Paul A. Ashcroft Missouri State University

1. A Labor Negotiation Case Useful in An Introductory Business CourseAllied Academies International Conference, New Orleans, April 14-16, 2010 Paul A. Ashcroft Missouri State University

2. Overview • Effective management of human resources is important • Business students should be knowledgeable of the labor negotiation process • Labor agreements can affect wage levels, prices of products and services, and unemployment levels in the overall economy • Students need to develop negotiating skills • This paper presents a case approach that makes teaching labor negotiation fun and rewarding for students as well as instructors

3. Primary Objectives of the Case • Provide students an understanding of the challenges involved in creating a new labor contract • Help students understand the perspectives of both employees and of management in the labor negotiating process • Assist students in developing vital negotiating skills

4. Labor Negotiation Examples • In 1999, the United Auto Workers union was negotiating with General Motors. • General Motors proposed a three-year contract with a 2% increase plus a $500 lump sum increase in year one, a 3% raise in year two, and a $1,500 lump sum increase in year three. • General Motors offered increased job security for workers with at least ten years seniority. • In April 2001, writers and actors in Hollywood threatened a strike if they did not receive higher wages. Such a strike would cost companies in and near Hollywood almost $2 billion per month in lost revenue • Major league baseball players did strike in the 1994 season • The strike cancelled 669 regular season baseball games , and the World Series. • The players earned $250 million less in salaries. • Baseball owners may have lost as much as $500 million. • Spillover losses from the strike, according to a survey of mayors of the 24 cities that host the 26 major league teams, were an average of $1.16 million for each city per missed game.

5. The Labor Negotiation Case • Includes the five most important mandatory issues: • wages, paid vacations, the pension plan, group life insurance, and job security. • Exhibits 1 and 2 include all the information that is provided to students representing management and labor, respectively. • Exhibit 1 is given only to student representatives of management and Exhibit 2 is given only to student representatives of labor. Each side uses the parameters stated to formulate their demands and then negotiate with the opposing side. • Exhibit 1 presents management’s offer to employees as well as what labor is requesting. • Exhibit 2 provides labor’s demands as well as what management is offering. • Neither Exhibit 1 nor Exhibit 2 reveals to the opposing side how willing management and labor are to negotiate on each issue.

6. Exhibit 1: Provided To Each Student Team Representing Management You are the negotiating team for the Middle America Manufacturing Co. The contract with Workers Union of America expires soon. Your team has proposed the following terms for a new 5-year contract: • A wage increase of 3% for the first two years, 4% for the next two years, and 5% in the final year. (This is negotiable, but not for as much as the union has demanded). • An increase in paid vacation time from 2 weeks to 3 weeks per year for the life of the contract. (You will not budge on this one). • A lump-sum amount of $500 to begin a new employee’s retirement fund for each person hired after the new contract goes into effect. (You may be willing to negotiate some increase in matching fund contributions, but certainly not as much as the union has demanded. And, if you do agree to some matching amount, you will withdraw the $500 offer for new employees). • A $50,000 life insurance policy for each employee. The company and the employee will each pay 1/2 of the premium. (You will not increase this offer. Currently, the Company offers no life insurance). • You are not willing to give job security to any employee in the event of downsizing. (The employees don’t know that the Company may have to downsize in the next 3 to 4 years. You may have to back off on your “no job security” position in order to avoid a strike; however, you would only want to include employees with more than 20 years).

7. Exhibit 1 (concluding) The union does not know which of the above conditions you will not budge on and which you will negotiate. They also don’t know that you are preparing for a lockout of employees if you cannot soon reach agreement or if they threaten a strike. You want to avoid this if possible, but you may have to threaten or actually implement a lockout. The union’s demands are: • -An immediate increase in wages of 10%, with annual increases of 4% for the next four years of the contract. • -An increase in vacation time from 2 weeks per year to 3 weeks for the next three years, then 4 weeks for the remainder of the contract. • -An increase in employer matching contributions to employee retirement. Currently, the Company matches employee contributions dollar-for-dollar up to a $500 per year. The union wants this to increase to $2,000 per year. • -The union wants a program where the Company pays the entire premium on a policy with a face value of $100,000 per employee. • -A guarantee that any employee who has been with the company for more than 10 years will not lose their job during a period of downsizing.

8. Exhibit 2: Provided To Each Student Team Representing Labor You are the negotiating team for the Workers Union of America. The contract with Middle America Manufacturing Co. expires soon. Your team has proposed the following terms for a new 5-year contract: • -An immediate wage increase of 10%, with annual increases of 4% for the next four years of the contract. (You are willing to negotiate these percentages, but you don’t want to let management know too quickly). • -An increase in paid vacation time from 2 weeks per year to 3 weeks for the next three years, then 4 weeks for the remainder of the contract. (You are not totally firm on the 4-week condition, but you are on the 3-week condition). • -An increase in employer matching retirement contributions from the current company match of up to $500 per year. You want this to increase to $2,000 per year. (You will not back off on this condition; however, you may be willing to reduce your demand to $1,500). • - The company does not currently pay any life insurance premiums for employees. You want the company to pay the entire premium on a $100,000 policy per employee. (You are willing to compromise on this if you can reach agreement on the other conditions). • -A guarantee that any employee who has been with the company for more than 10 years will not lose their job during a period of downsizing. (You are reluctant to back off on this condition, but you may negotiate the number of years).

9. Exhibit 2 (concluding) Management does not know which of the above conditions you will not budge on and which ones you will negotiate. They also don’t know that you will call for a partial strike if you cannot soon reach agreement . You may bring this up if the negotiations aren’t going well. However, you will try almost anything to avoid a management lockout of employees , which would put all of them out of work. Here is what the Company has offered: • A 3% wage increase for the first two years of the contract, 4% for the next two years, and 5% in the final year. • An increase in vacation time to 3 weeks per year for the life of the contract. • No increase in matching funds for retirement; however, they have offered to put a lump-sum amount of $500 to begin a new employee’s retirement fund for each person hired after the new contract goes into effect. • A $50,000 life insurance policy for each employee, with the Company paying 1/2 of the premium, and the employee paying the other 1/2. • No offer on the condition of job security for employees.