By Jim Cline and Kate Kremer
As part of our spring 2013 wage series, it seemed important to interject a discussion about how arbitrators have ruled in the recent economic climate. I recently spoke on many of the same points at the Annual PERC sponsored Labor and Employment Relations Association (LERA) Conference, so this seems like an appropriate time for this review.
If there is one conclusion you could reach about the last five years of interest arbitration awards, it would be that, in some ways, they have been almost the opposite of what you might have predicted. At the outset of the recession, when personal incomes nationally were falling rapidly, arbitrators were still granting some wage increases, albeit at a reduced rate, and generally rejected employer wage freeze proposals. (That was a point we stressed in previous wage series, noting that many bargaining units seem to be reaching wage freeze proposals that would not necessarily have been imposed by arbiters.) On the other hand, despite the economic recovery that has been occurring over the past couple of years, in a number of instances recently, arbitrators have often shown great restraint in wage awards, sometimes crediting employer claims of inability to pay arguments — even in the face of evidence on the improved economy and growing revenues.
In the next and final article in this wage series, we will discuss our educated guess as to the 2013 and 2014 bargaining environment. While we believe a review of the past five years is important, it also bears noting that we are not anticipating, assuming a continued economic recovery, that the recent past presages the immediate future. Even if slowly, the economy is recovering and fiscal balance sheets — and the ability to pay some wage increases — are improving along with it, there seems to be a lot of lessons that can be learned from a close review of the last five years of awards.
We have summarized those awards, at least the wage, wage related, and health insurance component of the portion, and placed them into a detailed summary chart posted it on our Premium Website. After a close study of those awards, I believe these are the most significant conclusions I’ve reached:
Arbitrators have generally rejected employer wage freeze proposals.
While wage awards have definitely been restrained, many arbitrators have granted increases at, or close to CPI levels. Remarkably, as indicated above, this was even occurring in 2009 and 2010, when personal incomes — and government revenues — were falling. Each arbitration represents a unique set of circumstances and it appears that in many of those cases, the union presented a strong argument for recognition of an existing wage gap and the employer was unable to present a strong argument on limitations on their ability to pay.
Despite granting wage increases, arbitrators have almost uniformly rejected proposed increases in special pays and premiums.
Of the 18 identified instances in which unions propose some type of new, or enhanced premium, arbitrators granted the proposal only twice. It appears that arbitrators have recognized that with limited funds to allocate, those funds would be most concentrated on the base wage. This result often appears to shadow the agreements in most parties have reached on their own during this time period — most contract settlements in recent years have focused almost solely on the base wage and hardly at all on other forms of special pays and premiums. This result seems to square with the most likely internal bargaining unit considerations — if the total amount of settlement funds is limited, the bargaining unit members can be predicted to seek that the money be spread out as far as possible, not narrowly allocated to particular assignments or qualifications.
Arbitrators have generally rejected employer proposals to increase employee health insurance contributions, even in the face of employer evidence of rising costs and comparability data.
This outcome, it seems to me, is the inverse of the result for special pays and premiums. While arbitrators have not granted increases in those additional special pays, they have also not increased the employee health insurance burden, perhaps in recognition that with constrained wage increases, any material increase in health insurance contributions would nullify the small increases granted in take-home pay. This condition seems to especially be the case in these past few years where the CPI increases have been low.
This is the general trend, not the universal result. Recently, in a Kitsap County Deputy Sheriff’s decision, Arbitrator Howell Lankford ended the Deputies’ fully paid employee insurance, imposing a 3% contribution requirement and increased their share of the dependent premium from 10% to 15%. (The Guild is challenging the Award in litigation because the arbitrator imposed the increase retroactively without any possibility of an open enrollment.) Arbitrator Jane Wilkinson lifted the dependent contribution from a fixed $61 a month amount to 10% in City of Vancouver. Outside of the context of a wage based interest arbitration decision, where the Bellevue Firefighters based a reopener only on health insurance and plan specifications, not premium contributions, Arbitrator Fred Rosenberry significantly pared back Firefighter insurance benefits, adopting an employer argument for more parity with the other City bargaining units.
