Closed Shop: Definition & Agreements

Instructor: Susan Fenner

Susan has an MBA in Management from the University of North Alabama. She teaches online and campus-based Business courses.

In the 20th century, labor unions lost some of the power they once held in the United States, including the right to require a closed shop. In this lesson, you will learn what is meant by the term 'closed shop', and have an opportunity to test your understanding of the concept with a short quiz.

What is a Closed Shop?

'Sorry, Bob,' the gruff voice said into the phone. 'I'm looking at your resume here. Looks like you've got the skills for the job, but we only hire members of the union, and you're not a member.'

'But . . . but . . . ,' Bob stammered, not quite believing what he just heard. 'You can't do that! That's illegal in the United States!'

'Since when?'

'Since 1947 . . . the Taft-Hartley Act prohibits closed shops in the U.S. . . . surely you're heard of it!'

'Harumph! Sorry, kid.' Click.

Bob is right. A closed shop is a place of business that will only hire and retain members of a labor union in good standing. While there are some countries across the globe that still allow closed shops, the Labor Relations Management Act of 1947, also known as the Taft-Hartley Act, made the practice illegal in the United States. Let's take a brief look at how closed shops came to be legal in the United States at one time, and why they are no longer permitted today.

National Labor Relations Act

In 1935, President Franklin D. Roosevelt signed the National Labor Relations Act (NLRA) into law. The NLRA, also known as the Wagner Act, was a landmark piece of labor legislation that served as the foundation of labor law in the United States. The law gave workers the right to organize into trade unions, also known as labor unions, the right to take collective actions, including the right to organize a labor strike, and the right to bargain collectively for wages and better working conditions.

The primary purpose of the Wagner Act was to correct the imbalance of power that existed between an employer and employee in negotiating the terms of employment, as well as to establish the National Labor Relations Board to interpret and enforce the law.

FDR signs the National Labor Relations Act of 1935
FDR signs the Wagner Act

Under the provisions of the National Labor Relations Act of 1935, labor unions were permitted to negotiate with an employer for a clause in the collective bargaining agreement that would result in a closed shop. According to the terms of the contract, the employer would agree to only hire people who were already members of the union in good standing and to immediately dismiss them if they left the union for any reason. This practice differed from a 'union shop', where workers would be hired regardless of their union status and then given a specific amount of time to join the union as a condition of their continued employment.

Many employers believed that the unions had gathered too much power under the terms of the National Labor Relations Act and that the pendulum had swung in the opposite direction with the balance of power now unfairly favoring the unions. Over the next decade, they petitioned legislators repeatedly to introduce bills to repeal or amend the law.

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