UPS and Teamsters Reach Tentative Deal to Head Off Strike

United Parcel Service announced Tuesday that it had reached a tentative deal on a five-year contract with the union representing more than 325,000 of its U.S. workers, a key step in averting a potential strike.

The union, the International Brotherhood of Teamsters, reported in June that its UPS members had voted to authorize a walkout after the expiration of the current agreement on Aug. 1, with 97 percent of those who took part in the vote endorsing the move.

UPS handles about one-quarter of the tens of millions of packages that are shipped daily in the United States, and the strike prospect has threatened to dent economic activity, particularly the e-commerce industry.

Representatives from more than 150 Teamster locals will meet on Monday to review the agreement, and rank-and-file members will vote on it from Aug. 3 to Aug. 22, according to the union.

Negotiations had broken down in early July, largely over the issue of part-time pay, before resuming Tuesday morning.

“We demanded the best contract in the history of UPS, and we got it,” the 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.”

The company said it could not comment on the dollar value of the deal ahead of its second-quarter earnings call in early August.

The Teamsters said that under the tentative agreement, current full- and part-time UPS employees represented by the union would receive a $2.75-an-hour raise this year, and $7.50 an hour in raises over the course of the contract.

The minimum pay for part-timers will rise to $21 an hour — far above the current minimum starting pay of $16.20 — and the top rate for full-time delivery drivers will rise to $49 an hour. Full-time drivers currently make $42 an hour on average after four years.

The company has also pledged to create 7,500 new full-time union jobs and to fill 22,500 open positions, for which part-time workers will be eligible. The company has said that part-time workers are essential to navigating bursts of activity over the course of a day and during busy months, and that many part-timers graduate to full-time jobs.

“Together we reached a win-win-win agreement on the issues that are important to Teamsters leadership, our employees and to UPS and our customers,” Carol Tomé, the company’s chief executive, said in a statement. “This agreement continues to reward UPS’s full- and part-time employees with industry-leading pay and benefits while retaining the flexibility we need to stay competitive.”

The union had cited the company’s strong pandemic-era performance, with net adjusted income up more than 70 percent last year from 2019, as a reason that workers deserved substantial raises.

It had especially emphasized the need to improve pay for part-timers, who account for more than half the U.S. employees represented by the Teamsters, and who the union said earn “near-minimum wage” in many areas.

The path to the agreement appeared to be paved weeks ago after the two sides resolved what was arguably their most contentious issue, a new class of worker created under the previous contract.

UPS had said the arrangement was intended to allow workers to take on dual roles, like sorting packages some days and driving on other days, especially Saturdays, as a way to keep up with growing demand for weekend delivery.

But the Teamsters said that the hybrid idea was never actually carried out, and that in practice the new category of workers drove full time Tuesday through Saturday, only for less pay than other drivers. The company said that, under the previous contract, the Saturday drivers made about 87 percent of the base pay of other drivers and that some workers did work in a dual role.

Under the tentative agreement, the lower-paid category of drivers will be eliminated, and workers who drive Tuesday through Saturday will be converted to regular full-time drivers.

The deal also stipulates that no driver will be required to work an unscheduled sixth day in a week, which drivers had at times been forced to do under the existing contract to keep up with Saturday demand.

The two sides also agreed on several key noneconomic issues, such as heat safety. Under the proposed deal, new trucks must have air-conditioning beginning in January, while existing trucks will be outfitted with additional fans and venting.

Whether it passes will partly be a political test for Mr. O’Brien, who was elected to head the Teamsters in 2021 while regularly criticizing his predecessor, James P. Hoffa, as being too accommodating toward employers and toward UPS in particular.

Mr. O’Brien argued that Mr. Hoffa had effectively forced UPS workers to accept a deeply flawed contract in 2018, even after they voted it down, and accused his Hoffa-backed rival of being reluctant to strike against the company.

Since taking over as president last year, he has frequently said the union would be aggressive in pressuring UPS and suggested on several occasions that a strike was likely.

A few days before the agreement on eliminating the hybrid worker position, Mr. O’Brien said in a statement that the Teamsters were walking away from the table over an “appalling counterproposal” and that a strike “now appears inevitable.”

The company sought to reassure customers and the public that a deal would be consummated despite the occasionally heated pronouncements.

On an earnings call in April, the UPS chief executive, Ms. Tomé, said that the two sides were aligned on many key issues and that outsiders should not be distracted by the “great deal of noise” that was likely to arise in the run-up to a deal.

The deal, if ratified, removes a serious threat to the U.S. economy. Economists say a strike by UPS employees would have made it harder for businesses to ship goods on time, and the resulting restrictions in supply chains would probably have stoked inflation just as it had shown signs of easing.

“It would have been devastating to the economy, just given the size and scale of UPS,” said Mike Skordeles, head of U.S. economics at Truist Advisory Services. “You can’t just pull out a player that big without causing disruption and prices to go up.”

A 10-day UPS strike would cost the U.S. economy about $7 billion, according to an estimate from the Anderson Economic Group.

Small businesses were most at risk from a strike as UPS might be their sole or primary shipping provider, meaning they would have to scramble for alternatives. Large retailers tend to have more diversified delivery providers and are more likely to have contingency plans to soften the blow.

Mr. O’Brien had explicitly asked President Biden, who has called himself “the most pro-labor union president,” not to get involved in the negotiations. A group of over two dozen Democratic senators also pledged not to intervene.

The Biden administration helped broker a deal that headed off a freight rail strike last year. Many union members involved in that dispute saw the deal as leaning too heavily in favor of the major rail carriers.

In 1997, about 185,000 UPS workers staged a strike for 15 days. That time, the company reported that the strike cost it more than $600 million. But the last strike happened when e-commerce was in its infancy. UPS has benefited from the e-commerce boom: In 2022 it reported more than $100 billion in revenue, compared with $31 billion in 2002.

J. Edward Moreno and Peter Eavis contributed reporting.