June 20, 2008

U.S. Supreme Court Rejects State 'Neutrality' Law

Holland & Knight Alert
Frederick D. Braid

The U.S. Supreme Court has just dealt a death blow to one of organized labor’s recent additions to its arsenal of organizing resources. In Chamber of Commerce v. Brown, the Court struck down California’s so-called neutrality law, which prohibits employers who receive state funds from using any of those funds “to assist, promote, or deter union organizing,” and imposes a formidable remedial enforcement scheme. The effect of the law, which has counterparts that have been adopted or considered in at least 13 other states, including New York, is to prevent those employers whose budgets are primarily comprised of state funds from resisting union organizing efforts. The law also serves to deter those employers who might have sufficient private funds from resisting union organizing because of the burdensome compliance requirements and litigation exposure that could lead to the imposition of treble damages in addition to the expense of the litigation itself.

The NLRA Preempts California’s Law

The Court struck down California’s law because it found that it is preempted by the National Labor Relations Act (NLRA). In so doing, the Court relied upon the Machinists preemption doctrine, finding it unnecessary to address the Garmon preemption issues that had also been raised in challenging the California law. Under the Machinists preemption doctrine, states are prohibited from regulating conduct relating to labor relations that Congress intended to be unregulated and left to the “free play of economic forces.” The Court noted that during the NLRA’s early history, the NLRB severely restricted employer advocacy in union
organizing campaigns, but that Congress responded with amendments that included, among other things, a specific provision prohibiting NLRB regulation of noncoercive speech by either employers or unions. The Court reiterated that this so-called free speech amendment evidenced Congress’ intention to foster free debate on important labor-management issues in the workplace and that state regulation of employer speech about unionization thus conflicted with congressional intent.
The Court found that the “explicit direction from Congress to leave noncoercive speech unregulated” made the case easier than those in which it is confronted with congressional silence and must decipher congressional intent. Accordingly, it gave short shrift to the arguments that had been advanced in support of upholding the California law.

  • First, the Court brushed aside the attempt to emphasize the law’s restriction on the use rather than the receipt of state funds, which the state argued left the employer free to use its own funds however it wanted, by noting that the law’s burdensome compliance and enforcement scheme interfered with even the use of private funds.
  • Second, the Court easily rejected the argument that Machinists preemption did not prohibit all regulation by noting the unequivocal direction from Congress that there be no regulation of noncoercive employer speech.
  • Third, the Court rejected the argument that Congress’ passage of at least three federal statutes with similar restrictions demonstrated that Congress did not intend the NLRA to preempt laws such as California’s. It found that Congress may apply such restrictions “without opening the door to a 50-state patchwork of inconsistent labor policies,” and stated that “the mere fact that Congress has imposed targeted federal restrictions on union-related advocacy in certain limited contexts does not invite the States to overcome federal labor policy in other settings.”

The decision demonstrates, once again, that the Supreme Court will not allow states to regulate the union-management relations of private-sector employers. More specifically, it preserves the free speech rights of even those employers who receive substantial state funding and ensures that they will be able to resist union organizing if that is their choice.

Related Insights