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May 25, 2005
Correction: Rehearing on use of state funds.
Big mistake in my March 22 entry [here] regarding this case. The 9th Circuit did not order an en banc rehearing. It ordered an "ordinary" rehearing by the same 3-judge panel that originally heard the case. So, here's the truth:
California ties a string to state-funds grants over $10,000: Private employers can't use the money "to assist, promote, or deter union organizing."
A 9th Circuit panel ruled that the NLRA preempted the statute, and now the the panel will rehear the case. Chamber of Commerce of the United States v. Lockyer (9th Cir 04/20/2004) is the original panel decision. Order granting rehearing (9th Cir 05/13/2005): is [here].
California Gov't Code Section 16645.2(a) bars private employers who are "recipient[s] of a grant of state funds" from "us[ing] the funds to assist, promote, or deter union organizing." Similarly, Section 16645.7(a) 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 such funds "to assist, promote, or deter union organizing."
A 9th Circuit panel held that these provisions are preempted by the National Labor Relations Act (NLRA) under the "Machinists" preemption doctrine (Lodge 76, International Association of Machinists & Aerospace Workers v. Wisconsin Employment Relations Commission, 427 US 132 (1976)). The panel stated, "[w]e are constrained to conclude that California--acting as a regulator, not a proprietor in imposing these restrictions--has acted in such a way as to undermine federal labor policy by altering Congress' design for the collective bargaining process." The panel rejected the argument that "the statute merely affects California's use of its own funds," observing "[t]he statute will alter the NLRA process of collective bargaining and union organizing, because an employer who decides against neutrality will incur both compliance costs and litigation risk."
Compare Hotel Employees Union v. Sage Hospitality Resources (3rd Cir 11/15/2004) which upheld a city plan which conditioned a grant of tax increment financing on acceptance of a labor neutrality agreement. On the unique facts there, the 3rd Circuit held that the city acted in its proprietary capacity, so there was no preemption.
My view: The original panel decision was well written, but probably wrong.
Machinists preemption is designed to keep states from regulating certain activity that Congress wants to be unregulated by anybody. The relevant activity here is an employer (or a union) expressing its opinion either for or against union organization. That's NLRA Section 8(c).
California law does not limit employers' ability to express their opinions; it merely says they can't spend state money to do so. Whatever employers could say before the statute they can still say. It's just that state money must be spent on other things. Hence, in my view, no real interference with Congress's policies, and no preemption.
Stephen F. Befort (law prof at University of Minnesota Law School) and Bryan N. Smith have written a great article about this case - At the Cutting Edge of Labor Law Preemption: A Critique of Chamber of Commerce v. Lockyer, with lots of background and lots of opinions. Oh, yes, they agree with me. Or I agree with them.
Posted May 25, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
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