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Second Circuit Remands Case on Preemption of New York Labor Neutrality Law

December 12, 2006

In general, matters relating to collective bargaining and labor relations are governed exclusively by federal law, the National Labor Relations Act (NLRA). As a result, state laws that venture into the area of labor relations are often found to be preempted by federal law, and therefore invalid. In a decision issued on December 5, 2006, the U.S. Court of Appeals for the Second Circuit remanded to a lower court a case presenting the issue of whether an amendment to Section 211-a of New York's Labor Law, the so-called "labor neutrality law," is preempted by the NLRA. Healthcare Association of New York State, Inc. v. Pataki, Docket No. 05-2570, 2006 WL 3499469 (2d Cir. Dec. 5, 2006).

As previously reported on this website, New York Labor Law Section 211-a, referred to by its opponents as an "employer gag law," prohibits the use of State funds and property to encourage or discourage union organizing. (See Bill Prohibiting Employers From Using State Funds To Oppose Union Organizing Passes New York State Assembly and Senate [July 23, 2002] and New York Labor Neutrality Law Enacted [Oct 7, 2002].) In a decision issued on May 17, 2005 the federal District Court for the Northern District of New York ruled that Section 211-a was preempted by Section 7 of the NLRA. (See Judge Rules New York Labor Neutrality Law Preempted by NLRA [May 23, 2005].)

The Court of Appeals reversed and remanded the case back to the District Court. In its decision, the Second Circuit noted that although the District Court had "quite reasonably" relied on a decision of the U.S. Court of Appeals for the Ninth Circuit, which held that a similar California law was preempted by federal labor law, the Ninth Circuit later vacated that opinion and found that the California labor neutrality law was not preempted. (See Ninth Circuit Court of Appeals Upholds California Labor Neutrality Law [Oct 11, 2006 ].)

According to the Second Circuit, there are "vital issues of fact" that still have to be determined before a court can decide whether the New York law "is limited to a restriction on the use of State funds, or whether it overreaches in an attempt to regulate the employers’ speech regardless of whether State funds are at issue." These issues include (1) whether Section 211-a imposes restrictions on employers’ use of their own money; (2) whether the law applies to funds originally appropriated by the federal and local governments that only pass through the State (such as Medicare); (3) whether the law places a "significant burden" on employers to "ascertain what portion of mixed payments are subject to the law’s restrictions"; and (4) whether New York State can show that it is not feasible for the State to avoid reimbursing contractors for expenses incurred for unionization campaigns by designating such expenses as non-reimbursable.

The District Court will now have to address these issues and revisit the question of preemption. It remains to be seen whether the New York law, like California’s, will ultimately survive the preemption challenge. We will continue to report on further developments as they occur.