by Jackson Lewis
Agreeing with the position taken by Jackson Lewis before the Ninth
Circuit Court of Appeals, the United States Supreme Court has ruled
that key provisions of California's so-called labor relations
neutrality statute run afoul of federal labor law and are
unenforceable. The ruling emphasizes that robust debate on issues
concerning union representation is a fundamental policy embodied in our
national labor law and that a state statute cannot interfere with it.
Chamber of Commerce v. Brown, No. 06-939 (June 19, 2008).
Indisputably, union representation has been declining steadily. It has
dropped from 35 percent of the workforce in the 1950s to about 12
percent today. Facing a steady erosion in membership and dues income, a
source of funding for organizing campaigns, labor unions increasingly
have spurned traditional secret ballot elections in favor of card-check
recognition and neutrality agreements. According to one account, unions
prevail in approximately 85 percent of organizing campaigns when
employers are bound to neutrality clauses. Of course, employers
typically are unwilling to agree on neutrality, absent coercion or
outside pressure. Well aware of the advantages provided by neutrality
agreements, unions have resorted to lobbying state and local
governments to pass legislation encouraging or mandating employer
neutrality. California's neutrality law resulted from such political
efforts.
Concluding that the California statute "impermissibly predicates
benefits on refraining from conduct protected by federal labor law and
chills one side of the robust debate which has been protected under"
the National Labor Relations Act, the Supreme Court may have signaled
an end to state and local legislative attempts to silence private
sector employers through the imposition of spending restrictions
unrelated to any governmental proprietary purpose.
The California Law
Assembly Bill 1889, drafted by unions and signed by former Governor
Gray Davis, prohibited employers receiving state grants or more than
$10,000 per year for a state program from using any of those funds to
"assist, promote, or deter union organizing." The statute's ban broadly
encompassed "any expense, including legal and consulting fees and
salaries of supervisors and employees, incurred for research for, or
preparation, planning, or coordination of, or carrying out, an activity
to assist, promote, or deter union organizing." AB 1889, however, did
not preclude covered employers from using state funds to enter into
voluntary recognition agreements or to negotiate collective bargaining
agreements.
The Bill's enforcement provisions were severe. AB 1889 granted
unions, as private taxpayers, the authority to commence lawsuits
demanding an audit of employers' financial records, and to obtain
injunctive relief, damages and civil penalties. Further, the law
imposed severe penalties for even innocent violations, including
reimbursement for misspent funds and a 200 percent penalty. The State
also could seek legal recourse. Not surprisingly, unions invoked their
authority under AB 1889 as part of corporate campaigns to organize
employees.
The Fight Begins
In response to employer outcry, the United States Chamber of
Commerce, the California Association of Health Facilities, the
California Healthcare Association and other employer groups (the
"Employer Groups") brought a lawsuit in federal district court against
the California Attorney General's Office (the "California AG"), arguing
legislation mandating employer neutrality is preempted by the National
Labor Relations Act ("NLRA"). The Employer Groups selected Jackson
Lewis to represent them.
The Employer Groups argued that AB 1889 should be struck down under
two "preemption" doctrines recognizing the supremacy of federal law.
Under the first, Garmon preemption, state and local governments are
precluded from interfering with what Congress actually or arguably
prohibited or protected through passage of the NLRA. Under the second,
Machinists preemption, states are prohibited from regulating areas that
Congress intended to be left to the "free play of economic forces."
In 2002, the United States District Court for the Central District of
California granted summary judgment to the Employer Groups, agreeing
that the NLRA preempted certain provisions of AB 1889. The California
AG, along with the California Labor Federation and the AFL-CIO,
appealed the decision to the Ninth Circuit Court of Appeals. In a rare
move, the NLRB filed briefs in support of the Employer Groups at the
intermediate appellate level.
A unanimous Ninth Circuit panel upheld the district court's ruling in
April 2004, concluding that AB 1889 fundamentally altered the robust
exchange of speech and ideas during union organizing which is critical
to our national labor relations policy. According to the Ninth Circuit,
the spending restrictions at issue were subject to Machinists
preemption. The court rejected the state's argument that as a "market
participant," California could dictate how its money is spent. The
court panel recognized that spending restrictions not designed or
intended to result in better or more efficient procurement of services
are not saved by the market participant doctrine.
Thereafter, in an unusual turn of events, the Ninth Circuit granted
defendants' petition for rehearing and issued another decision in the
fall of 2005. This time, the court ruled that AB 1889 was subject to
both Garmon and Machinists preemption. The court concluded, "Although
cast nominally as an effort to ensure state neutrality, the California
statute, by discouraging employers from exercising their protected
speech rights, operates to significantly empower labor unions as
against employers. In doing so, the California statute runs roughshod
over the delicate balance between labor unions and employers as
mandated by Congress through the National Labor Relations Act."
