Mandatory Arbitration Provision Could Cost More Jobs

The incoming Obama administration, as part of its effort to appear moderate, has fallen silent on the so-called Employee Free Choice Act. That's the proposed law that would take away the right to a secret ballot in a union election and replace it with a "card-check" system.

The polls show that voters overwhelmingly disapprove of workers losing the right to a private ballot on the important issue of whether to unionize. However, there is another aspect of the legislation that has received little attention but could do even more damage than the loss of the private ballot.

The Employee Free Choice Act contains a mandatory arbitration provision. At first glance, it sounds like a good idea to bring in a third-party -- unconnected to labor or the company management -- to iron out disagreements. But the arbitrator would have extraordinary powers. For example, the arbitrator could impose a binding arbitration agreement upon the union and company. That agreement would last for two years, and the company could not appeal it, even if it forced the company to raise wages.

Canada tried such a system, as the San Francisco Gate notes. It didn't work so well. One arbitrator, for example, forced a company to increase wages by 33 percent. That company then had to cut jobs to pay for the hefty raises. Though all ten Canadian provinces had mandatory arbitration, six provinces have repealed it.

The real problem with mandatory arbitration is that it prevents a company from being light on its feet; it precludes a company from reacting quickly to changing markets. It destroys the flexibility needed to survive perilous economic times.

As we watch the American auto companies, lumbering up to the Hill in search of bailouts, weighted down with expensive union contracts, we should be cautious of legislation that will let arbitrators make companies less competitive.

Even if, by some miracle, labor lets the "card-check" provision be dropped from the Employee Free Choice Act, the mandatory arbitration requirement still renders this a piece of legislation that should never become law.