Understanding Agency Shop Agreements
The Labour Relations Act ("LRA") provides for an agency shop agreement between an employer and a union (or a group of unions acting collectively) that holds majority representation in a workplace. Under such an agreement, an agency fee, equivalent to or less than the union subscription, is deducted from the remuneration of employees who are not members of the majority union.
The rationale behind agency shop agreements is to uphold the principle of majoritarianism over individual freedom of choice and aims to prevent so-called "free riders" from benefiting from the collective bargaining efforts of a majority union without contributing financially.
What happens when a union loses its majority?
Sections 25(8) and (9) of the LRA outline the procedure for handling this scenario. If an employer or employers' organisation believes that the union has lost its majority status, it must provide the union with written notice to prove that it still represents the majority of employees. If the union fails to establish its majority within 90 days of receiving this notice, the employer must then provide the union and affected employees with 30 days' notice of termination, after which the agency shop agreement ceases to exist.
Is an employer required to terminate an Agency Shop Agreement if the union loses its majority support?
What if an employer either does not recognise the union's loss of majority support or chooses not to challenge it? The LRA does not explicitly address this situation, seemingly assuming that employers will always monitor union support and act accordingly.
Section 25 of the LRA mandates that an employer must terminate the agency shop agreement if the union fails to prove its majority within 90 days of being notified. However, there is no express obligation requiring an employer to issue the initial notice to the union in the first place. This legislative oversight could lead to a scenario where agency fees continue to be deducted indefinitely, even when the union no longer holds majority support.
This literal interpretation of section 25 creates an apparent contradiction: if the justification for agency shop agreements rest on the principle of majoritarianism, then continuing deductions for a minority union contradicts the very basis for these agreements.
A more reasonable interpretation would be that agency fee deductions should only persist for the designated notice periods in section 25(8) and (9), calculated from the actual loss of majority status, not from when the employer chooses to give notice. If deductions continue beyond this period, they arguably lack legal or constitutional justification and may be deemed unlawful or unenforceable.
Employer Liability for failing to act
If employers continue agency shop agreements after a union loses its majority support, they no longer have a legal basis to deduct membership fees from non-union employees. Persisting with these deductions can lead to significant financial liability. Non-union employees may seek reimbursement for all fees deducted since the union ceased to be the majority representative, arguing that the Agency Shop Agreement became unlawful or unenforceable. For employers with large workforces, this could result in substantial financial exposure with limited to no recourse against the union with whom the Agency Shop Agreement was concluded.
To mitigate these risks, employers should:
- Monitor union support regularly to ensure compliance with majoritarian principles.
- Promptly issue written notice to unions when there is a reasonable belief that majority support has been lost.
- Terminate agency shop agreements as soon as the union fails to prove its majority within the statutory timeframe.
By proactively addressing these issues, employers can ensure compliance with the LRA and the principles of majoritarianism, while avoiding unnecessary financial and legal consequences.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
