United States: Ninth Circuit Forbids California Employers From Using State Funds To Address Union Organizing

Last Updated: October 9 2006
Article by John Kloosterman

In a divided decision with far-reaching implications, the United States Court of Appeals for the Ninth Circuit, sitting en banc, ruled that the State of California can forbid entities that accept state money from using that money to deter union organizing. Chamber of Commerce v. Lockyer, No. 03-55166 (Sept. 21, 2006). This is the third time since April 2004 that the Ninth Circuit has issued a decision in the case. The previous decisions, however, both held that California's prohibition on using state funds to deter union organizing was preempted by the National Labor Relations Act (NLRA). This latest decision will affect any entity that receives state funds or contracts with the State. In order to minimize the decision's effects, employers may want to set up separate accounting systems for money received from the State and money that comes from other sources. Such a dual system should allow employers to easily show that they have not spent any state funds on union organizing.

Background Of California's Union Neutrality Law

In late 2000, in response to intensive lobbying from the AFL-CIO, the California Assembly passed Assembly Bill (AB) 1889, which expressly provides that it is California's policy to remain neutral with regard to union organizing. AB 1889 took effect on January 1, 2001 and is found at California Government Code sections 16645-16649. The neutrality law prohibits entities from using state funds to "assist, promote or deter union organizing" and potentially applies to any state contractor or grant recipient if that entity employs one or more individuals. For purposes of the law, it is irrelevant whether the employer is public or private, for-profit or not-for-profit. The specific employers covered by the neutrality law include: recipients of state grants of any amount (§ 16645.2); state contractors performing service contracts (§ 16645.3); state contractors receiving state funds in excess of $50,000 pursuant to the terms of the contract (§ 16645.4); and private employers receiving $10,000 or more in state funds in any calendar year (§ 16645.7).

All state contractors who seek payment from the State must certify that they are not seeking reimbursement for any costs incurred to assist, promote or deter union organizing (§ 16645.1). Either the California Attorney General or any taxpayer may bring suit alleging a violation of the neutrality law. Remedies for violating the neutrality law include returning the state funds used for the prohibited purpose, civil penalties, attorneys' fees and costs. Finally, if an employer commingles state funds with other funds, the neutrality law assumes that any expenditures related to union organizing were allocated between the two sources of money on a pro rata basis unless the employer can prove otherwise (§ 16646).

Background Of Chamber Of Commerce V. Lockyer

From the onset of the neutrality law, labor unions began to utilize it aggressively during organizing drives by filing complaints with the California Attorney General and filing lawsuits alleging that employers were using public funds in opposing organizing, forcing employers to expend time and money defending against the unions' allegations.

In response to the unions' tactics, in April 2002, the Chamber of Commerce of the United States, the Chamber of Commerce of California, and numerous other associations and employers (collectively referred to as "Chamber") filed suit against California Attorney General Bill Lockyer seeking to have the law declared invalid. The AFL-CIO intervened on the State's behalf. On September 16, 2002, District Court Judge Gary Taylor ruled that two portions of the law, section 16645.2 (applying to recipients of state grants of any amount) and section 16645.7 (applying to private employers receiving $10,000 or more in state funds in any calendar year), were preempted by the NLRA and enjoined the State from enforcing those two sections. Judge Taylor did not rule on any of the neutrality law's other provisions because he determined that the Chamber did not have standing to challenge those provisions.

Attorney General Lockyer and the AFL-CIO appealed Judge Taylor's ruling to the Ninth Circuit, which, on April 26, 2004, issued a unanimous opinion upholding Judge Taylor's decision and finding that the California neutrality law was preempted by the NLRA. This opinion was written by Circuit Judge Fisher, who was joined on the panel by Circuit Judge Beezer and District Judge England. In addition, the National Labor Relations Board ("NLRB"), the federal agency responsible for interpreting and enforcing the NLRA, submitted a brief opining that the California law was preempted by the NLRA.

After this, the procedural history of the case becomes tortuous: On May 13, 2005, over one year after issuing its decision, the panel withdrew its opinion but did not immediately issue a replacement opinion. Several months later, on September 6, 2005, the panel issued a new opinion, written by Judge Beezer. This time, Judge Fisher, the author of the original opinion, changed his mind and wrote a dissenting opinion in favor of upholding the California neutrality law. On January 17, 2006, the Ninth Circuit voted to hear the case en banc, meaning it would be reheard by a panel of 15 judges, including Judges Fisher and Beezer.

