Executive Summary: Calling the SEIU's "aggressive use of power to collect fees from nonmembers indefensible," the U.S. Supreme Court, in a 7-2 decision, has held that the union violated the First Amendment by not sending a new Hudson notice when it levied a special assessment to meet expenses that were not disclosed when the amount of the regular assessment was set. SEIU v. Knox (June 21, 2012). A Hudson notice provides nonunion employees the opportunity to object to the use of their dues for political purposes and the opportunity to opt out of the contribution of the funds. The Court held that "when a public-sector union imposes a special assessment or dues increase, the union must provide a fresh Hudson notice and may not exact any funds from nonmembers without their affirmative consent."
Under California law, public-sector employees in a bargaining unit may decide by majority vote to create an "agency shop" arrangement under which all the employees are represented by a union selected by the majority. While employees in the unit are not required to join the union, they must nevertheless pay the union an annual fee to cover the cost of union services related to collective bargaining (chargeable expenses). The Supreme Court has recognized that such arrangements impinge on nonmembers' First Amendment rights. While public sector unions can bill nonmembers for chargeable expenses, they may not require nonmembers to fund their political and ideological projects. In Teachers v. Hudson, 475 U.S. 292 (1986), the Court identified procedural requirements unions must meet in order to collect fees from nonmembers without violating their First Amendment rights.
In this case, the SEIU sent out a regular Hudson notice informing employees what the agency fee would be for the year ahead and estimated that 56.35% of its total expenditures in the coming year would be dedicated to chargeable expenses. Thus, if a nonunion employee objected within 30 days to payment of the full amount of union dues, the objecting employee was required to pay only 56.35% of total dues. The notice also stated that the agency fee was subject to increase at any time without further notice. Subsequently, the SEIU levied a special assessment to pay for the funding of a coalition of public sector unions opposing two ballot propositions (75 and 76). Proposition 75 would have required unions to obtain employees' affirmative consent before charging them fees to be used for political purposes. Proposition 76 would have limited state spending and would have given the Governor the ability under some circumstances to reduce state appropriations for public-employee compensation.
In finding that the union should have sent a new Hudson notice with the special assessment, the Court noted that "closely related to compelled speech and compelled association is compelled funding of the speech of other private speakers or groups." The Court acknowledged that the primary purpose of permitting unions to collect fees from nonmembers is to "prevent nonmembers from free-riding on the union's efforts, sharing the employment benefits obtained by the union's collective bargaining without sharing the costs incurred." The Court noted, however, that the free-rider argument generally is insufficient to overcome First Amendment objections. The free-rider justification is permitted in the context of union dues as an "anomaly" that is justified by the interest in furthering labor peace – "it is an anomaly nevertheless."
The Court clarified that its decision in Hudson did not call for a balancing of the "right" of a union to collect an agency fee against the First Amendment rights of nonmembers, emphasizing that "unions have no constitutional entitlement to the fees of nonmember-employees." Thus, the Court noted that Hudson made it clear that any procedure for exacting fees from unwilling contributors must be "carefully tailored to minimize the infringement" of free speech rights.
The Court held that authorizing unions to collect fees from nonmembers and permitting the use of an opt-out system for the collection of fees levied to cover non-chargeable expenses approaches the limit of what the First Amendment can tolerate. In this case, however, the SEIU went even farther and asked the Court to approve a procedure by which (a) a special assessment billed for use in electoral campaigns was assessed without providing a new opportunity for nonmembers to decide whether they wished to contribute to this effort and (b) nonmembers who previously opted out were nevertheless required to pay more than half of the special assessment even though the union had said that the purpose of the fund was to mount a political campaign and that it would not be used for ordinary union expenses. "This aggressive use of power by the SEIU to collect fees from nonmembers is indefensible."
The Court held that the SEIU's failure to give a Hudson notice before the special assessment was not justified and that the union's procedures "cannot possibly be considered to have met" the requirement in Hudson that such procedures be carefully tailored to minimize impingement on First Amendment rights. Further, the Court held that even a full refund to nonmembers would not undo the violation of First Amendment rights because "the First Amendment does not permit a union to extract a loan from unwilling nonmembers even if the money is later paid back in full."
The Court also held that the SEIU's treatment of nonmembers who opted out when the initial Hudson notice was sent (when the union informed employees what the agency fee would be for the year ahead) also violated the First Amendment. The SEIU required these employees to pay 56.35% of the special assessment, just as they had been required to pay 56.35% of the regular annual dues. However, the union stated that the special assessment would be used to support an electoral campaign and would not be used for ordinary union expenses. Thus, the Court held that there was no reason to suppose that 56.35% of the new assessment was used for properly chargeable expenses. "On the contrary, if the union is to be taken at its word, virtually all of the money was slated for non-chargeable uses."
The Court rejected the SEIU's argument that funds spent "lobbying … the electorate" are chargeable. The Court held that "lobbying … the electorate" is nothing but another term for supporting political causes and candidates and "we have never held that the First Amendment permits a union to compel nonmembers to support such political activities."
The Court concluded by noting that by allowing unions to collect any fees from nonmembers and by permitting unions to use opt-out rather than opt-in schemes when annual dues are billed, its decisions have substantially impinged upon the First Amendment rights of nonmembers. The Court found no justification for further impingement in the situation presented in this case. "The general rule – individuals should not be compelled to subsidize private groups or private speech – should prevail." Accordingly, the Court held that "when a public-sector union imposes a special assessment or dues increase, the union must provide a fresh Hudson notice and may not exact any funds from nonmembers without their affirmative consent."
In her concurring opinion, Justice Sotomayor stated that the majority opinion decides, for the first time, that the First Amendment requires an opt-in (rather than an opt-out) system in some circumstances – the levying of a special assessment or dues increase.
If you have any questions regarding this decision or other labor or employment related issues, please contact the Ford & Harrison attorney with whom you usually work.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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