When teachers at two Denver public schools demanded more control over their work days, they ran into opposition from a seemingly odd place: their union. The teachers wanted to be able to make decisions about how time was used, hiring and even pay. But this ran afoul of the teachers' contract. After a fight, last month the union backed down—but not before the episode put a spotlight on the biggest challenge and opportunity facing teachers unions today.

While laws like No Child Left Behind take the rhetorical punches for being a straitjacket on schools, it is actually union contracts that have the greatest effect over what teachers can and cannot do. These contracts can cover everything from big-ticket items like pay and health care coverage to the amount of time that teachers can spend on various activities.

Reformers have long argued that this is an impediment to effective schools. Now, increasingly, they are joined by a powerful ally: frustrated teachers. In addition to Denver, in the past year teachers in Los Angeles also sought more control at the school level, and found themselves at odds with their union.

Most contracts are throwbacks to when nascent teacher unionism modeled itself on industrial unionism. Then, that approach made sense and resulted in better pay, working conditions and an organized voice. Yet schools are not factories. The work is not interchangeable and it takes more than one kind of school to meet all students' needs. If teachers unions want to stay relevant, they must embrace more than one kind of contract.

New York City is moving in this direction. In addition to the regular United Federation of Teachers contract, more than 170 schools are participating in a pilot "pay for performance" program. Meanwhile, several charter schools in the city have alternative contracts with the city, including one with a much longer school day. And Randi Weingarten, the teachers union president, has invited Green Dot—a unionized public school operator in Los Angeles—to open a school in New York, which would add still another contract to the mix.

Where this leads is not toward the abolition of unions, as some in their ranks fear and their most rabid critics want. Instead, creating a portfolio of contracts to match a portfolio of schools will give parents better options and re-energize teachers unions as an agent of progress.