In late 2006, the Ninth Circuit was once again asked to reconsider its
decision. Sitting en banc, the 15-judge court decided contrary to the
court's two prior decisions and upheld AB 1889. Although the court
recognized that California passed AB 1889 with a regulatory purpose and
not a proprietary one, the court nonetheless ruled that AB 1889 was not
preempted either by Garmon or Machinists preemption. Indeed, according
to the Ninth Circuit's full court decision, the statute was a
permissible exercise of state authority because it did not
fundamentally restrict employer communication protected by federal law.
Ignoring the profound inhibiting effect of AB 1889, the court noted
that, technically, AB 1889 permits employers to spend private funds to
oppose organizing.
The Final Round
In a 7-2 decision delivered by Justice John Paul Stevens, the Supreme
Court squarely rejected California's attempt to encourage unionization
and stifle opposition through regulatory spending restrictions in
disregard of the NLRA. AB 1889 is preempted under the Machinists
preemption doctrine, the Court ruled, because it "imposes a targeted
negative restriction on employer speech about unionization" which cuts
directly against "congressional intent."
At a fundamental level, the Court recognized that through AB 1889,
California made a "policy judgment that partisan employer speech
necessarily ‘interferes with an employee's choice about whether to
join or to be represented by a labor union.'" The high court also made
clear that federal labor law has been carefully crafted "to encourage
free debate on issues dividing labor and management."
The Court rejected each reason advanced for upholding AB 1889,
including the Ninth Circuit's conclusion that AB 1889 should be spared
because it restricts use and not receipt of state funds. The Court
concluded, "California may not indirectly regulate [noncoercive speech
about unionization] by imposing spending restrictions on the use of
state funds." Whether the regulation was delivered via a use
restriction or a spending restriction was immaterial, the Court held,
as it is simply "beyond dispute" that California enacted AB 1889 to
regulate labor relations on behalf of unions.
The Court similarly rejected a union argument that AB 1889 imposes the
same type of spending restrictions found in a few federal grant
statutes. That argument, which had a certain degree of surface appeal,
in the Court's view, ignored the fundamental Supremacy Clause issue
underlying this challenge. "Congress has the authority to create
tailored exceptions to otherwise applicable federal policies and
(unlike the States) it can do so in a manner that preserves national
uniformity without opening the door to a 50-state patchwork of
inconsistent labor policies," the Court concluded.
Because the Court struck down AB 1889 under a Machinists analysis, it
did not consider the question of whether the law is also preempted
under Garmon, or a broader conflict preemption doctrine advanced by the
NLRB.
The case was remanded to the District Court for further proceedings.
The Decision's Significance
Legislation similar to California's neutrality law has been proposed in
at least 15 other states. Thus, the Supreme Court's decision is of
enormous significance to both employers in California and in other
states facing the threat of similar legislation. Although this decision
marks the end of one chapter in unions' attempts to alter the balance
of labor relations by enlisting the assistance of local and state
governments, many more conflicts loom on the horizon.
Other battle grounds will likely involve an increasing web of local
ordinances intended to encourage union organizing through the
imposition of spending restrictions or the outright requirement of
neutrality. The Supreme Court has reaffirmed that federal labor law is
premised on employees being given information about unions through a
free and robust debate. State or local attempts to prevent employees
from having the benefit of that debate are now clearly subject to
challenge.
In addition to the push at the state and local level, organized labor
has also leveraged the power of the purse in the federal arena. The
Employee Free Choice Act ("EFCA"), if passed, would significantly tilt
the playing field of labor relations to the detriment of all, except
organized labor. Most important, the Act would deprive employees of the
chance to make a considered choice on union representation by
eliminating an employer's right to require a Government-conducted
secret ballot election.
This decision is a huge victory for employers and an important step in
preserving the "delicate balance" established by the federal government
when it enacted the NLRA. As Brad Kampas, one of the Jackson Lewis
partners representing the Employer Groups explained, "This decision
marks the end of a long and important battle in reaffirming that
employee free choice about whether to join a union can only be assured
by allowing both unions and employers the opportunity to present their
views."
Scott Oborne, another Jackson Lewis partner representing the Employer
Groups, added, "We hope this decision will help frame the debate as
Congress is pressed to consider again passage of the so-called Employee
Free Choice Act. The Supreme Court has reminded us that the proposed
Act is misnamed. Silencing employers does not foster ‘free choice.'
It defeats it."
Jackson Lewis was privileged to represent the Employer Groups,
including the Chamber of Commerce, before the Ninth Circuit Court of
Appeals and as co-counsel in the Supreme Court. The firm deals
regularly with a wide variety of labor relations law matters, including
representing employers before the NLRB and the courts, advising
employers on their legal rights in preparing for and responding to
corporate campaigns and other union organizing and advocacy
initiatives, and training managers and supervisors to further employer
labor relations interests lawfully.
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