VI. UNION AND MANAGEMENT COOPERATION AND APPROACHES TO MULTI-EMPLOYER PLANS

Defining Responsibility: Exploring Government’s Role in Regulating Multi-Employer Arrangements

HEATHER GROB
Washington State Department of Labor and Industries

Abstract

      This paper covers various regulatory approaches to multi-employer plans and arrangements. It addresses topics in training, health and pension plans but will focus primarily on workers’ compensation and regulatory agencies’ approaches to “carve out” plans. Of particular interest is government’s role in protecting employers’ and employees’ rights through establishment of rules and responsibilities, adequate mechanisms for settlement of disputes and some level of oversight. This paper will be from a practitioners’ point of view, but the paper will reference basic models of regulation including collective action problems and public choice theory.

      Multi-employer plans¹ have special arrangements under federal and state law, and they have several advantages for workers and employers, especially those in small businesses. Workers who otherwise might be vulnerable to gaps in employment, benefits and training opportunities can expect continuity of benefits through change in jobs. Employers achieve economies in group purchasing, simplified administration and stabilization of benefits and labor costs (Employment Benefits Research Institute 1997).

      Despite their advantages, multi-employer arrangements are generally not well understood by industrial relations and economics professions. The IRRA research volume on “nonstandard” work challenged traditional perceptions of employment arrangements (Carré, Ferber, Golden, and Herzenberg 2000). While authors Cobble and Vosko (2000), Herzenberg, Alic, and Wial (2000), and Cappelli (1999) examined the occupational union model and suggest multi-employer solutions to contingent work, they did not critically examine the role of regulation of multi-employer arrangements. The opportunity for research in this area is timely, especially as regulators address issues involving local labor development strategies, contingent work, gaps in coverage and group incentives to change behavior toward socially desirable goals. A more comprehensive discussion is needed on governments’ role in regulating or promoting multi-employer solutions.

      Multi-employer relationships pose some unique issues for regulatory agencies and challenge traditional notions of employment relationships. Many workers find themselves unable to achieve statutory rights because single-employer relationships were assumed (Ruckelhaus and Goldstein 2001). Responsibility for adherence to labor standards with regard to a “covered worker” may reside with many employers rather than just one. While multi-employer relationships often extend benefits beyond those required by law, the existence of a multi-employer situation makes establishment of responsibility and enforcement difficult. In many employer contexts, definitions of employer can extend to unions or to labor supply companies, but often the rights and responsibilities to workers are poorly defined. Regulatory oversight is complicated by the timing of visitation or contact.

      This paper examines the traditional role of government in relation to multi-employer arrangements and economic theories of regulation. It then suggests some solutions to problems regulators face, using the example of workers’ compensation arrangements.

Origin of Multi-Employer Plans and Regulation

      Contemporary forms of multi-employer arrangements in the United States and many other countries originate in the guild systems, which date at least to medieval times. Guilds were member–service organizations, often developing voluntary agreements controlling trades’ standards of work. Early apprenticeship systems provided for training and means of income in exchange for craftsmanship, dedication, and loyalty. Building and construction trades’ unions developed from guild systems and began to provide multi-employer solutions where markets and governments fell short. For example, in the 1930s, few Americans had access to health insurance, but union health and welfare funds provided benefits (Commons and Andrews 1936) and predated any government-sponsored programs. Many trades had their own plans financed by union dues and established between 1893 and 1929 (Dearing 1954). These structures were later included in multi-employer contracts and insurance plans, took wages out of competition and provided an industry with development strategies (Ghilarducci 1992).

      Concern with union management of pension funds (due to skimming of pension plans and corruption in some unions) lead to the 1947 Taft-Hartley Act that barred sole control of pension plans by unions and mandated joint administration by employer and union trustees. Funds were to be managed for the sole interest of workers, tie employer contributions to benefit levels, and pursue a safe investment portfolio. This tight regulation of union sponsored multi-employer funds made union pension fund structure and management more viable and beneficial for workers than many single-employer funds (Ghilarducci 1992).

      The Employee Retirement and Income Security Act (ERISA) reach has broadened over the years to include other kinds of multi-employer health and welfare arrangements. Health and welfare funds were frequently under investigation by the Department of Labor but were only recently included in ERISA’s reporting structure. Joint labor–management multi-employer plans are regulated under the 1947 Taft-Hartley Act and excluded from ERISA amendments related to multi-employer welfare arrangements (MEWAs). In 1982, legislation refined the category of MEWAs (those established outside of a collective bargaining agreement) to control abuses fostered by lack of adequate federal or state regulation (Field and Shapiro 1993). Still, a few unscrupulous self-insured plans had formed, collected premiums, then disappeared. Between January 1988 and June 1991, MEWAs left 398,000 participants and beneficiaries with more than $123 million in unpaid claims (Frieden 1992; US General Accounting Office 1991).

