The California state legislature passed an act, AB 1889, which bars private employers receiving state funds from using the funds to assist, promote, or deter union organizing. AB 1889 also prohibits private employers who participate in state programs and who receive state funds from using those funds for the purpose of promoting or hindering union organization. The United States Chamber of Commerce claims that this statute is preempted by the National Labor Relations Act ("NLRA"). A finding for the Chamber of Commerce would protect employer free speech over attempts by states to define neutrality between management and labor. Conversely, a finding for California would provide unions potential safeguards in their struggle against employers seeking to stave off union organizing while furthering the overall policy of California of remaining neutral in the struggle between management and labor.
Questions as Framed for the Court by the Parties
On September 28, 2000, California legislators enacted legislation prohibiting the state from interfering with employee choice regarding whether or not to join or to be represented by a labor union. The statute prohibits California from subsidizing efforts by an employer to either assist, promote or, conversely, to hinder union organizing. Of the two particular sections of the statute that are at issue, the first bars private employers who receive state funds from using the funds to assist, promote, or deter union organizing. The other section prohibits a private employer participating in a state program and receiving state funds over $10,000 in a given calendar year from using program funds to assist, promote, or deter union organizing. The statute expressly bars any attempt by an employer to influence the decision of either its own employees or the employees of its subcontractors with regard to the decision of whether to support or oppose a labor organization or to become a member of a labor organization.
In April 2002, the United States Chamber of Commerce sued for an injunction and for declaratory relief challenging the statute on a number of grounds, including that the statute violated National Labor Relations Act ("NLRA") preemption. The NLRA is federal legislation that protects the rights of most employees in private industry to organize a labor union as well as to take part in union activities. Preemption refers to the extent to which a federal law, such as the NLRA, overtakes related state laws such as the California statute.
The AFL/CIO and other groups intervened and, in May 2002, the Chamber of Commerce moved for summary judgment. The Defendants, the California Department of Health Services and state officials, sued in their official capacity as the state of California and filed cross motions for summary judgment. The district court granted partial summary judgment in favor of the Chamber of Commerce. The United States District Court for the Southern District of California determined that the NLRA preempted the two sections of the statute because the provisions regulated employer speech with regard to union organizing under specified circumstances. The district court noted that Congress intended to allow free debate on the topic of labor organizing. The district court entered judgment enjoining California and the AFL/CIO from enforcing the sections of the statute against any employer subject to the NLRA. California and the AFL/CIO appealed.
A three-judge panel of the appeals court affirmed the district court, but the panel then withdrew its opinion as a result of the appellants' petition for rehearing. As a result of the rehearing, a divided panel issued a second opinion, which was then vacated and withdrawn from publication in order to be reconsidered by a court session in which all judges participate, a procedure known as sitting en banc. The judges sitting en banc reversed the decision of the district court and held that the NLRA preempts the California statute and vacated the court's injunction. The United States Chamber of Commerce appealed and the Supreme Court granted certiorari on November 20th, 2007.
California Government Code sections 16645 - 16649 (known collectively as "AB 1889") prohibit employers from using state grant or program funds "to assist, promote, or deter union organizing." Employers receiving state funds are not required to maintain records in any particular form; however, when state funds are commingled with funds received from other sources, it is assumed that state funds were used to subsidize the employer's union-related speech on a pro rata basis. Although employers are permitted to spend funds received from other sources to lobby for or against unionization, the employer must keep sufficient records to show that the funds used were not state funds. AB 1889 permits the California Attorney General or any taxpayer to challenge an employer's use of state funds. An employer found in violation of AB 1889 is liable for damages equal to the amount of state funds spent, plus a civil penalty of twice that amount and reasonable attorney fees and costs payable to the state.
Edmund G. Brown, Jr., Attorney General of the State of California, et al. ("Brown"), explains that the California legislature enacted AB 1889 to implement the state's policy of neutrality regarding union organizing and avoid subsidizing employers' activities that support or oppose unionization. The United States Chamber of Commerce ("Chamber") raised a facial challenge to AB 1889 arguing that it is preempted by federal law because it pursues a regulatory objective inconsistent with the federal policy of the National Labor Relations Act ("NLRA"). The United States Court of Appeals for the Ninth Circuit ("Court of Appeals") determined that AB 1889 did not qualify for the market participant exception to preemption under the NLRA because sections 16645.2 and 16645.7 are regulatory measures that do not serve a purely proprietary state interest. The market participant exception requires that conditions placed by the state on the use of state funds be the same conditions a private actor may use under similar circumstances. The Court of Appeals held that although AB 1889 was not covered by the market participant exception, it did not necessarily follow that sections 16645.2 and 16645.7 were preempted by the NLRA. This case calls the Court to determine whether the Court of Appeals was correct in holding that sections 16645.2 and 16645.7 are not preempted by the NLRA.
