What is a Labor Agreement?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 03 October 2019
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Also known as a labor contract, a labor agreement is a document that identifies the terms and conditions that govern the relationship between an employer and an employee. A contract of this type may be structured to apply even to a single employee. In situations involving labor unions, it is not unusual for unions to negotiate labor agreements that define the relationship between employers and any members of that union. When the contract is negotiated for a group of employees rather than a single employee, it is sometimes referred to as a collective agreement.

The labor agreement is used to establish the amount of wages associated with each job or position addressed in the document. Often, the provisions for wages not only establish a minimum hourly rate for employees classified as laborers, but also cover such issues as merit raises and cost of living increases. By addressing these important areas of compensation within the agreement, both employee and management understand what is expected of each other in order to maintain a productive working relationship.


Other key issues related to employment are also covered in the terms and conditions of a labor agreement. Healthcare is one example of common benefits that are often included within the text of the document. Here, the contract will define what is required of the employee in order to secure and maintain healthcare insurance, disability coverage, and other benefits that relate to the health of the worker. At the same time, the terms of the contract commit the employer to maintaining those benefits as long as the employee meets the conditions defined in the agreement.

Other issues are also often addressed in a labor agreement. Vacation benefits, sick leave, personal days, and any provisions for a pension or other retirement plan are also included within the body of the contract. Since a labor agreement is a binding contract that is enforceable by law, failure of either the employee or the employer to comply with the provisions of the document can cause the agreement to be declared null and void. Some labor contracts have start and end dates specified, thus allowing the opportunity for the two parties to renegotiate terms from time to time. Most contracts that are negotiated with a trade union do carry durations of this type, thus necessitating negotiations to take place every few years.

Over the years, certain types of labor contracts have become less common, with some models being declared illegal in a number of countries. One example is the so-called yellow dog contract. A labor agreement of this type was designed to prevent employees from subsequently joining any type of trade or labor union, with the provision that if the employee did choose to join a union, he or she would lose all employee benefits and be terminated without further notice.


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