January 10, 2014

A vote in anger

Union rejection of YRC contract extension triggers regrets and recriminations and releases pent-up anger of the past four years.

By Mark B. Solomon

The decisive rejection yesterday by YRC Worldwide Inc.'s unionized workers of the company's proposed five-year contract extension was more than a referendum on the merits of the proposal. It was a referendum on the past four years.

Since 2009, the less-than-truckload (LTL) carrier's 26,000-member rank and file have agreed to multiple concessionary agreements to keep their employer alive. The givebacks have resulted in reduced wages and vastly diminished pensions. For workers who may have owned company stock before 2009, an agreement reached on New Year's Eve of that year to swap $530 million in debt for $1 billion in new equity—while it kept the company out of bankruptcy—diluted the value of their holdings to virtually nothing. What remained for the workers were their paychecks, their health insurance, and a pension that had been cut by 75 percent.

Still, their wages were decent compared to what employees of non-union truckers took in. Health coverage was inexpensive and generally considered excellent. Some pension was better than none. And in a still-shaky economy, they had jobs with some degree of security.

That's what made yesterday's results so striking. Not only did the rank-and-file reject the proposed five-year contract extension, but they did so by a 4,400-vote margin out of about 19,000 ballots counted. With YRC financially vulnerable, with customers anxious over its fate, and with rivals expected to begin circling for profitable business, it's likely many workers knew they could be putting their jobs on the line with their votes.

But for long-suffering YRC union employees, the line had finally been crossed. They had seen their company survive a near-death experience, begin what appeared to be an ascendancy under new management, endure a botched network realignment at its largest unit that led to the firing of the unit's CEO, and were shocked to hear that the company without their knowledge had offered to buy most, if not all, of its largest union rival, Arkansas Best Corp., parent of ABF Freight System Inc.

According to several workers, the rank and file might have agreed to a straightforward extension of the current contract, which runs until March 2015. Given all they have gone through, though, the demand for additional concessions accompanying the extension proved to be too much to swallow, they said.

Stephen J. Walski, a Joliet, Ill.-based driver for YRC's Holland regional subsidiary, said workers might have ratified the extension if it didn't call for more givebacks or if it was the first time YRC had ever sought concessions. With neither being the case, the time had come to say no, he said.

"The majority of us love what we do, we take pride in it, and we work hard 12- to 14-hour days to service our customers, but there comes a time when enough is enough," Walski, an 18-year veteran, said in an e-mail.

Walski said the company's proposal for workers to forego wage increases in the first two years in return for lump-sum bonuses, combined with a continued 15-percent wage reduction that is in the current contract, would cost the typical worker thousands of dollars by 2019. Those calculations include the impact of wage increases that start in the third year, he said.

Workers were upset with the company over language requiring them to be with the company for at least 11 years to qualify for three-weeks vacation, for freezing the wages of non-driver union workers, and for requesting that up to 6 percent of driver work be eligible for subcontracting, Walski said. They were particularly peeved that there was no proposed change in the company's pension contributions, currently at one-fourth what they were prior to the round of concessions in 2009, he added.

LET DOWN BY LEADERSHIP
Workers also felt let down by Teamster leadership, claiming it never bargained with YRC for a better deal. Much of the wrath was directed at Tyson Johnson, head of the union's freight division. Ken Paff, national organizer of the Teamsters for a Democratic Union (TDU), a dissident group, said Johnson refused to negotiate with YRC because he knew members would balk at any more concessions.

Paff said YRC workers were left to "fend for themselves" by the leadership's inaction, a scenario that marks one of the biggest leadership failures in the 15-year tenure of General President James P. Hoffa.

A source close to the Teamster hierarchy said Johnson and others were in a no-win situation because YRC's lenders were demanding concessions in return for restructuring $1.4 billion in company debt while the rank-and-file were in no mood for further givebacks.

"[Johnson] could have negotiated a deal somewhat like this, sent it to the members, and they would have said, 'Why did you come to us with this piece of s**t?'" said the source.

"The issue is the debt, and there is nothing we can do to change that," the source said. "Anything we're doing right now is on the margins."

STATE OF SHOCK
The outcome of the vote stunned the company, which had been confident that the extension would be ratified. A research firm hired by YRC to poll the rank and file concluded that most members favored ratification, according to a well-placed union source.

YRC CEO James L. Welch had said that contract ratification was essential for the company's lenders to agree to restructure its $1.4 billion debt package currently being carried at crushing double-digit interest rates. Without a contract extension in hand, there would be no deal with the banks. No deal with the banks would scuttle management's best-laid financial plans, which include cutting its debt by $300 million by issuing $250 million in new common stock and converting $50 million of debt for equity, as well as an agreement to receive $1.15 billion in two five-year loans to help refinance its debt load at more attractive terms. All of this, however, was contingent upon ratification of the contract extension, which Welch said would help YRC achieve about $100 million in annualized cost savings.

Welch has vowed there will be no bankruptcy filing. But the implication was clear that labor held the key to the company's fate, at least in the near term. No one can remember a trucker that has ever emerged from bankruptcy protection; virtually all that go bankrupt go out of business.

In a statement this morning, Welch blamed the vote's outcome on the timing of the Dec. 23 announcement about the two loan agreements. The news was made public after most Teamsters had mailed in their ballots, Welch said. As a result, they didn't have the full facts needed to make an informed decision, he said. Welch declined further comment other than to say the company continues to talk to all stakeholders.

At this point, time is not on anyone's side. The first principal payment on the debt, $69 million, is due Feb. 15. The company is believed to have available resources to make that payment. But YRC has a $326 million payment scheduled for September 2014 and another $678 million by March 2015. Then there's the 800-pound gorilla perched in the corner: $2 billion or more of unfunded pension liabilities that, at some point, must be met.

Paff of TDU called on Hoffa to immediately begin simultaneous talks with YRC management and with its lenders, a strategy that should have been followed all along instead of first working out financing deals and then hoping for a ratification vote. Parallel discussions are the only way labor will have any leverage to save Teamster jobs without gutting the contract, Paff said.

In 2009, Hoffa's backing and orchestrating of the debt-for-equity swap were instrumental in saving YRC. Now, As Hoffa almost assuredly steps into the YRC fray again, he might be reminded of an auspicious milestone next week. On Jan. 15, 1964, his father, James R. Hoffa, signed the first National Master Freight Agreement covering more than 400,000 workers in the freight industry. The agreement, which brought workers under a collective umbrella for the first time, was the senior Hoffa's crowning achievement and represented Teamster power—and freight influence—at its zenith.

Today, after three decades of mergers, bankruptcies, and the encroachment of non-union carriers that has decimated the Teamster freight division, his son will go to work to rescue the largest survivor of the once-mighty fiefdom.

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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