the railroad industry has experienced record or near record levels of profitability and productivity. PEB 243 Report, at 12 (Nov. 5, 2011). Periodic references to the health of the industry, however, appeared throughout the Board s recommendations. For example, the Board indicated that its GWIs recommendations recognize the profitability and productivity trends identified in the presentations in this case and also indicated that despite the generally poor economic climate, the proposed changes would provide for real wage growth over the life of the agreement. Id. at Pattern. i. Position Before the Board. The second overarching theme was the issue of pattern. The carriers argued that the agreement reached with the UTU should constitute a pattern for agreement with the organizations, while the unions maintained that an agreement with one organization representing a minority of the workforce should not dictate the terms of the agreement reached with the 11 other unions. Why does pattern matter? As part of assessing the appropriate basis for settlement between parties, past PEBs have often sought to determine whether a pattern of voluntary settlements exists for the same round of bargaining. As past Boards have recognized, application of an existing pattern may serve important interests in the 3 PEB 243. See Economic Report of Thomas Roth, the Labor Bureau Inc., prepared for 4

5 collective bargaining process: We consider it critical to the public interest that labor relations and collective bargaining on the nation s railroads be fair, stable, and reasonably consistent. Conversely, we believe that political competition between and among unions for supremacy of benefits, with its ineluctably destabilizing consequences, is damaging to the public interest. PEB 221 Report, at 7 (May 28, 1992). In particular, Boards have relied on the pattern concept to avoid [l]ate settlements above a pattern earlier established penalize employees involved in the earlier voluntary negotiations. PEB 176 Report, at 8 (Nov. 2, 1969). Past Boards, however, have recognized that the pattern concept stands in tension with other equally important concepts such as the right of each labor organization to have its demands considered on their own merits. PEB 174 Report, at 5 (Feb. 12, 1969). Thus, the Emergency Board literature reflects a considerable struggle on the conflict between the carriers plea for adherence to the pattern, on the one hand, and the plea by one Union or another that it has the right to bargain for itself and cannot be expected slavishly to follow what another Union has bargained, on the other. PEB 178 Report, at 6 (Nov. 9, 1970). It was the unions position that an agreement reached with only one union which represented 27% of employees the only union not involved in coalition bargaining could not form a pattern for the 11 organizations that comprised the coalition before the Board, which represented 73% of rail labor. We also argued that adoption of the UTU Agreement as a pattern would undermine labor s efforts at coordinated bargaining, efforts that both past PEBs and the carriers have previously greeted with favor. Moreover, all of the other unions before the Board found the terms of the UTU Agreement to be unacceptable because the wage increases were less than was achieved in the last round of negotiations while shifting substantial health care costs to employees. Furthermore, the agreement contained several provisions that only had real value to members of the UTU and this value was not adequately reflected in the carriers proposal. For example, as in the UTU agreement, the carriers proposed eliminating the fifth year of reduced entry-rate wage progressions, and granting lump-sums to employees receiving entry rates. But the unions before the Board, with the exception of BLET and ATDA, did not have entry-rate wage progressions as long as five years. Even with respect to the BLET and ATDA, both unions had already settled on wage issues with several of the carriers. As a result, the unions estimated that only 3% of coalition-represented employees would be eligible for a lump-sum payment of any amount, as compared to the 27% of UTU-represented employees eligible for payment. ii. Board s Recommendation. The Board decided that it need not decide whether the UTU Agreement constituted a pattern. Instead the Board decided to treat the agreement reached with the UTU as relevant evidence of what the Carriers and one independent Organization agreed was a fair and equitable settlement. PEB 243 Report, at 17. The Board further stated that precisely 5

6 how relevant the UTU settlement is as an internal comparator cannot be stated in absolute terms. It must be weighed as one component among many and assessed in the context of the unique combination of facts and circumstances that the Carriers and Organizations find themselves in at this point. Id. While the Board found that the UTU Agreement was important and provided some guidance for its assessments, they did not find it appropriate to apply it in lockstep fashion in this case. Id. 3. General Wage Increases and Health and Welfare Proposals. a. General Wage Increases. i. Position Before the Board. Given the robust health of the industry, the unions proposed a total wage increase of 19% over five years, which would build upon the prior contract s five-year cumulative increase by 2%. The unions maintained that this would serve to partially restore real wages, which had been declining in relation to the rest of the U.S. workforce, and the inflation-adjusted cost of living for the past few decades. The unions argued that the carriers regressive wage proposal provided no real wage gains, and would leave workers worse off in five years in terms of real pay than they were after the then current contract became amendable. The proposed wage increases were inferior to those the organizations achieved in the last contract, executed at a time when the carriers were fiscally sound but not raking in the kind of record profits that defined the present financial climate. The carriers proposal provided for incremental wage increases totaling 17.5% over a six-year period, while the last contract provided a 17% increase over five years. The carriers proffered five-year wage increase of only 14.5% would thus represent a 2.5% reduction in wage increases from the last agreements. The carriers argued that railroad workers are well paid in comparison to workers elsewhere in the economy and that, accordingly, there is a wage premium on rail employee pay, which should be considered by the Board. The unions strongly opposed this theory, arguing that out-of industry comparisons do not translate well to the railroad industry because [t]he training, job duties, and experience of seasoned rail employees are unique. PEB 242 Report, at 23 (Dec. 30, 2007). ii. Board s Recommendations. The Board s Recommendations provided for 15.6% GWIs (16.59% compounded) over five years or 18.6% GWIs (20.08% compounded) over six years, starting from July 1, Each organization had the option of taking the five or six-year GWI proposal. Additionally, the Board recommended a one-time, lump sum payment equivalent to 1% of straight time earnings for the year. Notably, the lump sum payment 6

