Argument preview: Chamber of Commerce v. Brown

Argument Preview

On labor issues, the U.S. Chamber of Commerce and the National Labor Relations Board haven’t always seen eye to eye. But the two bodies are united in opposition to AB 1889, a California law that bars employers from using certain state funds to influence the outcome of a union election campaign—a prohibition opponents fear will infringe management’s speech rights and give organized labor the type of upper hand Congress never intended. Letting the law stand could have wide national implications, as legislatures have introduced similar laws in 15 other states.

The Chamber of Commerce filed a petition for certiorari on January 5, 2007, seeking review of a Ninth Circuit en banc decision that upheld AB 1889 against preemption challenge. Certiorari was granted on November 20, 2007.

California enacted AB 1889 in late 2000. Passed with strong union backing, the measure prohibits employers receiving state grants or more than $10,000 in state program funds from using any portion of the money to “assist, promote, or deter” union organizing campaigns. In addition to potential treble damage awards, violators can face suits by private taxpayers and the state attorney general and must pay attorney fees to prevailing parties.

California called the bill a necessary measure to prevent taxpayer money from influencing workers’ decisions on whether to unionize. In practice, employer groups say, the bill would effectively prevent many companies from opposing unions at all.

Led by the Chamber of Commerce, a host of employer groups sought to enjoin AB 1889 in 2002. On a motion for summary judgment, the district court found that federal law pre-empted the California statute under the Supreme Court’s 1976 decision in Lodge 76, International Association of Machinists v. Wisconsin Employment Relations Commission (“Machinists”), which prohibits states from regulating activity Congress meant to leave “to the free play of economic forces.”

A panel of the U.S. Court of Appeals for the 9th Circuit later found the law also pre-empted under the high court’s 1959 ruling in San Diego Building Trades v. Garmon (“Garmon”) and later cases, which bar states from regulating activity even arguably covered by the National Labor Relations Act.

An en banc panel later upheld the law by a 12-3 margin, noting that employers remained free to express views on unionizing with their own funds. Rejecting the Machinists preemption argument, Judge Raymond Fisher wrote for the majority that state spending decisions “are by definition not controlled by the free play of economic forces.” As to Garmon, Fisher wrote that, although the National Labor Relations Act (NLRA) bars the use of most employer speech “as evidence of an unfair labor practice,” it does not explicitly give employers the right to participate in organizing campaigns.

Petition for Certiorari

In its petition for certiorari, filed by Willis Goldsmith of Jones Day in New York, the Chamber argues that Judge Fisher’s reading of the NLRA rests on “semantic gamesmanship.” By enacting the Taft-Hartley amendments of 1947, Goldsmith argues, Congress intended to let employers freely make their case for or against unionization — so long as they refrain from promising to reward or retaliate against workers for their choice.

In holding otherwise, the petition contends, the Ninth Circuit broke with recent rulings of two other circuits. In a 2005 case, according to Goldsmith, the Seventh Circuit held that federal law pre-empted any state measure which substantially affects the collective bargaining process, even a regulation coming “in the form of a restriction on the use of state funds.” In addition, the Second Circuit last year held that a similar New York statute was pre-empted insofar as it applied to money employers earned through state contracts, as opposed to mere grants, the petition says.

Far from trying to stay neutral, California enacted the law as a “concerted effort to spur union organizing,” the Chamber argues. To speak out against unionization, Goldsmith argues, employers that receive a sufficient amount of state money must comply with burdensome record-keeping requirements and ensure that all employees who work on union matters are paid with separate funds. And the petitioners assert that the law, as a practical matter, entirely muffles employers that rely exclusively on state money — such as health care providers wholly dependent on reimbursements from California’s Medicaid program.

Opposing certiorari, California (represented by Deputy Attorney General Angela Sierra) argues that the Chamber’s facial challenge offers a poor procedural vehicle for review, and that the Ninth Circuit decision does not significantly conflict with the decisions of either the Seventh or Second Circuits. Rather, the brief in opposition contends, the Wisconsin law struck down by the Seventh Circuit went much further than the California law. And although the state concedes that the Second Circuit held that the National Labor Relations Act protects employer speech, it argues the difference in reasoning could eventually be rendered “merely academic.” Rather than grant certiorari now, California argues, the Court should wait for more states to enact similar laws and see if a deeper split emerges in the circuit courts. The state argues further that lower courts should first have an opportunity to interpret the terms of the statute, including whether the restrictions in fact apply to funds received from state contracts or profits earned from participation in state programs.

In its reply brief at the certiorari stage, the petitioners disputed the respondents’ characterization of the en banc court’s decision as review of a “facial challenge,” asserting that “absent reversal, there is no possibility that any court in the [Ninth] Circuit could hold AB 1889 preempted” as it applies to any set of facts. Therefore, the Chamber argued, there was no vehicle problem to prevent the Supreme Court from resolving a square conflict between the Ninth Circuit and both the Seventh and Second Circuits.