In Kitsap County Corrections, Arbitrator Howell Lankford granted the union proposal, to increase the employer contribution to health insurance, citing strong comparability evidence and a poorly designed and failed quasi-cap system that had been the subject of PERC litigation. In a few other instances, unions have been unsuccessful in improving their health insurance coverage. But on the other hand, arbitrators, other than the cases identified above, have rejected employer efforts to increase the premium burden.
Those are the most significant conclusions I’ve reached in reviewing 24 different interest arbitration awards over the past five years. However, there are a few other noteworthy conclusions as well:
Arbitrator awards appear more restrained later in the recession than earlier in the recession.
To a certain extent, some of this tendency appears to shadow the settlements reached by the parties who arrived at an agreement outside of arbitration. Certainly in 2008, and even continuing into 2009, both of the parties and arbitrators seem to not recognize the extent of the recession. As the full depth of the recession took hold and became more recognized, both parties and arbitrators began scaling back wage increases. This trend, though, also ran parallel to a period in which the CPI was near zero, and in some instances negative. With virtually no inflation, and local governments with vastly depleted reserves, wage freezes became increasingly common in 2010 and 2011, particularly.
A pair of decisions by arbitrator Howell Lankford in Kitsap County — one for the Corrections Officers and one for the Deputy Sheriffs — provides an example of this situation. Both contracts covered 2010 through 2012. Faced with a strong employer narrative that they had a fiscal crisis — despite evidence that the budget was rapidly recovering — Lankford imposed the employer wage freeze proposal for 2010 and 2011, differing an increase until 2012. Our award review of this period shows several instances of a one year wage freeze, but very few of multiple year wage freezes.
Arbitrators have inconsistently applied inability to pay standards in recent years.
Past arbitration precedent has imposed a heavy burden on employers to demonstrate an inability, or even “limited” ability to pay. The inability to pay argument has normally faced a standard set of tests that arbitrators impose on an employer argument of poverty. A frequent test that employers in the past have failed, concerns their ability to raise additional revenues. While state law circumscribes the ability of cities and counties to raise revenue, often there are at least some means to generate some additional funding, even if by means of reallocating from existing funds, and this ability has caused arbitrators often to reject employer inability to pay claims even in the face of declining revenues.
In this recession, though, arbitrators have expressed greater sympathy to employer revenue arguments, even ignoring identified revenue enhancement options available to the employer. Employers have argued — and a number of arbitrators have accepted — that the current political climate makes tax increase options nonviable. In the past year against have been successful in arguing that taxpayer should be expected to carry the burden of financing the services they demand, but not as successful lately.
Arbitrators have imposed an evidence standard and burden of proof on employers presenting inability to pay claims.
Although many arbitrators have expressed some degree of receptivity to employer inability to pay arguments, as indicated above, they have nonetheless generally imposed a stiff evidentiary burden on the employer. It has generally not been recognized as adequate for an employer merely to make generalized claims about a declining economy and declining tax revenues. An in-depth and concrete presentation on the budget situation is required.
The clearest example of that comes from arbitrator Jamie Siegel’s decision in Pacific County. In Pacific County, Siegel rejected the employer’s inability to pay argument even in the face of falling revenues and widespread County layoffs. The reason for this rejection, Siegel explained was an inexplicable gap in employer evidence:
The employer’s 2011 budget was approximately $30 million, including dedicated revenues from grants. Testimony revealed that from 2007 to 2010, the employer’s general fund revenue declined by approximately one million dollars. With the exception of forest excise taxes, the parties introduced limited evidence on the employer’s revenue sources and how the economic declines impacted the revenue sources. The employer introduced no revenue-related or budget documents into evidence.
Pacific County stands as a lesson for parties and their advocates. Arbitration is a complex and document intensive process. One cannot carry the burden of proof in interest arbitration by mere assertion, no matter how earnestly pled.
On the other hand, a recent pair of decisions by Arbitrator Lankford in Kitsap County demonstrates an arbitrator imposing a remarkably light burden on the employer. In a pair of cases unlikely to become a trend, Lankford applied a concept other than the “ability to pay” — something he called “financial responsibility.” Although never defining exactly what he meant by the term, Lankford disregarded evidence that the County had not only reached, but had exceeded the recommended GFOA fund balance guidelines.