7 was to be calculated after the first two GWIs went into effect. PEB 243 Report, at 18. The Board s recommendations were also not back-loaded, with the largest increase (4.3%) scheduled for July Additionally, the final sixth year increase, if adopted, would go into effect on January 1, 2016, rather than July 1, the timing of the other increases. The Board explained that its wage recommendations were consistent with agreements reached with Amtrak and other commuter rails and exceeded the majority of settlements reached between unions and employers in other industries. Id. at 19. Additionally, the Board maintained that its recommendations provided for solid improvements to wage rates that recognize the profitability and productivity trends identified in the presentations in this case, the skills and demand imposed on employees by the nature of the work, the critical nature of that contribution to the overall success of the railroads, and relevant external comparisons. Id. at 20. The Board rejected the carriers argument that lower wage increases were warranted due to an alleged wage premium in the rail industry, noting that this wage differential has existed for years, suggesting that there are a variety of legitimate and compelling reasons for the continuation of those differentials, including but not limited to, differences in skill and responsibility and work environment and the impossibility as a practical matter of replacing large numbers of these highly trained (and in some cases certified) employees if they failed to report for work for whatever reason. Id. at n. 9. The Board also found it unlikely that the carriers would continue to agree to wage increases contract after contract if it genuinely believed such a wage premium existed. With regard to the UTU Agreement, the Board noted that, while its recommendations with regard to wages differed from the UTU Agreement, it thought that the UTU Agreement was entitled to weight as to a benchmark of what constitutes one fair and appropriate bargain especially in light of the fact that the UTU represented between 27-30% of the organized workforce covering a number of operating crafts. The Board, however, found that the carriers proposal failed to appropriately adapt and fully monetize certain integral parts of the overall bargain reflected therein and that for the two bargains to be comparable as fair and appropriate resolutions, the costs of the Carriers and the benefits to the affected members as a group need not be exact, but should be roughly equivalent. Id. at 22. Accordingly, the Board accepted the unions valuation of these non-transferrable wage features and added them to the proposed GWIs. For example, the unions had argued that the certification pay allowance applicable to UTU members under the UTU Agreement was largely inapplicable to the other employees, with the unions valuing this pay as equal to 1.3% GWI. Accordingly, the Board indicated that it adopted a GWI to be made effective July 1, 2012, that was 1.3% higher than the UTU Agreement. Id. at Additional wage features that were provided for in the UTU Agreement, but were largely only applicable to UTU members, were also monetized and incorporated into the Board s wage recommendations. 7

8 b. Health and Welfare. i. Position Before the Board. The unions proposed that the contributions to The Railroad Employees National Health and Welfare Plan ( GA or National Plan ), which covers over 70% of rail employees working for the carriers and all of the coalition-represented employees and their dependents, be set at $200 per month. The existing status quo based on amendable agreements between the organizations represented by the coalitions had called for employee healthcare cost-sharing contributions to increase in an amount equal to 15% of the Carrier s Monthly Payment for 2010, or $200 of the January 1, 2009 employee monthly cost-sharing contribution amount, whichever [was] greater. The coalitions proposal sought to cap employee monthly cost-sharing contributions at $200 per month. The unions maintained that no other change in the Plan s design should be recommended. The carriers proposed changes to the National Plan including increased employee contributions and changes aimed at altering service utilization. The carriers proposed adding deductibles in the amount of $200 individual/$400 family for in-network services where none had existed before, and a new 5% coinsurance payment, after deductibles were exhausted, up to $1,000 individual/$2,000 annual family maximum out-of-pocket expenditures; and increasing co-pays for emergency care and non-generic drugs. Co-pays for urgent care centers, convenient care clinics and generic drugs were reduced slightly under the carriers proposal. The carriers proposed management design changes included, among others, prior notification requirements for radiology services, pre-authorization and quantity/duration limits for certain prescription drugs, and step therapy requirements for specified therapeutic drugs. The National Plan evolved over some 50 years of collective bargaining and through active administrative oversight by the parties. 4 It was designed to meet the needs of employees working in arduous, often dangerous jobs in a unique industry that has no direct counterpart. By design, the National Plan s benefits are protective, even generous in some respects, because rail employees are at greater risk of illness and disease than employees in most other industries. Its benefit structure also reflects economic trade-offs made in past negotiations. The unions maintained that the costs of the National Plan were not excessive, falling below the average of the employer-sponsored plans found in 4 The National Plan features a wholly self-insured, Administrative Services Only ( ASO ) arrangement overseen by a Joint Plan Committee. The Plan provides for labor and management, as the Joint Policyholders, to oversee the Plan jointly and make such changes in it as may be required. The Chairmen of the Cooperating Rail Labor Organizations ( CRLO ) and the National Railway Labor Conference ( NRLC ) represent labor and management, respectively, on the Joint Plan Committee. 8

