In Labor Negotiations, Public Employers Need Finance Directors on the Team

Since the passage of the Public Employees Labor Relations Act (RSA 273-A), New Hampshire has seen explosive growth in the number of county, municipal and school district employees who are unionized. Prior to the 1970s, unionization had occurred in only a few New Hampshire communities. Since the adoption of RSA 273-A, it has become common for public employees to unionize as soon as they can form a bargaining unit that meets the minimum statutory requirements of ten regular full or part-time employees, or both, who share a "community of interest."

When employees chose to unionize, their public employers are obligated to engage in good faith collective bargaining. Certain topics, including wages, benefits, hours of work, and leave time are considered "mandatory" collective bargaining subjects. When a new bargaining unit is formed, the wages, benefits, hours and other "terms and conditions of employment" then in existence must remain in place and cannot be altered until a collective bargaining agreement is reached between the employer and the labor organization. As a result of the doctrine of status quo, a negotiated collective bargaining agreement never truly expires, but continues to govern wages, benefits and other significant cost items until a successor agreement is reached. For these reasons, the long term financial wellbeing of a public employer may depend on the outcome of the collective bargaining process.

Public employers routinely seek professional assistance when negotiating and drafting agreements to purchase land, borrow money, or build facilities. Public employers understand that such agreements have significant legal and financial implications, and they want to assure that the public's interests are being represented by a team that is up to the task. However, in the area of collective bargaining, where negotiations over mandatory subjects could account for 75 percent or more of a local government's entire budget, public employers have not always been as thoughtful in assembling their negotiating teams. This is true even though collective bargaining agreements are legal documents that are binding and as enforceable as any other type of contract. Given their potential impact on an employer's finances and operations, public employers preparing for collective bargaining should give the same attention to assuring that they have the right team as they do for other business transactions.

So, who should be on the employer's bargaining team? At a minimum, the team should include one or more members with experience in public sector collective bargaining. The requisite experience would include an understanding of RSA 273-A and the collective bargaining process, good communication skills, and the ability to draft contract language. The bargaining team should also include, or have available as a resource, a subject matter expert (often a department head or designee) who can focus on the operational impact of bargaining proposals.

As important as an experienced negotiator and subject matter expert for an employer's bargaining team is the public employer's finance director.¹ Why? Because the information most relevant to the bargaining process, the true cost of the contract proposal, is only available from the employer's own financial records. The ability to mine that data and truly understand the financial implications of contract proposals is essential to the negotiation process. Hiring an outside labor negotiator is not a substitute for including the finance director on the bargaining team. As the essential analytical data is in a public employer's records, any outside negotiator will always be dependent on your finance director to identify and analyze the relevant financial information.

The Finance Director's Role in Preparing for Negotiations

It is important to understand that every negotiation is really three separate negotiations. The negotiations that people tend to focus on are those between labor and management across the bargaining table. But equally important are the internal negotiations that take place between an employer's negotiating team and the executive body that it represents, and the negotiation between the union bargaining team and the union membership. Those separate negotiations are what result in the proposals that are exchanged across the bargaining table. The separate internal management and labor negotiations are more likely to result in an exchange of reasonable proposals across the main bargaining table if they are informed by real and reliable data.

In preparing for negotiations, it is crucial that the employer's negotiating team has a clear understanding of the economic realities of the workplace. The employer's team should be able to rely on the finance director to make available the following information:

• Number of employees in the bargaining unit, broken out by job classification, including number of full-time, benefit eligible, and part-time, benefits not offered or prorated, in each classification
• Average number of straight time hours worked per classification
• Average number of overtime hours worked per classification
• Cost, by classification, of a ten cent per hour increase, inclusive of overtime and payroll taxes
• Cost, by classification, of a one percent pay increase, inclusive of overtime and payroll taxes
• Cost, by classification, of an additional "step" in a step increase structure
• Cost of an additional day off, determined by the cost of a replacement employee or time for which an absent employee is replaced
• Cost to employees of an additional one percent employee contribution to health insurance premium
• Cost to the employer of an additional one percent employer contribution to health insurance premium
• Difference between a one percent increase in base pay and a one percent increase in employee contributions to health insurance premiums
• Annual cost of any pay in lieu of benefits - health insurance opt out, cash in of earned time
• Known or anticipated cost of increases in payroll and retirement benefits, shown as both dollars and percentage of total bargaining unit payroll

It is recommended that this information be gathered well before negotiations begin and that it be shared with the union's negotiating team. This should allow labor and management to enter into negotiations with a clear understanding of the economic realities and to be able to understand the cost implications of their respective proposals. Ideally, the information should be incorporated into a spreadsheet that would allow for the costing of proposals set against the baseline data. Attempts should be made to reconcile any discrepancies between the union's understanding of costs and the employer's cost data.

