Collective Bargaining

What Is Collective Bargaining? 

The term collective bargaining refers to the negotiation of employment terms between an employer and a group of workers. Employees are normally represented by a labor union during collective bargaining.

The terms negotiated during collective bargaining can include working conditions, salaries and compensation, working hours, and benefits. The goal is to come up with a collective bargaining agreement through a written contract. According to the International Labour Organization, collective bargaining is a fundamental right for all employees.

Key Takeaways

  • Collective bargaining is the process of negotiating the employment terms between an employer and a group of workers.
  • The process takes place between company management and a labor union. 
  • Concerns and issues that may come up during collective bargaining include working conditions, salaries and compensation, working hours, and benefits.
  • The goal of collective bargaining is to come up with a collective bargaining agreement or contract.
  • There are several types of collective bargaining, including composite concessionary, distributive, integrative, and productivity bargaining.
  • In the 2022 midterm elections, voters in Illinois and Tennessee took opposite positions: either enshrining collective-bargaining rights in their state constitution or restricting union powers.

How Collective Bargaining Works

As noted above, the International Labour Organization (ILO) states that collective bargaining is a fundamental right available to all workers. This means that all employees are entitled to present their grievances to their employers and to be able to negotiate them. According to the ILO, collective bargaining helps reduce inequalities in the workplace while providing workers with labor protection.

Collective bargaining normally takes place between members of corporate management and labor union leaders, who are elected by workers to represent them and their interests. Collective bargaining is initiated when employee contracts are up for renewal or when employers make changes to the workplace or contracts. These changes include, but aren't limited to:

  • Employment conditions
  • Working conditions and other workplace rules
  • Base pay, wages, and overtime pay
  • Work hours and shift length
  • Holidays, sick leave, and vacation time
  • Benefits related to issues such as retirement and healthcare

These issues fall into three different categories, which are referred to as mandatory subjects, voluntary subjects, and illegal subjects. Mandatory subjects include anything that the law requires of the employer, such as salary, overtime, and workplace safety. Voluntary subjects include negotiable things the law doesn't require like union issues and decisions about employer board members. Illegal subjects involve anything that violates laws, such as workplace discrimination.

The goal of collective bargaining is called a collective bargaining agreement. This agreement is meant to establish rules of employment for a set number of years. Union members pay for the cost of this representation in the form of union dues. The collective bargaining process may involve antagonistic labor strikes or employee lockouts if the two sides have trouble reaching an agreement.

Union membership in the United States totaled 10.3% in 2021, the most recent available data. That is a 0.5% decrease from the previous year. Public sector employees made up 33.9% of labor members, compared to 6.1% of those from the private sector.

Collective Bargaining Steps

Collective bargaining can be an intense process that can be stressful and difficult for all parties involved. It often involves a lot of back-and-forths, with offers and counteroffers. But the end goal is to reach an agreement.

The process goes through a number of stages. These steps can be summed up as follows:

  1. Identifying the issues and preparing the demands: This may include a list of grievances, such as abusive management practices or low salaries.
  2. Negotiating: The union will hire a team of professional negotiators to reach an agreement with the employer. The employer will also hire negotiators, and the two teams will continue to meet until they find a satisfactory agreement.
  3. Coming to a tentative agreement: Once an agreement is reached, both teams of negotiators will submit the agreement to their constituents. At this time, any last-minute issues will be raised as the details are hammered out.
  4. Accepting and ratifying the agreement: The agreement will be submitted to union members, who will have the opportunity to vote for or against the new contract.
  5. Administering the agreement: After an agreement is finalized, workers and shop stewards will continue monitoring to ensure that the company is abiding by its obligations.

There are instances, though, where the parties involved can't come to an agreement. If the negotiation period expires without a collective bargaining agreement in place, union representatives may suggest that workers go on strike until their demands are met.

Employers, on the other hand, may decide to lock out their employees until a suitable agreement is reached. If they are locked out, employees have the right to picket. In most cases, neither party wants to reach these points, which are considered drastic measures that are used as a last resort.

