Human Resource Management

CLOSing CaSe

“Give and Take”

The general view of management and labor unions is that they are antagonists: When one wins, the other loses— and vice versa. In reality, of course, there are many situations where businesses and unions coexist quite peacefully. And there are other situations where businesses and unions find they have little choice but to work together in order for both to survive. During the economic recession of 2009, for example, unions agreed to help out the businesses that employed their members in several cases.

One notable example came from Harley-Davidson, the big motorcycle manufacturer. One of Harley’s biggest factories is in York, Pennsylvania. The York plant, one of Harley’s oldest, employed about 2,000 non managerial workers. The recession caused a dramatic drop in revenue for Harley, and the firm desperately needed to cut costs. Company officials determined that Harley needed to reduce its overall costs by $120 million to $150 million to remain competitive.

The York factory was a key site for cost reduction. For one thing, the factory was in dire need of modernization. For another, the labor contract governing York workers called for wages well above the industry average; moreover, the factory had more than 60 different job classifications, and the union

contract made it nearly impossible to move workers across classifications.

One of the first options Harley considered was simply closing the York plant and moving its jobs to the firm’s newest factory in Kentucky. That plant had a more flexible union contract and the newest technology. The International Association of Machinists and Aerospace Workers, however, persuaded the company to negotiate a new arrangement that would allow some of the union’s workers to retain their jobs.

Under terms of the new agreement, which took effect in February 2010, about half of the plant’s 2,000 jobs would be eliminated. The number of job classifications would also be cut from 60 to 5, and Harley would have considerable flexibility to move workers from one classification to another. Moreover, any new employees hired after February 2010 would start at an hourly rate of $19.28, about 20 percent less than the previous starting rate of $24.10. Finally, the 1,000 or so workers who retained their jobs would be divided into two groups. About 750 “first-tier” production workers would retain their full-time jobs with current wages and benefits. The other 250 or so would be classified as “casual” workers; these workers would take a wage cut of about 30 percent and would only work on an as-needed basis.

For its part, Harley agreed to invest $90 million to modernize the plant with the goal of allowing the York factory to be the first one to create new jobs when demand for motorcycles begins to increase. The state of Pennsylvania also agreed to chip in $15 million to support both plant upgrades and new training programs for workers. Finally, Harley also agreed that the 750 first-tier production workers would have their jobs guaranteed for the duration of the 7-year deal.

Many observers saw this new contract as one-sided in favor of Harley-Davidson. One expert, Professor Gary Chai- son at Clark University, commented, “This is tying the hands of the union for a long time.” In contrast to similar renegotiations, the union does appear to have given up a lot. For instance, the UAW renegotiated its labor contract with GM during the automaker’s recent financial problems. Under terms of the new agreement, GM would be allowed to eliminate one-third of its jobs and reduce its retiree health- care obligations by funding a portion of its obligations with stock rather than cash. In exchange, the UAW received job guarantees for two-thirds of the GM workforce, a large equity stake in GM, and a seat on GM’s board of directors.37

 

Case Questions

1. Do you think the Harley deal was too one-sided? Why or why not?

2. If you were a Harley or GM employee and union member, would you have voted for the new deal? Why or why not?

3. Do you think it is appropriate for a government entity (e.g., the state of Pennsylvania) to take an active role in union–management negotiations? Why or why not?

 

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