For most arbitrators, it would have been enough to reject an inability to pay argument once faced with evidence that the employer withheld reserves above the recommended GFOA fund balance guidelines. Instead, Lankford noted the excess reserves but relied heavily upon widespread County layoffs, furloughs and wage freezes which he concluded, and the evidence confirmed, had generated much of the cost savings that rebuilt the reserves. As indicated, we believe this is unlikely to become a future trend — even if the County’s fiscal situation had been restrained due to week revenues, because the “financial responsibility” concept as applied here is frankly anti-collective bargaining; it rewarded an employer punishing other bargaining units in order to strengthen its interest arbitration wage freeze argument.
As indicated, the pair of Kitsap County decisions stand as outliers on the normal requirement imposed on the employer to demonstrate by clear and compelling evidence the existence of a financial crisis. Still as also indicated, these awards indicate some greater receptivity to these claims now that arbitrators have made in the past. But with balance sheets on the repair, we might anticipate the restoration of more stringent burdens of proof imposed in the future.
Arbitrators have considered internal equity and the wage freezes or reduced wage increases accorded noninterest arbitration bargaining units, but they have not found those settlements to be controlling on interest arbitration groups.
The clearest example of this application is a pair of cases in Lewis County. Arbitrators Dave Gaba and Ken Latsch rejected the County’s argument that other bargaining units had accepted wage freezes required wage freezes on the interest arbitration eligible bargaining unit. As Arbitrator Latsch explained:
In making this award, I am aware of the internal equity arguments made by the employer. I acknowledge that a number of groups have settled for “no increase” contracts, but it should also be noted that those units are not eligible for interest arbitration, and the only other interest arbitration-eligible jail unit has just begun the hearing process and a final award has not yet been received. The employer’s argument concerning internal arbitration would have been much more persuasive if the other interest arbitration-eligible jail unit had settled for no monetary increase.
On the other hand, as indicated above, Arbitrator Lankford in Kitsap County, found those wage freeze settlements to be persuasive. The approach taken by Arbitrator Latsch, though, is more in the mainstream. Arbitrators have generally considered internal equity, including those internal wage settlement trends, as an “other factor,” but have given them minimal weight. The logic of that approach is that employers have the ability to unilaterally impose on noninterest arbitration groups, and to the extent interest arbitration is supposed to reflect “an extension of collective bargaining,” the imposed result on bargaining groups that have neither interest arbitration or strike rights is hardly much evidence of what parties would agree upon when compelled to reach a mutual agreement.
There have been limited instances of “catch-up” wage increases being awarded.
The City of Poulsbo stands out as one such instance. Arbitrator Amedeo Greco granted market adjustment wages above the CPI despite the City’s claimed, “difficult financial situation.” As another example of an “evidence-based” resolution, the City was sitting on budget reserves far in excess of the above-referenced GFOA guidelines, despite their poverty protests.
In other instances, where a market gap was demonstrable, but reserves had declined, arbitrators gave recognition to the market gap by freezing the wages at the outset of the contract and backloading a wage increase later in the contract. This occurred in City of Vancouver, Kitsap Corrections, Union Gap, and Clark Transit. This again, seems to shadow results parties have often entered on their own in these recent difficult times.
In a different, yet related context, recently, the King County Corrections Guild was able to argue for a wage increase above the CPI formula, where they had accepted a wage freeze in the previous year. The County had agreed to a small increase in longevity in that year and avoided layoffs because of the wage freeze agreement. The Guild successfully argued to Arbitrator Michael Cavanaugh that in weighing the CPI factor, he should consider the extent of the CPI increase in both the year of the reopener and the prior year and which the wages were frozen.
As indicated, the past does not portend the future. In the next and final article in the series, we will talk about the current economic and collective bargaining environment and what it suggests ahead for 2013 and 2014 settlement trends. Assuming a continued economic rebound and rebuilding of government balance sheets, we are anticipating an improved climate in the time ahead, with infrequent wage freezes in both settlements and interest arbitration. Even as the recession has ended, not all of the economic clouds have disappeared and so there is much to be learned and applied from the past five years of interest arbitration awards.
