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How Labor Unions Work

With the NHL into its fourth work stoppage in the last two decades including one full season being lost in 2004-05, labor unions and collective bargaining agreements have gained some major news time in the last few weeks.  Apart from NHL standoffs, we have seen other employer vs. union news (e.g. CP Rail and Air Canada vs. their respective unions) in the recent past.

Not all of us would get the chance to work in a union environment and it may be interesting for some of us to skim the surface and find out how labor unions, collective agreements, lockouts, strikes, etc. work and their financial implications.

The Management and the Union

As many of us may have read or heard, a labor union is an organization of workers meant to safeguard their interests and seek better wages, benefits, and working conditions. The employer and the union negotiate to arrive at a mutually-agreeable set of conditions including employment term, wages, hours, etc. for a defined period of time.

Upon finalizing such a deal, they sign a collective bargaining agreement. Both parties are required by law to abide by the terms of the agreement, failing which a grievance may be filed and arbitration could be required to resolve the dispute(s). As you would have realized, the failure of the two parties to arrive at a mutually-agreeable contract results in standoffs. A union is funded by the monthly dues paid by the employees.

Benefits of being a Union Employee

Being in a union provides a collective voice to its members for negotiating terms. Such a group is more likely to succeed in achieving its bargaining objectives and improving wages/conditions in comparison to an individual employee speaking for themselves. It may be easy for one individual employee with a good working relationship with his supervisor to negotiate pay raises but it may not work out that well for a set of individuals trying the same.

In addition, with collective agreements, unions help to protect the rights of its members by offering a structured disciplinary process and preventing dismissal without just cause. Seniority and long-term employment are rewarded under a collective agreement – layoffs may begin with the newest hire rather than the other way around. In some cases, clauses may be included to protect union member rights in the event of a sale, merger or takeover of the company.

Last but not the least, a well-known union tool is the “strike” that is used as a last resort by the union employees to protest existing conditions or to gain an upper hand in the bargaining process by stopping work to get the message across loud and clear. When the work stoppage is initiated by the management of a company, the corresponding term is “lockout” where they deny employment to the union workers.

The Strike

Strikes can take different forms such as general, rotating, strategic, etc. In most cases, union employees are not paid their regular wages by management during this strike period (members on strategic strikes may be reimbursed a portion of their regular pay). There may be a strike pay (nominal amount) offered by the union that would be contingent upon performing strike-related duties (such as picket) for a prescribed number of hours per day. A decent-size emergency fund would help union employees wade through this period.

If you have had the chance to work in a unionized workplace, did you face a lockout or go on strike? Did a solid emergency fund help you through that phase? Any tips for fellow readers working in a unionized work environment?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

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About the author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

{ 10 comments… add one }
  • SST October 15, 2012, 11:17 am

    I actually do work in a unionized workplace, as well as a non-unionized but government workplace (also have friends, family, and acquaintances who work in the same).

    I can say first-hand, at risk to my own financial well-being, is that almost ALL unions should be completely abolished and never allowed to re-formed.

    Might be a bit more difficult to disband and restructure the government(s). But I’m all for that, too.

  • SJ October 15, 2012, 12:04 pm

    I think the idea of unions or associations have merit. If you really think about it there are many, many forms of organizations that take similar forms (churchs, political parties, professional associations, advocacy groups, chamber of commerce, etc.). Each receives payment for some form of representation. All represent a group of individuals (or in some cases organizations) who share a common interest. The issue, in my mind, is that labour unions have perhaps exceeded their initial mandate. They have become far too political (they should not be allowed to be political), allowed their executive to become too powerful (and therefore, protect their own interests ahead of their members), and are not transparent (where does all the union dues money go). I believe labour unions need to reinvent themselves to be more flexible and adaptable to the current environment. The idea of ensuring that individuals within an organization get a voice is important. Yes, the squeeky wheel always gets the grease, but let’s consider others who may be too intimidated to stand-up individually. Food for thought.

  • Doug Willson October 15, 2012, 12:25 pm

    Unions destroyed BC which used to be a Have province.

    The problem is that unions represent themselves first (they are their own organism) and not the employees.

    Union fees are expensive (I remember working at Safeway and making less than minimum wage if I didn’t get enough hours as the union took $10/week from me and I made $6/hr!!!), unions protect bad workers and make stupid decisions (like going on strike for bad reasons and as a result getting the operations shutdown and moved – see Caterpillar).

    The entitlement is also silly. Such as former Zeller’s employees wanting union wages from Target. Hint Zeller’s wasn’t profitable with a union.

    The best is to be non-unionized and be able to threaten starting a union. Once you have a union there is little if any benefit.

