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Ninth Circuit Strikes Down California Union Neutrality Law

In a significant and eagerly awaited decision on employers' rights, the U. S. Court of Appeals for the Ninth Circuit has invalidated key provisions of a California law mandating employer neutrality in the face of union organizing.  In Chamber of Commerce v. Lockyer (9th Cir., April 20, 2004), the Ninth Circuit held that such neutrality legislation fundamentally alters the robust exchange of speech and ideas during union organizing critical to national labor relations policy. 

Under the neutrality law, drafted by unions and signed by former Governor Gray Davis, employers receiving state funds are prohibited from using any of those funds to "assist, promote, or deter union organizing."  Employers choosing to oppose an organizing drive are forced to segregate all state funds and face lawsuits filed by either the State Attorney General or unions for alleged non-compliance.  Employers which either commingle state funds with private funds or expend such funds to oppose union organizing campaigns are responsible for both returning the expended state funds and paying a 200% penalty.

In response to employer outcry, several employer associations including the United States Chamber of Commerce, the California Association of Health Facilities, the California Healthcare Association and the Employers Group challenged the law, arguing legislation mandating employer neutrality is preempted by the National Labor Relations Act.  Jackson Lewis was selected to represent these parties challenging the law.

In striking down key provisions of the law, the court rejected an argument that California could effectively force employers into neutrality through state spending restrictions.  As the court explained, this neutrality legislation "is on its face designed to interfere directly with the NLRA's own system for the promotion or deterrence of union organizing by employers and employees.

The statute will alter the NLRA process of collective bargaining and union organizing, because an employer who decides against neutrality will incur both compliance costs and litigation risk."  The court concluded that the neutrality legislation was preempted by the NLRA under the Supreme Court's decision in Lodge 76, International Association of Machinists and Aerospace Workers v. Wisconsin Employment Relations Commission, which generally prohibits states from disrupting the "free play of economic forces" between employers and unions and which Congress intended to be left unregulated.

The Ninth Circuit's decision is an enormous victory for employers and will likely have far-reaching implications.  Over the past several years, unions have shifted focus from seeking neutrality agreements with specific employers, to obtaining legislation encouraging or mandating employer neutrality at the state and local levels.  New York and Massachusetts have passed similar legislation, and proposals have been introduced in the legislatures of Arizona, Connecticut, Missouri, Maryland, Florida, Georgia, Illinois, Indiana, Iowa, Louisiana, Maine, Missouri, New Hampshire, North Dakota, Oregon, and Pennsylvania.  In addition to legislation on the state level, a number of cities, for example, San Francisco, require entire industries to maintain union neutrality policies.  This decision marks an important turning point in reestablishing open and honest communications between employers and employees regarding potential unionization. 

Related Links
Lockyer Decision [173 KB]