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In the United States, union membership saw a surge in 2022 after decades of decline. In fact, the number of U.S. workers represented by unions rose in 2022, and the National Labor Relations Board saw a 53% increase in union election petitions between October 2021 and September 2022.

Historically, many employee-owned companies didn’t extend employee stock ownership plan (ESOP) benefits to union members. The idea was to keep the ESOP and any collective bargaining negotiations separate.

But does that mean ESOPs and unions are at odds with each other? Does it rule out an ESOP if you employ union workers? Or do you have to keep the ESOP to non-union employees only? (Short answer: No, you have options.)

In fact, unions have supported successful ESOP ownership transitions to help protect and preserve jobs. Can unions organize at ESOP companies? Of course it’s possible — but a better question might be how often calls for union organization are raised by employee-owners at ESOPs.

Here, we’ll discuss some of the shared values driving organized labor and employee ownership, and what it means to employers of union workers who want to sell their ownership stakes to an ESOP.

Old-School Thinking: ESOP or Union, Not Both

The myth of incompatibility between unions and ESOPs didn’t arise out of nowhere, but some assumptions may be outdated or misguided. There may be a perception that any relationship between labor and management is set to adversarial as a default, because unions often advocate for workers in ways that may increase costs to the company.

While ESOPs are often seen as an employer-employee alliance, since workers take part in ownership stakes of the company, some employers assume that a union may want to subject the ESOP benefit to collective bargaining.

What’s important is making sure all employees understand how an ESOP works and what’s in it for them. In our experience, we’ve encountered a spirit of collaboration between employers and unions that exempts the ESOP from collective bargaining agreements, enabling more employees to access its benefits.

Unions & ESOPs: Affinities & Shared Values

Contained within the definition of a labor union is this description: 

“A group of two or more employees who join together to advance common interests such as wages, benefits, schedules, and other employment terms and conditions” 

Union organizing efforts often arise to promote workplace transparency, worker safety, improvements in working hours, conditions, wage, and benefits like health insurance. In a current economic climate where wages aren’t keeping pace with inflation, it’s no surprise that unions are seeing increased interest.

At the same time, ESOPs are getting more attention, too. ESOPs, on average, pay higher wages than their non-ESOP peer organizations. And ESOPs often operate at their best when leadership incorporates an open-book management style.

A closer look reveals even more affinities between unions and ESOPSs. For example, in the U.S., union-represented workers earn more than non-union peers of similar education, occupation, and experience. Their advocacy has raised women’s wages and reduced wage gaps related to race and ethnicity. Unions often push for changes that improve workplace health and safety. 

None of these values are at odds with employee ownership. In fact, a Rutgers study reported that majority-owned ESOP companies outperformed peers at job retention, maintaining hours and salaries, and providing protective measures during the pandemic crisis.

In fact, ESOPs have been directly supported by trade unions as a means to support business continuity and job stability for employees at the time of ownership transition. In short, unions supported an ESOP sale when they saw it could help protect and preserve good jobs. In other cases, owners of closely held businesses that were host to collective bargaining agreements saw including all employees in the ESOP as a powerful way to align goals across the organization.

Can You Unionize an ESOP Company?

Legally, there’s no reason a 100% ESOP-owned S corporation can’t be unionized, based on the rights of employees under the National Labor Relations Act. But when you dig into the ethos of employee ownership and its culture of fairness and accountability, it’s easier to understand why ESOP employees rarely (if ever) seek to organize.

In fact, a 2008 paper published by the Federal Reserve Bank of New York found that over time, union employees’ equity stakes via the ESOP reduced incentive to strike — since employee-owners share in the cost of lost profits. The researchers found that, as ESOP stakes increased, labor disputes were fewer and less protracted.

Notably, the study also found that announcing an ESOP at an already unionized company yielded a larger shareholder return than at non-union organizations. The potential for ESOPs and unions to bring out the best in each other can actually create shareholder value.

Take a Closer Look at Employee Ownership

Could your business benefit from an ESOP ownership transition? 

ESOPs’ flexibility makes them uniquely able to bridge the traditional divides between organized labor, non-union workers, and company leadership. The very foundational values of employee ownership — collaboration and mutual benefit — resonate with unions, too. Union and non-union workers can get into closer alignment within an ESOP and leverage their collective strengths for the benefit of all stakeholders.

Nurturing an ownership culture that values diverse employee perspectives and voices can help translate the best of those strengths into shared growth and profitability. It’s easy to find out if your business is a good candidate for employee ownership. Click below to take our free quiz today.

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