      An emerging form of multi-employer arrangements, with and without union involvement, is in the area of workers’ compensation. Many state laws made possible collective bargaining over workers’ compensation. Although these arrangements are limited largely to construction and workers’ compensation is excluded from ERISA coverage, the role of regulatory institutions and ERISA coverage with regard to plans for combining health insurance and workers’ compensation coverage remains somewhat murky, depending on the relevant statute. Some jointly managed multi-employer plans are subject to state insurance laws and differ in level of oversight and enforcement.

      Today, most multi-employer arrangements work through collectively bargained contracts between a single union and its signatory contractors. In consultation with trustees, the union, its members and signatory contractors agree to cent-per-hour contributions to jointly-managed funds. Training funds, health and welfare funds, pension funds and sometimes workers’ compensation funds are usually managed by a third party and overseen by trustees.

      Multi-employer arrangements, and regulation of them, are not limited to the building and construction trades. Waitresses had multi-employer plans (Cobble 1991). In 1992, the Service Employees International Union (SEIU) began negotiating portable plans for its membership (Ghilarducci 1992). Others, such as computer programmers in Silicon Valley and Washington state, as well as New York media workers in association with the Communication Workers of America, are considering multi-employer benefit structures to counter contingent work.

      Little research exists to follow the performance of many forms of multi-employer arrangements. Many jointly managed pension plans remain financially strong and provide stability for members, but union share declines coincided with merging or dissolution of many hiring halls and apprenticeship and training programs, and emergence of temporary help supply companies that typically do not pay benefits or provide advancement opportunities. While the role of multi-employer plans in solving local labor market problems calls for research, regulatory institutions should be prepared to shape policies protecting workers’ and employers’ rights.

What Can Regulatory Agencies Do?

      Governments can do more to help protect employees and employers’ rights as parties enter into multi-employer arrangements, whether they are joint labor–management programs, temporary help supply, or employee leasing arrangements.

Establish Entry and Exit Rules

      An important role for the government is to define appropriate criteria for entry and exit into multi-employer arrangements. Extensive case law on ERISA clearly indicates lack of definition of entry and exit from multi-employer plans (American Bar Association 1999). In determining jurisdiction, courts generally held that a collective bargaining agreement must exist and that the plan may set conditions for entrance to the multi-employer employee benefit arrangement. Exit from multi-employer arrangements sometimes becomes complicated, with employer liability and responsibility at issue.

      In workers’ compensation insurance, the recent expansion of collective bargaining agreements on workers’ compensation provides some additional insight into importance of criteria for entry and exit. Nine states adopted legislation that allows collective bargaining, to “carve out” a joint union– management workers’ compensation program.²

      California’s collective bargaining on workers’ compensation, or “construction carve out program,”³ requires a minimum premium threshold of $250,000, or the employer must belong to a multi-employer safety group paying premiums of at least $2,000,000 a year. California’s threshold means that employers tend to be fairly large (California Department of Industrial Relations 1999). Entrance and exit rules, and the biases they may create, are important considerations for evaluating programs’ performance.

Define Roles and Responsibilities

      Roles, responsibilities, and rights of all parties to multi-employer agreements (employer, employees, union, employer association, joint labor– management board, third party administrator or other party to the agreement) need to be clearly stated. The literature addresses the definition of an employee as well as principle–agent issues in third party administration of funds. This section raises some other issues regarding definitions of employer and union.

      The history of the California carve-outs is a tidy example of the need for clarity. In 1993, early agreements placed funds into a trust rather than purchasing a workers’ compensation insurance policy, and this exposed employers to civil and criminal penalties. The “labor organizations” party to the agreements did not have members but were constructed for the purpose of promoting collective bargaining on workers’ compensation. The Administrative Director of the California Division of Workers’ Compensation then had to distinguish between the original employer and the nominal employer (promoter) and determined he could not recognize those agreements. Emergency legislation was introduced to tighten qualifications of the parties, the “union” and the “employer engaged in construction” (California Department of Industrial Relations 1999, 2001).

