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.1

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 healthcare23

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 that the law doesn’t require, such as 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.

IMPORTANT
Union membership in the United States totaled 9.9% in 2024, the most recent available
data. That is virtually unchanged from the year before. Public sector employees made
up 32.2% of labor members, compared to 5.9% of those from the private sector.4

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-forth, 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.5

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; these include federal, state, and local government employees and
agricultural laborers.6

The National Labor Relations Board (NLRB) 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.7 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.8

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.9

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 a recession. Union leaders may agree to give up certain benefits 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 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.
For this kind of bargaining to work, both parties need to agree to financial terms in order
to increase productivity.

FAST FACT
Unions represent a variety of workers, including (but not limited to) grocery store
employees, airline employees, professional athletes, teachers, autoworkers, postal
workers, actors, farmworkers, 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 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.10 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.11

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 Oct. 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 workers’ demands.
The strike ended on Nov. 17, 2021, just over a month after it began.12

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 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

(ILO), 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 in which 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.

Definition of Layoff
A “layoff” means when an employer doesn’t offer a job to a worker whose
name is on the worker list for their industrial business. This happens when
the employer can’t provide work due to reasons like not having enough
electricity, coal, materials, having too many goods in stock, machines
breaking down, natural disasters or other good reasons. This definition is in
Section 2(kkk) of the Industrial Disputes Act, 1947.
Requirements for a Layoff
To have a layoff:
1. The employer can’t provide work to the workers.
2. This inability to provide work should be due to a lack of electricity, coal,
materials, excess stock, machine breakdown, a natural disaster or other
valid reasons.
3. The worker’s name should be on the employer’s list of workers for their
industrial business.
4. The worker shouldn’t have been fired.
If a worker’s name is on the employer’s list and they show up for work but
aren’t given work within two hours, they are considered laid off for that day.
Similarly, if a worker is asked to work during the second part of their shift
and gets work, they are seen as laid off for the first part of the day. If they
show up for work during the second part of the day and still don’t get work,
they are considered laid off for the whole day.
Definition of Retrenchment
Retrenchment, as defined in Section 2(oo) of the Industrial Disputes Act,
1947, means letting go of an employee for reasons other than as a
punishment for disciplinary actions. However, it doesn’t include voluntary
retirement, retirement at the specified age in the employment contract,
termination due to ongoing illness or the natural conclusion of an
employment contract.
Requirements for Retrenchment
For a retrenchment to take place:
1. The employer must provide the employee with a written notice explaining
the reasons for retrenchment or they must pay the employee their salary for
the notice period, as per this Section.
2. When an employee is let go, the employer must give them compensation
equivalent to 15 days’ average wages for each year they’ve continuously
worked.
3. A notice of the reduction in the workforce must also be given to the
relevant government.
Difference Between Layoff and Retrenchment
Layoff and retrenchment are two distinct employment actions with important
implications for both employers and employees. While they may appear
similar at first glance, they differ in several significant aspects.
In this comprehensive discussion, we will explore the key differences
between layoff and retrenchment, considering various aspects such as
purpose, nature, duration and impact on both parties involved.
1. Purpose
Layoff: Layoff is typically initiated as a temporary measure in response to
short-term challenges faced by the employer, such as seasonal fluctuations,
economic downturns or unforeseen circumstances like the COVID-19
pandemic. The primary purpose of a layoff is to reduce labour costs during a
temporary period.
Retrenchment: Retrenchment, on the other hand, is a permanent action
taken by the employer to restructure the workforce for long-term efficiency
gains. It aims to permanently reduce the number of employees to align with
operational needs.
2. Nature
Layoff: A layoff is a temporary suspension of employment. During a layoff,
employees remain connected to the employer and there is an expectation of
reemployment when conditions improve.
Retrenchment: Retrenchment results in a permanent termination of
employment. The employment relationship ceases and there is no
expectation of rehiring the affected employees.
3. Impact on Employees
Layoff: Employees experiencing a layoff face temporary disruption in work
and income. However, they retain the expectation of returning to their jobs.
Retrenchment: Employees subjected to retrenchment face permanent job
loss, leading to a prolonged period of uncertainty regarding future
employment prospects.
4. Impact on Employers
Layoff: Employers use layoffs as a cost-cutting measure during temporary
economic downturns. It allows them to reduce labour costs temporarily while
retaining the option to rehire when the situation improves.
Retrenchment: Retrenchment is typically implemented for long-term
efficiency gains. Employers permanently reduce the workforce to align with
operational needs and reduce overhead costs. However, they may lose
skilled workers.
5. Legal Framework
Layoff: The legal framework for layoffs often ensures that employees
receive recall rights. Layoff terms are typically outlined in employment
contracts or collective bargaining agreements.
Retrenchment: Retrenchment is subject to stricter legal regulations in
many countries due to its permanent nature. Legal requirements may
include notice periods, severance pay and justifiable reasons for termination.
6. Employer-Employee Relationship
Layoff: During a layoff, the employer-employee relationship remains intact.
Employees expect to return to their jobs when the layoff period ends.
Retrenchment: In cases of retrenchment, the employment relationship
ceases to exist. Employees are not expected to return to the same employer.
7. Industrial Establishment Impact
Layoff: During a layoff, the industrial establishment may temporarily halt
operations or reduce production capacity due to decreased workforce
availability.
Retrenchment: In retrenchment, the industrial establishment continues its
regular operations without the terminated workers, aiming for more efficient
and cost-effective operations.
8. Employee Recall
Layoff: Layoffs often include provisions for employee recall. Employers can
rehire employees when business conditions improve without the need for a
new hiring process.
Retrenchment: In retrenchment, there is typically no provision for
employee recall, as the termination is permanent.
Here is a table summarising the key differences between layoff and
retrenchment:
Aspect of
Layoff Retrenchment
Difference

Temporary,
Permanent, for
in response
Purpose long-term
to short-term
efficiency gains
issues

Temporary Permanent
Nature suspension of termination of
employment employment
 Temporary
Permanent job
Impact on disruption,
loss, prolonged
Employees expectation
uncertainty
of return

Long-term
Temporary
Impact on efficiency gains,
cost
Employers possible loss of
reduction
skilled workers

Subject to stricter
Often
regulations,
includes
including notice
Legal recall rights,
periods and
Framework outlined in
justifiable
contracts or
reasons for
agreements
termination

Employer-
Remains
Employee Ceases to exist in
intact during
Relationshi retrenchment
a layoff
p

Temporary
Continues regular
Industrial halt or
operations with
Establishme reduced
fewer workers for
nt Impact production
efficiency
capacity

Provision for
Typically no
Employee rehiring
provision for
Recall employees
employee recall
when needed

Conclusion
Layoff and retrenchment are distinct employment actions governed by the
Industrial Disputes Act of 1947 in India. Layoff is a temporary suspension of
employment, often used in response to short-term challenges, while
retrenchment is a permanent termination aimed at long-term operational
efficiency. Layoffs are typically subject to specific regulations, allowing for
recall of employees, while retrenchment involves legal provisions for notice
periods and justifiable reasons.
Both actions are crucial tools for employers to manage their workforce, but
they serve different purposes and have varying implications for employees
and employers. Understanding the differences between layoff and
retrenchment to understand the basic concepts related to labour laws.