N3 Business Advisors
Pros and Cons of Buying a Unionized Business
Updated: Feb 22
When it comes to buying or selling a construction business, there are all sorts of factors that need to be considered and thought about by both the potential buyer and the seller. These factors include the projected growth of the business, cash flow and business financials, legal matters, inventory and working capital, and so on. Another very important factor that needs to be considered while selling the construction business is the business’s already existing employees.
Have you ever wondered what the role of unions would be when you sell or buy a construction business? What would happen if the business you wanted to buy or sell had unionized workers? Would there need to be much interaction between the buyers, sellers, and the union?
Let’s take a look at the answers to these questions, along with the role of unionization in the Canadian construction industry and everything that needs to be considered when buying or selling a unionized construction business.
Unionization in the Canadian Construction Industry
A trade union – oftentimes called just a union – is an organization that upholds the rights of workers and ensures that its members are being treated fairly and are working in the best possible conditions. Unions often rally workers together in order to demand benefits such as fair wages and benefits for union members. In Canada, unions are regulated by federal and provincial legislation, meaning that the unions have to be responsible to their members according to the law.
Millions of Canadian workers belong to some kind of industry union. Many teachers, nurses, athletes, manufacturing workers, and other traditional construction workers all are part of unions. The total number of unionized workers in Canada is about 4 million. The construction industry, in particular, is one industry where workers and employees have historically been part of trade unions and still continue to be.
Canada’s Building Trades Unions (CBTU) is one of the biggest and best examples of unionization in the Canadian construction industry. CBTU is part of 14 international unions and caters to workers in over 60 trades and occupations. This amounts to up to half a million construction workers in the country, that are responsible for about 6% of Canada's GDP. The main mission of CBTU is to represent workers in various construction businesses, including but not limited to building, construction, maintenance, and fabrication businesses.
Of course, CBTU is just one example of many large unions present in Canada that work to protect the rights of construction workers. With unions and unionized workers being so common in the construction industry, it is no surprise that when it comes to buying and selling construction businesses, unions play a significant role in the sale. Potential buyers and sellers of construction businesses with unionized workers would also have to keep in mind the rights offered to the workers while the transactions are carried out.
What to Consider When Buying or Selling a Unionized Construction Business
When buying or selling a business that relies heavily on its workers – such as in the construction industry – it is important to keep in mind whether or not you will be keeping on the already existing employees hired by the business and whether those employees are unionized. In the case of taking on a business with unionized employees, an important consideration is if you will move forward with all new employment terms and conditions or if you will have to carry on with the existing contracts that the unionized workers have been hired under.
Many potential buyers of businesses prefer to either hire new workers or keep on the previous workers but start off with all new contracts detailing new wages, benefits, and other employment terms. In the case of unionized workers, the trade unions have the strength and the backing from the law to ensure that previous contracts are carried forward and that the new owners of a business cannot wrongfully terminate the workers or change their employment terms and contracts.
In some cases, however, potential buyers are willing to carry forward existing contracts due to the various benefits a business can gain from having unionized construction employees. We will discuss these benefits later on in the article.
All of this is not to say that the potential new buyers of a business have no say in whether or not their new workforce is going to be unionized. Some of that depends on the structure of the sale and how the transaction is carried out. For example, suppose a potential buyer buys all of the corporate equity of a business. In that case, they can simply step in as the new owner of the business and continue with regular operations. In such a case, the new owner would be bound by the existing labor contracts and unionized workforce.
On the other hand, the sale of a business might be structured differently so that the new buyer is awarded a new service contract. This means it is up to the buyer and new owner to make significant changes to how the business is run and operated. This means that the new owner can choose to employ a majority of the pre-existing workforce should they wish to.
While interviewing different potential buyers, it is the duty of the seller of a construction business with unionized workers to inform the potential buyers about the employment contracts they have signed. This ensures that the new potential buyers have a clear and transparent understanding of the contracts the existing workforce is employed under.
The seller is also obligated to discuss the business’s sale and what that would mean for its employees with the union. This process is known as effects bargaining, and it is when the seller gives the union the opportunity to try and bargain for what effects the sale would have on the unionized workers. In case a trade union predicts that some of its unionized workers might face job losses due to a potential business sale, the union can try to bargain for things like extended severance pay or medical allowances to soften the blow of the job loss. In such a case, it is the legal responsibility and a show of good faith on the part of the seller to have open and clear communication with the union regarding the future of the unionized workers with the business. The agreements that the seller and the union come to are known as collective bargaining agreements (CBA).