  • epic October 15, 2012, 1:30 pm

    Unions are archaic ideas – that had its place back in the day. It DID good, but it’s relevancy at today’s environment is questionable, as we’ve seen more often than not, Unions simply drive up costs and kill employer (private sector) or taxpayers (public sector).

    Union to act as ombudsman and protect worker from abuse is still a good thing, BUT the fact that seniority is rewarded rather than merit-based / performance-based reward is one of the biggest failing of unions. I can just stay at the same workplace, doing nothing much but get paid more just because I’ve been there longer – how anyone can think that’s a good idea is way beyond me.

    Also with “collective” bargaining – you are locked in to be paid and rewarded equal to the slowest / laziest / most unproductive worker in the group. So if the laziest person get paid the same – why would I ever want to do more? This discourage improvement and innovation, everyone will just collectively be lazy.

    There are many other failings of unions and many reasons that they are not relevant anymore in today’s workplace.

  • Steve October 15, 2012, 4:27 pm

    We have sufficient government enforced labour regulations that are enough to protect workers. We don’t need unions to do that anymore.

    The bottom line is a company can afford to pay some amount for labour. This money will be distributed among the workers as compensation.

    A major problem with labour unions is compensation is generally based on seniority, instead of experience and qualifications (which is what your pay SHOULD be based on). E.g. If I work at the Toyota plant in Cambridge, Ontario for 30 years, then transfer to the Ford plant in Oakville, Ont, I have technically have ZERO seniority but I am probably one of the most experienced, skilled works in the factory.

    So, lets generalize a bit and say when I compare my salary to my colleagues with same SENIORITY in the union doing the same job, we make the same pay. Now, if I’m an above-average worker compared to those peers, I’m getting underpaid. On the otherhand if I’m a below average worker compared to those peers, I’m overpaid.

    Unions benefit the below average employees and are a detriment to the above average employees.

  • nobleea October 16, 2012, 11:55 am

    There’s government unions out here in Alberta that cause havoc once in a while. But as far as industry unions go, they are here, but practically invisible to the public, which is the way it should be.

    I can see how unions for something like teachers and nurses make sense, but they need to be overhauled so that young, smart, innovative people can leapfrog the archaic dinosaurs unwilling to change.

  • SST October 16, 2012, 9:04 pm

    @nobleea: “I can see how unions for something like teachers and nurses make sense…”

    In what sense?

    But seriously, there really is no sense in arguing over the uselessness of the majority of unions; we are, unfortunately stuck with them. For now…

  • Cat October 17, 2012, 11:54 pm

    It has been my experience that the only one in a union shop who makes out is the steward…….

  • Goldberg October 18, 2012, 10:54 am

    Unions mean higher pay and benefit for their worker; versus the faceless shareholders.

    They are not useless; they matter a lot in people’s lifes.

    FT is a unionize worker who would not be making as much as he is without a union, and would not be able to retire as early as he will be.

    Unions have some bad, so do corporations. Lets get rid of both… hahaha

    And by the way, this topic is way off the general scope of this website (early retirement and proper financial management).

  • Maher October 26, 2012, 3:30 pm

    I am a unionized tradesperson employed in Alberta. Our trades union, unlike government unions, is a meritocracy. That is, productivity and safety trump seniority when it comes to employment longevity on our various projects. Those who are laid off first are the first to be re-employed for the next available work. There is no protection for incompetence, defiance of terms of employment, and safety infractions. Collectively, we fund training, apprenticeship, as well as personal and financial counseling. Above average workers find themselves promoted more often, work more projects, and are the last to be laid off as projects near their completion. Underperformers are fired more often, laid off sooner, blacklisted from contractors, even have membership revoked. Union wages, negotiated collectively, set the standard for wages and benefits in the non-union sectors. Read: non-unionized tradespeople benefit from union collective bargaining activities. The last resort action of strikes or lockouts hasn’t been invoked for years, an indication of Alberta’s tight labour market, a collective bargaining system that works, and a dispute/ grievance system that functions more or less reliably.
    To relate this topic to MDJ blog, collective bargaining and unionism from a trades perspective has resulted in above average income ($150k last year), ongoing union funded vocational training, excellent extended health/ dental coverage, death benefits for member’s families, and a pension plan that assures a dignified retirement for our members/ spouses.
    All large organizations have issues and it’s easy to generalize about the labour movement. That said, many things in our society have been brought about by organized labour. Organizations that act as a balance towards corporate and government self-interest are integral towards maintaining our standard of living in Canada. Overall, my experience working union has been positive. Organized labour is here to stay, and are evolving to ensure the needs of our members and fair contractors are met.

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