Analysis: Verizon seen winning healthcare fight with union

Features Reuters

By Sinead Carew

Continue Reading Below

NEW YORK (Reuters) - Verizon Communications <VZ.N> is expected to prevail on key issues such as healthcare costs in its negotiations with unions but may end up postponing its plan to freeze pensions, according to experts who have been following the telephone company's labor dispute.

Negotiations between Verizon and the unions representing its wireline workers are expected to resume on Wednesday after both sides last week agreed on a new framework for bargaining. About 45,000 technical and customer service workers -- roughly half of Verizon's wireline workforce -- returned to work last week after a two-week work stoppage.

"With the workforce returning to work, both sides realize that an extended strike would be very costly and they're both backing down," said Professor Harry Katz, a labor specialist at Cornell University. Katz added, however, "Verizon is going to get meaningful concessions in the negotiations. They're just not going to get the extreme draconian concessions they were after."

Verizon workers had walked off the job August 7 after talks on a new contract broke down. The unions claimed that Verizon was looking for too many concessions in areas such as healthcare, pensions, work rules and job security.

In returning to work last week, the labor groups said Verizon had changed its tone and was now ready to at least talk about giving up on some of its demands. As a good faith measure, the unions said they would not walk out for 30 days and promised a week's notice for any strikes after that.

Continue Reading Below

For its part, Verizon reinstated the terms of the old contract indefinitely, giving workers breathing room while negotiations continue. Despite this gesture, the unions still expect very difficult negotiations.

Neither Verizon nor the two unions representing the workers -- the Communications Workers of America and the International Brotherhood of Electrical Workers -- would provide specifics on which concessions might be made by either side.

One area where workers are widely expected to concede is in healthcare contributions, according to several experts. Verizon wants workers to contribute to healthcare insurance premiums, something they don't do today.

"The notion that workers won't pay more for healthcare is almost certainly lost," said Professor Joseph Foudy of New York University's Stern School of Business.

But, Verizon may have to be more flexible in areas such as pensions, according to Foudy and two other academics. Verizon has said it wants to freeze pensions for union workers and instead revamp its 401(k) plans for those employees.

The company already made this change for its nonunion workers. However, it may end up conceding on this by keeping

pension contributions intact for existing employees.

Verizon, which wants to phase out pensions, likely will not offer that benefit to new workers, said Rutgers School of Management Professor Jeffrey Keefe, who has studied telecommunications industry labor trends.

Foudy also said Verizon could end up with a "staggered move for change in the pension." He said that the company could also keep job security assurances for workers, at least in the short term, in order to get the contract approved.

RETURNING TO WORK

Last week's events show that the strike hurt both sides, according to industrial relations experts, pointing to customer frustration with Verizon and the potential loss of healthcare benefits on August 31 for workers if they kept striking.

While labor watchers described Verizon's initial demands as "extremely aggressive," the fact that it has agreed to negotiate under a framework that the unions deem acceptable indicated that its final demands are likely to be softer.

"If all you're demanding is cuts across the board, why agree to anything," said Rutgers' Keefe, who added that the move to bargain was "the first sign from the company that they want to settle the contract."

Verizon recruited tens of thousands of managers to cover for the workers during the two weeks they were on strike. But these managers aren't skilled enough to handle jobs such as repairs and installations that are routine tasks for the trained union workers, Keefe said.

"It's not easy to replace this workforce," he said.

And since the unions agreed to go back to work, it must mean that they have received something from the company such as assurances of compromise on some specific issues, said Wharton School of Business Professor Peter Cappelli.

"The union loses a lot of its bargaining power once its off the picket line. If they're going back it means that they feel its not going to help them to stay out," said Cappelli, adding. "That's because the big issues have been settled."

Meanwhile, investors have basically shrugged off the labor dispute, with Verizon shares up about 2 percent since the company's pre-strike close on the New York Stock Exchange.

"I think the company has the upper hand as shown by the union going back to work without a contract," said D.A. Davidson analyst Donna Jaegers, who noted that the dispute might even help Verizon's financials.

"If the strike is less than a month long its usually a net positive for the company in terms of profitability," she said.

(Editing by Steve Orlofsky)