Hospital workers and management at Kaiser Permanente, one of the nation’s largest healthcare systems, reached a labor agreement Saturday, two days before nearly 32,000 employees were set to strike over a proposed pay system for future hires.

The strike would have been one of the largest in the American healthcare industry — and in California more broadly — in recent years, affecting more than 350 facilities in Southern California and other locations in Northern California, Oregon, Washington and Hawaii. Nearly 3,400 nurses and other workers at Kaiser Permanente in Oregon and southwest Washington were set to strike Monday.

The core of the disagreement between labor and management came down to two issues: raises and a proposed two-tier pay system, in which employees hired after 2023 would be paid according to a lower wage scale than current employees doing the same jobs.

Kaiser Permanente management had stuck with that proposal for months, which called for paying new hires 26% to 39% less than current employees, arguing that the measure was necessary to lower labor costs and prevent higher costs to Kaiser members down the line.

Union representatives argue that the two-tiered pay system would foment dissatisfaction and division in the workforce and amount to a pay cut for the next generation of healthcare workers, making it more difficult for Kaiser to attract and retain good employees.

In the face of a looming strike that would have significantly disrupted Kaiser operations, the healthcare system backed down.

The tentative agreement reached between the Alliance of Health Care Unions and Kaiser Permanente scraps the two-tier proposal, according to a statement. If approved, the agreement will cover a four-year contract for nearly 50,000 workers.

“This agreement will mean patients will continue to receive the best care, and Alliance members will have the best jobs,” Hal Ruddick, executive director of Alliance of Health Care Unions, said in a statement. “This contract protects our patients, provides safe staffing and guarantees fair wages and benefits for every Alliance member.”

The settlement also includes an agreement on raises, but union representatives would not share details of the final raise amounts. Christian Meisner, senior vice president and chief human resources officer at Kaiser Permanente, said in a statement that it “underscores our unwavering commitment to our employees by maintaining industry-leading wages and benefits.”

The tense negotiations came at a time when the healthcare industry is facing staffing shortages as workers burn out after nearly two grueling pandemic years and an aging U.S. population creates higher demand. Finding enough nurses was a major challenge, 80% of private-sector healthcare executives reported in response to a McKinsey survey in August; 64% said clinical support staff was also an issue. Nearly one-third of respondents said they were raising wages and hiring bonuses to try to bring in more staff.

Worker dissatisfaction with two-tier pay systems is at the heart of strikes that began in October at John Deere and the Kellogg Co. When such models have been instituted in the past, they were often a last resort to stave off employer insolvency, as was the case when the United Auto Workers and General Motors agreed to institute a two-tier system in 2007 (the strategy was scrapped following a 2019 strike). In Kaiser’s case, the union argued that the company’s $2.2 billion in net income in 2020 and cash reserves topping $44 billion make such a measure unnecessary.

Kaiser Permanente is one of the largest health maintenance organizations, or HMOs, in the nation, a system that integrates health insurance, doctor’s offices, hospitals and other care facilities under one corporate umbrella, and is also one of the nation’s largest nonprofit entities.

Today, Kaiser’s membership has grown to 12.5 million nationally, with 23,597 physicians and 216,801 other employees, according to the company’s website. If the the strike had gone forward and continued to Thursday, when thousands of additional workers planned to join in a 24-hour sympathy strike, more than half of its total workforce would have been out on strike.

— Sam Dean, Los Angeles Times