Stronger Unions After Repeal of Michigan’s Right-To-Work Law Require Stronger Protections for GCs
When it takes effect on March 30, 2024, Michigan’s recently passed repeal of its “right-to-work” law will impact every business in the state that employs organized labor or works with companies that do. This includes general contractors (GCs) that enter into agreements with subcontractors, especially on long-term or fixed-fee projects.
Many GCs may find themselves stuck holding the bill for unforeseen labor costs because the repeal is expected to strengthen union bargaining power, increasing the possibility of strikes and other labor actions that result in higher wages for tradespeople and other construction workers and increased costs for large projects. If GCs want to avoid bearing the brunt of those additional costs, they must take proactive steps to ensure their prime contracts and subcontracts insulate them from such exposure before the repeal takes effect.
What Repeal of Right-To-Work in Michigan Means
Michigan’s right-to-work law was implemented in 2012 as a set of amendments to the state’s Labor Mediation Act. Currently, the law provides that an employee cannot be legally compelled to pay dues to a union to be covered under a collective bargaining agreement. Specifically, it prohibits an individual from being required to do any of the following to obtain or continue employment:
- Refrain from or resign from membership in, affiliation with, or financial support of a labor organization.
- Become or remain a member of a labor organization.
- Pay any dues, fees, or other charges to a labor organization.
- Pay a charitable organization or another third party an amount of money equivalent to dues, fees, or other charges required to be represented by a labor organization.
With the repeal contained in Senate Bill No. 34, all of these prohibitions will be eliminated, meaning workers in unionized workplaces will no longer have a statutory right to opt out of union membership.
Anticipated Impact of Repeal
After the repeal takes effect, unions will have the right to collect dues or fees from all covered workers under a collective bargaining agreement, regardless of union membership. With all covered workers required to pay either dues or fees, experts anticipate that many laborers who were hesitant about joining a union will opt back into union membership once they are required to pay regardless of membership status. In addition, unions will see even more immediate effect as those newly collected fees from non-members will have a direct impact on the unions’ budgets and bargaining power.
With the passage of SB 34, Michigan is set to become the first state in almost 60 years to repeal a right-to-work law. As such, the actual impact of repeal in Michigan is somewhat speculative, but labor experts anticipate that the repeal will increase union membership and bargaining power. That increase, in turn, is expected to lead to negotiated wage increases for workers in heavily unionized fields, including construction.
The risk for general contractors lies in the fact that that their subcontractors may suddenly find themselves paying higher wages next year, and subcontract language may give subcontractors an opportunity to pass along those higher labor costs to the GC in the middle of a significant project. If a prime contract has not accounted for this possibility, the GC may find themselves unable to recover those costs from the project owner under their contract terms, and an unprepared GC could be left responsible for those unanticipated costs mid-project.
Risk Mitigation for GCs
Accordingly, GCs need to build protections against these risks into both their prime contracts and agreements with subcontractors to help insulate them from a likely rise in labor costs. Where negotiations allow, prime contracts should contain provisions that provide flexibility as to cost increases stemming from higher labor costs. Many contracts already contain provisions allowing for reasonable price increases in the event of circumstances beyond the GC’s control, but standard language often would not treat higher wage costs negotiated between subcontractors and their unionized employees as one of these events. Where owners may be hesitant to accept provisions that offer this protection, GCs might be best served to factor increased labor costs into their bids to avoid being stuck footing an unexpectedly high labor bill.
Protections can also be built directly into the language of a subcontract, and frank discussions with subcontractors will help ensure that their bids on projects for the coming year factor in anticipated costs in this category. When negotiating subcontracts, GCs should include language that mitigates the impact of any increase in union rates or wages and aligns with any cost controls that exist in the associated prime contract.
As noted, the repeal of Michigan’s right-to-work law takes effect on March 30, 2024. GCs should use the remaining time before that date to work with counsel to review and revise their contracts so they are prepared for the industry shifts this change in the law may bring. If you have any questions about the repeal and how it affects your general contracting business, please contact Corinne Rockoff at Maddin Hauser.