Minnesota Cities Magazine

5 Labor Arbitration Trends Worth Noting

By Irene Kao

Pie chart of labor relations arbitrations by type of entity Dec. 2012-Aug. 2013It’s that time of year again—time to negotiate labor agreements! In planning for the future, it is helpful to look at the past. You can learn great lessons from a snapshot of recent arbitration awards. Here are five trends cities should consider.

1.) Cities are not involved in labor arbitrations as much as it may seem. While it seems like cities are parties to labor arbitrations all the time, the numbers say otherwise. Based on the arbitration awards in a nine-month period (December 2012 to August 2013), cities made up 31 percent of the 94 labor arbitrations. Why the low number? It could be a variety of reasons. Maybe cities and unions are successfully compromising on the terms of labor agreements on their own. Or maybe cities are settling grievances before reaching the arbitration stage. Regardless, the number is low.

“You might think that a bad economy would make it more difficult to settle union contracts and, therefore, the number of interest arbitrations would go up, but that doesn’t always happen,” says League of Minnesota Cities Human Resources Director Laura Kushner, who often assists cities with labor relations questions.

“Sometimes employee unions are more willing to settle for lower wage increases when they know the city is having trouble balancing its budget.”

2.) Law enforcement is the biggest user of labor arbitration. Pie chart showing types of employee groups involved in interest arbitration Dec. 2012-Aug. 2013 Almost 40 percent of labor arbitrations involved city police and county sheriffs. That might be because, for labor negotiation purposes, law enforcement officials are considered “essential employees.” So if a union and an employer reach impasse during labor negotiations, the union does not have the right to strike. Instead, the union’s only option is to request an interest arbitration—the type of arbitration used when the parties are unable to negotiate a collective bargaining agreement.

Kushner says she definitely gets more calls from cities about labor issues with police than with other groups. “For essential employees, there is not much incentive to avoid interest arbitration because they often get at least part of what they want as a result of arbitration, and there’s no cost to them individually because the union pays for labor’s share of the arbitration fees,” she says.

3.) The economy is recovering … what does that mean for city wages?
The good news is that the national and state economies are getting better. The not so good news is that cities may not be feeling the impact of that yet. Generally, arbitrators know this when interest arbitrations come before them.

Arbitrator Stephen Befort acknowledged this in a Wright County Deputy Sheriffs decision by stating: “The current economic recovery is weak, and local government finances remain in a precarious position. Local government units typically experience a time lag in rebounding from a period of recession, and budgetary projections for the next few years still show red ink. Under these circumstances, a cautious approach to personnel costs is warranted.” In this decision, Befort did not award any general wage increase for 2012 or 2013, but did grant a 1 percent general wage increase for 2014.

Arbitrator Nancy Powers took a similar stance in a Stillwater Police Sergeants decision, where she said, “The current financial position of the city is still very tenuous, considering the national economy, the state budget restraints, and local taxes and revenues, including declining property tax revenues. None of these factors have shown enough improvement to warrant an increase at this time.” She awarded no general wage increase for 2012, but the city and the union agreed to a 2 percent general wage increase for 2013, and a 2 percent increase for 2014.

Graph showing increase in law enforcement general wages Dec. 2012-Aug. 2013On the other hand, a small number of arbitrators have also acknowledged that things are getting better. In a Stillwater Patrol Officers decision, Arbitrator Richard Anderson said, “Although these are not the best economic times, the economy appears to be slowly recovering for all governmental units. While the city is not financially wealthy and has been on an austerity program, it continues to maintain a healthy unreserved fund balance. The city should be able to finance the award without resorting to levying increased property taxes or cutting city services.” He awarded no general wage increase for 2012, but 3 percent for 2013, and 3 percent for 2014.

While a 3 percent general wage increase may seem like a lot, the trend is moving toward granting more general wage increases. For 2012, arbitrators awarded 0 percent general wage increases in law enforcement interest arbitrations 57 percent of the time. For 2013, that turned to 33 percent. So far, there have been three interest arbitration awards addressing wage increases for 2014, and none of these awards were 0 percent. Instead, the average was at 2 percent.

Bottom line, cities might want to prepare for greater general wage increases.

4.) While general wage increases are going up, special pays and premiums are not.
Despite granting general wage increases, arbitrators have almost uniformly rejected proposed increases in special pays and premiums. Of 19 instances where unions proposed new or enhanced premiums, arbitrators granted such proposals only four times.

In a Brooklyn Center Police Officers and Detectives decision, Arbitrator Thomas Gallagher increased longevity pay by $20/ month (for a total of $222/month), and detective premium pay by $35/month (for a total $235/month) to be comparable with similar cities. The other two outliers come from Stillwater Police Sergeants and Wright County Deputy Sheriffs. Both Arbitrator Powers and Arbitrator Befort awarded increases based on internal comparisons.

Powers increased court pay for police sergeants from 2 ½ hours to 3 hours because police officers had been granted 3 hours in a 2008 arbitration. Similarly, Befort increased on-call pay to $50/day for county deputy sheriffs and sergeants because the county social workers were already receiving that amount for being on call.

Otherwise, it seems that arbitrators have recognized that with limited funds to allocate, such funds should be focused on wages, which makes sense. When money is tight, money should go to as many people as possible, not select individuals with particular assignments or qualifications.

Professionals talk around a glass conference table with a laptop5.) Internal equity is “it” when it comes to interest arbitrations.

In interest arbitrations, arbitrators consider a variety of factors, including the employer’s ability to pay, internal comparisons (how the union members compare to other city employees), external comparisons (how the city measures up to comparable cities), pay equity, cost of living, bargaining history, etc. Among the multitude of factors, the favored factor is internal comparison.

In Wright County Deputy Sheriffs, Arbitrator Befort said, “Most Minnesota arbitrators view internal consistency as the most important consideration in determining wage adjustments because (1) an award consistent with an existing internal wage pattern most often replicates the bargain that the parties would have struck through a voluntarily negotiated agreement, and (2) an award that deviates from an internal pattern is likely to set off an undesirable ripple effect in future rounds of bargaining.”

This sentiment was echoed by Arbitrator David Paull in a Winona County Assistant County Attorneys decision, where he awarded the county’s proposal for general wage increase largely because the county had reached wage agreements with all of the other six bargaining units in the same percentages as the wage increases it proposed for the assistant county attorneys.

Cities should be warned, though: internal consistency cuts both ways. As discussed above, Arbitrator Befort increased on-call pay for deputies and sergeants in Wright County Deputy Sheriffs. In the same decision, he also increased uniform allowance based on how much the sheriff supervisors unit was receiving ($650 for 2012, $675 for 2013, and $700 for 2014).

Finally, internal equity is not just an important factor when determining potential wage increases. It is also a primary consideration when formulating fringe benefit awards. In a Stillwater Patrol Officers decision, Arbitrator Anderson said, “Absent compelling reasons, fringe benefits, especially health insurance contributions in the public sector, should be uniform throughout an employer organization.”

No, there is no crystal ball, but looking at past arbitration awards can help cities figure out where to go when renewing collective bargaining agreements. Armed with this information, go forth and negotiate!

Irene Kao is a research attorney with the League of Minnesota Cities. Contact: ikao@lmc.org or (651) 281-1224.

Read the November-December 2013 issue of Minnesota Cities magazine

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