Why Are Labor Unions Exempt From Antitrust Laws?

The ability of unions to engage in collective bargaining is fundamental to their economic strength. Exempt from antitrust laws which otherwise would prevent their activities, unions negotiate with one voice for all their members. After Congress passed laws that prohibited restraints on competition, it saw the need to protect union activity.

The nation’s antitrust laws were promulgated for the purpose of encouraging competition. The granddaddy of them all was the Sherman Antitrust Act of 1890. Recognizing that market consolidation can result in higher prices for consumers, the law states that “every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations is hereby declared to be illegal.” The act also allowed for triple damages to be awarded to injured parties when violations were proven. The logic behind the law was that more competition is better for consumers.

Unions were formed to represent workers with one voice when negotiating wages, hours and other issues. Since employers had more bargaining power than individuals, the union movement was a step to balance the negotiating process more evenly -- to be a “countervailing power,” in the words of economist John Kenneth Galbraith. The act of banding together was a combination that could be prosecuted under the Sherman Act. Therefore, Congress passed a provision in the Clayton Act of 1914 to exempt organized labor from antitrust enforcement. While the law and subsequent legislation placed parameters around unions, the exemption allows for collective bargaining and the right to strike, two of the unions’ greatest bargaining chips.

Collective bargaining is where the antitrust exemption gives unions their biggest legal asset. Negotiating a work agreement is a process undertaken between union and management. Issues to be negotiated typically include wages, hours, grievance procedures and job protection. Antitrust exemption aside, the law requires that management and union representatives negotiate in good faith. For that reason, opposing offers are usually far apart at the beginning of the bargaining process so that each side can give ground “in good faith.” The deadline for the negotiations is the threat of a strike by the union or a lockout by the management.

In spite of the power that the antitrust exemption gives to unions, union membership is in the decline. A number of states have passed “right-to-work” laws which prevent closed shops. That is, an employee of a company where there is a union cannot be forced to join the union as a condition of employment. As states have become hard-pressed to keep their budgets under control, some have ended collective bargaining with state employee unions. The expansion of non-union labor and competition from low-wage workers overseas has undercut unions negotiating strength. While the antitrust exemption continues to be the law, unions are seeing their influence wane as the economic realities of globalization set in.