The Inside Story of How the Verizon Strike Ended by Aaron Pressman @FortuneMagazine June 14, 2016, 12:53 PM EDT E-mail Tweet Facebook Linkedin Share icons Secretary of Labor Thomas Perez and his staff had been following the uneven negotiations between Verizon Communications and its two large unions for almost a year when some 40,000 workers, mostly installers, electricians, and call center workers, walked out on strike in mid-April. But despite the lengthy run-up, once the strike started, the situation deteriorated quickly. By the second week of May, the Secretary and his staff were reading reports in the press and hearing from contacts on both sides that things were getting further apart instead of closer together, and negotiations were going nowhere. Sporadic talks ended after Verizon made what it called a “last, best final offer” on April 28, which was immediately denounced by the unions. Hostility spilled out all over in what represented the largest strike in the country in five years. When a few strikers went to meet call center workers in the Philippines to seek common ground on May 11, they were chased through the streets and surrounded by armed guards from a Verizon office. A day later, strikers following a replacement worker on I-95 in Delaware hit her vehicle, setting off a three car accident—just one of a growing number of such confrontations. With rising alarm, Secretary Perez decided to jump into action. He personally called Verizon CEO Lowell McAdam and the presidents of the two unions, Chris Shelton of the Communications Workers of America and Lonnie Stephenson of the International Brotherhood of Electrical Workers. His pitch was simple: Come down to D.C .and meet in his office on Sunday, May 15. The meeting, which would not be announced publicly in advance, would be informal—no ties or suits—and focused on getting the negotiating process back on track. All three agreed to come to the secret weekend meeting to be held in Perez’s office on the second floor of the Frances Perkins Building, a hulking, 1970s-era concrete behemoth a few blocks away from the Capitol. Lowell McAdam, chairman and CEO of Verizon Communications, speaks at the Metric Stream Summit May 13, 2015 in Arlington, Virginia.Mark Wilson — Getty Images Since the strike was settled, Perez, Verizon and the two unions have issued supportive public statements. But none of the leaders agreed to be interviewed about the process, citing the pending ratification votes by union members. This account is based on interviews with people who participated in the talks or were briefed in the talks as they occurred. Get Data Sheet, Fortune’s technology newsletter. Perez had built a strong reputation as a consensus builder over his career. The Secretary, whose parents emigrated from the Dominican Republic, had plenty of successful dealings with top leaders of businesses and unions as Maryland’s Labor Secretary and then as Assistant Attorney General for Civil Rights before being nominated as U.S. Labor Secretary in March 2013. As promised, Perez greeted his guests dressed in jeans and an orange fleece with no tie in sight. Lunch was simple sandwiches, like roast beef and turkey, and pasta salad from a nearby City Bakery. Over lunch in the Secretary’s study and eventually moving to his office during the over four-hour session, Perez pressed his case that the two sides should find a way to get back to the bargaining table and hold more productive talks. Until then, the unions and Verizon had been meeting in several different groups in two different cities. After making its April 28 “last, best final offer,” which the unions immediately rejected, Verizon said it wouldn’t negotiate further, making it difficult for the sides to hold productive meetings. “A better offer would be hard to find,” Marc Reed, Verizon’s chief administrative officer, had declared publicly. The deal included a cumulative 7.5% wage hike but didn’t sufficiently address workers’ concerns about outsourcing jobs. “Wages and benefits really don’t matter if we don’t have jobs,” Louise Novotny, research director at the CWA, explained at the time. Secretary of Labor Thomas Perez speaks during a Plenary session on “Training Your Skilled Workforce” at the SelectUSA Investment Summit at National Harbor, Maryland, March 24, 2015.Yuri Gripas — Reuters Perez proposed that new talks take place in one central location and offered his own offices. He also pressed to bring in an experienced federal mediator, Allison Beck, a longtime labor lawyer named to head the Federal Mediation and Conciliation Service in 2014 and confirmed by the Senate last year. The first woman to hold the post since the agency was created in 1947, Beck joined after from a long career working with unions. Though there have been no major strikes since she took the post, in 2014 she helped avert a lockout at the New York Metropolitan Opera. Despite the prior air of hostility, Perez’s low-key Sunday setting and high-level pressure worked. Two days after that meeting, as Perez had suggested, the two sides met in the Secretary’s