The En Banc Decision

On September 21, 2006, the en banc panel released its opinion, which was also authored by Judge Fisher. With the zeal of a recent convert, Judge Fisher's new opinion holds that the NLRA does not preempt California's neutrality law.

In a nutshell, Congress intended the NLRA to federalize the field of private sector labor relations and preempt most state regulation of that field. Accordingly, the NLRA is different from federal laws such as the Fair Labor Standards Act, which provide a minimum set of employee protections that a state is free to expand upon. With the NLRA, states are not able to expand upon the statutory protections – if Congress intended the issue to be regulated by the NLRA or completely unregulated, then the states are not able to regulate at all with regard to that issue.

A court's initial inquiry in determining whether a state's action is preempted by the NLRA is whether the state action in question constitutes regulation of labor relations. If so, then the question is whether the state was acting as a market participant, i.e., was the state merely regulating in order to assure efficiency in procuring a state contract? Generally, if the state is regulating labor relations and is not acting as a market participant, then its regulation is most likely preempted by the NLRA under either the Machinists doctrine, which applies to state or local regulations relating to areas of labor relations law that Congress intended to leave unregulated, or the Garmon doctrine, which applies to regulations that are actually or arguably prohibited or protected by the NLRA.

In its original 2004 opinion, the Ninth Circuit determined that California's neutrality law constituted labor relations regulation and that California was not acting as a market participant. The court then determined that California's neutrality law was preempted under the Machinists doctrine because it effectively interfered with the NLRA's "system for the promotion or deterrence of union organizing."

In its 2006 opinion, the Ninth Circuit again determined that California was actively regulating labor relations and that it was not acting as a market participant. Despite that, the court held that the California law was not preempted. In reaching this decision, the court determined that the Machinists doctrine applies only to collective bargaining, not organizing, and that it applies only to conduct that Congress meant to leave wholly unregulated by either the NLRA or the states. Noting that the NLRB extensively regulates union organizing, the court found that it was not a field that Congress meant to leave unregulated.

Next, the court determined that the California statute also was not preempted by the Garmon doctrine. Section 8(c) of the NLRA regulates employer speech and allows employers to express any view so long as that view does not contain a threat of reprisal or a promise of benefit. Nevertheless, the court held that the Garmon doctrine does not preempt the California neutrality law because of its view that section 8(c) does not grant speech rights to employers. Accordingly, the court held that California's neutrality law is not actually or arguably prohibited or protected by the NLRA.

In reaching its ultimate conclusion, the court distinguished between a theoretical regulation that required neutrality as a condition of receiving state funds, which it implied would be problematic, and the California regulation, which contains no such condition and only applies to an employer's spending of state money. As noted below, this analysis could become important in reviewing other portions of the neutrality law.

Implications

Chamber of Commerce will affect every employer that does business with the State of California or receives grant money from the State of California. California's neutrality law is broadly drafted and appears to apply to every employer that receives $10,000 or more annually in state funds, no matter what their source. It certainly applies to any employer that receives grant money from the State or contracts with the State.

Also, Chamber of Commerce only involved two of the statutory provisions. However, some of the other provisions are potentially even more onerous for employers. For example, section 16645.3 flatly forbids state contractors from deterring union organizing by employees performing work on a service contract for the State or a state agency. This provision does not tie its prohibition to the receipt of state money or allow employers to use other money to deter union organizing. This provision may be unenforceable, however, in light of the Ninth Circuit's view that requiring neutrality as a condition of receiving state funds, which is essentially what this provision requires, would likely be preempted by the NLRA.

It is also possible that other states will follow California's example and pass similar laws.

Best Practices

The California neutrality law applies to any expenditure related to union organizing, including money spent researching union organizing, or preparing for or planning any opposition to union organizing. Accordingly, employers who are subject to the law – which is any entity employing one or more persons that receives state grants, contracts with the State or receives over $10,000 in state funds through any means – must set up accounting and recordkeeping systems that account for state money separately from other money. And these separate systems must be in place prior to any union organizing. Otherwise, the neutrality law assumes that the employer has used state funds to deter organizing and the employer will have to prove otherwise. This means that if an employer does not maintain separate systems and a union sues the employer alleging improper use of state funds, the employer potentially will have to open its financial records to the union so it can prove where the expenditures related to organizing came from. With separate systems, it may be possible to provide them with only the records related to the state funds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
John Kloosterman
 
In association with
Related Video
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.