By Pearl Smith
For the first time in almost a decade, an economic recession (see "Recession Looks Inevitable") is forcing public and private employers to quickly find ways to cut costs and save money. In a panic, many have pulled their old layoff folders out of the files. Layoffs are quick and the savings are easily calculated. But are they wise?
Current business literature underscores what AFSCME and other unions have always known for a long time — layoffs can "backfire," leaving behind a demoralized and cynical workforce, and burdening employers with increased severance, added hiring costs and other administrative headaches. Layoffs destroy institutional memory and foster workers’ distrust in management, affecting morale and loyalty. In environments where employers focus on maintaining a trained and knowledgeable workforce, workers tend be dedicated, creative and productive, knowing their jobs are safe. Business Week labeled this development "The No Layoff Payoff" (Business Week, Oct. 8, 2001). By avoiding layoffs, the workforce and employer — both public and private — can easily return to normal operations when the economy rebounds.
A BETTER WAY
There are many alternatives to layoffs, each of which emphasizes that the best way to save money over the long term is by keeping employees who have learned to do their jobs well. The first place to look for savings is in non-labor expenses. Jurisdictions can reduce expenses by paring down or eliminating non-personnel costs. Recently, Massachusetts announced restrictions on out-of-state travel. Several cities and counties have postponed capital improvements or purchases. Others have limited the use of publicly owned vehicles. The cost of contracted services has increased substantially in recent years in many jurisdictions. Restricting contracting out is another way to save money while preserving bargaining unit jobs.
Any "excess capacity," such as buildings or equipment, is a potential source of revenue to tide an employer over a rough period. Additional revenue may also be generated by renting out public spaces to private groups for one-time events or extended periods. And, while many public programs are operating under severe fiscal restrictions, some are not. Federal highway programs, for example, are well-funded. The payroll costs of employees doing that type of work are often absorbed by the general fund. Where it is permitted by the program guidelines, paying those employees instead out of the program fund can free up general fund dollars for other purposes.
STRATEGIES AFFECTING WORKING CONDITIONS
Unfortunately, these measures may not completely alleviate budget problems, leaving many public employers to look for additional means to free up resources. Union involvement is critical for these strategies to be carried out successfully, for they frequently affect conditions of employment. Among these strategies are:
1. Hiring Freezes and Attrition
Hiring freezes and prohibiting the creation of new jobs are usually coupled with other aggressive cost-cutting strategies. A hiring freeze policy can be absolute — allowing no new hires under any circumstances; or flexible — allowing replacement only for essential services.
In the fall of 2001, the governors of Maryland and California and the mayors of Detroit and San Francisco called for budget reductions that combined hiring freezes with other cost-cutting strategies. Seattle announced that a hiring freeze was an essential part of the city’s effort to reduce budgets by $3 million.
Even with an uncertain economic climate, people leave jobs, voluntarily or by retirement.
Attrition means simply that vacant positions are not filled as workers quit. As part of his budget package, the governor of New York pledged to cut $3 billion in spending over the next 18 months, eliminating 5,000 jobs, which included jobs lost through attrition. Anticipating a $100 million revenue shortfall, San Francisco International Airport decreased its 1,900-member workforce by 18 percent through attrition.
To prevent employers from augmenting a downsized workforce with temps, consultants, interns, welfare-to-work employees, or other contingent workers, collective bargaining agreements need strong language that protects bargaining unit work.
2. Restricting Overtime
Overtime represents in excess of 10 percent of payroll in some jurisdictions. Where overtime is excessive, it is often because of short staffing, so restricting overtime may create workload problems. Restricting overtime in 24-hour institutions may be especially problematic.
On the other hand, in some cases, decreasing this cost may relieve fiscal pressure enough to avoid layoffs.
3. Transferring/Retraining Workers
Moving workers from jobs slated for downsizing to other positions can mitigate the need for layoffs as well as tap the experience and expertise of the existing workforce.
Several AFSCME agreements include provisions for worker training and transfers. In Oregon, the contract negotiated between Multnomah County and AFSCME Local 88 (Council 75), has language that allows county workers, in lieu of layoffs, to try three-month job trial placements as ways to demonstrate their abilities to handle requirements of new jobs.
4. Payroll Lag
By altering pay schedules, employers often gain savings as payroll cycles are extended over a specific period of time.
In 2000, to avoid layoffs, Nassau County, N.Y., and its unions, including CSEA/ AFSCME Local 1000, agreed to a "lag payroll." Workers received 10 days pay for each 11-day work period. Employees recover deferred pay upon leaving county service. If the county initiated layoffs or furloughs anytime during the length of the agreement with its unions, all deferred monies from the lag payroll salaries become payable to workers immediately.
5. Early Retirements and Other Inducements
Early retirement programs are designed to reduce payroll expenses by increasing the number of retirements. Many programs increase the pension benefit over what has actually been earned as an inducement for employees to retire. Like hiring freezes, they may apply to all workers or be targeted to particular jobs.
Many "early out" packages subsidize the cost of health care benefits, allowing retirees to continue health benefits until Medicare eligibility kicks in. Other early retirement plans make full or partial payments for Medicare supplemental insurance. States and local governments have used lump sum bonuses and other severance inducements. Iowa and AFSCME Council 61, for example, have agreed to pay early retirees 100 percent of their accrued sick leave, instead of the normal $2,000 cap. The agreement also includes a delay in the effective date of the next general wage increase, contingent on the legislature extending the terms of the agreement to non-bargaining unit staff
Pension and retirement experts have warned that early retirements programs do not save money unless combined with hiring freezes.
