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Update on Freight Rail Labor Negotiations: Fall 2011

Current status
The nation’s largest freight railroads have been in national bargaining with the rail unions since January 2010.  The railroads have a ratified agreement with the largest union, the United Transportation Union, which represents about a third of the employees covered by this bargaining.  Although the UTU agreement should serve as the pattern for settlements with the rest of the unions, the other unions have rejected the UTU terms as a framework for agreement to this point.

You can expect uninterrupted railroad service as the parties continue to pursue an agreement during the next 60 to 90 days.

Next steps under the Railway Labor Act
Labor negotiations in the rail and airline industries are governed by the Railway Labor Act (RLA), which bars strikes or other self-help until exhaustion of mandatory procedures.  Most national negotiations have resulted in voluntary, peaceful settlements.  Moreover, Congress has historically stepped in to prevent or quickly end strikes following the exhaustion of RLA procedures.

Q&A with CSX VP of Labor Relations Steve Crable

In this interview with Steve Crable, CSX vice president-Labor Relations, we learn more about the ratification and the status of other negotiations.

Before we get into the details of the negotiations, can you refresh our audience on who represents management at the negotiating table?
Management is represented by the National Carriers’ Conference Committee (NCCC), which consists of the labor vice presidents from Union Pacific, Burlington Northern Santa Fe, CSX Transportation, Norfolk Southern and Kansas City Southern. The spokesperson for the NCCC is the chairman of the National Railway Labor Conference (NRLC).

How about the unions?
The unions are organized into three coalitions. Each coalition is bargaining separately with the NCCC. The United Transportation Union that includes yardmasters and conductors has ratified their agreement, but the other two coalitions are:

What does the UTU agreement mean for negotiations with the Rail Labor Bargaining Coalition (RLBC) and the TCU coalition?
Typically, the NCCC would meet with the RLBC and TCU to negotiate agreements that follow the UTU pattern, adjusted for the particular issues and concerns of the RLBC and TCU.   

What is the status of those negotiations?
The NCCC met with the other union coalitions, but the meeting produced no agreements. The NCCC proposed agreements similar to the UTU agreement, which the RLBC and TCU rejected. 

What are the issues holding up an agreement?
As always, wages are an area of significant disagreement.  The NCCC’s most important non-wage issue is health care.  And both the RLBC and TCU have other issues that are significant to their agendas.

CSXT and the other railroads are making money.  Why don’t the railroads just agree to the unions’ demands?
We believe that the wage and benefit package in the UTU agreement is fair, equitable, and reflects market conditions, providing a 17% increase in wage rates, maintaining comprehensive benefits and implementing changes in plan design for medical and prescription coverage that enable us to freeze employee contributions to benefits for five years. 

I look at it this way:  Managing finances and running a successful railroad are similar, in concept, to running a successful household.  You can’t spend more than you make.  In good times, there is always a temptation to spend more in the short term than you can afford in the long run.  Our national budget deficit and the mortgage foreclosure crisis are exhibits A and B.  In our business, we’re affected by a host of economic realities -- the rise and fall of the shipping, steel, airline and auto industries – so we need to spend responsibly now so that we can continue to provide well-paying, stable jobs for many years into the future.

Still, CSXT made over $1.5 billion last year … it’s hard to believe the railroads can’t afford what the unions are asking for.
Numbers are relative.  If your mortgage payment was projected to increase by 17% over the next several years, you would be concerned.

Providing market-based wage and benefit increases allow the railroads to compete fairly with trucks for the growing freight transportation market.  It enables CSXT to maintain our infrastructure and grow our business, which adds jobs and allows the company to achieve its long-range strategic objectives, all while providing efficient and environmentally-friendly transportation solutions.

The railroad business is a high cost, capital intensive business.  CSXT has invested heavily in capital improvements, spending over $2 billion this year on maintaining and improving track, buying new locomotives and cars, and investing in technological advances.  These expenditures are good for business and create jobs for our employees.  Positive train control, a program ordered by the federal government, is projected to cost CSXT at least $1.2 billion by 2015.  By the government’s own estimates, PTC will cost about 22 times the benefit it will yield.

