Reference no: EM133178541

Teamsters and UPS Strike a Deal for the 21st Century

The Internet is changing everything for UPS, especially if it can get the union on board. The company originally grew by making local deliveries of packages to retailers and other business customers. For decades, its brown trucks have been departing from a network of warehouses on a Monday through Friday schedule. But nowadays, with most consumers doing some of their shopping online, half its deliveries go to consumers at their residences. Delivering one package at a time from house to house is less efficient and therefore less profitable. The problem is compounded by UPS's old warehouses, only a fraction of which are automated. This puts UPS at a disadvantage relative to FedEx and Amazon, which entered the market late enough to build modern facilities, geared toward the needs of online shoppers.

In this environment, UPS needed to negotiate a new contract with its employees' union, the Teamsters. The previous five-year contract would be ending in mid-2018, so early in the year, Teamsters representatives made their opening offer. They focused on the changing landscape of work. Their initial demands focused on working conditions. They wanted an earlier end to late-night deliveries, the addition of new drivers to handle the increased demand, and no use of drones or driverless vehicles to make deliveries. For its part, UPS was more focused on how to move ahead technologically. Its business plans called for catching up to the competition in efficiency by automating its facilities - a change that has the potential to lower the number of employees needed. However, the company has said that the union has no slowed automation.

Another area of discussion was work hours. The Teamsters were concerned about overworked drivers and wanting UPS to avoid adding Sunday deliveries. UPS wanted to keep open the possibility of Sunday deliveries and to address the overtime issue of high pay for weekend work. Drivers working Saturdays were earning double-time pay, at rates exceeding $70 an hour. The union and Teamsters settled on the creation of a new position: a "hybrid driver," who would work Tuesday through Saturday or Sunday through Thursday, with starting pay at $15 per hour and no overtime for the weekend day worked. In contrast, the existing contract had a "hybrid" position, which differed in that it involved working more than one part-time shift at a little more than the part-time wage.

After several months of negotiation, the parties indicated that they had reached an agreement in principle. It included pay raises, with starting pay rising annually, beginning at $13 in the first year and reaching $15.50 in 2022. Employee would pay a larger contribution toward their benefits, and the pension plan would increase. Also included in the contract was the hybrid driver position.

As it neared the expiration of the contract, union members voted for a strike authorization. This did not necessarily signal a strike, but it was a tactic to indicate to management that the union was serious about getting a favorable contract. Two weeks later, the parties announced they had reached an agreement for the workers to vote on. The process averted what would have been a significant strike, as the Teamsters union represents about 260,000 UPS workers.

Questions

1. Based on the information given in the UPS case, which of the terms in the new contract are favorable for workers? Which terms are favorable for UPS? 

2. What effects, if any, do you think the employment contract will have on UPS's ability to meet its goals for serving customers and improving efficiency?