At the Court’s invitation, the United States filed a brief as amicus curiae recommending that the petition be granted, and siding with the Chamber of Commerce on the merits. Specifically, the Solicitor General argued that AB 1889 was preempted under both Garmon and Machinists, and that this case presents both a question on which there exists a clear conflict among the circuits, and an adequate vehicle for resolving the conflict.

The petition for certiorari was granted on November 20, 2007. The case was set for oral argument on Wednesday, March 20, 2008.

Merits Briefing

Petitioner’s Opening Brief

In its brief on the merits, the Chamber of Commerce leads with its Machinists preemption argument, asserting that AB 1889 regulates employer speech that Congress intended “to be left for the free play of contending economic forces.” Specifically, the Chamber argues that AB 1889 restricts employer speech about unionization, and therefore unfairly denies to one party in labor fights, namely employers, the use of an economic “weapon that Congress meant [them] to have available.” It further argues that Congress’s intent to leave noncoercive speech unregulated is evident from Section 8(c) of Taft-Hartley Act of 1947, which provides that it is not an unfair labor practice for an employer to “express[] any views, argument, or opinion, … if such expression contains no threat of reprisal or force or promise of benefit.”

Second, the Chamber briefly reiterates its Garmon preemption argument, whereby it asserts that AB 1889 is impermissible because it regulates conduct “arguably protected or arguably prohibited” by the NLRA. That is, it would require California courts considering suits under AB 1889 to “intrude on the NLRB’s primary jurisdiction to determine whether an employer’s speech is noncoercive (and thus ‘arguably protected’) or coercive (and thus ‘arguably prohibited’), by prophylactically prohibiting all such speech.” The Chamber acknowledges some overlap between the Garmon and Machinists arguments because, as the Second Circuit noted in the case that formed the basis for the circuit conflict alleged in the petition for certiorari, “the protection afforded by section 8(c) is to leave employer speech largely unregulated, [so] in a case involving section 8(c), the Garmon doctrine and the Machinists doctrine actually tend toward the same point.”

Third, the Chamber seeks to anticipate and rebut an argument that AB 1889 might evade preemption via the market participant exception laid down in Boston Harbor. That exception cannot apply, the Chamber argues, when “a state seeks to advance a regulatory interest in labor policy, rather than a ‘purely proprietary interest’ of a private ‘market participant.’” Accordingly, the Chamber argues that AB 1889 furthers California’s labor policy, not any proprietary or fiscal interest. In this regard, the Chamber relies heavily on the preamble to AB 1889, which states that when employers act to deter unionization they “interfere with an employee’s choice about whether to join or be represented by a labor union,” and that AB 1889 imposes its limit on the use of state funds because this interference is contrary “to the policy of the state.” The Chamber reinforces this argument by asserting that AB 1889’s refusal to fund certain employer speech is not a “neutral” position, but rather an effort to favor labor in the debate over unionization, noting in particular that the bill allows the use of public funds by employers for some pro-union speech and conduct, such as expenditures to allow a union access to the workplace to discuss the benefits of organized labor, or expenditures to voluntarily recognize a union.

Fourth, the Chamber urges the Court to find that AB 1889 impermissibly burdens speech that is affirmatively protected by section 8(c) of the NLRA, and by the First Amendment. This argument relies heavily on AB 1889’s accounting requirements, which oblige an employer who receives state funds and wishes to engage in speech intended to assist, promote or deter union organizing to organize its accounts so as to demonstrate that no affected funds are being used in a prohibited manner. Although the case arises on summary judgment and thus does not have a well-developed factual record, here the Chamber relies on several affidavits from employers (submitted in the district court) averring that the bill would cause them to “fundamentally and substantially alter” their accounting procedures.

Finally, the Chamber of Commerce points to the risk that labor law and policy will become balkanized if individual states are allowed to exercise their spending power through bills like AB 1889. According to the Chamber, these bills upset and complicate the uniform national balance struck by the NLRA between labor and management interests and threaten multi-state employers with the prospect of myriad burdensome requirements that differ from state to state.

Respondents’ Briefs

Two merits briefs were filed on the respondents’ side, one by the State of California, and a second by intervenors the AFL-CIO and the California Labor Federation.

The State respondents organize their brief in opposition to the Machinists and Garmon preemption claims in turn. Beginning with Machinists, the State argues that AB 1889 does not regulate something intended by Congress to be left unregulated because it does not regulate the use of employers’ own funds, nor does it place any requirements on employers as a condition for the receipt of state funds. By its terms, AB 1889 applies only to how certain funds received from the state can be used by employers.

Next, the State seeks to establish its sovereign interest in the funds that AB 1889 regulates, with respect to both grants and programs. In particular, it seeks to rebut an argument made by both the Chamber of Commerce and the United States in its brief as amicus curiae in support of petitioners that the state lacks any sovereign and/or proprietary interest in grant and program funds after it has transferred them to private employers in exchange for goods or services rendered, and therefore that AB 1889 cannot be considered a legitimate exercise of a proprietary interest. California first counters that even if AB 1889 would be preempted with respect to some funds to which it otherwise might be applied, that argument cannot support the “facial” challenge in this case. Second, according to California, the State does retain a legitimate interest in both grant and program funds because they are disbursed to achieve specific public interest goals, so California retains an interest after disbursement in seeing that disbursed funds are directed to their intended uses.

