What is a Closed Shop in the Workplace?

The Pros and Cons You Should Know

Striking Woolworth’s workers demonstrating in 1937
Woolworth’s Employees Go On Strike in 1937. Getty Images Archives 

If you decide to go to work for a company that tells you it operates under a “closed shop” arrangement, what does that mean to you and how might it affect your future employment?

The term "closed shop" refers to a business that requires all workers to join a particular labor union as a precondition of being hired and to remain a member of that union during the entire term of their employment. The purpose of a closed shop agreement is to guarantee that all workers observe the union rules, such as paying monthly dues, taking part in strikes and work-stoppages, and accepting the terms of wage and working conditions approved by the union leaders in collective bargaining agreements with company management.

Key Takeaways: Closed Shop

  • “Closed shops” are businesses that require all of their workers to join a labor union as a precondition of employment and to remain members of the union in order to keep their jobs. The opposite of a closed shop is an “open shop.”
  • Closed shops are allowed under the 1935 National Labor Relations Act, intended to prevent businesses from engaging in labor practices that harm workers. 
  • While union membership offers workers advantages, such as the power to negotiate for higher wages and better working conditions, it also has potential drawbacks.

Similar to a closed shop, a “union shop,” refers to a business that requires all workers to join the union within a specified length of time after they are hired as a condition of their continued employment.

At the other end of the labor spectrum is the “open shop,” which does not require its workers to join or financially support a union as a condition of hiring or continued employment.

Closed shops are not allowed in any union in a US government federal agency, even in states where they are allowed.

The Taft–Hartley Act also prohibits unions from charging employees unusually high initiation fees as a condition of membership. This measure prevents unions from using initiation fees as a way of locking non-union employees out of a particular industry. In the construction industry, the National Labor Relations Act allows employers to enter “pre-hire agreements” under which they agree to hire their employees from a pool of employees designated by the union, typically employees who have completed a union-approved apprenticeship program. Such pre-hire agreements are not allowed in other industries.

Also, all four major professional sports leagues operate as closed shops.

History of the Closed Shop Arrangement

The ability of companies to enter into closed shop arrangements was one of the many workers’ rights provided by the federal National Labor Relations Act (NLRA) — popularly called the Wagner Act — signed into law by President Franklin D. Roosevelt on July 5, 1935.

The NLRA protects the rights of workers to organize, bargain collectively, and prevent management from taking part in labor practices that might interfere with those rights. To the benefit of businesses, the NLRA prohibits certain private sector labor and management practices, which could harm workers, businesses, and ultimately the U.S. economy.

Immediately after enactment of the NLRA, the practice of collective bargaining was not viewed favorably by businesses or the courts, which considered the practice to be illegal and anti-competitive. As courts began to accept the legality of labor unions, the unions began to assert greater influence over hiring practices, including the requirement for closed shop union membership. 

The surging economy and growth of new businesses following World War II spurred a backlash against union practices. In reaction, Congress passed the Taft-Hartley Act of 1947, which banned closed and union shop arrangements unless authorized by a majority of the workers in a secret vote. In 1951, however, this provision of Taft-Hartley was amended to allow union shops without a vote of the majority of the workers. 

Today, 28 states have enacted so-called “Right to Work” laws, under which employees in unionized workplaces may not be required to either join the union or pay union dues in order to receive the same benefits as dues-paying union members. However, state-level Right to Work laws do not apply to industries that operate in interstate commerce such as trucking, railroads and airlines.

Pros and Cons of Closed Shop Arrangements

Justification of the closed shop arrangement is built on the unions’ belief that only through unanimous participation and “united we stand” solidarity can they ensure the fair treatment of workers by company management.

Despite its promised benefits to workers, union membership has decreased notably since the late 1990s. This is largely attributable to the fact that while closed shop union membership offers workers several advantages such as higher wages and better benefits, the unavoidably complex nature of the unionized employer-employee relationship means that those advantages can be largely wiped out by their potential negative impact.

Wages, Benefits, and Working Conditions

Pros: The process of collective bargaining empowers unions to negotiate higher wages, improved benefits and better working conditions for their members.

Cons: The higher wages and enhanced benefits that often won in union collective bargaining negations can drive a business’s costs to dangerously high levels. Companies that become unable to pay the costs associated with union labor are left with options that can harm both consumers and workers. They may raise the prices of their goods or services to consumers. They may also outsource jobs to lower-paid contract workers or stop hiring new union employees, resulting in a workforce that is unable to handle the workload. 

By forcing even unwilling workers to pay union dues, leaving their only option being to work somewhere else, the closed shop requirement can be viewed as an infringement of their rights. When a union’s initiation fees become so high that they effectively bar new members from joining, employers lose their privilege of hiring competent new workers or firing incompetent ones.

Job Security

Pros: Union employees are guaranteed a voice — and a vote — in the affairs of their workplace. The union represents and advocates for the employee in disciplinary actions, including terminations. Unions typically fight to prevent worker layoffs, hiring freezes, and permanent staff reductions, thus resulting in greater job security.

Cons: The protection of union intervention often makes it hard for companies to discipline, terminate or even promote employees. Union membership can be influenced by cronyism, or a “good-old-boy” mentality. Unions ultimately decide who does and who does not become a member. Particularly in unions that accept new members only through union-approved apprenticeship programs, gaining membership can become more about “who” you know and less about ​“what” you know.

Power In the Workplace

Pros: Drawing from the old adage of “power in numbers,” union employees have a collective voice. In order to remain productive and profitable, companies are compelled to negotiate with employees on workplace-related issues. Of course, the ultimate example of the power of union workers is their right to halt all production through strikes.

Cons: The potentially adversarial relationship between the union and management — us vs. them — creates a counterproductive environment. The combative nature of the relationship, spiked by constant threats of strikes or work slowdowns, promotes hostility and disloyalty in the workplace rather than cooperation and collaboration.

Unlike their non-union counterparts, all union workers are forced to take part in strikes called by a majority vote of the membership. The result is lost income for the workers and lost profit for the company. In addition, strikes rarely enjoy public support. Especially if striking union members are already better paid than non-union workers, striking can make them appear to the public as greedy and self-serving. Finally, strikes in critical public sector agencies such as law enforcement, emergency services, and sanitation can create dangerous threats to public health and safety.

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Longley, Robert. "What is a Closed Shop in the Workplace?" ThoughtCo, Apr. 3, 2021, thoughtco.com/closed-shop-definition-4155834. Longley, Robert. (2021, April 3). What is a Closed Shop in the Workplace? Retrieved from https://www.thoughtco.com/closed-shop-definition-4155834 Longley, Robert. "What is a Closed Shop in the Workplace?" ThoughtCo. https://www.thoughtco.com/closed-shop-definition-4155834 (accessed May 29, 2023).