Legal Alert: Ninth Circuit Upholds Union Neutrality Law

Date   Oct 6, 2006
The Ninth U.S. Circuit Court of Appeals has held that a California law that prohibits employers from using money received from the state to deter union organizing is not pre-empted by the National Labor Relations Act (NLRA).

The Ninth U.S. Circuit Court of Appeals has held that a California law that prohibits employers from using money received from the state to deter union organizing is not pre-empted by the National Labor Relations Act (NLRA). See Chamber of Commerce v. Lockyer (Sept. 21, 2006). The neutrality law, AB 1889 (found at California Government Code §§ 16645-16649) was enacted to express California’s policy to remain neutral with regard to union organizing.

One provision bars private employers who receive a grant of state funds from using the funds to assist, promote, or deter union organizing. Another provision bars a private employer receiving state funds in excess of $10,000 in any calendar year on account of its participation in a state program from using program funds to assist, promote, or deter union organizing. The statute expressly specifies as prohibited “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.”

Employers covered by the statute who make such expenditures must maintain records showing that state funds have not been used for those purposes. If the employer commingles state and private funds, the state will presume that any expenditure to assist, promote or deter organizing came in part from state funds.

Remedies for violating the neutrality law include returning the state funds used for the prohibited purpose, civil penalties, attorneys' fees and costs.

The law was challenged by several employer groups, including the Chamber of Commerce of the United States, who sought to have the law declared invalid after unions began filing complaints and lawsuits during union organizing campaigns claiming employers were violating the law.

In holding that the statute is not pre-empted by the NLRA, the Ninth Circuit used two tests that the U.S. Supreme Court has established to determine when a state law is pre-empted.

Machinists Pre-emption: Under the Machinists test (which is based on Lodge 76, International Ass’n of Machinists v. Wisconsin Employment Relations Commission, 427 U.S. 132 (1976)), a state law is pre-empted if it regulates activity that Congress intended to be free from all regulations. The court held that the neutrality law does not relate to an area Congress intended to remain unregulated and governed by free market forces. The court held that this conclusion is buttressed by the extent that the NLRB regulates union organizing campaigns.

The court held that the neutrality law relates to the way in which recipients of state funds use the funds and noted that the state’s choice of how to spend its funds is not controlled by the free play of economic forces.

Additionally, the court found that restrictions on the use of grant money do not interfere with the employer’s ability to engage in self-help. In restricting the use of state funds, the court held that California has not made employer neutrality or the substantive terms of employment between employer and employee a condition for the receipt of state funds. Instead, under the law, the employer may spend its own funds in any way it wishes; it simply may not use state grant and program funds on its union related advocacy.

Garmon Pre-emption: The court also held that the neutrality law is not pre-empted under the Garmon test (based on San Diego Building Trades Council v. Garmon, 359 U.S. 236 (1959)). Garmon pre-emption arises when there is an actual or potential conflict between state regulation and federal labor law due to state regulation of activity that is actually or arguably protected or prohibited by the NLRA.

Section 8(c) of the NLRA protects employer speech and allows employers to express their opinions about unions as long as the speech does not contain a threat of reprisal or promise of benefit. The court held that § 8(c) of the NLRA does not grant free speech rights to the employer; it merely prohibits the use of the employer’s noncoercive speech as evidence of an unfair labor practice. Because the court found no affirmative free speech right granted by the NLRA, Garmon pre-emption did not apply to the statute based on its effect on an employer’s ability to speak out against unionization.

Thus, the court found that the law is not pre-empted under either of the tests used by courts to analyze this issue. The plaintiffs have filed a motion to stay issuance of the mandate to maintain the status quo pending a petition for writ of certiorari to the United States Supreme Court.

California is not the only state with a union neutrality law. In May 2005, a federal court in New York held that a similar New York state law was pre-empted under the Machinists test. See Healthcare Ass’n of New York v. Pataki, 388 F. Supp. 2d 6 (N.D. N.Y. 2006). However, the decision relied extensively on a earlier version of the Ninth Circuit decision in Lockyer, which the Ninth Circuit later withdrew. The district court decision in Healthcare Ass’n of New York was appealed to the Second Circuit, but that court has not yet issued a decision.

Employers’ Bottom Line:

Union neutrality laws can be powerful tools in the union’s hands during an organizing campaign because unions can file suit under these laws during a campaign, thus diverting the employer’s attention and resources. They also hamper an employer’s ability to provide important information to employees regarding the unions. It is likely that unions will lobby for such legislation in other states as they seek new and creative ways to increase union membership. (For example, legislation requiring each entity that receives financial assistance from the state to sign a neutrality agreement and prohibiting the use of state funds for certain labor organizing activities was pending in Connecticut, but was defeated by the Commerce Committee.) It is equally likely that employers will challenge these laws as being pre-empted by the NLRA. The plaintiffs in Lockyer have indicated they plan to ask the U.S. Supreme Court to resolve this issue. We will continue to keep you updated on this developing area of law.

If you have any questions regarding this decision or labor or employment related issues in general, please contact the Ford & Harrison attorney with whom you usually work.