Don't Sign that Union Agreement Without Advice!

The Importance of Reading, and Understanding, Union Contracts and the Underlying Law Before Signing!

Employers have in recent years been confronted with increasingly complicated and onerous union contracts. In addition to their complexity, these contracts increasingly contain hidden traps for the unwary signer. In the old days it was common for construction contractors to sign an acceptance form for a “pre-hire” union contract when they wanted to perform work which required unionized employees. Later, if circumstances dictated, those contractors could terminate those agreements and end their relationship with the union(s), by giving appropriate and timely notice to the union(s). Today, however, the effects of signing a complicated union contract, and of terminating one, construction related or otherwise, are often unforeseen, misunderstood and expensive.

Today’s union agreements frequently provide that the signer recognize the union as the majority representative of its employees (even if they really aren’t). If an employer signs such an agreement, and thereby recognizes the “majority status” of the union, he/she will not later be able to simply terminate the union relationship upon expiration, but will be required to negotiate for a new agreement, under complex NLRB rules.

Unions have increasingly included such “majority status” language in their contract proposals, as well as clauses extending the agreement to other states, even though they may have never demonstrated they have the support of a majority of employees. Absent such majority support, including this language in an agreement is an unfair labor practice. However, an employer has only six (6) months to file an unfair labor practice charge challenging the inclusion of such language (as well as the union’s claimed majority status), after which it becomes largely unchallengeable. Unfortunately contractors often do not realize that such “majority status” language is even in a contract until more than six (6) months after signing the acceptance form – too late. “Recognition” of a union in other industries, where pre-hire agreements are illegal, can be even more tricky.

Current union contracts, as well as “letters of acceptance,” also increasingly provide that a trade association is the employer’s bargaining representative for purposes of contract negotiation. As a result, a contractor can find him/herself bound to anything and everything negotiated between that association and the union . . . sometimes without even knowing that negotiations are taking place. If a contractor fails to timely de-authorize that trade association as its bargaining representative, it may find itself automatically bound to whatever new contract is negotiated by that association. Similar problems can occur in other industries.

While most employers understand that signing a union contract typically means they must pay union fringe benefit contributions on behalf of their employees, those employers are often unaware that it may also subject them to a large “withdrawal liability assessment” should they terminate the union contract and exit from a union pension. Although union contracts almost never mention “withdrawal liability,” federal law provides that mere participation in a multi-employer pension (most union pensions) automatically subjects an employer to the provisions of the Employee Income Security Act (ERISA). ERISA requires that employers who withdraw from an “underfunded” pension (meaning that it has more liabilities than assets) must pay their proportionate share of that underfunding. Today most union pensions are underfunded, and therefore most withdrawing employers are subject to an assessment of withdrawal liability. That assessment can reach hundreds of thousands, or even several million dollars, depending on the financial status of a given pension and the level of the employer’s participation.

Many union representatives make oral promises to persuade an employer to sign a union agreement, which are generally unenforceable, especially against the pension fund. We have advised employers who have been told, for example, that only a few employees needed to be covered by the labor agreement, while in fact you must legally pay contributions for all who do the covered work under the agreement. Other “side agreements” by the union to provide trained employees, get work for the employer, “protect” the employer with regulators, or provide “targeting money” to lower the cost of bids, are generally unenforceable also.

The bottom line? If you are thinking of signing a union contract, make sure you understand what you are signing. An employer should confirm with an experienced management labor attorney whether the agreement recognizes the union as the majority representative of his/her employees, or whether it is a “pre-hire” agreement (if legal in that industry), and whether it extends to other jurisdictions. If a contract obligates the employer to participate in a pension fund, the employer should also investigate the financial status of that fund, and consider whether it is, or may become, underfunded. Other “promises” of the unions based on signing should also be evaluated and documented.

Call the authors or any of the attorneys at Peters, Revnew, Kappenman & Anderson, P.A. to discuss these important questions. We’ll be happy to provide a no-charge estimate for providing assistance.

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