6. Voluntary Furloughs and Reduced Workweek
Other strategies for reducing payroll costs include furloughs, which are temporary periods of non-work/non-pay status, or reduced hours of work. Some employers have mandated these measures. Offering them as options based on seniority or other criteria established in the collective bargaining agreement can yield savings without forcing economic hardship on employees. Private-sector employers, including major airlines and consulting firms, have offered to maintain health care benefits for furloughed employees and, in the case of the airlines, have agreed not to contest unemployment insurance claims filed by employees on furlough.
An important consideration is whether the collective bargaining agreement contains language protecting seniority rights, leave accrual and benefits payments while an employee is on furlough or reduced hours. Some contracts require employers to prepare and submit to the union a written plan describing how lost time will be equalized, the process for how workers within the same job classification are rotated, and a timetable for the return to a regular work schedule.
One example of a reduced work schedule substitutes a 32-hour workweek for a 40-hour week, with adjustments in pay. Contract language can also prevent non-bargaining unit members from performing work regularly done by those on reduced schedules.
Since Sept. 11, several employers, including Disney, Continental Airlines, the Newark Housing Authority and the Miami-Dade Public Defender’s Office, have instituted furloughs and reduced work schedules.
A variation on the reduced workweek is a shared work or short-time compensation program. Instead of laying off employees, employers reduce their work schedules and use Unemployment Insurance program funds to make up some of the lost salary for these employees. Employers keep their skilled workforce and are spared the expenses of recruiting, hiring and training new employees. Employees are spared the hardships of full unemployment, realizing more net income than they would have if they were laid off. Shared work programs were first introduced in 1978 in California. Federal legislation enacted in 1982 encouraged other states to adopt shared work, and 17 states now operate such programs, each with their own particular rules and regulations. Check with your state unemployment office for details.
WORK REDESIGN
Redesigning how work gets done, to improve quality and reduce costs, is a more long-term solution to fiscal problems than the other options. Improvements achieved through labor/management initiatives to redesign work can also decrease the threat of privatization. For many years, AFSCME has strongly advocated government redesign based on worker empowerment through collective bargaining, and by creating a "more responsive and efficient bureaucracy with fewer layers between top management and front-line workers." (See Redesigning Government: The AFSCME Approach to Workplace Change, 1995.)
7. Flattening Government Hierarchies
Many employers have realized what front-line workers have known for a long time — that levels of middle management often lend little to production or services. They instead impede efficiency, add extra costs, and often prolong projects and production. A "flattening" of the management structure is a common result of work redesign initiatives.
When AFSCME rank and filers in the Indianapolis Department of Transportation pointed out that the ratio of managers to workers was 3 to 1, the department reduced the number of supervisors, resulting in union-led work units. The smaller work crews became more efficient, as more emphasis was put on performing highway maintenance and less on controlling the work. In Iowa, the state has agreed to target supervisory positions in its layoffs at Council 61’s urging.
8. Contracting In
Beyond simply restricting outside contracts, some jurisdictions have "contracted in" work that has traditionally been outsourced. This strategy can save jurisdictions money and provide employment for those who might otherwise be slated for layoffs. Outside contracts can be phased out as they come up for renewal. Many AFSCME negotiated agreements contain language banning contracting out while members are laid off.
In 1990, the city manager of Portland, Maine, and leadership from AFSCME Local 481 (Council 93) put aside differences resulting from layoffs several years earlier and created a 26-member labor/management committee to brainstorm ways for the city to save money and prevent new layoffs. As a result of the partnership, the city and the local created an in-house construction company to bid on and undertake public works projects that would have normally been contracted out.
The in-house company exists to this day. As a result, taxes in Portland remained steady and even decreased for four successive years. While the city reduced its overall workforce by 10 percent, no worker was laid off and the local successfully won wage increases and improved benefits packages.
Similarly, San Diego wastewater workers found themselves fighting contracting out. Members of Local 127 (Council 36) effectively demonstrated that hiring contractors to clean sewer lines would have cost more than if the cleaning were done in-house. As a result of the local’s lobbying, the city agreed to add more than 50 workers and purchase new equipment for the duration of the two-year cleaning project.
9. Formalizing Partnerships
Labor/management partnerships have been formalized in many places, so that the creativity and changes they generate are not simply "one-shot" efforts, but are ongoing.
The Quality Service Through Partnership Program (QStP), a joint effort of OCSEA/AFSCME Local 11 and the state of Ohio, has saved more than $172 million since its inception. Through QStP, labor/management cooperation has improved. Several Ohio state agencies have full-time union Quality Coordinators to bolster partnerships and support quality improvement efforts. (For more information, see http://www.state.oh.us/quality and Redesigning Government: The AFSCME Approach to Workplace Change, 1995.)
EFFECTIVE CONTRACT LANGUAGE
In spite of the array of effective alternatives, many AFSCME locals may still face layoffs in the bargaining unit. The following contract provisions can give the union some flexibility:
Notification — Prior to any layoff action, the employer should give advance notice to the union. Ninety days is preferable, with 30 days a minimum.
Counter-proposal — The union should be able to discuss the situation with the employer prior to the layoff notification, and should have the opportunity to offer alternative means of achieving budget savings.
Seniority — Layoffs should proceed in inverse order of seniority with all temporary, provisional and seasonal employees laid off first. The last laid off should be the first recalled, with no new hires until all laid-off employees have been recalled. Performance evaluations should not be a factor in layoffs.
Grievances — The union should explicitly reserve the right to grieve layoffs under provisions of the contract.
THE CHALLENGE
It will be a major challenge to find innovative ways to fund state and local budgets and lessen the threat and impact of layoffs. We are forced to get reacquainted with existing tools that were employed in earlier economic downturns. To minimize the chance of future layoff threats, this may also be the time to create effective partnerships to make permanent changes in how work gets done.