RAILROAD CONSOLIDATION AND EMPLOYEE

WELFARE

CHAPTER I. INTRODUCTION

Labor is fundamentally affected by and interested in railroad consolidation, whether the term is narrowly or broadly defined, whether the particular instance is of single or concerted dimensions. The actual extent to which railroad labor is affected in a given instance depends, of course, upon the particular aims and scope of the consolidation. Even though the increased efficiency resulting from a given consolidation might eventually attract new business and require additional employees, the immediate effect upon those already engaged almost inevitably is harmful. Formerly, employees, who rendered services unnecessary to their particular employers, were released without regard to the prospects for their employment elsewhere. The economic consequences inherent in consolidation-and related operational changes to be examined later-are not limited, however, to loss of employment. Less extensive operating alterations, such as consolidation of shops and other terminal facilities of a given railroad, often result in change of residence and work location for some employees. More important than possible financial loss resulting from property sale is the probability that the employees involved will lose seniority and suffer impairment of its value.

When actual operating economies are achieved, they represent in large part a reduction in labor expenses. Decreasing interline accounting, increasing the speed of terminal operations and interchange of traffic, and abandoning duplicated trains, stations, and branch lines all involve reduction in the amount of labor required. It is futile to try to arrive at a figure representing the proportion of consolidation savings accountable to labor-cost reductions. Any single figure derived from applying some sort of averaging process to past experience would give a false notion of precision, but estimates of such savings, corroborated from available cases, range from 60 to 80 percent.' It may be stated generally that the savings depend upon: (1) The speed of consummation which the physical conditions will permit; and (2) the degree of the development and acceptance of the concept of social costs of business.2

1 The long-run economies of consolidation and the effect on employment are difficult to separate from those of the long-time trend of production, the business cycle, and a multitude of other factors particular to a given industry, region, or railroad. See hearings on S. J. Res. 161, especially testimony by Mr. Willard, then president of the Baltimore & Ohio R. R., pp. 144-146, April 1930. See also later discussion in present study on Rock Island & Pacific Electric cases at footnote 74 and 94, respectively.

2 Formerly, an employee who became incapacitated through accident or occupational disease usually was left to his own devices and to charity. This cost is now generally recognized as a charge against the industry. The conception of the body of costs which should be borne by industry has been growing and perhaps will continue to expand. Ch. III is devoted largely to employment risks as a social cost of business. Ch. II, on the other hand, deals principally with a factual analysis of the development of employee protection under conditions of railroad and consolidation and related business phenomena.

1

For the purpose of this study, railroad consolidation may be regarded as a form of labor-saving improvement-an organizational form of technological advance which raises essentially the same problems with regard to labor as does the progress of technology in the narrower sense. From this point of view, changes in operating methods of a single carrier are just as much a part of the problem as are cooperative undertakings by two or more carriers. The more urgent protests of labor and the more important protective developments, however, have been in connection with the latter type of action.

The cause of railway labor in consolidations has been recognized, particularly in recent years, by the grant of special protection to employees affected by such operational changes. Although in the railroad as well as in other industries, the principle of specific protection to employees affected by economy measures was gaining acceptance before 1929, such development in both railroad and industrial fields. was greatly accelerated by and during the depression.3 And although plans for dismissal compensation are found in other industries, railroad employees probably have achieved more complete protection with respect to operational improvements than has any other large group in this country. In some instances, special protection has been granted in other nations to rail employees displaced by organizational changes, but the only comparable measures are those of England and Canada. As applied to particular major Government-sponsored projects these measures will be discussed in the following chapter.* That the employees of United States railroads are accorded broader protection than are those in other industries appears to be caused principally by: (1) The governmental policy of sponsoring and promoting consolidation of railroad facilities, forming a basis for persuasive argument that the Government has a particular responsibility toward the affected employees; (2) the deep-rooted policy of imposing special obligations on railroads, as opposed to general industry, based on the theory that public importance, "monopoly" status, or enjoyment of special privileges constrains the railroads to be more public-spirited and enables them to carry out these obligations with some freedom from the vicissitudes of the competitive market; and (3) the unusual strength and effectiveness of the labor organizations in the railroad field.

The present protection given to railroad labor by the Transportation Act of 1940 and the Washington job protection agreement of 1936 goes

3 In the United States many plans for dismissal compensation were adopted in other industries after the First World War. Hawkins states that over 500 firms were known voluntarily to have paid dismissal compensation by January 1, 1940. Everett D. Hawkins, Dismissal Compensation (Princeton, N. J. Princeton University Press, 1940). p. 19. Of the 329 plans which he studied, over 90 percent were instituted in or after 1927. Up to 1929, according to Dr. Hawkins, "most of the plans aimed to assist those squeezed out by mergers, consolidations of offices and plants, or changes in working rules" (the same, p. 31). Payments under these company plans vary greatly. The average for firms with well developed plans is about $434, but when all plans are considered the figure is around $150 (the same, p. 40). In addition to these company plans, labor contracts in industries where unions are strong contain provisions limiting the emplover's right to dismiss employees. Usual among such provisions are the following: (1) Dismissal shall be for good and sufficient cause (sometimes admissible causes are enumerated and sometimes the consent of the union is required); (2) a certain period of notice shall be given or compensation paid in lieu; and (3) rules of seniority must be observed. Elias Lieberman, The Collective Labor Agreement (New York and London: Harper & Bros., 1939), pp. 86 to 96.

