The U.S. perspective on Labor Law and Co-Determination
Labor Law poses particular difficulties for American investors abroad because of markedly different attitudes toward employer / employee relations such as co-determination, impediments to dismissals or workers’ councils rights. The same is true vice versa for corporations doing business on an international, especially U.S.scale.
1. The U.S. View
Notwithstanding recent legislative initiatives such as the Worker Adjustment, Retraining, and Notification Act - which at times requires 60 days’ notice of the closing of a plant with more than 100 employees - American companies come from an environment in which they have relatively great flexibility. Traditionally, in the United States, management, completely by itself and in secret, makes strategic decisions such as whether to close a plant or reduce manpower levels. In the United States, management decides and labor carries out those decisions at an agreed rate. Indeed, the United States Supreme Court has squarely held that an employer need not bargain with its employees over whether to shut down part of its business. The Court has viewed this as akin to the closing down of a business, where “an employer has the absolute right to terminate his entire business for any reason he pleases” (capitalistic v. social approach, monistic v. pluralistic stakeholder approach, ownership v. democratic approach)..
Europeans have traditionally viewed the role of workers quite differently. In many continental countries, workers have been granted a right of consultation about or notice before the implementation of decisions resulting in work force reductions. In this regard, West Germany grants its worker the most rights of participation. By law, each plant with more than five employees must have a works council(Betriebsrat) to represent that plant’s interest. In contrast to any American counterpart, these works councils are independent form trade unions. They represent the interests of plant employees as distinct from those of the employer or those of the trade unions. Under the German Works Constitution Act, the employer has a duty to fully inform the works council in “due time” of any plant changes that might result in “substantial disadvantages for employees” and consult with it on such proposals. In the course of that consultation, the employer must solicit the works council’s approval of the employer’s method of selecting persons to be terminated as a result of the plant change. If the employer and the works council cannot resolve a dispute on this methodology, the must appear before an arbitration committee. In addition, the employer must notify the regional office of the Federal Employment Institute. If this office believes the plant change would strain local resources, it can delay the change until two months after notice. As these examples illustrate, U.S. companies can be confronted with a radically different labor situation once they go abroad.
A number of countries - particularly those with a two-tiered board structure - require substantial employees representation on the board of directors. The two-tier board consists of a large supervisory board (the Aufsichtsrat) and a management board (the Vorstand). The Aufsichtsrat is responsible for representing shareholder interests while the Vorstand manages the firm from day to day. In West Germany, the Netherlands, and Luxembourg, employees have direct representation in the Aufsichtsrat. Indeed, in West Germany, companies that employ more than 2.000 workers must establish Aufsichtsräte that are half labor representatives and half shareholder representatives. In companies with more than 500 workers, one-third of the Aufsichtsrat must be composed of workers.
The implications for U.S. investors are very clear. All significant strategic decisions will require supervisory board approval. Thus, the Vorstand had better have a very persuasive presentation if its strategic plan involves work force reductions. Clearly, management’s flexibility is not as great as in the United States.
Law is a reflection of prevailing social norms. Nowhere is this as clear as in how different nations address the problem of employee dismissal. National attitudes toward the proper relationship between manager and employee heavily color the content of national law. Americans, perhaps the most capitalist of peoples, do not commonly believe that anyone is entitled to a job. Once an individual ceases to be productive, his or her future employment is in jeopardy. Severance pay is viewed as nothing more than a humane cushion to help the discharged until they can find new employment. Europeans tend to feel that, over time, employees acquire a property interest in their jobs. Thus, the more senior an employee is, the greater his or her property interest. Accordingly, severance pay is viewed more as compensation for the taking of substantial property and increases as the employee becomes more senior. In the United States, employers historically have been able to terminate employees with little, if any notice. Unless a collective bargaining agreement is in place, there are few constraints on American management. In West Germany, the works council must approve any dismissal. If it does not, the employer must appeal to a labor court - and usually is likely to lose the appeal. Indeed, the Betriebsrat can affirmatively request the dismissal of employees even without a request from the employer. American enterprises face a different world outside their shores.
2. Overview of U.S. Labor Law
During the late 19th and early 20th centuries, the legal system often helped employers check the growing power of organized labor. Employment will enabled them to fire prounion employees, and employers sometimes blacklisted such employees. Judicial injunctions and restraining orders, and the contempt citations that courts wuld issue upon their violation, continued to be useful in suppressing strikes and other union activities. Some union tactics were held to violate the antitrust laws. Yellow-dog contracts (agreement between an employer and an employee about the non union membership) continued to be used, and state legislation forbidding such contracts sometimes was declared unconstitutional. Despite all these measures, however, the power of organized labor continued to grow. That power was cemented in the 1930s, when Congress explicitly recognized labor’s rights to organize and to bargain collectively by passing the National Labor Relations Act. Later federal regulation of labor-management relations mainly has addressed certain perceived abuses by unions. Although such regulations may have limited organized labor’s power somewhat, they have not seriously disturbed the position that it achieved in the 1930s.
