LOS ANGELES -- As 59,000 members of seven retail clerks locals returned to work last week for the first time in 141 days, the message for union members around the country was clear, industry sources told SN last week: What they got in Southern California is as good as members of the United Food and Commercial Workers Union are likely to get anywhere else as their contracts expire later this year.
"I don't think the big three are going to give anyone a more favorable contract than what the clerks got in Southern California -- that's why the chains invested in the loss of billions of dollars in revenues there," one industry observer told SN last week.
UFCW members ratified new agreements with Safeway, Albertsons and Kroger Co. by a margin of 86% the last two days of February following a strike against Safeway's Vons and Pavilions stores that began Oct. 11, 2003, and a lockout by the other two employers the following day. The new three-year agreement was hammered out during 17 days of negotiations between the three employers and the UFCW with the help of Peter J. Hurtgen, director of the Federal Mediation and Conciliation Service.
One of the major provisions of the new contract was acceptance by the union of a two-tier system for wages and benefits. It will enable new hires to earn a maximum of $15.10 per hour after 7,800 hours, compared with a maximum of $17.90 an hour after 2,600 hours for current workers.
On health care, the chains agreed to continue to pay employee premiums for at least two more years at a rate of $3.80 an hour per employee for all union members, with a $4.60 cap in the third year for current employees, compared with $1.10 per hour in the third year for new hires, with current employees contributing $5 to $15 per week in the third year if needed and new hires contributing $9 a week on average, compared with no contributions under the old contract.
Union members also will receive a lump-sum bonus of 30 cents per hour within the first 30 days after ratification and another lump-sum bonus of 30 cents an hour at the beginning of the third year of the agreement.
The new contract also allows some job sharing between food and general merchandise clerks and limited use of vendors to do some store work.
In a published report, Meredith Adler, an analyst with Lehman Bros., New York, said most of the financial benefits to the chains "will result from the hiring of new workers at lower wages and benefits. In order to hasten the process of bringing in new workers, buyouts of existing workers are possible."
She also said the chains may see some improvement in productivity due to the provisions that allow them to use general merchandise clerks to do some of the work of higher-paid food clerks and that allow the companies to utilize vendor labor more broadly.
The most important concession to union members, Adler pointed out, was the defeat of the chains' proposal to have separate health care funds for each tier, which would have increased costs for the first tier, which has an older employee base. The chains also agreed to build a $190 million health care fund reserve, which may extend full coverage for the full three years of the agreement.
"Safeway remains the focus of significant union anger," Adler added, and while workers in other parts of the country may be too discouraged by the Southern California results to strike, "[Safeway] workers could participate in 'operational slowdowns' or 'service lapses' that damage the customer experience at the stores."
Jonathan Ziegler, principal at PUPS Investment Management, Santa Barbara, Calif., said he was surprised at how much the employers gave the union, "particularly the provision employees would not have to contribute to their health care for two years, which probably helped hasten a settlement."
On the other hand, the two-tier system "was obviously a positive for the employers, as was the fact there were no salary raises," Ziegler added. However, if the economy improves, hiring at the lower wage and benefits level could become a problem for the chains, he added.
Mark Husson, an analyst with Merrill Lynch, New York, said in a published report the settlement enabled employers "to establish the principle that rising health care costs are the responsibility of the employee, and capping pension costs also threw some responsibility onto employees to provide part of their own."
Husson also said turnover of 20% a year "should see the majority of employees on the new [wage] structure in three years."
Greg Conger, president of UFCW Local 324 in Buena Park, Calif., defended the new agreement, saying it contained "dramatic, dramatic improvements" over the proposal the union rejected last October.
Although the UFCW did agree to accept a two-tier system, "that's something we can go back to in three years and try to close the gap," Conger said.
He also said he believes the two-tier system might create problems for employers down the line "because it creates morale problems that can fester."
On the plus side for the union, Conger added, current employees will not have to pay any monthly premium for health insurance for the first two years of the contract, "nor will they have to pay in the third year if the trustees determine there's enough money there to maintain proper reserves.
"In addition, we maintained a single trust fund for health care and pensions, rather than the separate fund for new hires the employers originally proposed, which would have decimated the fund by the end of the year, and we were able to maintain the provision that allows early retirement at age 60 with full future accruals, rather than the employers' proposal to move retirement age up to 65 or else there would be no accruals."
Under the October proposal, Conger said union members would have received a single wage increase of 35 cents an hour, which applied only to journeyman clerks, whereas the new contract gives members two lump-sum payments.
He said the union also defeated a proposal for unrestricted vendor stocking; a proposal for unrestricted use of pre-cut meat, and a proposal that would have allowed the chains to open selected stores on a non-union basis.