What You Need to Know about Right to Work
Over the loud protests of workers and unions last week, Michigan became the 24th state to pass so-called right to work legislation, which limits the bargaining power of unions.
While most small business owners never deal directly with unions or unionized employees, it's important for entrepreneurs to pay attention because many small business owners do business with large unionized suppliers, or with customers whose businesses are unionized. Similar bills are likely to arrive soon at statehouses in other non-right to work states.
Right to work laws affect the complex agreements that unions and businesses negotiate about a wide range of issues like worker pay, hours, and benefits. Chiefly, RTW restricts the 'union security clause' part of a labor contract, which defines which class of employees will belong to the union. The clause stipulates that all employees, whether they are members of the unions or not, pay for their representation in negotiations. Payments by members are called dues, and they're called agency fees when they're paid by non-union workers.
Contrary to popular understanding, workers cannot legally be forced to join a union or pay dues as a condition of hiring. (They may be asked to do so after a set number of days on the job, however.) But unions are required to represent all workers covered by union contracts. So if a non-union member is terminated unfairly, the union must defend that worker with its own money.
The new laws favor business by diminishing the power of unions to collect dues and agency fees by making payment of them voluntary. The laws are primarily a political maneuver that prevents unions from collecting money that would fund their activities and their own political campaigning, experts say.
"These laws create a political opening, and they clearly harm the ability of workers to form unions and run the unions effectively," says Roland Zullo, research scientist at the Institute for Research on Labor, Employment, and the Economy at the University of Michigan.
In Michigan's case, the passage of RTW legislation comes on the heels of tax cuts for small businesses. In 2011, among other things, the state did away with the Michigan Business Tax, which had the effect of taxing S Corps and LLCs twice.
The combination of tax cuts and anti-union legislation has delighted some of the state's small business owners, because they think it will create an improved business climate overall. "It gives businesses outside of Michigan the opportunity to come here and not be threatened by the unions' control," says Steve Morse, chief executive of Keen Technical Solutions, of Traverse City, Michigan. Keen, which upgrades cooling, heating, and lighting systems, has 10 full-time employees and is 164th on the Inc. 500 list for 2012.
Business lobbyists in the state agree. "Now we can sell the benefits of Michigan, which will have a dramatic impact on job creation in the state,' says Jim Holcomb, senior vice president and general counsel at the Michigan State Chamber of Commerce, in Lansing.
Opponents of RTW claim it has the effect of lowering wages in states where such laws are passed. The AFL-CIO, the largest federation of unions in the country, says that workers in states with RTW laws earn on average between $1,500 and $5,500 less annually. Advocates of RTW, like Morse, say such laws create a favorable business environment in the states where such laws are enacted. But neither claim can be substantiated, experts say.
Indeed, Lance Compa, a professor at the Industry Labor Relations School at Cornell University, says RTW laws are likely at the bottom of a company executive's list of key factors for locating in a state. "For [business owners] who have an anti-union ideology, RTW might make a difference, but most managers are [mostly] interested in running a profitable business," Compa says.
Michigan offers much more attractive things for businesses thinking of settling there, such as a highly skilled work force, a first-rate educational system, and good infrastructure, Compa says.
That rings true for Michael Kalis, chief executive of Marketplace Homes in Livonia, Michigan, which employs 100 people. Kalis says his business won't feel any direct impact from the new legislation, even though the company deals with many of the top builders and contractors in the state, which are unionized. (Marketplace Homes is number 409 on the Inc. 500 for 2012.)
"I am a fast-growing company, and I love being here because there are tons of engineers and lots of people who are well-educated, and there's a strong technology base, and I can hire people generally quickly," Kalis says. "I don’t think a lot of companies would choose to come here because of RTW."