Union territory where rat meets defeat (4,5)
I believe the answer is:
shop floor
'union territory' is the definition.
(where a trade union might be active)
'rat meets defeat' is the wordplay.
'rat' becomes 'shop' (both can mean to betray someone).
'meets' means one lot of letters go next to another.
'defeat' becomes 'floor' (e.g. knock to the ground in a fight).
'shop'+'floor'='SHOP FLOOR'
'where' acts as a link.
(Other definitions for shop floor that I've seen before include "Workers" , "part of factory" .)