The management team should also make this information available to its own executive body. It is prudent for a negotiating team or at least the lead negotiator and finance director to meet with the executive body before negotiations begin in order to allow those who must ultimately approve any new agreement to articulate their goals and objectives. Without access to reliable data, the executive body may be setting goals that are more anecdotal than fact- based. By providing real and reliable data, and by standing ready to show the cost effect of changes in variables, the executive body may find it easier to focus on real numbers rather than perceptions. For example, it is not uncommon for executive bodies to demand that employees increase their contribution to health insurance premiums to a certain percentage. In doing so, and in the absence of good data, the executive body may not know whether the change is economically significant, and they may not have the ability to understand the impact of an increase in the context of its other contract proposals. Hopefully, the same information will help the union membership better understand of the true cost of their proposals.

Attention should also be given to those proposals that are primarily operational in nature. Operational issues include work hours and schedules, how work is assigned, how overtime and details are assigned, equipment, clothing and work practices. While often categorized as "non-economic" bargaining subjects, operational changes can have significant cost implications. The finance director should work closely with the subject matter expert in order to identify the hidden costs or savings, or both, and develop a spreadsheet that supports this analysis. During the preparatory meeting with the executive body, the subject matter expert and finance director should be prepared to explain the practical implications of proposed operational changes as well as the costs or savings, or both, that would result, in order to prioritize them against the employer's economic objectives. Importantly, the negotiating team should seek guidance on the amount of total increase, decrease, or both, in bargaining unit payroll costs that the executive body is seeking and ask for any tentative agreement to be considered against that objective.

The Finance Director in Negotiations

As soon as the public employer receives the union's contract proposals, the finance director will prove invaluable in costing those proposals. Working with the spreadsheet already prepared to craft management's proposals and with any additional analytic tools that might be necessary, the finance director should be able to cost all of the union's economic and operational proposals. This cost information can then be shared with the union negotiators, in terms of dollars and percentage of payroll. The reality of that cost information may allow negotiations to move quickly from "wish list" to reality-based bargaining. For example, if the union believes that a public employer might accept a two to five percent increase in bargaining unit payroll costs and is seeking a general wage increase, true costing of insurances and other fringe benefits (e.g. uniform cleaning, shift differentials, holiday premiums, educational achievement pay, additional time off, longevity pay) should cause the union negotiators to prioritize their objectives in order to fit them within the perceived employer parameters. As negotiations progress, these same spreadsheets and analytic tools can be used to examine variations on the initial proposals.

This cost data will be invaluable when the bargaining team brings a tentative agreement to the executive body. It is rare that any negotiating team can deliver on all of the executive body's economic objectives, which may well be at odds with the employees' objectives. However, the availability of good data may help the executive body understand that while an objective may not have been met in one area, it is offset by cost savings elsewhere. For example, assume that an employer's objective is to save a certain amount by having employees pay an additional five percent towards health insurance premiums. The union will not agree to that proposal; however, the union is willing to substitute less expensive coverage or modify some other fringe benefit. Good financial analysis will allow the executive body to compare dissimilar proposals and understand their true financial impact. This will hopefully allow the tentative agreement to be considered in the context of the overall effect on payroll costs.

The advantage in negotiations belongs to the party who is best able to produce and analyze financial information. A common understanding of basic economic realities can be useful in building trust and in encouraging all parties to make reasonable contract proposals. The party who comes to negotiations without a calculator and someone who knows how to use it will always be at a distinct disadvantage.

Mark T. Broth is an attorney with Devine Millimet & Branch, P.A., where he chairs the firm's Labor and Employment Law Practice Group. He is also a frequent presenter at New Hampshire Municipal Association workshops and training sessions. He may be contacted by email.

¹For purposes of this article, "finance director" refers to the employee, regardless of title, most familiar with the public employer's finances and who has access to payroll data, benefit costs, and other relevant financial information.