Inform Workers and Employers of Their Rights and Responsibilities

      While collective bargaining on workers’ compensation can be successful in reducing the number of injuries and claims, controversies arose over rights to an attorney, due process and physician choice (Markowitz and Van Bourg 1995). Not all states allowing these arrangements actively inform workers of their rights. California’s legislation on carve-outs requires an annual report to the legislature, providing some level of oversight of alterative dispute resolution. Some states require that employers who want to participate in either carve-outs or wrap-ups obtain signatures from employees to agree to those terms, particularly if they contain alternative dispute resolution. Other states lack any real oversight: for instance, Florida merely requires plans to file annual reports. More research is needed on the mediation, arbitration and litigation over the life of claims in order to know whether workers are adequately informed of their rights and whether these types of arrangements should be expanded (Dunlop and Zack 1997). An important consideration is whether workers are more or less likely to exercise their rights when benefits and costs are borne by individuals as opposed to groups (Weil 1997).

      In the union context, good peer review and adequate dispute resolution mechanisms are absolutely essential to individuals achieving statutory rights through unions with multi-employer relationships. In the nonunion multi-employer context, government could also encourage labor supply companies and participatory employers to supply well-functioning alternative dispute resolution mechanisms. In either case, regulatory institutions should establish an oversight role and monitor dispute resolution systems.

Clearly Communicate Level of Regulatory Oversight Required

      Government and industrial relations professionals can play a large role in framing a discussion among employers and workers about multi-employer arrangements’ development and regulation. Research in labor regulation offers models to predict noncompliance based on employer characteristics, but greater understanding of multi-employer incentives is needed in order to address potential “free-riding” or avoidance of responsibility. Government should extend enforcement and consultation activities or reporting requirements to multi-employer groups, and develop predictive models to anticipate intervention while considering jurisdiction.

      An important role of the regulatory agency could be to facilitate agreements between workers and employers and to arrive at voluntary solutions to economic problems. Multi-employer arrangements, if structured well and able to self-regulate, can strengthen labor–management relations and assist government regulation of the employment relationship.

      The role of labor unions and of trade associations is of particular importance. Unions offer individuals actual assistance in exercising rights and exhibit positive union enforcement effects in many federal labor regulations (Weil 1997). The impact of unions in improving employee access to federal courts via class action suits in the case of single employer plans is evident, although multi-employer plans’ role in enforcing ERISA is less clear (Langbert 1995).

Consider Effects of Portability of Benefits

      Regulators need to understand multi-employer effects to know how policy may affect occupational attachments. Enforcement that negatively impacts the viability of plans could negatively impact economic development strategies that use multi-employer solutions that affect more than one employer.

      Portability of benefits can increase occupational tenure but decrease job tenure, an important factor in sectors such as construction, where employees are constantly changing jobs and dependent on skilled, experienced tradesmen and -women. Theoretically a multi-employer plan increases occupational tenure by making benefits and skills development “contingent” on hours worked for any participating employer rather than just one. Ghilarducci and Reich (2001) found a positive correlation between training and participation in jointly-managed multi-employer pension plans but not in other plans. Bilginsoy and Philips (1996) also found positive outcomes for joint union– management sponsored apprenticeship and training programs over nonunion programs, but declines in unionism threaten this effect.

      The same could be said for compensation policies: multi-employer employee benefit models must be taken into account. A recent Washington State Supreme Court decision⁴ ruled that the Department of Labor and Industries must consider employee medical benefits as “compensation” under workers’ compensation law. But administering this judgment is not a simple calculation of employment benefits at the employer of injury. Currently under discussion is the definition of eligible benefits arising from health and welfare funds, to which employees may have banked hours prior to injury and to which employers paid any share of health costs. Administering compensation for eligible benefits is further complicated when employees may participate in different plans and at differing levels of eligibility under one health and welfare fund, or when a fund is self-insured. If multi-employer health and welfare funds do not regularly report details of their plans and participants, it is especially difficult to verify or determine the fairness of compensation of lost benefits. Agencies responsible for compensation must coordinate their efforts and track coverage and conditions set forth in multi-employer plans.

