New Labor Strikes Deals With 'Private Equity Guys'

Then came the May 14 announcement, and Gettelfinger declared -- with all the zeal of a horse dragged to water -- that the sale to Cerberus was "in the best interest of our membership." The union was powerless to stop the deal, he conceded, and was determined to make the best of what once looked like the worst.

Other unions have adopted tactics as diverse as the industries they work in. The United Food and Commercial Workers union now routinely negotiates language requiring new grocery store owners to restore any initial wage concessions over the life of a contract. If investors cash out early, a poison-pill clause requires the new owners to make workers whole. The effect, according to UFCW research director Howie Forman, is to give the union leverage to force prospective buyers to the bargaining table.

Several unions have developed relationships with individual equity funds after forging deals that traded certain concessions for guarantees of job security or protection of retirement benefits. Bruce S. Raynor, president of the hotel workers union, Unite Here, said private equity firms Blackstone and Cerberus, which own hotels in major markets, have helped move traditional hotel chains to acquiesce to higher wages and organizing rights.

"These guys are not anti-union," Raynor said. "They're just pro-money."

Unions also have developed some street tactics -- discovering, for example, that they can discourage deals with objectionable buyers by threatening labor strife or hasten deals with worker-friendly investors by declaring readiness to cooperate.

It's a steep learning curve, and each deal is different, packing potential peril for workers, but also, for the wily negotiator, possible openings.

"If you're a business agent for the textile workers in North Carolina, and your mill is about to move to Mexico, and Wilbur Ross shows up, you're going to try to cut a deal with him," said Santa Clara University law professor Stephen F. Diamond. "You're not going to like it, but you're going to do it."

Steelworkers Set Tone

Labor's evolving approach to private buyouts started with the Steelworkers. The unionized industry was collapsing, jobs were vanishing and bankruptcies had left tens of thousands of retirees and widows without health coverage and with sharply reduced pensions. The union cast its lot with Ross in 2002 when he began buying bankrupt mills, freed of costly obligations to retirees.

Ross, dubbed by Fortune magazine the "king of bankruptcy," said he could restructure what remained of the major mills into a profitable business with dramatically lower labor costs. The union agreed to job cuts and sweeping reductions in work rules. In return, Ross bought out departing workers, shared profits with those who remained and diverted some of his gains to a health fund to assist retirees.

The union also devised a safety net in case Ross cashed out and moved on (which he did, in 2005, netting a reported $300 million). It negotiated a contract saying that any future owner would first have to agree to a new labor contract -- giving the union, in essence, a veto over bidders unwilling to meet their terms. The new owner, Mittal Steel, met them.

In some deals, the union has negotiated controls over executive compensation, how much debt investors can pile on a business and how much capital buyers have to invest.

The Steelworkers' Bloom emphasized that the gains are small compared to the wreckage of lives and communities before the restructurings. "These were horrible situations," he said. "Has there been a huge amount of devastation and pain our folks have suffered? Yes. We like to believe that in an awful environment, we've done as well as could be done."