NEWS ANALYSIS2-Tier Plan Is Crucial to Grocery PactBy Nancy Cleeland and James F. PeltzTimes Staff Writers February 28, 2004 For 139 days, tens of thousands of California grocery workers walked the picket lines, trying to stave off cuts to their health and pension benefits. But in many ways, those who stand to lose the most are people who haven't even been hired yet. The tentative contract reached late Thursday, which would end the supermarket strike and lockout, would create two classes of employees at Albertsons, Ralphs, Pavilions, Vons and other stores covered by the accord in Central and Southern California. Those newly hired under the "two-tier" setup would earn less per hour, be eligible for fewer holidays and receive more meager health and pension benefits than veterans, people familiar with the matter confirmed Friday. Securing a two-tier plan was a crucial win for the grocery chains involved in the dispute, the longest-running in U.S. supermarket history. The stores insisted on the plan to significantly cut their labor costs to better compete with nonunion, lower-cost grocery retailers such as Wal-Mart Stores Inc. The United Food and Commercial Workers union initially fought against a two-tier program, arguing that it would lead to discrimination against longtime employees and put a financial strain on the fund that covers their health benefits. That's because the new hires — who are likely to be relatively young and healthy — would be placed in a separate healthcare pool from veteran workers. In the end, though, the union had little choice but to accept the two-tier arrangement to help bring an end to a clash in which many of its members were already suffering great hardship, people close to the talks said. As tens of thousands of UFCW members prepared to vote over the weekend on the contract, their moods ran from relieved to angry. The rank and file haven't seen the document they will be asked to ratify — they will receive copies when they go to union polling places Saturday and Sunday — but some are worried that the terms will be unacceptably inferior to those in the contract that expired Oct. 6. "I'll vote for it if it is better than what we have. To me, this is common sense," said Rickie Williams, a 43-year-old customer service clerk walking the picket line in an Albertsons parking lot in Santa Monica. "Why stay out for almost five months and then vote yes on a contract that isn't as good as the one we have?" But one of his fellow pickets, Diane Landau, said she would follow the union's guidance and vote in favor of the pact. "I will accept the contract," said Landau, 47, a courtesy clerk. "I know the union fought the good fight for us." Details of the deal reached Thursday haven't been made public. But sources close to the negotiations said the two-tier terms weren't radically different from those put on the table by the supermarkets in early December. Under that proposal, the gap between the two groups was significant: Top scale for a newly hired cashier, for example, would have been $15.10 an hour, compared with $17.90 for a veteran — a 16% difference. What's more, it would have taken a new cashier about six years to reach the top; it used to take two years to do that. When it came to healthcare benefits, the early December proposal had the supermarkets capping their contribution for the first tier at $4.60 an hour per employee, while the contribution for the second tier would have been only $1.35 an hour per employee. Two-tier contracts had widespread appeal in the 1980s, when deregulation and globalization began to squeeze large, established companies. They demanded concessions from unions, and unions found cuts easier to swallow if members already on the payroll were spared the brunt of them. But most two-tier plans didn't last. In 1985, for example, two years after American Airlines pioneered the dual structure in its contract with pilots, the union threatened to strike, saying the 50% wage gap between old hands and newcomers created conflict. The gap was narrowed through subsequent contracts and eliminated within a decade. "There was a revolt from junior seniority members saying, 'Enough of this. Why should we be paid less?' " said Capt. Steve Blankenship, chairman of the national communications committee for the Allied Pilots Assn., the union for American's pilots. "A two-tier contract is divisive in its initial construct and, as it goes on, it sabotages morale. I would not recommend it." For their part, the supermarkets have defied the trend of moving away from two-tier agreements. The three parent companies in the dispute — Albertsons Inc., Kroger Co. and Safeway Inc. — have two-tier contracts in place around the country, several with the UFCW. And they were especially determined to put the system in place in Southern California, where grocery workers have been among the best-paid in the country. What's more, this contract will set the stage for contract talks across the nation: Between now and mid-October, Safeway will be negotiating five contracts, including one in Northern California, while Kroger faces nine. On Friday, some UFCW veterans expressed dismay at the situation. They said a two-tier system would paint targets on their backs: Why would a manager, with his or her bonus tied to saving money, offer first-tier employees the chance to earn premium pay by working Sundays and holidays when bringing in a second-tier worker would cost so much less? "I'll get my regular pay," said Rick Hernandez, a 29-year-old meat clerk from Venice, "but they might cut my hours because that would be the cheaper way to go." If ratified, the contract would cover 70,000 grocery workers in Central and Southern California. That includes 11,000 employees at regional chains such as Gelson's and Stater Bros. who didn't go on strike and weren't locked out. Stater Bros. Chief Executive Jack Brown defended the two-tier plan. "We have to be competitive in our wage structures," he said. "I don't see it as a take-away because no one that's presently working will be asked to take a lower-paying job." New hires, he added, would still find grocery wages and benefits appealing compared with those offered by many other retailers. Brown also said he would never ask store managers to show preference for new hires over veteran workers just to save money. "It would violate the trust we have here," he said. The UFCW and the supermarkets have estimated that about one-third of the people covered by the contract would be in the lower tier by the time the agreement expired in three years. Within a decade or two, if the two-tier clause wasn't renegotiated, everyone working for the three chains would be in the bottom tier. "The two-tier system, especially in Southern California, has a lot of savings attached to it, and it only grows over time," said Andrew Wolf, an industry analyst at the investment firm BB&T Capital Markets in Richmond, Va. Peter Cappelli, a management professor at the University of Pennsylvania's Wharton School, said that when such deals were signed in the 1980s, negotiators came off as "politically astute, because the people voting on the contract would never experience the lower tier. But once you got enough of these folks into the workplace, and particularly into the union, the deals couldn't be sustained." Two-tier plans aren't always ideal from the employer's perspective, either, said Charles Cerankosky, a financial analyst at McDonald Investments. That's because an added wage scale complicates contracts already loaded with a jangle of job classifications and seniority rules. But in the ultra-competitive grocery business, it's often difficult to see any other way to compete with nonunion rivals, from big-box discounters to dollar stores. "The union has to ameliorate existing workers' desire for increased compensation, so you try to put more of the burden on people who aren't yet hired," said Cerankosky, whose firm in the past has advised Safeway. "In the abstract, it's real simple — it's the details that get complicated." Before the last contract expired, the average UFCW member in Central and Southern California put in 32 hours a week and earned $13 an hour, according to people close to the union, for an annual income of $21,632. Some veterans with full-time jobs earned more than $40,000 a year. All workers were enrolled in company-paid health plans. Under the proposed contract, sources familiar with it said, veterans wouldn't receive wage hikes, although they would receive two lump-sum payments based on their length of service. They also wouldn't have to pay much, if anything, for healthcare coverage for at least the first two years of the contract, the sources said. Payments might be required in the third year, however. For Vons worker Jeannie McGrew, the fact that new hires are going to get so much less isn't good news. But it seems inevitable. "I don't know what the pay difference is going to be" between the two tiers, she said. "I'm assuming it's going to be pretty bad. But I'm probably going to vote yes. I don't think any of us believes that by holding out longer we'll get something better."
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