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July 24, 2014

Indiana Becomes the First "Right-to-Work" State in the Rust Belt

Indiana Governor Mitch Daniels signed the Right-to-Work Act, making Indiana the first Rust Belt state — and the first state in more than ten years — to adopt right-to-work legislation. With this law, Indiana joins 22 other states, mostly in the southern and western United States, that prohibit employers from requiring employees to become or remain union members and to pay dues or fees to the union as a condition for getting — and keeping — their jobs.

The Impact of the New Law in Indiana and Beyond

Supporters of the new law contend that because it offers employers "more flexibility and lower hiring costs," more businesses will now choose to call Indiana home. Republican House Speaker Brian Bosma declared that the Right-to-Work Act "announces, especially in the Rust Belt, that we are open for business."

Some suggest that other Rust Belt states may soon follow Indiana's example. State Representative Jerry Torr, who sponsored Indiana's bill, has predicted that two of Indiana's more heavily unionized neighbors — Michigan (19%) and Ohio (14%) — will "fall like dominoes" in the wake of Indiana's decision because "they will have to in order to compete." Mike Shirkey, a Republican state representative from Michigan, admitted that he was disappointed that Indiana beat Michigan to the punch, adding "now a border state is going to establish a leverage position in being attractive to businesses."

Currently, roughly 11% of Indiana's workforce is unionized, primarily in the auto and steel industries. If history is any indication, that number may soon decline. On average, right-to-work states have significantly lower rates of unionization than states without such laws. In 2010, for example, the average rate of unionization was seven percent in right-to-work states, while the average in the rest of the states was more than double at 15%.

The Right-To-Work Act was passed by Indiana's Republican-controlled legislature over bitter opposition from Democratic lawmakers, including a walkout by House Democrats that denied Republicans for several weeks the quorum required to take action on the bill. Democrats also proposed an amendment that would have put a Right-to-Work referendum on the November ballot, but that amendment was voted down. Unlike Ohio — where a short-lived statute that stripped public sector employees of collective bargaining rights was struck down last year by voters — ballot initiatives in Indiana must be approved by the legislature and cannot be introduced by voters. Therefore, a referendum vote on Indiana's new law is unlikely.

What the New Law Means for Indiana Employers

The new law contains a grandfather clause that exempts any collective bargaining agreement already in effect on March 14, 2012. Until those grandfathered contracts expire, employers may continue to abide by and enforce union security provisions contained therein by requiring employees to join unions and to pay dues as a condition of employment.

But contracts "entered into, modified, renewed, or extended" after the new law takes effect on March 14 cannot contain such requirements. Specifically, the law prohibits employers from requiring employees to join or remain members of any labor organization, and from requiring them to pay dues, fees or "other charges of any kind" to such organizations. If a contract violates any of these prohibitions, the entire contract — not just the offending clause — is "unlawful and void" according to the statute. In addition, any Indiana employer that violates the law may be subject to both criminal and civil penalties and may be sued by an individual who claims to have been injured by the employer's actual or threatened violation of the law.

Employers are not required to inform employees about the change in the law, but some may wish to do so.

© 2014 Schiff Hardin LLP

About the Author

Associate

Lisa Carey-Davis concentrates her practice in litigation. She has trial and appellate experience across the full spectrum of commercial litigation, including class actions, business torts, contract disputes, and employment discrimination matters. She also has experience in ERISA and employee benefit litigation.

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