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Business Insights

By Kirtan Patel and Anshu Pathak Email By Kirtan Patel and Anshu Pathak
June 2009
Business Insights

President Obama promised during his campaign and has reiterated after his election that if the Employee Free Choice Act or EFCA in its current form is approved by the House and Senate, he will sign it into law. If EFCA is enacted into law, the results would be damaging for the business community, especially small business owners. The primary goal of this Act is to simplify the process of unionizing for employees.

Deadly speed for unionizing

Unions have been around for decades, and today they stand as a result of much trial and error between corporate and labor interests. So what is the big deal about the EFCA? Currently, unionizing is a two-step process where employees first vote on whether or not they want a union representative. If that vote is a yes, then another election is held to determine who that representative would be. With EFCA the process is consolidated into a single vote on whether the employees would like a certain individual to represent them.

While this increase in speed may be positive for employees wishing to unionize, there is a significant downside for employers: less time for them to prepare for the bargaining process.

This will especially affect small businesses that may not necessarily have an attorney on staff to help with the process. Large companies have dedicated lawyers in their office working with and training managers to deal with and avoid union activity at their businesses. Small companies do not have those resources, and if are compelled to use them, it can prove extremely burdensome to them. Assuming that under EFCA employees have agreed to unionize, the speed at which negotiations must begin will leave a small business owner struggling to find a labor lawyer in time to negotiate this agreement, while also trying to run his business.

The many ways in which the EFCA will be damaging to businesses

As per the proposed legislation, disputes between an employer and the union will be refereed by an arbitration board. This arbitration board decides what the agreement will be and both parties must abide by this agreement for two years. This means the power is taken out of the employees’ and the employer’s hands. The board could settle on an agreement neither the employer nor the employees are happy with, but both are bound by. The final choice is taken away from the initial parties involved.

The EFCA also proposes to do away with the secret ballot system that is currently prevalent for voting for unionization. Can you imagine the coercion that can take place when employees know how the other employees voted? Tension among the workforce will lead to an even further deterioration of productivity.

Another counterproductive measure proposed is the “check card” system, where a union representative can give a card to the employees and if more than half of the employees vote to unionize, that business will be unionized. Such a “check card” system has been tried before—in the 1930’s. The coercion, bloodshed at the workplace, and corruption in the unions was so rampant that by 1950 Congress repealed the laws that allowed “check cards”. Today there are many laws that protect the workers’ rights in the workplace. The worker today is far more secure and protected than in the 1930’s and the need for unions in today’s marketplace is insignificant.

The EFCA strengthens the powers of the National Labor Relations Board to enforce terms and to assess civil penalties against the employers for any violation under the National Labor Relations Act. This raises the cost of doing business and brings down profitability. If you are a small business that is labor intensive and labor dependant, you are already operating on thin margins. Now imagine if all of a sudden your biggest variable cost, labor cost, increases, and your profits plummet, what incentive will you have to continue to be in business? You would be better off working for someone else.

The effect of this law, if it passes, will be felt disproportionately by small businesses that do not have the resources to fight the unions, or the resources to have advisors on board to guide them through the process of dealing with unions or a unionized labor force.

What can small business owners do?

There are many actions that, as a small business owner, you can take in reaction to the EFCA. Remember that this legislation has not passed through Congress, and you can still voice your concerns with your senator or representative. If you completely oppose the bill, then write or call your legislator to let them know.

Another proactive step to take in reaction to this legislation is to make sure you are prepared for unionization by your employees. Start thinking about the steps you would need to take if this legislation passes. One of the main concerns that small business owners should have with this legislation is the speed in which the unionization process will start to happen. If you become prepared now, then the speed will not hit you as hard.

Finally, make sure you have good communication with your employees, and if you oppose unionization, let them know that they will have other systems in place for working constructively with management. Then maybe they won’t even need to have a vote for unionization!

[Kirtan Patel is a managing member of Kumar Pathak, LLC, with focus on complex real estate matters, general corporate law, hospitality industry, and international transactions.

Anshu Pathak is a partner in the New Jersey office of Kumar Pathak, LLC where he practices corporate and employment law with a focus on representing small to mid-size companies]

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