John Horowitz, Esq.
Fox Rothschild LLP

IS THIS WHAT YOU REALLY AGREED TO?

The charm of the construction industry is that many things still get done – and done well – on a handshake.  When dealing with union labor agreements, however, contractors have to ensure that the promises being made to them are in writing, and they understand all of the provisions in the agreements they sign. 

With alarming frequency, contractors sign labor agreements, without reading them, and then months/years later tell the following story:  “Years ago, a union business agent handed me a piece of paper and asked me to sign it.  He promised it only required me to hire a few union workers for a particular project and, once it was over, I had no obligation to use union labor.  Yesterday, I received an audit report from the union benefit funds stating I owe more than $1,000,000 in unpaid contributions.  They’re telling me that the piece of paper I signed is a contract requiring me to use union labor on all of my projects, and pay union wages/benefits for all of the construction workers at my company, as well as all of the workers employed at another company I own with my brother.  Paying $1,000,000 will bankrupt me.  What I can do?”

While loopholes exist in certain circumstances, the short answer is that judges and arbitrators almost always enforce the express terms of a labor agreement, and will likely disregard any verbal promises to the contrary.  Thus, the contractor in the above hypothetical will probably be responsible for paying the $1,000,000 based on the terms of the contract. 

To help you better understand the potential liabilities within a labor agreement, the following offers some general guidance on construction industry labor agreements, and identifies some of the pitfalls to avoid when signing and operating under these agreements. 

I. What Is A Construction Industry Labor Agreement?

Labor agreements are contracts between employers and unions which set forth terms and conditions of employment for the unions’ members (i.e., bargaining unit employees).  Construction industry employers generally become bound to a labor agreement with a union as either a member of a multi-employer association (an association comprised of many contractors) or as an independent employer (a company that bargains independently of the association).  Frankly, whether an employer chooses to bargain through the association or independently, the terms of any agreement it signs will probably be similar, since most trade unions seek to achieve uniformity in terms and conditions of employment for all workers in that particular trade within the industry.  These agreements are commonly referred to as “industry agreements.”

While some unions require contractors to sign the actual labor agreement, most union business agents will use a “short form agreement” (usually a one-page document) which states that the contractor agrees to comply with all of the terms in the industry agreement negotiated between the union and multi-employer association for that trade.  Thus, the one-page short form agreement can bind a contractor to the “big” industry agreement.

CAUTION:  In many instances,business agents do not show contractors a copy of the industry agreement when they ask them to sign the short form agreement.  Also, many business agents hand contractors short form agreements and make a lot of verbal promises, but the short form agreement will likely state – in clear and unambiguous terms – that the contractor must follow all of the terms of the entire industry agreement  So, when the business agent promises that the short form agreement is for only one project, or that the contractor just needs to “hire a few guys” and the union will stay away, chances are neither the short form or industry agreement contain these promises, and the promises won’t be enforceable.

II. When You Signed The Labor Agreement, How Did You Recognize The Union?

                     A. The Hidden Section 9(a) Language

Under the National Labor Relations Act (NLRA) – a federal statute that governs labor relations between covered employers and unions – it is unlawful for an employer to recognize a union that does not represent a majority of the employees.  Under Section 9(a) of the NLRA, a union will be deemed the majority representative of a group of workers if it can prove that:  (1) it requested recognition as the majority or Section 9(a) representative of the bargaining unit employees; (2) the employer recognized the union as the majority or Section 9(a) representative; and (3) the employer’s recognition was based on the union having shown, or having offered to show, evidence of its majority support.  If the union lawfully becomes the majority representative, the employer must bargain to agreement or impasse with the union over the employees’ terms and conditions of employment, and must continue bargaining with the union when their labor agreement expires.

        B. Section 8(f) Exemption

There is an exception to the above framework.  Under Section 8(f) of the NLRA, an employer primarily engaged in the building and construction industry is allowed to enter into a labor agreement with a union that does not represent a majority of its employees, if the employees are performing building/construction work.  Indeed, unlike every other industry, a union in the construction industry does not have to prove that it represents a majority of the contractor’s employees prior to being legally recognized by the employer. 

Moreover, if the union has not been recognized as the majority representative, the construction industry employer can cease recognizing and bargaining with the union once the contractor’s labor agreement terminates.  Thus, provided the labor agreement is properly terminated, a construction industry employer can simply walk away from the union when the contract ends, and pay whatever wages and benefits it chooses.

CAUTION:  While this legal jargon may seem inconsequential, labor unions understand the difference, and many unions slip language into agreements stating that the contractor recognizes the union as a Section 9(a) representative.  Consequently, the contractor unknowingly recognizes the union as the majority representative and may lose its ability to walk away from the union when the agreement expires.

III. Assuming I Am Still An 8(f) Employer, Can I Stop Recognizing The Union When The Labor Agreement Expires?

Generally, a Section 8(f) employer has no duty to recognize or continue bargaining with a union after its labor agreement with the union expires – it can simply walk away. 

CAUTION:  Many labor agreements contain provisions (known as “evergreen clauses”) stating that unless the signatory 8(f) contractor gives written notice of its desire to terminate the contract, it will automatically renew itself at expiration.  If an employer to such an agreement fails to give written notice terminating the agreement, it could be bound to successor labor agreement(s) with the union, and the union could come back years later and rightfully claim that the employer is still bound to the contract.  Sadly, while handshakes may have gotten things done years ago, it is a different industry today, and the message is clear – don’t sign a contract unless you understand what you’re signing.

John Horowitz is a partner with Fox Rothschild LLP, resident in the New York City office.  He counsels employers on a wide range of labor and construction issues, and represents companies in negotiating labor and commercial contracts, and litigating contract disputes. He can be contacted at 212.878.7963 or jhorowitz@foxrothschild.com. 

This information does not create an attorney-client relationship or constitute legal advice. It is for information purposes only.  Legal ethics prohibit me from providing advice until a formal professional arrangement is finalized in writing.