University of Chicago Law School Chicago Unbound Coase-Sandor Working Paper Series in Law and Coase-Sandor Institute for Law and Economics Economics 2009 The aC se against the Employee Free Choice Act Richard A. Epstein Follow this and additional works at: https://chicagounbound.uchicago.edu/law_and_economics Part of the Law Commons Recommended Citation Richard A. Epstein, "The asC e against the Employee Free Choice Act" (John M. Olin Program in Law and Economics Working Paper No. 452, 2009). This Working Paper is brought to you for free and open access by the Coase-Sandor Institute for Law and Economics at Chicago Unbound. It has been accepted for inclusion in Coase-Sandor Working Paper Series in Law and Economics by an authorized administrator of Chicago Unbound. For more information, please contact [email protected]. CHICAGO JOHN M. OLIN LAW & ECONOMICS WORKING PAPER NO. 452 (2D SERIES) The Case against the Employee Free Choice Act Richard A. Epstein THE LAW SCHOOL THE UNIVERSITY OF CHICAGO January 2009 This paper can be downloaded without charge at: The Chicago Working Paper Series Index: http://www.law.uchicago.edu/Lawecon/index.html and at the Social Science Research Network Electronic Paper Collection. THE CASE AGAINST THE EMPLOYEE FREE CHOICE ACT Richard A. Epstein (FORTHCOMING HOOVER PRESS 2009) 2 TABLE OF CONTENTS PREFACE 5 INTRODUCTION: THE EFCA INITIATIVE 7 Historical Background 7 EFCA’s Three Prongs 9 The Card Check 9 Compulsory Interest Arbitration 9 Increased Penalties for Employer Unfair Labor Practices 9 EFCA’s Economic Consequences 10 Why Unions Decline 12 CHAPTER 1: CARD CHECKS VERSUS SECRET BALLOT ELECTIONS 18 Streamlining Union Certification? 18 A Fatal Imbalance 18 The Organization Campaign 20 Neutrality Agreements 20 Salted Employees 23 Free versus Coercive Speech 24 Union Campaign Advantages 29 Secret Ballot versus Card Check Free Choice or No Choice 29 Free Choice or No Choice 29 Unfair Labor Practices in Union Elections 32 Election Results 35 The Infirmities of Card Check Campaigns 41 Card Checks Under the Current Law 41 3 Selective Use of Card Checks 45 Administrative Difficulties 46 CHAPTER 2: MANDATORY ARBITRATION OF TERMS AND RESTRICTIONS 5 0 No Modest Proposal 50 Transitional Provisions 52 Initiation of Bargaining 52 Negotiation and Mediation 53 Compulsory interest arbitration 54 A Standardless Process 54 Structure of the Arbitration Panels 55 Powers of Compulsory Arbitration 55 Scope of Compulsory Arbitration 57 Interest Arbitration Extensions? 60 Right to Work Laws 61 Economic Consequences of Interest Arbitration 61 Administrative Costs 61 Industrial Peace 62 Wh at co u nts as successful arbitration s? 64 CHAPTER 3: THE SOCIAL CONSEQUENCES OF UNIONIZATION 69 An Interest Group Analysis 69 The Ambiguous Union Member Interest: A Large Share of a Smaller Pie 69 The Employer’s Interest Under Collective Bargaining: A Smaller Share of a Smaller Pie. 75 Third Party Effects: A Constant Share of a Smaller Pie—at best. 85 4 Allocative Effects. 85 Distributional Consequences 92 Disruption and Dislocation 93 CHAPTER 4: CONSTITUTIONAL IMPLICATIONS 95 The Card Check 95 Compul sory Interest Arb itr ation 98 CONCLUSION: WSDHAT HOULD BE ONE? 103 APPENDIX: THE EMPLOYER FREE CHOICE ACT (S. 1041) 105 NOTES 110 5 PREFACE The work that I have taken to complete this book has been done on a highly compressed time schedule. During the late summer of 2008, I was approached by my friend James Franczek, senior partner at the Chicago labor law firm of Franczek, Radelet & Rose, about the possibility of doing some work on the proposed Employee Free Choice Act (EFCA), which passed the House of Representatives in 2008, only to die in the Senate after a procedural vote to consider the bill failed to garner the necessary 60 votes. Franczek, and others whom I met with that summer, were confident that the reintroduction of EFCA was highly likely in 2009, especially if the Democratic majority increased in the Senate and (as has turned out to be the case) Barack Obama was elected President of the United S tates. President Obama has been a persistent and outspoken supporter of this proposed legislation, and he takes office with solid labor‐backed Democratic majorities in both the House of Representatives and the Senate. As a result, the pressure has escalated on legislators to consider EFCA, which, as will be come evident, has three major components. The first of these is an increase in the penalties for unfair labor practices by employers during the course of union organization campaigns. The second is the use of a card‐check system to authorize a union for a particular bargaining unit. The third is a system of mandatory interest arbitration which allows a panel of federal arbitrators to set the terms of a first