4 Other instances of special protection are enumerated in the third report of the Federal Coordinator: "Special provisions have been made for railway employees in certain countries. In 1932 the reorganization of one of the Brazilian state railway systems led to the discharge of nearly 1,200 employees. The Government invited them to settle in agricultural colonies founded in the State of Parana, and transportation, housing, seed, and agricultural implements were supplied free of charge. A year previous in Mexico, it was necessary to dismiss 4,000 workers. A sum of $500.000 was paid in dismissal bonuses, plus expenses in transporting employees to their homes or to farms given them by the Governirent. In Rumania, during the same year, a fund of 31 billion lei was placed at the disposal of the railways for the purpose of paying employees dismissal allowances varying from 1 to 3 months' salary according to length of service." Report of the Federal Coordinator of Transportation, 1934, H. Doc. 89, 74th, Cong., 1st sess. (1935), p. 147.

beyond the usual dismissal compensation plan and approaches a full guaranty of status for employees as far as the effects of consolidation are concerned. Among the various protective proposals which have been suggested, however, the straight dismissal compensation plan offered by the Federal Coordinator was an exception. În other words, the dismissal compensation payment alternative in the WheelerCrosser bill and the Washington agreement would hardly be chosen by any large proportion of those displaced except in times when comparable jobs are plentiful-a condition not likely often to prevail in the railroad field. Railway labor's efforts may be described as tending toward job security rather than toward payment for insecurity. The Washington agreement, the Transportation Act of 1940, and the Supreme Court's decision in the Pacific Electric Railway case are significant landmarks along the way.5

This policy which has arisen in the railroad field is of undeniable importance both in itself and in its capacity as potential precedent for similar developments in other industries. It is held by some that such a policy, by increasing the cost of economic progress in the railroad field, tends unduly to handicap this industry in competition and thus to distort the distribution of traffic among transportation agencies. Others maintain that the policy merely allocates to this industry the social cost of its labor-saving advances and represents a just recognition of the right of the workers to job security. Seemingly, the time has come for an examination of the measures now in force and of the philosophy upon which they are based.

Pacific Electric Railway Company Abandonment, 242 I. C. C. 9 (1940), or Interstate Commerce Commission, and the Pacific Electric Railway Company, Appellants v. Railway Labor Executives Association and Brotherhood of Railroad Trainmen, U. S. 223, October term, 1941 (March 1942).

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CHAPTER II. THE DEVELOPMENT OF PROTECTION

In this chapter the purpose is to examine the development of the policy of granting special protection to railway employees affected by consolidation and related operational changes, with a view to revealing the nature and background of the protective measures now in force. Most of the discussion will be devoted to the recent development of protection through union-management negotiation, legislation, and administrative and judicial interpretation of the law. In order to understand the origins of these major developments, however, it is necessary first to consider their early antecedents and the growth of union sentiment in favor of protection.

EARLY DEVELOPMENTS

By way of introduction to the main discussion, the nature of railway employees' claims to protection from the adverse effects of operational changes and of the actual protection granted prior to the Emergency Transportation Act of 1933 will be treated. Special consideration will be given to the impact of the depression on the evolution of protection, particularly through its effect on the attitude of railway labor. Before the depression of the early 1930's. In 1921 the British Government ordered the consolidation of its railroads into four systems and required that employees who had been employed by any carrier for 5 years or more should be either employed by the amalgamated company in comparable capacity in no worse position as a whole or be paid compensation in accordance with the Local Government Act of 1888. Based upon the acts of 1859 and 1884,' the act of 1888 requires that a civil-service employee displaced by the abolition of his position be paid separation compensation. For employees with less than 10 years of service this amounts, roughly, to 42 days' pay for each year. For employees having a greater length of service an annuity payment is provided which amounts to one-sixtieth of a year's pay for each year, up to 40 years. An outstanding feature of the act was that it provided for those who were laid off as well as for those who were retained. Contrast this development with that in our own country.

1 Protection of the interests of railway employees affected by consolidation was by no means new in Great Britain. The earliest general statutory recognition of the interests of such employees was contained in the Railway Clauses Act of 1863 (26-27, Victoria ch. 92) which consolidated "in one act certain provisions frequently inserted in acts relating to railways." Although no guaranty or compensation was provided, it was stipulated that the employees be likewise transferred with "the same rights, and subject to the same obligations and incidence in respect to such employment" as existed under the old employer. Actually, the interests of the employees of consolidating companies received much greater consideration than was required by the statute. In the hearings before a derartmental committee set up in 1911 to inquire into railway amalgamations and agreements, three specific instances of protective provisions included in consolidation statutes (1 in 1900 and 2 in 1909) were brought out. In 2, compensation, was provided for those dismissed as a result of consolidation; in the third, such dismissals were prohibited. See Report of the Departmental Committee on Railway Agreements and Amalgamations (London: Published by His Majesty's Stationery Office, 1911, p. 45). This departmental committee was directed to consider "what general provisions, if any, ought to be embodied, for the purpose of safeguarding the various interests affected, in future acts of Parliament authorizing railway amalgamations and working unions" (the same, pp. 4-5). The interests of employees were regarded by this committee as "among the most important" (the same, p. 35). It was recommended that a general statute embody the best accepted practices; that is, provide compensation for employees dismissed as a result of amalgamation or prohibit such dismissals altogether. In the light of the United States experience, it is interesting to note that the committee advised that no attempt be made to mitigate or prevent adverse effects short of dismissals, on the ground that such an attempt might "lead to disputes and friction" and "hamper the companies in introducing new methods of working" (the same, pp. 39-40).