The NLRA contains no express provision for the preemption of state law. The United State Supreme Court, however, has articulated two doctrines providing for preemption under the NLRA: Machinists preemption and Garmon preemption. The Machinists preemption doctrine is based on the premise that Congress intended for certain activities to remain free from all federal and state regulation. When an activity is neither prohibited nor protected by the NLRA, it is assumed that Congress intended for it to be governed by the free play of economic forces. Congress recognized that peaceful methods by which one party to a labor dispute may impose economic pressure upon the other are essential to the collective bargaining process. In Machinists, the Court held that these peaceful methods were means of economic self-help that Congress intended to be free from all federal and state regulation.
The Garmon preemption doctrine is derived from the concern that state regulations may interfere with national labor policy. Garmon applies when there is an actual or potential conflict between state regulation and federal labor law due to state regulation of an activity that is actually or arguably regulated by the NLRA. The Garmon doctrine requires an inquiry that balances the nature of the federal and state interests in the regulation at issue as well as the potential for state interference with federal policy. State law will not be preempted by federal law when the activity being regulated is merely a peripheral concern under the NLRA, or when the activity involves interests deeply rooted in local feeling and responsibility and there is an absence of compelling congressional direction.
AB 1889 prohibits the recipient of state funds from using those funds to promote, assist, or deter union organizing. Under the Machinists doctrine, sections 16645.2 and 16645.7 are preempted by the NLRA if they regulate an activity that Congress intended to be left unregulated by state and federal law. The Chamber argues that Congress manifested an intent to leave non-coercive employer speech unregulated by exempting non-coercive speech from consideration as an unfair labor practice in section 8(c) of the NLRA, 29 U.S.C � 158(c), which prohibits only coercive employer speech. The purpose of leaving non-coercive speech by employers and unions unregulated was to encourage the free flow of information and an uninhibited, robust and wide-open debate regarding the merits and drawbacks of unionization. According to the Chamber, AB 1889 regulates any union-related speech made by an employer, and Congress intended to leave non-coercive union-related speech unregulated.
Brown counters that AB 1889 does not prevent employers who receive state funds from expressing their views on unionization - it only prevents employers from using state funds to subsidize union-related speech. AB 1889 does not condition an employer's eligibility to receive state funds on compliance with the state's commitment to neutrality; it has only placed limitations on how state funds may be used. Recipients of state funds are free to subsidize the expression of their views on unionization with funds obtained from other sources or with excess state funds. Brown further argues that the state is using its spending power to pursue the legitimate government interest of ensuring that the funds it distributes are being used in a manner that will most effectively further the purpose for which they were intended. Even assuming that an employer's non-coercive speech can be considered an economic means of self-help that Congress intended to be left entirely unregulated, AB 1889 does not regulate speech, it regulates the use of state funds. Brown contends that a state's decision regarding how its funds are best used is not a matter that Congress intended to be left to free play of market forces.
The Chamber responds that once the funds have been disbursed, the state no longer has a fiscal interest in how those funds are used. After an employer has fairly received state funds in return for providing a public service, the state has no legitimate interest in dictating how those funds may or may not be spent.
The Chamber further argues that AB 1889 imposes burdensome regulatory requirements on employers who receive state funds. Sections 16646(b) and 16648 assume that state funds have been used to subsidize an employer's union-related speech when funds supplied by the state are commingled with other funds. As a result, any employer receiving state funds is obligated to maintain segregated accounts in order to avoid paying treble damages to the state for expressing its views regarding unionization. According to the Chamber, this burden is particularly acute when the employer receives all of its revenue from the state. Although AB 1889 does not expressly regulate an employer's speech, the burdens it imposes have a chilling effect on the free flow of information and discourage an open and robust debate.
Brown responds that questions regarding the potential effects of AB 1889 on particular employers would be appropriate within the parameters of an as-applied challenge to the statute, not a facial challenge such as the one raised by the Chamber of Commerce in this proceeding.
In Garmon, the Court set out a second doctrine of NLRA preemption. The Garmon preemption doctrine applies when an activity being regulated by the state is actually or arguably either protected or prohibited by the NLRA and the state's regulation is in actual or potential conflict with the federal policy. The Chamber argues that the regulatory purpose of AB 1889 is preempted because it is in direct conflict with the employer's express right under the NLRA to engage in non-coercive speech. The Chamber interprets Section 8(c) of the NLRA as actually or arguably protecting an employer's non-coercive speech and prohibiting such speech when it is coercive. Under this view, AB 1889 intrudes upon the jurisdiction and authority of the National Labor Relations Board ("NLRB") to determine whether an employer's speech is coercive or not. Because AB 1889 prophylactically prohibits all union-related employer speech, it creates a jurisdictional conflict with the NLRB's authority to interpret and apply national labor law.
Brown argues that there is no potential or actual conflict between AB 1889 and Section 8(c) of the NLRA because they do not regulate the same conduct. AB 1889 regulates an employer's use of state funds to assist, promote or deter union activity regardless of whether the speech is coercive or not. In an action to determine a violation under AB 1889, the court would not be required to ascertain whether an employer's speech was coercive or non-coercive only whether state funds were used to subsidize that speech. The similarity between claims filed under AB 1889 and claims filed under Section 8(c) of the NLRA is not sufficient to warrant Garmon preemption.
