The labor movement had its origins in the rise of the industrial revolution beginning around 1750—whereas small business is ancient, its twin origins being family farms and craftsmen's shops of ancient times. Craft guilds, which formed during medieval times and were central to the bourgeoisie of early market towns, in part later also inspired labor associations. Although later the interest of small business and unions diverged, ironically the first strike in America took place in New York City in 1741 when bakers rebelled against price-setting by the municipal authorities and stopped baking to make their point. Union time-lines cite the 1741 Bakers' Strike but scholarly opinion is divided—precisely because the Bakers' Strike was by small business owners against "the public sector" (not then called that, of course) rather than by labor against capital.

Careless use of language by many pundits and observers classifies small business as just another battalion in the army of capitalism, although the monumental work of the French scholar, Fernand Braudel, Civilization and Capitalism (Harper & Row, 1979) draws distinctions which leave small business out. Small businesses, of course, sometimes behave in typical capitalist ways (one thinks of highly exploitive sweat-shops) but in the overwhelming majority of small business enterprises the relationship between owners and workers is close, sometimes the two are members of the same family; the scale is such that blatant exploitation is not even a temptation. Small businesses are also much more vulnerable; an extended strike against them will put them out of business. Primarily for these reasons, the labor unions and small businesses have had little effective contact. To be sure, some small businesses are unionized, but they represent (as best as one can discover) a tiny minority of such enterprises.

The history of unionized labor shows that severe down-turns in economic activity have hurt labor temporarily; coincidentally long periods of expansion have caused labor unions to go into decline. Union membership stood at a peak of 19.4 million members in 1972 but had declined to 8.25 million by 2005. Membership as a percent of the work force stood at 29.8 percent in 1962 but had declined to 12.5 percent by 2005. As membership has declined, the percentage of unionized labor working for the public sector has increased, private sector unionized labor has decreased in share. In 1983 more than two-thirds of union members were in the private sector (67.2 percent). By 2004, the private sector's share was down to just over a half (52.6 percent)—47.4 percent of unionized labor worked for government or other public sector agencies (e.g., public schools).

In 2005, the highest rates of unionization (24 percent) were in the transportation and utilities industries. Finance and related services had the lowest rate (2.3 percent). Thirteen percent of construction and manufacturing labor was unionized. In wholesale and retail (where the highest proportion of small businesses operate) the rate was 5.2 percent. In professional and business services, another important small business sector, the rate was 2.7 percent. These percentages do not tell the whole story. For cost/benefit reasons unions have tended in the past to target large operations—unless unusual grievances caused unusual organizing activity. In practice this means that small businesses have gotten a pass from the union movement—unless, as it were, they drew unwelcome attention to themselves by aggressive moves and harsh practices. In the mid-2000s there were some rumblings that this may be changing, but little evidence.


The six most important pieces of legislation governing business-labor relations are the National Labor Relations Act of 1935 (NLRA), the Labor Management Relations Act of 1947 (LMRA), the Fair Labor Standards Act of 1938 (FLSA), the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA), the Civil Rights Act of 1964, and the Occupational Safety and Health Act of 1970.

The National Labor Relations Act, which created the National Labor Relations Board (NLRB), gives employees the right to organize and bargain collectively with their employers—in essence, it gives them the right to unionize. It also confers legal protection on employees who try to organize their fellow workers into a union—but also protects nonunion employees from being forced or otherwise coerced into joining a labor organization or engaging in collective bargaining. The act ensures that employees can choose their own representatives for the purpose of collective bargaining, establishes procedures for secret-ballot elections, and defines unfair labor practices, to which both employers and unions are subject. This law is also known as the Wagner Act in honor of New York Senator Robert Wagner.

The Labor Management Relations Act, known as the Taft-Hartley Act, amended the NLRB in ways that are generally thought to benefit business owners and management. It forbade businesses from launching unwarranted or sudden lockouts of union employees but also imposed restrictions on some union activities in the areas of organizing, picketing, striking, and other activities. It also outlawed the "closed shop" (which required that employers hire only union members) and gave the government the power to obtain injunctions against strikes that "will imperil the national health or safety" if they take place or continue.

The Fair Labor Standards Act, also known as the Wage-Hour Act, established the minimum wage for hourly employees and mandatory overtime pay for work in excess of 40 hours a week. This is the law that created the "exempt" and "non-exempt" employee categories, the former being salaried employees who are not subject to FLSA and are therefore "exempt" and hourly workers who are subject to the law and therefore "non-exempt." All states also have minimum wage rules; where the state minimum wage is higher than the federal, employers must pay the state-set rate.

The Labor-Management Reporting and Disclosure Act, also known as the Landrum-Griffin Act, was in large measure shaped to regulate the internal affairs of unions and to provide additional safeguards to ensure that the rules laid out in the Labor Management Relations Act of 1947 were adhered to.