Next, California counters the Garmon preemption claim with three arguments. First, the State asserts that AB 1889 does not regulate speech actually or arguably protected by the NLRA, because section 8(c) does not provide affirmative protections for employer speech. Instead, according to California, section 8(c) merely ensures that certain conduct protected by the First Amendment cannot constitute an unfair labor practice. Hence any “protections” are found in the First Amendment, and not in the NLRA, and, regardless, AB 1889 offends neither. Second, it argues that AB 1889 does not regulate speech actually or arguably prohibited by the NLRA, because it does not impose penalties for the same types of conduct that are prohibited by section 8 of the NLRA as unfair labor practices. Specifically, AB 1889’s restriction on the use of state grant or program funds for conduct that would assist, promote or deter unionization is indifferent to whether the affected speech is coercive, which is the main concern of the NLRA. Finally, California argues that even if it would otherwise be preempted under Garmon, AB 1889 falls within the exception recognized for matters “deeply rooted in local feeling and responsibility.” This exception has historically been applied to allow state courts to assert jurisdiction over common law torts that may arise in the context of labor disputes, such as trespass or defamation, but California argues that it applies equally to a state’s sovereign interest in maintaining local control over its own fisc through measures like AB 1889.

The labor respondents make many of the same points as California, but weight their arguments differently, focusing on three key points. The first is the state’s legitimate interest in avoiding the subsidization of private lobbying activity. The labor respondents argue that AB 1889 is union neutral because a decision not to subsidize is not hostile to the activity it chooses not to fund, and because AB 1889 furthers a legitimate fiscal interest in the funds it affects, wholly unconnected to any effect it may have on labor policy.

Second, the labor respondents base their core preemption arguments on the assertion that Congress did not intend the NLRA to force states to subsidize employers’ efforts to assist or deter union organizing. With respect to Garmon preemption, the labor respondents argue that AB 1889 cannot be preempted because it does not regulate anything arguably protected or arguably prohibited by the NLRA. To support this argument, they assert that NLRA “protects employees, not employers,” so section 8 of the NLRA cannot be read to create employer rights with which AB 1889 might interfere. Moreover, according to the labor respondents, AB 1889 does not interfere with the jurisdiction of the NLRB in any way, primarily because choosing not to subsidize a given activity is not a regulation of it.

Turning to Machinists preemption, the labor respondents further assert that AB 1889 is a permissible state action because “Congress could not have intended the permissible uses of government funds” to be a “free zone from which all regulation is excluded.” They not only argue that states simply must be able to regulate the use of public funds, but also that employer efforts to assist or deter union organizing are regulated by the NLRB, and therefore the subject of AB 1889 cannot be deemed a “free zone.”

Third, the labor respondents reiterate California’s argument that even if it were otherwise preempted, AB 1889 should fit within the exception for matters “deeply rooted in local feeling and responsibility” because a state’s control of its own funds is among the most important interests of state governments.

Finally, the labor respondents argue that the record does not support the Chamber of Commerce’s assertion that the accounting requirements in AB 1889 are burdensome. They point to Regan v. Taxation With Representation, in which the Court rejected an argument that requiring an organization which receives tax-deductible contributions to maintain a separately incorporated entity if it wishes to engage in lobbying, in order to ensure that tax deductible contributions are not misused, does not place an undue burden on protected speech.

Petitioner’s Reply Brief

In its reply brief, the Chamber of Commerce portrays the respondents as having conceded that AB 1889 does not serve a proprietary interest. The Chamber acknowledges that states have an interest in controlling costs and ensuring that state funds are used for intended purposes, but it argues that respondents cannot meaningfully invoke such an interest because AB 1889 by its own terms is directed at “refusing to subsidize” an activity that the State views as an undesirable interference with employee choice on unionization, which the Chamber says is straightforwardly a “labor policy purpose.”

The Chamber also reads the respondents’ merits briefs to concede that AB 1889 “burdens” employer speech. According to the Chamber, respondents’ attempts to “minimize” the burdens are of no moment, because Congress intended the affected speech to be completely unburdened, such that any burden at all brings AB 1889 under Machinists preemption. Finally, the Chamber of Commerce seeks to counter the labor respondents’ argument that the NLRA did not evince a Congressional intent to leave noncoercive employer speech unregulated, returning to its position that such a claim relies on “semantic gamesmanship.”

NOTE ON AMICI

The following parties filed briefs as amici curiae in support of both sides, at the merits stage:

Amici in support of petitioners:

The United States (see above)

The Cato Institute

The American Hospital Association

Associated Builders and Contractors et al.

Healthcare Association of New York et al.

Amici in support of respondents:

AARP et al.

18 States