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A closed shop is a business that contracts with a union to only hire employees who are affiliated with that union. In many cases, this type of union security agreement requires that those employees remain members of the union throughout their employment. The specifics of a closed shop agreement will vary, based on labor laws that are in effect in a given nation.
There is sometimes confusion between the use of the terms closed shop and union shop. While both approaches do tend to favor association with a labor union, the closed shop requires that employees belong to that union at the time they are hired. With a union shop, the business is permitted to hire non-union labor, with the understanding that the employee will apply for union membership and eventually become a full member of that union. In some cases, the employee may be not be required to join the union, but does agree that the employer may withhold an amount of pay that equals union dues. Depending on the labor laws that apply, this amount is often forwarded to the union.
While an open shop, in which an employer may give priority consideration to union members but is free to hire any qualified laborer, is common in many nations, a closed shop is not legal in some jurisdictions. This is true in the United States, where the Taft-Hartley Act of 1947 specifically forbids the establishment of a closed shop arrangement. It is possible to establish a union shop in many areas of the United States, except in states that have enacted right-to-work laws that allow employers to hire without regard to union membership.
In like manner, the closed shop is not legal in the United Kingdom, Australia, and a number of other nations. While unions may operate in those countries, their operations must comply with current labor laws. This means that in some areas, preference may be given to union members, while in other areas employers do not consider union membership important to the hiring process.
Whether with a closed shop, union shop, or open shop, many nations have enacted legislation that limits the types of fees and dues that unions may charge members. This is especially true when a closed or union shop arrangement exists between an employer and a union. The idea is to prevent unions from creating financial hardship for people who are seeking gainful employment, while at the same time making it possible for unions to collect enough in dues to operate efficiently and protect the interests of their members.