Unions require this bond for union member companies to uphold during negotiation of collective bargaining agreements between the union and the particular company. This bond is referred to by many different terms such as Wage and Fringe Benefits bond, Union bond, Welfare bond, and a Wage bond. This is because the bond is state specific, and each state sets their own bond form and bond name for this bond class. No matter what the specific bond name is, the bond type is the same.
The three parties of this bond include the obligee, the principal, and the surety company. The obligee is the union that is requiring the principal (union member) to be bonded. The principal is the union member that must be licensed and bonded in order to do business with the union. The surety company is the party that underwrites and ensures the bond.
This bond protects against a union member failing to uphold the bond’s legal requirements for the union member. The bond will cover any claims made by the employee for unpaid salary, wages, fringe benefits, and compensation for services of the employees who are represented by the union.
Employees that are hired by union member companies are protected by this bond. If the union employees are not paid their dues, they can file a claim against the bond which the surety company would pay out. The paid claim would cover the employee’s unpaid dues.
Each specific union (the obligee) sets their own bond form and bond requirements. If the principal acts against the bonding requirements, the obligee can revoke the business license and cancel the surety bond. The union (obligee) sets the bond amount and all requirements for the bond, not the surety company.
Since each state has its own bonding and licensing requirements, it is a good idea for the principal to be informed on all requirements before applying for a bond. All requirements work in the union’s favor, since the bond ensures the obligee will be protected from harm.
The cost for the bond is also referred to as the bond premium. The bond premium is the one cost that the surety company sets. All other fees that are related to the bond are set by the obligee. The bond premium is only a small percentage of the bond amount.
The bond amount is set by the union (obligee), not the surety company. A bond amount is the amount of coverage the surety company will pay out to the union employee if a claim is filed against the bond.
For example, if the bond amount is $5,000, then the bond covers up to $5,000 for claims taken against the bond.
To find out the state specific renewal dates and length of bond validity, the principal can contact the state in which the principal has a business license under. This bond type is usually valid for one year and must be renewed in order for it to remain valid.