The State Of Union Funding - California And The Ninth Circuit Show How States Might Try To Mitigate The Effect of Janus

by Seyfarth Shaw LLP
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Seyfarth Synopsis: Labor friendly states will likely be looking for opportunities to lessen the financial blow of the Supreme Court’s decision in Janus v. AFSCME. The Ninth Circuit’s recent decision in Interpipe Contracting v. Becerra just helped give California a head start (although perhaps only a small one). 

For many years, California employers subject to the state’s prevailing wage law (employers working on public works projects) could take a credit towards their wages for contributions to Industry Advancement Funds (“IAFs”)funds that entities (both union and non-union) can use for a variety of things including political activities. This meant that employers could reduce their employees’ wages on public works projects based on the amount the employer contributed to an IAF.

Beginning in 2017, the California Legislature imposed a new limit on the prevailing wage credit. Under amendments to Labor Code § 1773.1, employers could only discount their employees’ wages for IAF contributions if the employees agree to IAF contributions through a CBA. In essence, the Legislature created an additional benefit for union shops. These shops could take a credit to fund activities such as political speech, while non-union shops could not.

In Interpipe Contracting v. Becerra, an “open shop” (non-union) plumbing contractor and the Associated Builders and Contractors of California Cooperation Committee (“ABCC”), an IAF, challenged the constitutionality of the law. They argued, among other things, that the statute violated the Supremacy Clause by frustrating the purposes of the NLRA, and that it infringed on ABCC’s First Amendment right to free speech. The Ninth Circuit rejected both arguments.

Interpipe advanced a so called “Machinist” preemption argument, which prohibits states from interfering with the collective bargaining process, and from regulating non-coercive labor speech. Interpipe argued that the California statute interfered with its labor speech of supporting pro-open shop advocacy by non-union IAFs. The Ninth Circuit disagreed. The court first concluded that the wage credit constituted a minimum labor standard, which required a heightened showing that the law impaired labor speech. The court then distinguished between labor standards affecting employers’ ability to fund their speech with unlawful regulations of their speech. The court acknowledged that the NLRA prohibits states from frustrating or regulating speech about unionization. By way of example, states cannot restrict (directly or indirectly) employers from using their own money to fund anti-union (or pro-union) speech. But here, the court held the California legislature merely restricted employers’ ability to divert their employees’ funds to a particular type of speech without the employees’ consent. This, the court determined, did not infringe on anyone’s rights under the NLRA to engage in labor speech.

ABCC took a different line of attack.  It argued that the First Amendment gave it the right to receive employee-subsidized funds, claiming that laws restricting the ability to fund speech are burdens on speech. In rejecting this argument, the court reiterated that the First Amendment protects individual (and corporate) rights to expression through finance (by contributing to IAFs or political organizations of their choosing). But the First Amendment does not establish a standalone right to receive the funds necessary to finance one’s own speech. As a result, the court held that the law did not implicate the First Amendment. California could provide union shops an incentive to fund their IAFs that was not available to non-union shops.

The direct impact of Interpipe will likely be relatively small. It only effects union shops, working on public works projects, whose employees have bargained for contributions to IAFs in their CBAs. Nevertheless, given the potential financial implications of the Supreme Court’s recent Janus decision on public sector unions, this probably is not the last legislation pro-labor states will pass to make it easier for unions to raise funds. Stay tuned to this blog for future developments.

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