Allocation of Profits and Risk

      Government should assist parties in obtaining agreement on appropriate allocation of profits or risk among participatory employers. An example of this can be drawn from retrospective rating insurance groups. Although not strictly a multi-employer benefit system, Ohio and Washington treat a retro group as a single insured entity, essentially forming a voluntary system of self-regulation. Groups of employers may apply and must meet standards to obtain a refund on their workers’ compensation payments. While this many-employer incentive appears to have been successful in reducing claims in Washington, a dispute arose over the rights of retro organizations to keep and distribute refunds as they saw fit. When the Department of Labor and Industries sought to regulate the allocation of refunds within retro organizations, it lost a lawsuit to the Building Industry Association of Washington. The BIAW had kept about $5.2 million of $26 million it received in refunds for safety programs, training, program administration, and political donations (Postman 2001). Despite need for clarification on distribution of retro payments, Washington states’ laws on retrospective rating are remarkably thoughtful in anticipating conditions that may arise. For example, the law details a process by which a retro group could be expelled, the responsibility for expulsion of a company rests with the retro group, not with the department.

      Government can do more to protect workers and employers by encouraging multi-employer plans to establish legal and financial contingency plans. For the most part, plans covered under ERISA are financially and legally savvy, but some do not clearly fall under ERISA’s umbrella and may require greater attention by state governments. Contingency plans should include consideration of liabilities and duties to participants.

      Government should establish or require mechanisms for disputes settlements. Alternative dispute resolution systems in California “carve-outs” all provide for “ombudspersons”--a third-party neutral available to all parties, who resolves disputes at an early stage, or even before disputes arise. Two-thirds of all 661 construction claims filed in 1997 were resolved before mediation, with only four claims taken to mediation (Young 1998).

      While multi-employer arrangements make a lot of sense for some industries, the realities are that managing a union or a business through difficult times could detract attention from employee benefit plans, potentially placing health, welfare, and pension benefits in jeopardy if unions and signatory contractors do not set up adequate legal and financial contingency plans. Government should help to ensure that member benefits, access to benefits, and privacy of medical records are preserved through union as well as corporate closures and mergers.

Conclusion

      Effective government oversight and enforcement requires better understanding of multi-employer arrangements in their various forms. Important policy initiatives, such as the attempt to expand health and pension benefits, could be thwarted by ignoring impacts on multi-employer agreements, including employers, unions, and workers who participate. Failure to monitor plans can lead to socially undesirable effects such as promotion of so-called “sham” unions, breakdown in bargaining between labor unions over proper structuring of plans, and adverse effects on small businesses. Further, an assumption of single-employer relationships is not necessarily conducive to appropriate compensation for workers in multi-employer arrangements.

      In order to accomplish the goals of facilitating well-functioning labor markets and providing adequate levels of oversight, three things need to happen. First, regulatory agencies need to recognize and facilitate more than one model of industrial relations. Second, government may play a role in putting safeguards in place by informing parties of their rights and obligations under multi-employer arrangements, including insistence on dispute resolution mechanisms and well-funded contingency plans, and maintaining oversight with enforcement and consultation capabilities. Third, government agencies need to work together to determine appropriate jurisdiction and regulatory oversight. Attorney Michael Gordon suggested that a single central regulatory agency supervise private pensions (Wood 1999).

      I have examined a few examples of the kind of contingencies policy makers should consider. In many of the examples provided, disputes arise because of lack of clarity in law as to rules and responsibilities of multi-employer plans, questions of free-riding and resulting expulsion or exclusion from plans. The processes by which plans should be managed, the process by which expulsion could occur and the amount to which a group should be entitled from the undesirable actions of an individual employer are important considerations. Oversight can vary considerably depending on jurisdiction. Another problem to consider is proper handling of disputes or financial disaster. In these contingencies, the rights of workers and employers must be clearly defined. Industrial relations professionals can play an important role in educating each other and practitioners about multi-employer plans’ structure, performance and relationship to regulatory activities. Economists and industrial relations researchers have fertile ground to apply public choice theory to practical examples of group behavior in multi-employer plans.

Acknowledgments

      I am grateful to many employees at the Department of Labor and Industries and other state agencies for providing insight to multi-employer regulation. All statements and opinions are my own and are not be construed as representing the policies or views of the Department of Labor and Industries or the State of Washington.

Endnotes

1. A multi-employer arrangement can be defined as employment or employment benefit systems organized under a collective bargaining agreement with collectively bargained health and welfare or retirement funds or training benefits, and sponsored by two or more employers.

2. States expressly allowing collective bargaining on workers’ compensation are Florida, Hawaii, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Pennsylvania, and New York.

3. California’s labor section 3201.5 specifies the conditions under which construction unions and employers may create alternatives to the state-supervised workers’ compensation system.

4. Cockle v. Department of Labor & Industry, 142 Wn.2nd 801, 808, 16 P.3d 583 (2001).

References

American Bar Association. 1999. Multiemployer Plan Withdrawal Liability: 1999 Mid-Winter Report. <www.bna.com/bnabooks/ababna/benefits/99/benefits05.pdf>.

