The Minneapolis Star Tribune reported the rejection by the 1,300 employees at five plants in the Red River Valley Saturday was overwhelming.
The farmer-owned cooperative is the largest beet sugar producer in the United States.
American Crystal Vice President Brian Ingulsrud said the employee lockout would begin at midnight Sunday. The company has said it would bring in replacement workers, the Star Tribune said.
The contract offer that was turned down by members of Bakery, Confectionery, Tobacco Workers and Grain Millers Local 167A would have provided workers with a 13 percent pay hike over five years plus a $2,000 signing bonus.
Union President John Riskey said in a statement 96 percent of the union members voted against it.
Pay, he said, is not the key issue.
"The company's offer still has major loopholes allowing non-union contractors to replace union workers and makes health insurance unaffordable," he said. "Any raise is meaningless if our healthcare costs increase even more or if management can eliminate our jobs and replace us at will."
Ingulsrud said American Sugar would have to meet certain criteria before it could hire non-union workers and could not lay off union employees if it did.
The company said health costs would go up an average of about $1,000 per employee, which is significantly less than their pay increase.