After twice affirming a district court’s decision that two California statutes were preempted by the National Labor Relations Act ("NLRA"), a divided en banc panel of the Ninth Circuit Court of Appeals reversed itself last week by a 12-3 vote in Chamber of Commerce v. Lockyer. The majority opinion found that the two statutes at issue were not preempted by the NLRA and did not violate the First Amendment.

Since its inception, the Lockyer case has garnered the attention of proponents and opponents of unions. The lawsuit was originally brought by a group of employer entities including the U.S. Chamber of Commerce. The suit challenges the validity of portions of AB 1889, which was codified as California Government Code sections 16645 through 16649. 

AB 1889 prohibits private employers who receive more than $10,000 of state funds in a year from using those funds to "assist, promote, or deter union organizing." The statute specifies as prohibited "any expense, including legal and consulting fees and salaries of supervisors and employees, incurred for research for, or preparation, planning, or coordination of, or carrying out, an activity to assist, promote, or deter union organizing." The statute mandates that employers who receive more than $10,000 in state funds must certify that no state funds are used to assist, promote, or deter union organizing. It further requires that affected employers maintain and provide upon request "records sufficient to show that state funds have not been used for those expenditures." If an employer commingles state and other funds, the statute presumes any expenditures to assist, promote, or deter union organizing derive in part from the state funds. Finally, the statute authorizes any taxpayer to bring suit against a suspected violator and authorizes a prevailing plaintiff (but not a prevailing defendant) to recover attorneys’ fees and costs.

The plaintiff employer groups argued that the statute was preempted by the NLRA which regulates relations between labor and management. In a nutshell, the employers argued that AB 1889 interferes with the careful balance achieved by the NLRA between labor and management by infringing on an employer’s free speech rights and by giving unions an added weapon with which to organize non-union companies. The district court agreed with the employers and found on summary judgment that portions of the statute were preempted by the NLRA. In 2004, a three judge panel of the Ninth Circuit affirmed the district court’s decision. In 2005, a second three judge panel of the Ninth Circuit again affirmed the decision. Thereafter, the Ninth Circuit agreed to hear the case en banc which resulted in last week’s opinion.

In upholding the validity of the statute, the majority opinion held that California’s restriction on how a private employer may use state funds does not impermissibly interfere with the NLRA or the First Amendment because the statute does not directly prevent an employer from assisting, promoting, or deterring union organizing. Instead, employers are free to engage in such activities so long as they do not use state funds to do so. According to the majority, employers can pay for union related activities with non-public funds or employers can simply choose not to receive public funds by not doing public works, thereby eliminating the need for compliance with AB 1889.

A strongly worded dissent was filed by Circuit Judge Beezer in which he argues strenuously that AB 1889 is in fact preempted by the NLRA and in violation of the First Amendment. As explained by the dissent,

Although cast nominally as an effort to ensure state neutrality, the California statute, by stifling speech rights of employers and their ability to participate in a debate about the value of unions generally or advise employees as to which union is preferable, operates to significantly empower labor unions as against employer. In so doing, the statute destroys the delicate balance between labor unions and employers as mandated by Congress through the NLRA.

The practical effect of the statute, according to the dissent, is to compel employers to take a position of neutrality with respect to labor relations. Otherwise, an employer exposes itself to burdensome record keeping requirements and the significant risk of lawsuits where only the plaintiff can recover fees and the employer is presumed to be liable. 

So what is the impact of Lockyer on California businesses? At the moment, the impact is uncertain because in all likelihood the Chamber of Commerce and the other plaintiff employer groups will make every effort to have the United States Supreme Court step in and give its thoughts. Assuming Lockyer becomes final and remains unchanged, the impact for companies doing business with California public entities will be substantial. Such companies will have to develop comprehensive methods of recording and monitoring receipts from public entities. Companies will also have to carefully document any and all time and expenses spent assisting, promoting, or deterring union organizing. Thus, if a company was facing pressure to organize, the company would need to have its employees record all time spent dealing with union organizing. All such time would in turn need to be compensated using non-public funds. Companies will most likely need to set up separate bank accounts and possibly even separate corporations or divisions, one for public works and one for private jobs.

In addition, companies can expect numerous private lawsuits and formal complaints to the California Attorney General. Employers will be faced with the prospect of being presumed liable. Precise record keeping will be essential. In addition to being a powerful tool for forcing companies to sign collective bargaining agreements, the statute provides no defense against frivolous claim, allowing a prevailing plaintiff to recover fees but not a prevailing defendant. 

The unfortunate reality is that AB 1889 is a bad law which was written by unions and for unions. If Lockyer remains the law, non-union companies in industries targeted by unions for organizing should expect to see a wave of lawsuits and increased efforts to organize. Such companies should consult with legal counsel to determine what steps may be taken to reduce the likelihood of being targeted and to reduce any potential liability if actually sued.