During the sale period, the new buyers can then involve their lawyers and legal teams to go over existing unionized workers’ labor contracts and negotiate with the trade unions to either come up with new contracts or settle the matter in any other agreeable fashion. It is the duty of the buyer and their team to stay up to date with the latest labor laws and avoid any kind of discrimination against unionized workers based on their unionized status. The new buyer should also inquire whether the CBA previously agreed upon has a successor clause. If it does, this means that the successor of the business – which is the new buyer – has to abide by the CBA. If there is no successor clause, then the new buyer is not necessarily under any obligation to stick to the terms of that agreement.
The Benefits of Union Construction for The Business and the Workers
While it can be tricky trying to buy or sell a business with unionized workers in some cases, various benefits come with construction businesses that have employees backed by trade unions. Trade unions offer benefits not just to the workers but also indirectly to the businesses. All stakeholders usually tend to benefit from the involvement of strong unions in the industry.
The benefits of unions to the actual workers are fairly straightforward and well-known. It is easily understood that by being backed by a strong trade union, workers are able to carry out collective bargaining and negotiate fair wages for themselves. Workers can also benefit from health insurance, employee benefits, and greater job security when backed by a union.
But what is lesser known is that having unionized workers also offers a number of benefits to the business and business owners. Unionized labor is often more skilled, and developers and owners of construction businesses know that unionized construction workers are highly skilled, can perform well at work, can help keep projects on the right pace and timeline and do so without making costly mistakes. Unionized workers also tend to be more efficient and collaborative than non-unionized workers, so they are better suited to large construction teams.
Another important benefit that construction business owners can gain from having unionized employees is that unionized workers usually have a very good understanding of onsite safety requirements and are quick to take up new safety regulations. This means that they are also potentially well-equipped to conduct site safety surveys and ensure proper safety protocols while they work. This can end up saving business owners a lot of time and money spent on legal matters pertaining to broken safety regulations.
Business owners can also benefit from reduced worker turnover when they hire unionized employees. Most unions negotiate strong contracts for their workers, which means that workers have to be employed for a specific minimum amount of time by the business. Lower turnover is essential for productivity and also helps improve workers’ job satisfaction.
Additionally, workers that are unionized usually join businesses after the union has negotiated standardized and fixed wage scales for them. This can be an unexpected benefit for the business owner since the construction industry is highly competitive, and now the business won't lose skilled workers to a competing firm that is offering higher wages.
And finally, going through trade unions allows construction business owners to find and hire the best, most experienced, and well-trained workers in the industry. Trade unions can offer a convenient way for business owners, developers, contractors, and others in the industry to link up with trustworthy construction workers.
The Bottom Line
Overall, when it comes to buying or selling a business, many factors need to be considered, and buying or selling a construction business with unionized workers is not a decision that can be made lightly. Both the seller and the buyer must understand all of the legal obligations and repercussions that come with working with unionized workers during a business sale.
If you are the owner of a construction business with unionized workers or if you are looking to potentially buy a business that employs unionized workers, it would be in your best interest to look into all labor and employee-related issues well in advance of the business transaction. If your business advisory team does not have any labor law experts, then it would be a good idea to hire someone that can help you through the entire process.
Remember, a business can gain many advantages from having unionized workers, so it might be in your favor to buy a business with unionized construction workers.
N3 Business Advisors - Construction Industry Mergers & Acquisition Advisors
If you are looking for a team of experienced and professional business advisors to help you buy or sell a company in the construction industry, N3 Business Advisors is the best company to help you.
No matter what goal you are hoping to achieve, be it company growth, merging or acquiring, preparing your business for sale, valuating your construction company, carrying out due diligence, or meeting any other company goals, we have a qualified and diverse team that can help you out.
N3 Business Advisors has over 30 years of experience working with companies in the construction industry. Our team is made up of lawyers, due diligence experts, valuation experts, business advisors, accounts and financial advisers, and other professionals who can help you achieve your company's goals.
If you would like to set up a confidential consultation with N3 Business Advisors, visit our website, or call us at 647 967 4222. N3 Business Advisors is based in Ontario, and our office is at 55 Village Centre Place, Suite 200, Mississauga, ON L4Z 1V9.
DISCLAIMER: Neither N3 Business Advisors Inc. or any of their representatives provide any legal, taxation, accounting, risk management or real estate advise. Purchase and sale of a Business may have legal, tax and accounting consequences. Prior to making any financial decisions, it is the sole responsibility of the Buyer, with the aid of an accountant and/or lawyer to independently verify all financial and other information and representations that have been made.