Using unions as weapons: UPS and FedEx face off in congress instead of the marketplace.

• Author: de Rugy, Veronique
• Position: Columns

IMAGINE TWO competing pizza delivery companies that are identical in every way except their delivery methods. Pizza Company A delivers its pizza by car and Pizza Company B delivers its pizza by bike.

Now imagine that the government has completely different labor laws for pizza parlors with cars and pizza parlors with bicycles. The result is much larger labor costs for Company B than Company A. Is that fair? Should the government care?

A similar situation underlies a vicious fight between United Parcel Service (UPS) and its main private competitor in the delivery business, FedEx, over archaic labor rules that classify the companies based on their favored forms of transportation. Because 85 percent of FedEx deliveries go by air and 85 percent of UPS deliveries go by truck, the two companies are obliged to obey different labor laws.

FedEx Express, the company's air delivery service, operates under the Railway LaborAct (RLA), instituted in 1926 to arbitrate labor disputes in industries (including, by 1936, airlines) that are deemed vital to interstate commerce. Under this law, in order to be recognized, a union must receive a majority of votes from all a company's employees, rather than merely a majority of those who choose to vote. That makes it much more difficult for labor to organize. As a result, FedEx Express, and therefore FedEx, have been mostly union-free for decades.

UPS, by contrast, operates under the 1935 National Labor Relations Act (NLRA, commonly known as the WagnerAct). This Depression-era law allows unionization at each individual office of a national company, thereby significantly lowering the barriers to labor organizing. As a result, UPS is one of the largest unionized companies in the country. (Like UPS, the FedEx Ground and FedEx Freight divisions of FedEx are covered by the NLRA.)

This legal distinction has had a significant impact on the two competitors' labor costs. Average compensation and benefit cost per employee at UPS is more than double that at FedEx--$74,413 vs. $29,310. (See table.)

By now, UPS has had enough of the extra costs labor unions impose on its business. To tackle the problem, Big Brown teamed up with the very people responsible for the costs: the Teamsters. Working together, they've lobbied the Democratic majority in Congress to transfer approximately l00,000 of FedEx's employees--basically the ground pickup and delivery operations of FedEx Express--to fall under the WagnerAct. The change would make...