In the construction industry, bargaining over wages frequently revolves around the “total package.” That is, the total cost to a contractor to employ a journeyman or apprentice, including the amount of wages and fringes attributed to each worker.

A frequently overlooked aspect of this discussion is the allocation of the “total package” to wages and the various fringe benefit funds. Some areas give labor too much discretion in allocating amounts to fringe benefit funds, including jointly-administered funds (e.g., pension, health & welfare, and training) and industry promotion funds.”

Ideally, contractors would insist that, after accounting for any necessary increases to the pension fund and health and welfare fund (dictated by the fund trustees), all additional increases should go to wages (i.e., on the check). This helps contractors remain competitive in acquiring talent and also helps prevent them from losing employees to non-union competition. There may be times where increases to other funds are necessary, but those instances should be the exception and not the rule.

Without this clarity, there can be disputes with the union over where the increases should be spent and, depending on the parties’ past practice and contract language, the union may be able to insist that it has a say in how the “total package” (and any increases) are allocated. Provided below is sample contract language that clearly identifies how the “total package” is allocated during the term of the parties’ agreement.

Best Practice: Clearly Articulate Allocations in Each Year

Ideally, after agreeing to any increases to the “total package,” the contractor and the union would agree to a specific schedule (typically included in an Appendix to the CBA) setting forth the allocations for each year of the CBA. Consider the following example, which reflects a 3% increase in employees’ wages for each year of the CBA and a $.50 increase in contributions to the Health & Welfare fund:

 Year 1Year 2Year 3
Wage$30.00$30.90 (+3%)$31.82 (+3%)
Health & Welfare$8.00$8.50 (+$.50)$9.00 (+$.50)
JATC / Training$.51$.51$.51
Vacation Fund (deduct)$1.50$1.50$1.50
Industry Fund$.10$.10$.10
Total Package$47.61$49.01$50.68

 *Note: Any contributions and/or deductions will be based on hours worked by employees covered by this Agreement.

Note that the schedule includes language making clear that contributions and/or deductions will be based on “hours worked” (and not “hours paid”). That is, non-working hours (even if they are paid) should not require contributions and/or deductions.

This schedule can include the following language allowing the parties to mutually agree to any changes in the allocation, provided that (1) the changes are “mutually agreed upon” and (2) any changes do not affect the contractors’ total cost:

Mutual Modifications to Contributions and/or Deductions: The above schedule shall not preclude the Employer and the Union from mutually agreeing that other contributions and/or deductions should be made. The Union may request to modify the fringe benefit contributions listed above during the life of this Agreement, provided such modifications do not change the total package of wages and fringe benefit contributions.

In addition, in order to account for mandatory contribution increases that may be required by the trustees of the pension fund or the health & welfare fund, a contractor could consider proposing the following language:

Allocation of Wage Package: During the term of the Agreement any decrease in contributions required by trustees of the [Pension Fund or Health & Welfare Fund] shall be allocated to wages. Any increase in contributions required by the trustees of the [Pension Fund or Health & Welfare Fund] shall come from the taxable wage.

Thus, if the trustees of the pension fund or health & welfare fund mandate increases, then this language would require those amounts to be allocated from employees’ wages and not require contractors to make additional contributions.

At a Minimum, Require Mutual Agreement

If the union will not agree to clearly articulate the allocations for each year, then, at a minimum, the contractor should ensure that “mutual agreement” is required in order to make changes to any present allocation of the “total package.” This is not ideal, however, because it only “kicks the can down the road” if there is a dispute regarding the allocation.

Remember, Industry Funds are a “Permissive” Subject of Bargaining

When discussing the allocation, it is important to remember that industry promotion funds are generally considered a non-mandatory, “permissive” subject of bargaining. Thus, in the United States, a union potentially violates Section 8(b)(3) by insisting to impasse on contribution to (or increases in contribution to) industry promotion funds.

For contractors in Canada, Canadian labor law is less concerned with regulating the subjects of bargaining. Instead, Canadian labor law is focused on enforcing the requirement contained in all labor relations statutes for the parties to bargain in good faith with a view to concluding a collective agreement. Nevertheless, it would be best to consult with labor counsel before impasse.

Most other fringe funds, though, are considered “mandatory” subjects of bargaining, including contributions to pension funds, health and welfare funds, and vacation funds. This is because these funds relate directly to the employee-employer relationship. Thus, a party could insist to impasse on contributions to (or increasing contributions to) these types of funds.

Bottom Line

In sum, when bargaining for a new CBA, it is important to be clear with the union about the expected allocation of the “total package” for each year of the contract. This enhances contractor competitiveness by ensuring that the maximum amount of money is allocated to increases in employees’ wages.

Contractors should also insist on language that ensures that any mandatory increases in contributions to pension and health and welfare funds are properly diverted from any wage increase to ensure that the contractor does not incur any increased cost in its “total package” or incur any surcharges from the fund for failing to make the increased contributions.

Fringe benefits, Sample Language, Wage Package, Bargaining