Collective Bargaining Laws

Most industrialized countries have laws that protect the right to engage in collective bargaining and form unions, although there may be restrictions on certain industries. In the United States, the National Labor Relations Act (NLRA) protects the right of most workers to engage in collective bargaining activities.

This includes the right to form and join unions, the right to discuss pay and other grievances, and the right to strike. It also prohibits any employee from being fired for protected activity. However, certain categories of workers are specifically excluded from the NLRA; those include federal, state, and local government employees and agricultural laborers.

The National Labor Relations Board is the government body that regulates labor practices and collective bargaining under the NLRA. It is also responsible for supervising union elections and ensuring that workers are not pressured to vote one way or the other.

Many states also have laws regarding collective bargaining. In the 2022 midterm elections, Illinois voters approved an amendment that would enshrine collective bargaining rights in their state's constitution. Moving in the opposite direction, Tennessee voters approved a referendum that would add a right-to-work law provision to their state constitution, restricting the power of unions.

Types of Collective Bargaining

Not all types of collective bargaining are the same. In fact, collective bargaining can be divided into several categories. We've noted some of the most common types below.

Composite Bargaining

Composite bargaining has nothing to do with compensation. Instead, it focuses on other issues, such as working conditions, job security, and other corporate policies, These may include hiring and firing practices as well as workplace discipline. The goal of composite bargaining is to come up with a suitable agreement leading to a lasting and harmonious relationship between employers and their employees.

Concessionary Bargaining

As its name implies, concessionary bargaining focuses on union leaders making concessions in exchange for job security. This is common during an economic downturn or recession. Union leaders may agree to give up certain benefits in order to guarantee the survival of the employee pool and, ultimately, of the business.

Distributive Bargaining

This process is characterized as benefiting one party financially at the expense of the other. This can come through increased bonuses, salaries, or any other financial benefits. Distributive bargaining normally favors workers over employers.

Unions must have a higher degree of power in order for distributive bargaining to work. Higher membership means more power. If an employer refuses to accept a union's demands, it can call a strike.

Integrative Bargaining

Each party tries to benefit through integrative bargaining, which is why it's often referred to as a form of win-win bargaining. Each side tries to consider the other's position and bring issues to the table that aim to benefit both parties. As such, employees and employers both stand to lose and gain with integrative bargaining.

Productivity Bargaining

This type of bargaining revolves around compensation and the productivity of employees. Labor union leaders often use higher salaries and compensation as a way to boost employee productivity, which leads to higher profits and value for the employer. In order for this kind of bargaining to work, both parties need to agree to financial terms in order to increase productivity.

Unions represent a variety of workers, including (but not limited to) grocery store employees, airline employees, professional athletes, teachers, auto workers, postal workers, actors, farm workers, and steelworkers.

Advantages and Disadvantages of Collective Bargaining

Advantages

As the name implies, workers have a larger voice through collective bargaining. Being in a group with the same goal(s) gives employees more power to negotiate demands with their employers. Companies may be able to shut out the voices of one or two employees but can't necessarily do the same with a larger group of unified individuals.

Workplace conditions under collective bargaining can see significant improvements and guarantee all workers the same protections. This includes the implementation of health and safety checks as well as suitable salaries, overtime pay, and vacation time.

Employers and employees are fully aware of their rights and responsibilities under a collective bargaining agreement. Once employment terms are negotiated, a contract is drawn up. Both parties agree to the terms, which are clearly defined.

Disadvantages

As mentioned above, collective bargaining is often a long, drawn-out process that can take weeks or even months. Employers and labor union leaders may have to go back and forth with employment terms. Union leaders are required to update employees and must put the terms to a vote. If employees vote to reject a contract, the negotiating process begins again.

Collective bargaining often comes at a high cost. Employees and employers may have to take time off from work in order to negotiate. This means less time on the job and, therefore, a drop in productivity. Lengthy negotiations can affect a company's bottom line.

The process is often considered biased. Because employees are able to band together under a single union, employers may be forced to negotiate and accept unfavorable terms in order to keep their businesses running without much disruption.

