Once a union is established in a workplace, discussions begin between the union and the employer regarding a new labor contract which will govern the working relationship between the employer and all the workers in the bargaining unit. This process is known as "collective bargaining."

Collective bargaining is similar under both the NLRA (which applies only to private-sector employees) and PERA (which applies to most Michigan public-sector employees, including public school teachers). There are, however, many legal and technical considerations which are determined by the specific circumstances of each employment situation: The following description is intended as only a general outline of the collective bargaining process.

Under collective bargaining, the union is the exclusive employee representative; individual workers are prevented from negotiating their own work arrangements with the employer. Union representatives instead do the negotiating with the employer, and each worker is required to abide by the terms of the approved contract (though workers cannot be forced to join the union or to pay non-workplace-related union fees, even if the contract states that such is required).

The employer is required by law to negotiate with the union over various terms and conditions of employment, which may range from wage and benefit issues to work rules that govern how workers are to perform certain tasks.

The collective bargaining process begins with the union and the employer presenting their proposals. Both parties are required by law to negotiate in "good faith," and are subject to penalties if they fail to do so. This does not mean that an employer must necessarily agree to any specific proposal brought forth by the union.34 Rather, the duty to bargain in good faith is simply a mutual obligation to participate actively in the deliberations, indicating a present intention to find a basis for agreement.35 The legal right to collectively bargain is viewed as the employees' unified voice, through the union, in helping to determine their wages, hours, and other benefits of employment.

Possible topics of collective bargaining fall into one of three categories: mandatory, permissive, or illegal. Mandatory topics are issues that must be discussed if one of the parties requests it. Examples of mandatory topics include wages and benefits.

Permissive topics are issues that either party, the union or employer, may ask to discuss, but which the other party is not required to discuss. Examples of permissive topics include whether job applicants will be required to undergo pre-employment drug testing, or whether the company will use the union's label on its products.

Illegal (also called "prohibited") topics of collective bargaining are those topics that neither party may raise, such as proposals to discriminate against people of a particular race or allow workers to refuse to handle goods produced by non-union companies.

The employer and union discuss the issues, present information to show the reasonableness of their demands, and try to achieve concessions. Neither party is required to agree to any provision, only to discuss it in good faith. If the parties cannot resolve one or more issues, they have reached what is called "impasse." At this point the union may call a strike, or the employer may "lock out" the union workers. In some circumstances, the employer may bring in replacement workers to continue operations.

There are many ways to deal with impasse, strikes, and lockouts. These include mediation and arbitration. During the negotiation, one of the parties may charge that the other has committed an "unfair labor practice," and if the appropriate government regulatory agency agrees, the guilty party may be prohibited from engaging in certain actions.

The employer's duty to bargain includes an obligation to supply to the union, when requested, any information that is "relevant and necessary" for union agents to bargain intelligently and effectively. The employer is not compelled to surrender confidential or proprietary information such as its profits and losses, unless it claims a financial inability to meet the union's demands at the bargaining table.

The employer's duty to bargain also precludes it from taking any unilateral action by changing the conditions for which bargaining is first required. This means that, for example, the employer cannot put a wage increase into effect until the union agrees, unless it has a demonstrated past practice of raising wages without union agreement. If the parties reach impasse, then the employer is free to make the changes and the union is free at any time to resort to a strike or picketing to enforce its demands.