offices to restart talks. The Harvard-trained lawyer told the participants he was “agnostic” about what solution they might find but he was “not agnostic” that they find a solution. In the larger economy, the difficult search for a solution at Verizon mirrored the struggles of workers at many companies as traditionally unionized, well-paying jobs have disappeared. For more on the strikers confrontation in the Philippines, watch: Almost all of the Verizon strikers worked in the company’s traditional business, installing and servicing old-fashioned, landline telephone service as well as its newer unit called FiOS to break into the cable TV and high-speed Internet businesses using fiber-optic connections. Revenue and profits have been shrinking in the landline business for over a decade and growth has slowed in the less profitable FiOS unit. The engine of growth at Verizon has been the wireless side, where almost no workers are in a union. In 2005, the landline side brought in $37.6 billion of revenue, 50% of the company’s total, compared to $32.3 billion, or 43% for wireless (the remainder came from much smaller information services and international units). The FiOS unit had just opened for business and the operating profit of $4.7 billion from landlines already trailed the $7.4 billion profit on the wireless side. The most recent union contracts, struck in 2003, covered 79,000 workers. By last year, revenue for the entire landline side, which included FiOS, was virtually unchanged at $37.7 billion. But wireless revenue had almost tripled to $91.7 billion. Now the landline side represented just 29% of Verizon’s total and wireless was up to 70%. With that greater scale, wireless profits had exploded, increasing four-fold to $30 billion, while the landline side was cut in half to $2.2 billion. When the most recent union contracts expired in August 2015, fewer than 40,000 workers were covered. The U.S. economy has tracked a similar trend on a larger scale. Highly-unionized industries like manufacturing have seen their prospects waning—only 12 million people worked in the industry in 2016, down from 14 million a decade earlier and more than 19 million in the late 1970s. Employment growth has shifted to non-union industries, like retailing, which employs 16 million people, up from 14 million a decade earlier and nine million in the late 1970s. Outsourcing has been increasing as well. Multi-national U.S. companies employed 37% of their workers overseas in 2010, up from 26% in 1982, according to a report by the Congressional Research Service. Overall, the percentage of unionized private sector workers has plummeted to less than 7% from 17% in 1983. Striking telephone workers represented by the Communications Workers of America verbally harass a woman in front of Verizon Communications” headquarters in New York Aug. 7, 2000.Chris Hondros — Newsmakers/Getty Images Verizon, and its predecessor companies including New York Telephone and Bell Atlantic, have experienced frequent labor struggles and strikes for decades, as management clashed with the unions over pay, benefits, and work rules. The contentious history weighed on the most recent talks as a dark shadow looming behind every proposal each side made. Secretary Perez hoped to set aside the historical bickering, but during the first few days of the new talks, progress was uneven at best. Some participants said at that point they weren’t sure that any agreement could be reached. “There were better days and there were less better days,” one participant recalled. While Perez, CEO McAdam, and the union presidents Shelton and Stephenson did not attend every day, about three dozen lawyers along with other advisers and representatives from the two sides and the Labor Department had taken over the second floor office suite for more than a week, and no one had given up yet. Whenever the core negotiators would make progress on a particular issue, they could spin off a side group to work on the particulars. Union and Verizon lawyers used the offices of the Secretary’s top staff for the side meetings. The group could also take advantage of the expertise and experience of any of the 17,000 Labor Department employees. At one point, they consulted with a health benefits specialist. Another time, they needed an expert on rules for injured workers returning to work. Outside, the strike dragged on. The unions were pushing cities and towns in the region extending from Massachusetts to Virginia affected by the strike to pass anti-Verizon resolutions. At least sixteen did, including Boston and Syracuse. Verizon was sending squads of lawyers to state courts seeking restraining orders to limit picketing and to keep the strikers away from replacement workers. Inside the talks, the union side was most concerned about job security. They feared that some of Verizon’s earlier proposals were intended to outsource more call center jobs overseas and allow more non-union contractors to perform repairs and installations. Back in 2011, the unions had gone out on strike but come back to work