Collective bargaining is the process of negotiating a labor contract between an employer and a union. The process is needed to arrive at an agreement that is mutually agreeable to both parties.
The negotiation of this agreement can be a difficult one. Typically, each side sets a bargaining position that represents its optimum outcome, which can represent a widely diverging set of positions. Each party also has a minimum set of outcomes across its mix of demands that it will agree to – if the negotiations do not reach that minimum position, the parties will be stalemated.
It is possible that either party may make a demand that it knows will be rejected by its counterpart. Such a demand may have been presented as a throwaway, where it is used to offset a demand by the other party, so that neither demand is incorporated into the final agreement. Another reason for issuing such a demand is to begin arguing in its favor over the course of several iterations of the agreement; thus, a demand is introduced and rejected in the current round of negotiations as a signal that the presenting party wants to address this topic, and will do so with increasing vigor over time.
When a contract between a union and an employer is constructed, the bargaining unit must first ratify the agreement. If ratified, the agreement will typically be in effect for a three-year period. If the agreement is not ratified, the union and employer may return to the bargaining table to fashion a more acceptable agreement, which will then be voted on again.
The resulting agreement defines the compensation and conditions of employment to which the parties have agreed. The agreement may contain the following provisions:
- Wage rates. States the wages to be paid for each job classification for each year covered by the agreement. A cost-of-living adjustment may also be included, as well as the rates to be paid for overtime, shift differentials, and other forms of pay.
- Severance pay. States the amount of pay that will be issued if an employee is laid off or terminated.
- Holidays. States the holidays for which employees will receive compensation.
- Vacation. States the formula by which vacation time is earned.
- Union shop. The union shop concept states that a company that has unionized employees must require all new employees hired into job classifications represented by the union to join the union.
- Dues checkoff. The employer is required to withhold union dues from employee paychecks and forward these amounts to the union.
- Grievance procedure. Describes the procedure to be followed when an employee has a complaint about the employer.
- Employee security. Describes the order in which employees are laid off and recalled from a layoff, as well as the order in which promotions are determined. The fundamental underlying concept is that those employees with the most seniority have the most security and promotional opportunities.
- Work rules. Lays out the rules under which employees can be directed to conduct tasks.
- No strike/no lockout. The union agrees not to engage in any strikes during the term of the agreement, while the employer agrees not to engage in any lockouts. Doing so provides economic security to both sides.
- Reserved rights. States that any rights not specifically covered in the agreement are assigned to management. This eliminates any arguments over the applicability of any issues not specifically covered by the agreement.
During the term of an agreement, issues will inevitably arise that are not covered by the existing agreement, or which are unsatisfactory to one party or the other. These issues usually form the basis for the negotiations associated with the next three-year iteration of the agreement. These issues will be brought to the attention of the union by the union stewards, who are the front-line representatives of the union members. Similarly, lower-level supervisors administer the agreement on behalf of the company, and so will forward suggestions to senior management regarding how the agreement should be adjusted in its next iteration.