Prosecutors have agreed to drop charges against Construction, Forestry, Mining and Energy Union Victorian boss John Setka and his deputy, Shaun Reardon, in a shock development that will be a major embarrassment for police, the Turnbull government and the Trade Union Royal Commission.

Victorian police charged Mr Setka and Mr Reardon with blackmail in 2015 for allegedly threatening secondary boycott action against concrete company Boral if it did not cease supply to builder Grocon.