The rise of organized labor is a clear example of what has been called countervailing power: the checking of organized group power by the creation of competing groups. By organizing to counter the influence of corporate groups over their working lives, workers have been able to achieve wages and working conditions that they probably would have been unable to obtain otherwise. In the process, however, they have become subordinate to another organized group - the union. The following counts (in addition to the chart “U.S. Employment Law! as enclosed) illustrate the activist role played by government in the 20th century and government’s contemporary role as mediator between competing group interests, and the closest you can get in the U.S. regarding the issue “Co-Determination”.
(a) The National Labor Relations Act
In 1926, Congress passed the Railway Labor Act, which regulates labor relations in the railroad industry, and which later was amended to include airlines. This was followed by the Norris-LaGuardia Act of 1932, which limited the circumstances in which federal courts could enjoin strikes and picketing in labor disputes. The act also prohibited federal court enforcement of yellow-dog contracts.
These two statutes, however, were only a prelude to the most important 20th-century American labor statute, the National Labor Relations Act of 1935 (the NLRA or Wagner Act). The act gave employees the right to organize by enabling them form, join, and assist labor organizations. It also allowed them to bargaincollectively through representatives of their own choosing and to engage in other activities that would promote collective bargaining. In addition, the Wagner Act prohibited certain employer practices that were believed to discourage collective bargaining, and declared these to be unfair labor practices. Included in its list of unfair labor practices are:
1. Interfering with employees in the exercise of their rights to form, join, and assist labor unions.
2. Dominating or interfering with the formation or administration of any labor union, or giving financial or other support to a union.
3. Discriminating against employees in hiring, tenure, or any term of employment because or their union membership.
4. Discriminating against employees because they have filed charges or given testimony under the act.
5. Refusing to bargain collectively with any duly designated re-spresentative of the exmployees.
The NLRA also established the National Labor Relations Board (NLRB). The NLRB’s main functions are: (1) to handle representation cases (which involve the process by which a union becomes the certified representative of the employees within a particular bargaining unit), and (2) to decide whether challenged employer or union activity constitutes an unfair labor practice. Private sector employees who are not covered by the NLRA include:
• managers and supervisors
• confidential employees - such as company accountants
• farm workers
• members of an employer’s family
• most domestic workers, and
• workers in certain industries - such as the railroad industry - that are covered by other labor laws.
(b) The Labor Management Relation Act
In 1947, Congress amended the NLRA by passing the Labor Management Relations Act (LMRA of Taft-Hartley Act). In part, the changes made by the Taft-Hartley Act reflected the more conservative political climate and the revival of business power that emerged after World War II. Perhaps more importantly, they reflected public concern over frequent strikes, the perceived excessive power of union bosses, and various unfair practices by unions. Thus, the Taft-Hartley Act declared that certain acts by unions were unfair labor practices. These include:
1. Restraining or coercing employees in the exercise of their guaranteed bargaining rights - in particular, their rights to refrain from joining a union or to engage in collective bargaining.
2. Causing an employer to discriminate against an employee who is not a union member, unless the employee is not a member because of a failure to pay union dues.
3. Refusing to bargain collectively with an employer.
4. Conducting a secondary strike or a secondary boycott for a specified illegal purpose. These are strikes or boycotts aimed at a third party with which the union has not real dispute. Their purpose is to coerce that party not to deal with an employer with which the union does have a dispute, and thus to gain some leverage over the employer.
5. Requiring employees covered by union-shop contracts to pay excessive or discriminatory initiation fees or dues.
6. Featherbedding - forcing an employer to pay for work not actually performed.
The LMRA also established an 80-day cooling off period for strikes that the president finds likely to endanger national safety or health. In addition, it created a Federal Mediation and Conciliation Service to assist employers and unions in settling labor disputes.
(c) The Labor Management Reporting and Disclosure Act
Congressional investigations during the 1950s uncovered much corruption in internal union affairs, and also revealed that the internal procedures of many unions were undemocratic. In response to these findings Congress enacted the Labor Management Reporting and Disclosure Act (or Landrum-Griffin Act) in 1959. The act established a “bill of rights” for union members and attempted to make internal union affairs more democratic. It also amended the NLRA by adding to the LMRA’s list of unfair labor practices by unions.