New Labor Strikes Deals With 'Private Equity Guys'

The United Mine Workers had a different experience when Ross began buying distressed coal mines in 2004. One of his purchases was Horizon Natural Resources, a bankrupt operator of both union and non-union mines. Another was the Sago mine, where an explosion killed 12 miners last year. As in the steel industry, thousands of retirees had lost health coverage and were in financial crisis. Encouraged by the Steelworkers' partnership with Ross, UMW Secretary-Treasurer Daniel J. Kane wrote him to request a meeting.

"We never heard back," said UMW spokesman Phil Smith. Ross's International Coal Group now runs only non-union mines.

Labor experts say the miners' experience highlights the hard-line calculus workers confront in negotiating with private equity funds. The Steelworkers union remains a dominant presence in integrated steel mills while the far weaker miners' union did not have the leverage to force a new player to the table.

"Labor has found that these investors operate in a brutally, economically rational fashion," said AFL-CIO Associate General Counsel Damon A. Silvers, an expert in financial strategies. "They have financial targets and they have to hit them. If they have to deal with a union to get there, they'll deal with the union."

Labor's Ideal Deal

A model deal in the eyes of the labor movement was a buyout of three faltering Boeing factories by Onex Corp. of Toronto. Onex managing director Nigel S. Wright said his team told workers exactly what it wanted from them: a reduction of 1,700 of 10,300 jobs, elimination of long-standing work rules and a 10 percent pay cut. The Machinists and United Auto Workers unions named their price: "skin in the game," or a share of the profits when the company went public. Both sides signed off in June 2005.

The rebound came far sooner than anticipated. Revenue soared as the new company, Spirit AeroSystems, won contracts for the new Boeing 787 and also from Sikorsky Aircraft and Airbus. When Spirit went public in November 2006, workers who took the pay cuts each got checks averaging $30,000 plus 1,000 shares of Spirit stock, now worth $34,000. Another beneficiary was the Machinists' pension fund, which was an investor in Onex all along.

The model does not work, however, for unions of less-skilled workers. Onex could not have run the Boeing plants without the highly skilled machinists, just as Ross couldn't run his steel mills without the steelworkers. Hotel workers, janitors and orderlies lack such leverage.

As a result, the Service Employees International Union is reaching for political instead of financial leverage as private equity floods its world -- most noticeably, with the Blackstone Group's buyout of 580 major office buildings, many cleaned by SEIU janitors. With contract talks due next year, the union is running an aggressive public relations campaign, complete with a Web site, highlighting huge profits reaped by private equity investors and prodding the Democratic Congress to raise tax rates on them. The union is hoping the tax threat will move the industry to give workers a say in its deals.

Hotel workers are similarly vulnerable in buyouts, and several interviewed at Cerberus-owned hotels were far from confident about wage increases they recently won in contract talks.

"Right now we're in a better place than we were," said Mason Chung, a bartender at the Sheraton Waikiki in Honolulu. "But they could sell any time and I wonder where in that picture we will be then. We're just a little dot on a very large map that Cerberus controls."