According to Brown, the Chamber's argument for preemption under Garmon is based in part on the assumption that AB 1889 is preempted under Machinists for attempting to regulate employer speech through the use of state funds. Brown contends that AB 1889 is not preempted under the Machinists doctrine because it does not attempt to regulate an employer's non-coercive speech, only the employer's use of state funds. It necessarily follows that if AB 1889 is not preempted under Machinists, it is not in conflict with an activity that is actually or arguably protected by the NLRA and is not preempted under Garmon. Brown further argues that even if the Chamber's Garmon argument were to succeed, AB 1889 qualifies for an exemption from Garmon preemption because it involves a matter deeply rooted in local feeling and responsibility. The provisions in AB 1889 that govern the use of state funds are an exercise of the state's sovereign right to manage and control its own financial affairs. Brown contends that this is an issue of vital importance to the state and that the Court should continue to protect the states from "judicial interference in the vital field of financial administration."
The Chamber states that the proper focus for a Garmon preemption analysis is the nature of the activity being regulated, not the means by which it is regulated. AB 1889 establishes a regime that deters non-coercive union-related speech, an activity protected by federal labor policy. In the Chamber's view, AB 1889's regulatory objective is in conflict with the NLRA and thus is preempted under Garmon regardless of the method used by the state to obtain that objective.
In the background of this case lurks the perennial labor law struggle between labor and management. Though the statute refers to an employer's power to "assist, promote, or deter union organizing," as a practical matter, employers in most instances have a greater interest in deterring union activity than in assisting or promoting such activity.
Groups on both sides of this battle cite statistics to justify their divergent perspectives. The California Labor Federation states that 58% of eligible workers want to join a union even though only 7.4% of workers were in unions as of 2006. , It continues citing statistics allegedly from the NLRB annual report from 2005 stating that" 31,358 people were disciplined or fired for union activity" and that in "2% of organizing campaigns, workers are required to attend mandatory anti-union meetings with their boss; in 75% of campaigns, employers hire anti-union consultants; and in 25%, a worker is fired for advocating for the union." These statistics seem to indicate a perception among labor organizations that conditions are less than favorable for employees that wish to start or join unions and are favorable for employers.
The Heritage Foundation attacks these statistics, stating that the 31,358 number was taken from a section of the report related to back pay rather than to those workers disciplined or fired for union activity. The Foundation clams that unions downplay their own tendency to intimidate workers including coercive statements, harassment, violence and assaults, and threatening statements. Charges of harassment by union leaders against management are not unheard of in the California healthcare industry. The SEIU United Healthcare Workers-West union, for example, recently protested alleged tactics used by management at Sonoma Healthcare.
In this case, the Supreme Court must consider whether or not the statute is preempted by the NLRA. The Chamber of Commerce argues that the statute is preempted because it prohibits non-coercive employer speech that Congress intended to leave unregulated. The state of California argues that employers are not prohibited from using non-coercive speech. According to California, the state may place restrictions upon use of government funds so long as employers are freely able to use employer funds to advocate for or against unionization and do not have to accept neutrality in order to receive state funds. If the Supreme Court finds for the Chamber of Commerce, it would be easier for employers to influence employees not to join unions. A finding for Brown would result in an increased burden for employers seeking to counter union activities and might decrease employers' willingness to argue against unionization.
The Chamber of Commerce argues that the statute is unduly burdensome for employers because it requires the employer to keep track of highly detailed records of its expenditures in order to receive funds from the state. California argues that the Chamber of Commerce has not effectively shown that the record-keeping requirement would be sufficient to impose an undue burden on employers. Such record-keeping is similar to those that are imposed in other contexts including federal grant programs.
The amici briefs filed with the Supreme Court for the Chamber of Commerce are mostly made up of healthcare employer advocacy organizations as well a brief filed by the Bush administration. Briefs were filed for the Health Care Association of New York State along with several other New York health care employment organizations, a joint brief which includes the American Health Care Association and the management oriented Council on Labor Law Equality, a brief by the American Hospital Association, and one by the Cato Institute. California is supported by briefs from the AFL/CIO and the California Labor Federation.
The overall policy goal of labor law is to equalize the power of bargaining between employers and unions and it is to this end that California passed the statute at issue. Employers seek to provide anti-union information to employees just as labor unions and many employees seek to unionize. The Supreme Court must consider the rights of both sides of this battle and whether balance between the two sides is better achieved through the NLRA or through the state statute.
A finding for the Chamber of Commerce would prevent the state from using its spending power in a manner that could potentially conflict with federal labor policy under the NLRA and thus limit the extent to which any state may pursue the legitimate interest of controlling and managing its own finances. A ruling for the state would allow the state to implement its own policies through the use of the spending power to pursue a regulatory objective in keeping with the state's position on unionization. The Court's decision will necessarily turn on whether AB 1889 regulates only state funds, as California argues, or goes so far as to regulate employer speech, as claimed by the Chamber of Commerce.