What it means
Trade unions negotiate pay and working conditions on behalf of their members. If talks break down, the union may call a strike as a way of putting pressure on the employer.
For the strike to be official, the union leadership must authorise it, and in many countries a ballot of members and advance notice to the employer are required by law. The official status matters in several ways.
Workers who take part may be protected from dismissal or legal claims, provided the procedure was followed. The union may pay strike pay from its strike fund to help members who lose their wages, and it can organise picket lines and public support.
Unofficial strikes, by contrast, begin spontaneously or without a valid vote. They often carry greater legal risk for workers, who may lose protection and can be dismissed.
Unions often avoid backing such action to protect their funds and their legal position. The financial impact on a business can be large.
Output stops or falls, customers may turn to other suppliers, and fixed costs such as rent and loan interest carry on. Finance teams model the cost by estimating the lost contribution, which is the profit on lost sales before fixed costs, and by planning for cash needs during the dispute.
Many strikes end in a settlement before or soon after they begin. Employers may offer a higher pay deal, better conditions or a longer contract to avoid disruption, and mediators are often used to bring the parties together.
A manager's role is to prepare a contingency plan early and to keep communication channels open with the union.
In practice
Real-world examples.
Example
A union of 500 bus drivers votes to strike after wage talks fail. It gives the transport company the required notice and the strike goes ahead. The company keeps a limited service running with managers and agency staff, and it publishes a timetable so that passengers know which routes will operate.
Example
A manufacturer receives notice of an official strike starting in two weeks. The finance team builds up stock for key customers and arranges a bank overdraft as a precaution. The measures keep deliveries going for the first ten days.
Example
A hospital group's nurses hold a one-day official strike over staffing levels. The group arranges cover for emergency services and reschedules routine appointments. The cost of the day is reported to its board, together with the offers made to resolve the dispute.
Formula
Calculation
Lost contribution = daily revenue x contribution margin x days of strike
Union strike pay cost = members on strike x daily strike pay x days
A factory normally earns $400,000 of revenue a day with a contribution margin of 30%. A strike lasts 10 days. Lost contribution = 400,000 x 0.30 x 10 = $1,200,000. If 500 members each receive $200 a day of strike pay, the union's cost = 500 x 200 x 10 = $1,000,000.Case study
Seen in the real world.
Ridgeway Packaging is a fictional manufacturer used to illustrate an official strike. In this illustrative story, 300 production workers belonging to a union voted to strike after the company offered a 2% pay rise against a claim for 6%. The company earned $250,000 of revenue a day at a 40% contribution margin.
The strike lasted eight days. Lost contribution was 250,000 x 0.40 x 8 = $800,000, and several customers moved some orders to rivals. At the end, the parties settled on a 4% rise, which added about $480,000 a year to the wage bill.
Ridgeway's finance director later compared the cost of the settlement with the cost of the strike. The pay rise was cheaper than another stoppage, and the company now holds regular talks with the union before the formal bargaining season to spot problems earlier. It also tells customers early about possible delays, because honest warning protects relationships far better than a missed delivery does.
Watch out
Common mistakes.
- Assuming every strike has union backing. Unofficial strikes lack union approval and offer workers less legal protection.
- Counting only lost revenue. The true cost also includes lost customers, overtime to catch up and damage to relations with staff.
- Waiting until a strike is called before planning. Employers should prepare for cash, stock and communication needs well in advance.
Questions
People also ask.
What makes a strike official?
The union leadership formally authorises it, usually after a members' vote and notice to the employer, in line with local law.
Do workers get paid during an official strike?
Usually not by the employer, though the union may provide strike pay from its fund.
Can an employer dismiss strikers?
Rules vary by country, but participants in a lawful official strike are generally given legal protection.
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