two‐ year contract of an overtly truncated timeline of 130 days is not met. The statute would in effect bypass the protections of the secret ballot in the formation of a union and deny any employer or employee the option to refuse to deal on the terms demanded by a union. These are no small changes. I have worked in the area of labor law on and off since I was a third‐year student at the Yale Law School. I have also written and taught in the area in the years that followed. Given my previous familiarity with the field, it took me little time to realize that this proposed legislation would have the worst possible consequences for the workplace—and through it for the overall economy. The brevity of the statute conceals a host of serious difficulties about its integration with the labor laws that would remain on the books, even as it gives evidence to the massive shift of power from private ordering to state control. I wish to make it clear at the outset that I do not regard the current labor law as ideal relative to more market‐oriented approaches. But it has been relatively stable on matters of collective bargaining over the past 60 years, during which it has provided a framework to which both management and labor has been able to adapt. 6 Shortly after I spoke with Franczek, I agreed to write a detailed study of the Act. The task, however, was too large to do entirely by my own resources. I have had for several years a working affiliation with LECG consulting group, and I was able to enlist the support of one of its managing directors, Anne Layne‐Farrar, with whom I have worked on many other occasions, to help me on the project. She in turn recruited one of LECG’s crack research analysts, Mr. Sokol Vako, to assist me both in the collection of data and in a detailed review of the manuscript at every stage. Toward the end of the process, he was ably assisted by two other research analysts, Dhiren Patki and Alina Marinova. In addition to their help, I have received helpful comments along the way by a large number of individuals who have long experience and intimate involvement in labor law. In addition, to James Franczek, David Radelet and Jennifer Niemiec of Franczek, Radelet & Rose provided me with useful background information in EFCA and card check recognition and interest arbitration under Illinois law. Mr. Philip Miscimarra, a Senior Fellow at the University of Pennsylvania’s Wharton School and partner at Morgan, Lewis and Bockius, provided detailed comments on an earlier draft of this paper. Additional comments have been provided by Mr. Andrew Kramer and G. Roger King of Jones Day. I am also grateful to my long time friend John Raisian, the Director of the Hoover Institution, for speedily arranging the publication of this volume, and to Stephen Langlois, Associate Director of the Hoover Institution for speeding this volume toward publication. Finally, I have received financial support for this work from the Alliance to Save Main Street Jobs, which is comprised of the HR Policy Association (the leader of the Alliance), the Retail Industry Leaders Association, the Real Estate Roundtable, the American Hotel and Lodging Association, the U.S. Chamber of Commerce, the International Council of Shopping Centers, and the Associated Builders and Contractors. I am grateful for their support, and for their willingness to allow me complete freedom to write the book in the manner that I chose. I know that all members of these organizations understand that the passage of EFCA is fraught with perils not only to them as employers, but to everyone in this country, be they employer or employee. The stakes on this issue are too great to remain silent. I am honored to have this opportunity to write “The Case Against the Employee Free Choice Act.” 7 INTRODUCTION The EFCA Initiative Historical Background The Employee Free Choice Act (EFCA) is the most transformative piece of labor legislation to come before Congress since the enactment of the National Labor Relations Act of 1935 (NLRA). To assess the potential impact of EFCA, this blunt statement needs to be put in historical perspective. The NLRA marked the culmination of a systematic effort of the Progressive movement that dominated so much of American intellectual life during the first third of the twentieth century. Its basic purpose was to displace the earlier judge‐made regime that had previously governed labor relationships. That system did not carve out any special privileges, or impose any special burdens, on labor unions and their members. Instead it applied the same general legal principles applicable to other forms of business and economic associations organized to advance the interests of their members. The first major departure from that model in American labor law