How much does CSXT spend on wages and benefits for contract employees?
To put employee wages and benefits into perspective, each year CSXT spends approximately $2.4 billion on employee wages, health care and other benefits.  That’s more than we spend on capital improvements.  Employees are human capital; our most important form of capital, so that money is well spent on you.   By 2015, a 17% wage increase, applied to all CSXT contract employees will cost more than $340 million beyond current wage costs.  When expected health care inflation is added, the cost increase exceeds half a billion. 

CSXT believes that we have productive, hardworking employees who should be well paid.  At the same time, it would be irresponsible to our shareholders and our employees to agree to wage and benefit demands that are excessive.

What happens now?
The NMB asked both parties to agree to binding arbitration on September 2.  The NCCC accepted the offer.  The RLBC and TCU refused to arbitrate the dispute.   As is the normal practice when one party refuses to arbitrate, the NMB orders a “cooling off period,” which began on September 7th and will end at 12:01 AM, EDT on October 7th.  Had the unions accepted arbitration, there would have been no cooling off period and no chance of a strike and a neutral arbitrator would have determined the terms of a new contract.

Now that the National Mediation Board has “released” the parties from mediation and started a “cooling off period,” does that mean there will be a strike? 
There is no immediate threat of a strike.  The summer and fall have been challenging and CSXT is disappointed that we could not reach voluntary agreements with RLBC and TCU, which would have avoided any potential strikes.  We are already facing a slowing economy and repeated weather emergencies, so voluntary agreements would have been preferable.  That said, the procedures of the Railway Labor Act (RLA) are designed to avoid, whenever possible, strikes and lockouts.  During the next 90 days, the parties continue to negotiate and new agreements should be concluded by the end of the year.   

What happens if the parties still can’t reach an agreement after this cooling off period?
If the cooling off period ends and no agreement has been reached, it is likely that President Obama will appoint a Presidential Emergency Board (PEB) to conduct hearings in late September or early October.  

What is a Presidential Emergency Board (PEB) and what do they do?
If the NMB determines the parties cannot reach an agreement, they will recommend to the President that he create a PEB and appoint 3 to 5 panel members who hold hearings and make a non-binding recommendation for settlement.  Both the NCCC and the union coalitions are invited to make recommendations to the NMB about potential panel members, but it is ultimately up to the President to make the final appointments. 

Let’s talk in more detail about what happens during the next 90 days.
There are three phases of the 90 day process, each typically lasting 30 days:  a 30 cooling off period – which has already begun, followed by a Presidential Emergency Board hearing, and then a second 30 day cooling off period.  The Railway Labor Act (RLA) establishes this process to encourage the parties to reach an agreement and to avoid the negative impact on employees, the economy and the transportation system that a freight rail strike would involve. 

Will the unions continue to bargain as this process unfolds over the next 90 days?
The first 30 day cooling off period may involve continued bargaining, but negotiations during the cooling off period typically do not produce agreements.   If no agreement is reached, the President appoints a Presidential Emergency Board (PEB) at the end of the first cooling off period.  The PEB uses the next 30 days to hold a hearing, where they listen to arguments by the parties and then make a non-binding recommendation.  Following the PEB recommendation, the parties resume negotiations and enter a second 30 day cooling off period.  At the end of the second cooling off period, the parties reach a settlement or are free to strike, lockout or unilaterally implement new contract provisions if there is no agreement.  The last cooling off period, if necessary, would end in early December.

What if the unions or the NCCC aren’t satisfied with the PEB recommendations?
PEB recommendations are not binding.  The parties are free to accept, reject or bargaining something different.

How likely is some sort of strike, lockout or work stoppage after the PEB convenes?
CSXT and NCCC are committed to reaching agreements with the RLBC and TCU, as evidenced by the agreement with the UTU.  During the last 20 years, there have been only two days of legal strike activity at the major freight roads, so a strike or lockout is not likely at this point in time.  During the last round of bargaining, RLBC reached the first settlement, setting the pattern for other unions to follow. This time UTU has set the pattern and with some creativity and compromise, the other unions and the NCCC should be able to reach a settlement.  In the event that a strike or lockout were to occur, Congress can be expected to step in.   Given the uncertain atmosphere in Washington, Congressional intervention is not the preferred solution.