9 the marketplace covering the general population when factors unique to the National Plan, for example older participants, and the railroad industry were properly accounted for to make the comparison appropriate. The unions actuaries presented evidence showing that the National Plan s costs had been increasing far less than the national average since This had been achieved in large part by the National Plan s effective administrative mechanism through which necessary and cost-effective design and management changes to the Plan could and had been made outside of collective bargaining. The unions also maintained that the National Plan was not an employee benefit plan in trouble. While its costs were higher than average, this was due to an increased, unavoidable utilization of medical services by its older railroad employee population, not the design of the Plan. The unions maintained that considering the health of the industry, changes to the health care plan were unnecessary. Finally, the unions argued that it was particularly inappropriate to view the health and welfare changes agreed to by the UTU as a pattern, because for the past 11 years the UTU had its own separate health and welfare plan tailored to the particular needs of its members. ii. Board s Recommendations. The Board recommended the carriers health and welfare changes, but staggered these changes over a period of time to reduce the impact to members faced with increased contribution levels. For example, increases to managed care deductibles and out-ofpocket maximum expenses would be phased-in at 50% in 2012, 75% in 2013, with full implementation delayed until Co-pays for generic drugs, mail-order drugs, urgent and convenient care clinics went down while co-pays for name brand drugs and emergency room visits went up. PEB 243 Report, at 29. The Board believed that these proposed changes would cause significant savings to the Plan without reducing the level of employee healthcare. Id. Additionally, some of the proposed changes would save employees money, such as reduced co-pays for generic drugs. In reaching its conclusion, the Board noted that, even with substantial Plan design changes negotiated during the last round of bargaining, the cost of health care has increased in recent years significantly faster than the rate of inflation generally and faster than improvements in hourly wages. Id. at 35. The Board found the carriers proposed changes were consistent with other healthcare plans and that the type and magnitude of the changes was not materially different than those changes negotiated during the last round of bargaining. Id. at 44. Additionally, the Board found it a significant quid pro quo that the carriers proposal would maintain the pre-existing $200 cap on monthly premiums through June 30, As a result of this freeze, employees will be paying significantly less than 15% of the Plan s costs by

10 Importantly, the Board s recommendations phased-in these changes to reduce the impact felt on employees. The primary impetus for this recommendation is to mitigate the adverse effects of the changes on employees, particularly with respect to those employees and family members who are the sickest and the heaviest consumers of medical care. Id. at 47. The Board found that a phase-in was appropriate due to demographic differences between the National Plan and the UTU Plan. Because the participants in the National Plan are older on average than participants in the UTU Plan, the Board found that these members would likely end up paying slightly more out-ofpocket, and that accordingly the phase-in aspects of the design changes would help offset this differential. Id. at 48. III. CONCLUSION. It is fair to say that neither side achieved a rhetorical win before the Emergency Board in the sense of attaining a report clearly embracing the legal positions of either side. First, the Board essentially punted in its recommendations on deciding definitively the overarching issues of pattern and the impact of carrier profitability. While the Board found that it did not need to decide whether the UTU Agreement constituted a pattern, however, it also took great lengths to ensure that the full values of the provisions of the UTU Agreement were incorporated into its recommendations. Similarly, while the Board did not take a definitive position on the weight afforded carrier profitability, it accepted that the carriers were financially healthy and indicated that this factor was considered when recommending their wage increases. With regard to the substantive recommendations, of course neither the unions nor the carriers got everything they wanted. For example, while the carriers achieved their health and welfare changes, these changes were staggered over the life of the agreement and this win was further offset by the Board s recommendation for higher GWIs and a one-time lump sum payment to employees. In the wake of PEB 243, all 11 rail unions reached voluntary tentative agreements with the carriers based on the Board s recommendations. With respect to the coalition represented by our firm, all of these agreements were ultimately ratified by overwhelming majorities of the unions membership (TCU-Clerks - 93%; TCU-Carmen - 86%; IBEW - 73%; IAM - 70%; ATDA - 85%). Accordingly, at the very least, the PEB process here achieved what it was designed to do with the Board s recommendations forming the basis of voluntary agreements between the parties. 10