United Parcel Service announced on Tuesday that it has reached a preliminary agreement on a five-year contract with the union representing more than 325,000 of its U.S. workers, a major step in averting a potential strike when the current agreement expires August 1.
“Together, we have reached a win-win-win agreement on the issues that matter to Teamsters leadership, our employees, and to UPS and our customers,” said Carol Tomé, the company’s CEO, in a statement. “This agreement continues to reward UPS’s full and part-time employees with industry-leading compensation and benefits while retaining the flexibility we need to remain competitive.”
The union, the International Brotherhood of Teamsters, reported in June that its UPS members had voted to approve a strike, with 97 percent of those voting in favor of the action. The preliminary agreement will now go to members for ratification.
“We demanded the best contract in UPS history, and we got it,” Teamsters president Sean M. O’Brien said in a statement. “UPS has put $30 billion in new money on the table as a direct result of these negotiations.”
UPS handles about a quarter of the tens of millions of packages shipped every day in the United States, and a strike could hurt economic activity, particularly the e-commerce industry.
The union cited the company’s strong performance in the pandemic era, with net adjusted income up more than 70 percent last year from 2019, as the reason workers earned significant pay increases.
It had particularly highlighted the need to improve pay for part-timers, who make up more than half of the American workforce represented by the Teamsters, and who the union said earn “close to minimum wage” in many areas.
Negotiations had broken down in early July, largely over the issue of part-time pay, before resuming Tuesday morning.
The Teamsters said that under the preliminary agreement, current full- and part-time UPS employees, represented by the union, would receive a pay raise of $2.75 an hour this year, and $7.50 an hour over the course of the contract.
The minimum wage for part-time workers will rise to $21 an hour — well above the current minimum starting wage of $16.20 — and the top rate for full-time delivery drivers will rise to $49 an hour. Full-time drivers currently earn an average of $42 per hour after four years.
The company has also committed to creating 7,500 new full-time union jobs and filling 22,500 job openings, for which part-time workers are eligible. The company had said that part-time workers are essential for dealing with bursts of activity during the day and during busy months of the year, with many part-time workers transitioning to full-time jobs.
The road to the deal seemed paved weeks ago after the two sides settled what was arguably their most contentious issue, a new class of workers created under the previous contract.
UPS had said the arrangement was designed to allow employees to take on dual roles, sorting packages on some days and driving on others, especially Saturdays, as a way to keep up with growing demand for weekend deliveries.
But the Teamsters said the hybrid idea never really took off, and the new class of workers in practice drove full-time Tuesday through Saturday, only for less pay than other drivers. The company said that, under the previous contract, Saturday drivers earned about 87 percent of other drivers’ base pay and some workers worked in dual roles.
Under the preliminary agreement, the low-wage category of drivers will be eliminated and employees who drive Tuesday through Saturday will be converted to regular full-time drivers.
The deal also stipulates that no driver will have to work an unscheduled sixth day in a week, which drivers sometimes had to do under the existing contract to meet Saturday demand.
The two sides also agreed on a number of important non-economic issues, such as heat safety. Under the proposed deal, new trucks will have to be air-conditioned starting in January, while existing trucks will be fitted with additional fans and ventilation.
Whether it succeeds will be partly a political test for Mr. O’Brien, who was elected to lead the Teamsters in 2021, while regularly criticizing his predecessor, James P. Hoffa, for being too accommodating to employers and, in particular, to UPS.
Mr. O’Brien argued that Mr. Hoffa had effectively forced UPS employees to accept a deeply flawed contract in 2018 even after they voted it down, accusing its Hoffa-backed rival of being reluctant to attack the company.
Since becoming president last year, he has often said the union would aggressively pressure UPS and on several occasions suggested a strike was likely.
A few days before the agreement to abolish the hybrid worker position, Mr O’Brien said in a statement that the Teamsters walked away from the table over a “terrible counter-proposal” and that a strike “now seems inevitable”.
The company tried to reassure customers and the public that despite the sometimes heated statements, a deal would be made.
During an earnings call in April, UPS CEO Ms. Tomé said the two sides were in agreement on many important issues and that outsiders should not be distracted by the “much noise” likely to arise in the run-up to a deal.
The deal removed a potentially serious threat to the US economy. Economists say a strike by UPS workers would have made it more difficult for companies to ship goods on time, and the ensuing restrictions in supply chains would likely have fueled inflation just as there were signs of easing.
“It would have been catastrophic for the economy just given the size and scale of UPS,” said Mike Skordeles, chief of US economics at Truist Advisory Services. “You can’t just withdraw such a big player without causing disruption and rising prices.”
The Anderson Economic Group estimates that a 10-day strike at UPS could cost the US economy about $7 billion.
Small businesses were most at risk from a strike, as UPS may be their only or primary delivery service, meaning they need to look for alternatives. Large retailers tend to have more diversified delivery drivers and are more likely to have contingency plans in place to cushion the blow.
Mr O’Brien had explicitly asked President Biden, who called himself “the most pro-union president”, not to get involved in the negotiations. A group of more than two dozen Democratic senators also pledged not to intervene.
The Biden administration helped broker a deal that led to a rail freight strike last year. Many union members involved in that dispute saw the deal as leaning too heavily in favor of the big rail operators.
In 1997, approximately 185,000 UPS workers went on a 15-day strike. That time, the company reported that the strike had cost it more than $600 million. But the latest strike happened when e-commerce was still in its infancy. UPS has benefited from the rise of e-commerce, reporting more than $100 billion in revenue by 2022, compared to $31 billion in 2002.
J. Edward Moreno And Peter Eavis reporting contributed.