Supreme Court Strikes Down California “Labor Neutrality” Law

On June 19, 2008, the United States Supreme Court ruled that a California “labor neutrality” statute was preempted by federal labor law, overturning a 2006 decision by the U.S. Court of Appeals for the Ninth Circuit. Chamber of Commerce v. Brown, No. 06-939 (June 19, 2008). This Supreme Court decision marks the conclusion of a long-running conflict between state and federal regulatory power over acceptable employer speech regarding unionization.

As we previously reported, the California statute at issue prohibited employers who received state grants or more than $10,000 in state program funds in any year from using those funds “to assist, promote, or deter union organizing.” (see Ninth Circuit Court of Appeals Upholds California Labor Neutrality Law [October 11, 2006]). The stated purpose of the statute, which also imposed burdensome financial record-keeping rules and severe civil penalties for non-compliance, was to keep employers from using state funds to interfere with employee rights to join or be represented by a union. The statute included certain exemptions that allowed expenditures in connection with activities that serve to promote unionization, including allowing union access to an employer’s facilities or property.

Several business organizations in California filed suit to enjoin enforcement of the law, arguing primarily that it was preempted by federal labor law under the Supreme Court’s decision in Machinists v. Wisconsin Employment Relations Comm’n,427 U.S. 132 (1976), in that it attempted to regulate in an area that Congress intended to be left largely unregulated. 

In its June 19 decision, the Supreme Court relied upon the Machinists formulation in striking down the California law. As the Court pointed out, employer speech rights — particularly an employer’s right to attempt to persuade employee’s not to join a union — were a frequent issue of litigation soon after the National Labor Relations Act (“NLRA”) was enacted in 1935. The 1947 Taft-Hartley Act added section 8(c) to the NLRA, which provides that any expression of views that contains neither a “threat of reprisal” nor a “promise of benefit” shall not constitute an unfair labor practice. According to the Supreme Court, this “free speech” provision was a clear indication of Congressional encouragement of unregulated debate between advocates for labor and management regarding potential unionization of employees. Consequently, California’s attempt to use its spending power to regulate employer speech in an area which federal policy intended to leave unregulated was preempted by federal law.

The Supreme Court found the Ninth Circuit’s reasons for upholding the California statute unpersuasive. First, the Court rejected the argument that the spending restrictions applied only to the use of state funds, not to their receipt, so that employers would still be free to spend their own money on union-related issues. The Court reasoned that the burdensome record-keeping costs and litigation risks imposed by the California statute would make it too difficult for employers to use their own funds for union-related advocacy.

The Court also rejected the Ninth Circuit’s conclusion that Congress did not intend to leave this particular area free from all regulation. The Court distinguished a narrow area in which the NLRB has long regulated employer speech — certain coercive employer speech taking place on the eve of union elections — from the broad range of employer conduct that would be restricted if the California statute were upheld. 

The Ninth Circuit’s final reason for upholding the California statute was that the law was modeled on federal statutes with similar restrictions. The Supreme Court dismissed this reason as well, noting that “these few isolated restrictions, plucked from the multitude of federal spending programs” do not actually conflict with the NLRA. Additionally, the Court noted that Congress has the authority to create specifically-tailored exceptions to federal policies, whereas individual states do not. 

The Supreme Court’s decision striking down the California law should spell the end of similar labor neutrality statutes in other states and will certainly impact the ongoing litigation concerning a similar statute that was passed in New York in 2002 (Healthcare Association of New York State, Inc. v. Pataki), previously reported on this website. (See Second Circuit Remands Case on Preemption of New York Labor Neutrality Law (December 12, 2006].)  While the litigation over the New York statute is still in progress, it appears in light of the Supreme Court’s decision that the statute will eventually be struck down as preempted by federal labor law.