The Civil Rights Act of 1964 prohibited employers from discriminating in their hiring practices on the basis of race, religious beliefs, gender, or natural origin—later also by age.

The Occupational Safety and Health Act of 1970 created the Occupational Safety and Health Administration (OSHA). It established guidelines and regulations to make workplaces safer and healthier for employees. "Each employer shall furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his [or her] employees," read one portion of the Act.


Joshua Kurlantzik, writing in Entrepreneur has pointed out that unions are turning organizing activities toward white-collar and service employees in the mid-2000s: these jobs are more difficult to export to foreign countries; at the same time, employees have been frightened by waves of layoffs and outsourcings and now are more prone to seek security. Evidence of such activities is anecdotal, on the whole, and it is difficult to determine whether it constitutes a trend toward (re-)unionization or a rear-guard action by labor as it continues to lose membership. Nonetheless, small businesses of the larger size, anyway, may in fact encounter organizing efforts. At the first sign of such activity in the community, the owner owes it to him- or herself to become familiar with the duties and rights involved. Early defensive action is important.

For example, a business may ban union literature in the work place, restrict internal efforts to convince employees to sign union authorization cards, and expressly forbid outside organizers from any activity on company property. But such rules must be in place before any organizational activity begins. If the rules are published after activities have already been launched, the business is subject to charges of unlawful retaliation.

Under current rules, a union must initially garner sufficient interest from a business's employees (30 percent of the work force is a rule of thumb), before it can petition the National Labor Relations Board for an election by secret ballot to determine whether the work force will join the union in question; if the interest level is 50 percent or higher, union recognition may be granted without an election.

During an organizing campaign, the owner must safeguard him- or herself from engaging in activities normally held to be unfair practices contrary to workers' rights to organize. These include, among others:

  • Polling employees about their attitudes toward the proposed union.
  • Suggesting that a union victory will spell a loss of employment or benefits.
  • Once an election agreement has been reached, withholding employees' names and addresses from union organizers.
  • Lobbying against the union in visits to employees' homes.
  • Setting uneven rules for solicitation at the company for those for and against unionizations.
  • Favoritism toward antiunion employees.
  • Discrimination against prounion workers.

Dealing with Election Outcomes

Once the NLRB-supervised election has been held, the small business owner is confronted with one of two outcomes. The business may carry the day but then will face disappointed employees who had hoped for unionization. And it may not be over. The union may apply for a nullification of the results (based on allegations of unfair labor practices, etc.) or simply regroup and make another attempt down the line.

If the union wins the vote, the small business owner has four choices. He or she can—

  • Charge the union with unfair labor practices and attempt to have the election results annulled.
  • Sell the business and leave the problems to the new owner.
  • Go out of business.
  • Recognize the union and enter into collective bargaining arrangements in good faith.

The collective bargaining agreement is basically a contract between the business and the union that explicitly states how workplace issues between management and employees will be handled.


Small businesses do not necessarily suffer from living with a union. As Sarah Klein put it, writing for Crain's Chicago Business, "A union is supposed to be bad for business. Conventional wisdom holds that unions drive up costs and create a more contentious workplace. But labor relations are just another business problem; look hard enough and you'll find entrepreneurs who've figured a way to make it work in their favor." Klein offers four cases of successful "cohabitation." In the first case a restaurant experienced a 12 percent increase in the base pay of wait staff but discovered that its turn-over rate significantly declined. In a second case a printing shop became unionized and saw its costs rise in consequence—but then discovered a new business serving insurance and money-management firms that required the "union label" on all of their printed goods. In the third case, a unionized parking operation found that an increase in hourly pay of $2 dollars also purchased management help from the union in the form of employee training, reduced pilferage, and lobbying help in keeping down parking garage taxes. In the final case, a specialized cleaning company discovered that unionization (it cost between $20 and $50 per hour more) resulted in incentives for workers to get better training which the company translated into higher sales.


Dannin, Ellen, and Terry Wagar. "Impasse and Implementation: How to Subvert the National Labor Relations Act." Working USA. Fall 2000.

Hartley, Roger C. "The Framework of Democracy in Union Government." Catholic University Law Review. Available from Retrieved on 30 March 2006.

Klein, Sarah A. "Union, Yes: Smart entrepreneurs make union labor work." Crain's Chicago Business. 14 February 2005.

Kurlantzick, Joshua. "United We Fall? Workers interest in unions may threaten your business. How will you respond?" Entrepreneur. March 2003.

U.S. Department of Labor. "Table 3. Union Affiliation of employed wage and salary workers by occupation and industry." Available from Retrieved on 30 March 2006.