Pros and Cons of Collective Bargaining

Pros
  • Employees have a larger voice.

  • Improves workplace conditions and protects employees

  • Establishes rights and responsibilities of employers and employees

Cons
  • Lengthy process

  • Comes at a high cost

  • Employers may be forced to negotiate and accept unfavorable terms.

Criticisms of Collective Bargaining

Collective bargaining is a controversial subject, particularly when it comes to public-sector workers. Because tax revenues fund wages for public-sector employees, opponents allege that the practice leads to excessive pay that places an undue burden on taxpayers. Supporters argue that any worries about runaway pay are unfounded and that public-sector employees covered by collective bargaining agreements earn, at most, 5% more than their nonunion peers.

Former Governors Chris Christie of New Jersey and Scott Walker of Wisconsin fought high-profile battles with public-sector unions. Christie drew fire from the New Jersey Education Association (NJEA) for restructuring teacher pensions to rein in state spending. Walker's initiative to limit teachers' collective bargaining rights in Wisconsin proved so controversial that its opponents succeeded in collecting enough signatures to force a recall election against Walker in June 2012. The governor prevailed in the election.

Example of Collective Bargaining

In 2021, employees of John Deere attempted to negotiate a more favorable contract with the agricultural equipment manufacturer. However, during the period of high profits for John Deere and higher labor demand during the COVID-19 pandemic, many workers believed that they were entitled to higher wages and retirement benefits than the company's first offer.

Workers for the company ultimately rejected the first tentative proposal and authorized strike action against the company. On October 14, 2021, they began picketing John Deere factories and headquarters, causing some farm companies to worry about their ability to bring in that year's harvest. After much pressure from politicians, workers, and the public, John Deere proposed a new contract that met most of the worker's demands. The strike ended on Nov. 17, just over a month after it began.

What Are the Main Objectives of Collective Bargaining?

The main objective of collective bargaining is for both parties—the employees' representatives and the employer—to come to an agreement on employment terms. This is known as a collective bargaining agreement or a contract that includes employment conditions and terms that benefit both parties involved.

What Are the Main Types of Collective Bargaining?

The main types of collective bargaining include composite bargaining, concessionary bargaining, distributive bargaining, integrative bargaining, and productivity bargaining.

Is Collective Bargaining Illegal?

Collective bargaining is not illegal. According to the International Labour Organization, employers have the right to form unions to represent them and their interests and the right to collective bargaining. As such, union leaders are charged with the task of negotiating employment terms with employers and administering them through employment contracts.

What Is the Scope of Collective Bargaining?

Collective bargaining aims to address concerns that affect employees and the workplace. These issues include compensation, working conditions, the work environment, benefits, and company policies and procedures. Collective bargaining also provides ways to settle disputes that may come up between employers and their employees.

The Bottom Line

Collective bargaining is the process where workers join together to demand higher wages, greater benefits, or improved working conditions. By negotiating together as a unit, they can negotiate with much more leverage than they would have alone. In modern economies, collective bargaining has been essential to the creation of an industrial middle class.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. International Labour Organization. "Collective bargaining and labour relations."

  2. AFL-CIO. "Collective Bargaining."

  3. SHRM. "What is a collective bargaining agreement?"

  4. Bureau of Labor Statistics. "Union Members—2021."

  5. BoyceWire. "Collective Bargaining Definition."

  6. MVOrganizing.org. "What are the 5 core steps of collective bargaining?"

  7. go2HR. "STRIKES, LOCKOUTS, PICKETING AND REPLACEMENT WORKERS."

  8. National Labor Relations Board. "The National Labor Relations Act."

  9. AFL-CIO. "Your Rights to Unionize."

  10. PBS. "Illinois Votes To Protect Collective Bargaining Rights in State Amendment."

  11. The Tennessean. "Four Constitutional Amendments in Tennessee Headed Toward Passage."

  12. Reuters. "Christie sets out teachers' pension reform."

  13. The New Yorker. "The Storm."

  14. Agriculture.com. "Timeline of the John Deere Strike."

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description