Bilginsoy, Cihan, and Peter Philips. 1996. Regulation and Training: Prevailing Wage Laws and Apprenticeship in Construction. Department of Economics, University of Utah.

California Department of Industrial Relations, Commission on Health and Safety and Workers’ Compensation. 2001. California’s Construction Carve-Out Program report to the legislature from the California Division of Workers’ Compensation on January 2001.

California Department of Industrial Relations, Division of Workers’ Compensation. 1999. The Construction Carve-Out Program: A Report of Activities in Calendar Year 1999. San Francisco: California Department of Industrial Relations Division of Workers’ Compensation.

Cappelli, Peter. 1999. The New Deal at Work: Managing the Market-Driven Workforce. Cambridge, MA: Harvard Business School Press.

Carré, Françoise, Marianne A. Ferber, Lonnie Golden, and Stephen A. Herzenberg, eds. 2000. Nonstandard Work: The Nature and Challenges of Changing Employment Arrangements. Industrial Relations Research Association Series 2000. Ithaca, NY: Cornell University Press.

Cobble, Dorothy Sue, and Leah F. Vosko. 2000. “Historical Perspectives on Representing Nonstandard Workers.” In Françoise Carré, Marianne Ferber, Lonnie Golden, and Steve Herzenberg, eds., Non-traditional Work Arrangements and the Changing Labor Market. Industrial Relations Research Association Series 2000. Ithaca, NY: Cornell University Press, pp. 291–312.

Cobble, Dorothy Sue. 1991. Dishing It Out: Waitresses and Their Unions in the Twentieth Century. Chicago, IL: University of Illinois Press.

Commons, John R., and John B. Andrews. 1936. Principles of Labor Legislation, rev. 4th ed. New York: Augustus M. Kelley.

Dearing, Charles. 1954. Industrial Relations. Washington, DC: Brookings Institution.

Dunlop, John T., and Arnold Zack. 1997. Mediation and Arbitration of Employment Disputes. San Francisco: Jossey-Bass.

Employment Benefits Research Institute. 1997. Fundamentals of Employee Benefit Programs. Washington, DC: Employment Benefits Research Institute.

Field, Marilyn J., and Harold T. Shapiro, eds. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: National Academy Press.

Frieden, Joyce. 1992. “Will Multi-employer Plans Be Regulated?” Business & Health (August), p. 61.

Ghilarducci, Teresa. 1992. Labor’s Capital: The Economics and Politics of Private Pensions. The MIT Press: Cambridge, MA.

Ghilarducci, Teresa, and Michael Reich. 2001. “Multiemployer Plans As Solutions to Pension and Training Collective Action Problems. Journal of Labor Research, Vol. 12, no. 3 (Summer), pp. 615–34.

Herzenberg, Stephen, John Alic, and Howard Wial. 2000. “Nonstandard Employment and the Structure of Postindustrial Labor Markets.” In Françoise Carré, Marianne Ferber, Lonnie Golden, and Steve Herzenberg, eds., Nontraditional Work Arrangements and the Changing Labor Market. Industrial Relations Research Association Series 2000. Ithaca, NY: Cornell University Press, pp. 399–426.

Markowitz, E., and Victor Van Bourg. 1995. “Carve-Outs and the Privatization of Workers’ Compensation in Collective Bargaining Agreements.” Syracuse Law Review, Vol. 46, no. 1, pp. 1–60.

Postman, David. 2001. “Rebate Ruling Is Win for Builders Group: Cap Affecting Workers’ Comp Money Tossed Out.” Seattle Times, October 2. <http:// archives.seattletimes.nwsource.com>.

Ruckelhaus, Catherine, and Bruce Goldstein. The Legal Landscape for Contingent Workers in the United States. New York: National Employment Law Project. <www.nelp.org/ pub42.pdf>.

US General Accounting Office. 1991. “States Need More Department of Labor Help to Regulate Multiple Employer Welfare Arrangements and Correct Problems.” Washington, DC: GAO. T-HRD-91–47. Testimony.

Weil, David. 1997. “Implementing Employment Regulation Insights on the Determinants of Regulatory Performance.” In Bruce Kaufman, ed., Government Regulation of the Employment Relationship. Madison, WI: Industrial Relations Research Association, pp. 429–74.

Wood, James O. 1999. “Revising ERISA for the next 25 years.” Benefits Quarterly. Brookfield, Fourth Quarter, 1999.