Labor laws give the unreasonable a seat at the table

There are many instances in recent events where a union dispute resulted in substantial costs for all parties involved. For instance, the International Longshoremen’s Association (ILA) — a union of dockworkers — threatened to shut down 14 major East and Gulf Coast ports unless the United States Maritime Alliance — an association of shipping companies — continued to pay “container royalties.” This strike would have cost billions for import-dependent businesses, and it cost a small fortune to the many shipping companies who had to divert shipments to further away ports in anticipation of the strike.

Likewise, Hostess, the iconic 82-year-old bread and snack maker had no alternative other than to close down forever after being unable to resolve a longstanding labor dispute involving the Teamsters union (i.e., their truckers) and its baker’s union. This put roughly 18,500 people out of work.

To understand these labor disputes, it is important to know something about the legal context in which employer-union relationships exist. One crucial law worth knowing is the Wagner Act. (Also known as the National Labor Relations Act.)

One of the great things about living in a free country is that you have the freedom of association — meaning the freedom to choose who to do business with. For example, if your business is using a contractor who is rude and unreliable, you are free to end your relationship with him and to instead pursue business with someone else.

But this freedom is restricted by the Wagner Act. Enacted in 1935, the Wagner Act includes a provision enshrining the idea that it is an “unfair labor practice” for employers to not bargain with union representatives. In practice, this means that businesses must deal with union representatives, no matter how unreasonable they may be.

So, when the introduction of the shipping container in the 1960s revolutionized transportation by eliminating the need for scores of able-bodied men to unload cargo ships one crate at a time, the ILA demanded make-work rules so as to artificially preserve the need for an army of longshoremen. The shipping companies managed to talk the ILA out of unnecessarily inhibiting operations with such rules, but they reluctantly agreed to pay “container royalties” so that the union would agree to cease fighting the transition to container-based shipping.

Similarly, the Hostess shutdown is frequently blamed on the intransigency of the baker’s union, but some speculate that this union was holding out because they wanted to see more concessions from the Teamsters union. With regard to its distribution operations, Hostess had a number of make-work rules that artificially raised the need for more workers and put the company at a severe competitive disadvantage. Breads and snacks had to be delivered by separate trucks, even if they were headed to the same place. Truck drivers were prohibited from unloading their trucks; that had to be done by separate union members, and the guys who unloaded the bread could not unload the cake products, and vice versa.

The real tragedy of the Wagner Act is that it changes the dynamic of labor relations. Unions can make unreasonable demands — demands that would likely never be considered in a negotiation on a free market. But, thanks to the Wagner Act, businesses reluctantly accept some of them because they perceive it is less damaging to lose money on a little union featherbedding than to risk losing a lot of money on costly and time-consuming litigation.

This is not to say that unions always make unreasonable demands. But it is to say that, thanks to the Wagner Act, the unions who do decide to be unreasonable get a seat at the negotiating table — one that businesses cannot walk away from.