Takeaways
- A federal court ruled that Oregon's labor peace agreement requirement for cannabis businesses is preempted by the NLRA.
- This decision could prompt legal challenges to similar laws in other states.
In an ironic turn of events this week, the application of federal law benefited state-licensed cannabis businesses in Oregon—and potentially nationwide. Those involved with the cannabis industry often view federal law as an impediment to cannabis businesses, given the ongoing federal illegality of cannabis and the extremely burdensome federal tax obligations created by Section 280E of the tax code. However, the National Labor Relations Act (“NLRA”) and the body of federal case law that has sprung up around it worked to nullify an Oregon ballot initiative that would have improperly restricted licensed cannabis operators from discussing the pros and cons of unionization with their workforces.
In November 2024, Oregon voters approved a ballot initiative that required licensed cannabis businesses to enter into labor peace agreements with their workers to either renew existing licenses or to get new licenses. In order to comply with this requirement, the employer would have to enter into a labor peace agreement that provided that it would “remain neutral” as to the topic of unionization when discussing workplace matters. Two licensed cannabis operators sued several Oregon state officials in the U.S. District Court for the District of Oregon, arguing, among other things, that the ballot initiative was unconstitutional because it was preempted by the NLRA under both the Garmon and Machinists doctrines.
Before jumping into an analysis of those doctrines, the court walked through the state of the law as it relates to applying federal labor and employment laws to the federally illegal cannabis industry. While a handful of courts have suggested that those laws should not apply to cannabis businesses, the U.S. District Court in Oregon sided with the majority of federal courts around the country (and the members of Dykema's Cannabis Industry Group) in concluding that the NLRA does, in fact, apply to the cannabis industry.
Having concluded that the NLRA applies, the court then walked through the preemption analysis, finding that under Garmon, the ballot initiative improperly implicated employer rights protected by the NLRA, specifically the right of employers to express “any views, argument or opinion” regarding unionization so long as the employers' expression “contains no threat of reprisal or force or promise of benefit.” 29 U.S.C. § 158(c). The court further found that the ballot initiative was preempted under Machinists because its restrictions on employer communications upset the balance between labor and management that Congress struck with the NLRA.
Both of these conclusions rested on the crucial fact that in requiring cannabis employers enter into labor peace agreements with a union, the ballot initiative imposed an overly restrictive definition of what constitutes a labor peace agreement. Specifically, Oregon law defines a labor peace agreement as “an agreement under which, at a minimum, an applicant or licensee agrees to remain neutral with respect to a bona fide labor organization's representatives communicating with the employees of the applicant or the licensee about the rights afforded to such employees under [Oregon Revised Statutes §] 663.110.” In the eyes of the court, it was the requirement that the employer “remain neutral” on the issue of unionization that put the ballot initiate over the line for preemption purposes. That said, a more bullish application of either doctrine could result in the same outcome even absent the neutrality requirement. That is because one could make the argument that a state law that requires businesses to enter into labor peace agreements at all is a law that implicates the federal labor laws in a way that impermissibly interferes with the national application of labor policy as employed by the NLRA.
Several other states have laws requiring cannabis operators to enter into labor peace agreements. Time will tell if this decision out of Oregon will fuel challenges to those laws as well.
For those readers interested in a more granular description of the application of the Garmon and Machinists preemption doctrines to the Oregon ballot initiative, the case at issue is Casala LLC et al. v. Kotek et al., case number 3:25-cv-00244, in the U.S. District Court for the District of Oregon.
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