after only two weeks without a real agreement. It took another year to make a deal, which had some positives but also allowed Verizon to cut their ranks by more than 10% over the next four years. CWA Executive Board President Chris Shelton spoke to a crowd of Verizon employees and supporters outside of a Verizon Wireless Store on Wall Street in New York City on May 5, 2016.Albin Lohr-Jones — Sipa USA/AP Verizon needed to get its costs down. Investors and analysts on Wall Street were concerned about expenses at the shrinking landline business. Verizon had even sold off a portion of its FiOS business in three states last year to focus more on its core region. The company was willing to give wage increases but wanted to get more control over healthcare costs, pension benefits, and rigid work rules. The negotiations ran right through the weekend and long into the nights. But Perez and his staff tried to make sure that the negotiators would remain comfortable. Perez’s executive assistant decided to make tacos for the whole group on Saturday night with the help of one of his speechwriters. On Sunday, a Labor Department IT staffer rushed back to the office when the Wi-Fi network got overwhelmed. Still, progress was slow. Not only were workers from two different unions involved but the century-long legacy of Verizon’s predecessor companies was still present in many of the contracts. In some cases, different provisions applied based on whether workers were in the territory of the former Bell Atlantic or the former New York Telephone—details that surprised even experienced staff at the Labor Department. By the following Thursday, after negotiators had been talking for 10 days straight, Perez called back in CEO McAdam and union presidents Shelton and Stephenson, and issued an ultimatum that the time had come to find a deal. The Secretary reminded both sides that the families of 40,000 workers were suffering and Verizon’s business was hurting. In fact, while Verizon had prepared for the strike by training replacement workers from its management ranks and then hired non-union technicians by the thousands, it was unable to keep up with the demand for both servicing existing customers and installing equipment for new customers. After a year of growth in its FiOS Internet and cable television businesses, the company was suddenly facing possible customer losses in both segments for the second quarter. CFO Fran Shammo had admitted at a Wall Street conference the day after the Perez-led talks started that new orders had “significantly dropped.” On the union side, workers had lost their healthcare benefits at the beginning of May and only some received cash strike benefits, which didn’t come close to making up for lost wages. 2,000 Verizon workers on strike, supporters and elected leaders marched to a Verizon Wireless office on Wall Street in New York City on May 5, 2016.Erik McGregor — Pacific Press/Sipa USA/AP So given Perez’s Thursday ultimatum, the two sides, including the union presidents and the CEO, worked until 3 a.m. to figure out how all the puzzle pieces could finally fit together. Returning early on Friday to hammer out the final details, the negotiations succeeded, and a public announcement was released by Friday afternoon. The final deal for new a new contract, encompassing 27 different agreements to cover all the various workers in all the various regions, included a cumulative 10.5% raise—three percentage points more than management’s “last, best final” offer back in April. Critically, for the union side, Verizon dropped some its desired outsourcing proposals and committed to increase the number of U.S. workers in call centers by 1,300. Healthcare benefits, however, would be reworked to save the company money. For the first time, the contracts also covered workers in Verizon’s wireless unit, though only a tiny number. Some 65 people who work in wireless stores and another 100 wireless technicians had previously voted to join the unions gained coverage. The unions were exultant. “We certainly plan to build on this foothold,” one union official said. Verizon officials played down the change. “We believe very little will change,” a spokesman for the company said. Workers went back on the job a few days after the deal was announced, but they still must vote to ratify the contracts on June 17. Given the obvious gains from earlier Verizon proposals, a large majority are expected to vote in favor of the deal. Wall Street has also looked favorably on the outcome. Verizon’s stock vz has been up 6% since the deal was announced. “The settlement has the look of a genuine compromise, with the union getting most of what it wanted on wages and job relocations, but with Verizon making some important headway on healthcare costs and workload capacity matching,” says longtime telecom industry analyst Craig Moffett at MoffettNathanson. But the telecommunications landscape will continue to change rapidly. And in four years, when the new contract expires, Verizon and its unions may find themselves locked in hostile combat yet again.