Legally dubious “labor neutrality” initiative creates complications for contractors

Legally dubious “labor neutrality” initiative creates complications for contractors

(Nick Morton, Sebris Busto James)

People First Bellingham, a coalition of political and social organizations, submitted petitions for four proposed initiative bills in July 2021. The third proposal, “Labor Neutrality,” would prohibit any person who receives city funds from using those funds to discourage unionization efforts. This initiative will be on the ballot when Bellingham residents cast their votes on November 2, 2021. The ordinance contains both restrictions on how city funds may be spent, as well as affirmative requirements as to how recipients of city funds must segregate such funds.

Summary of the Ordinance

First, the ordinance prohibits use of city funds to discourage unionization. The ordinance covers any business that receives payment from the city, whether in the form of a grant, payment under a contract, payment for a portion of a contract completed by a subcontractor, or reimbursement. A business is deemed to have “used” city funds when it applies the funds to operating expenses such as employee compensation, maintenance, or capital facilities or equipment.

The ordinance provides the following list of activities that qualify as unionization opposition, to which no city funds may be applied:

  • Any communication that directly or indirectly suggests that employees should vote against representation by a union
  • Hiring or consulting legal counsel or other consultants on how to deter unionization or impede the work of a labor organization
  • Holding meetings to influence employees not to join or form a labor organization
  • Planning by employer supervisors to deter activities of a labor organization 

Second, the ordinance requires all recipients of city funds to “physically and financially segregate its activities that are city-funded from any of the recipient’s activities that involve discouragement of unionization.” While financial segregation of city funds is straightforward, the physical segregation requirement is less clear. The ordinance offers the following factors to determine whether activities are sufficiently separate:

  • The degree of physical separation of facilities in which city-funded activities occur and facilities in which activities involving the discouragement of unionization occur
  • Whether different personnel are utilized for city-funded activities and activities involving discouragement of unionization
  • The extent to which city-funded activities and activities involving discouragement of unionization are known to the public and employees

In its preamble, the ordinance states that its purpose is to fully “vindicate” the rights of employees to unionize under the National Labor Relations Act (“NLRA”). By invoking the “moral duty” to protect these employee rights, the ordinance effectively adopts the policy goals of the NLRA as its own.

Practical Issues

The breadth and ambiguity of the ordinance has the potential to create a minefield of prohibited actions for businesses that receive any funds from the city of Bellingham. Some actions, such as using city grant money to pay for union avoidance legal counsel, are obvious violations. However, several requirements in the ordinance could give rise to violations that are less obvious.

For example, some businesses may use money earned from a contract with the city to fund payroll. If any of the employees receiving wages from that fund engage in conduct deemed to be discouragement of unionization under the ordinance, the employer could be in violation. Similarly, if such funds are used to make lease payments or to maintain a business’s workplace, any communications or meetings in opposition to unionization that take place in that workplace could also constitute violations.

The segregation requirements would also likely cause difficulties specific to small employers. The ordinance states that city-funded activities and activities involving union discouragement should not be carried out by the same personnel or in the same facilities. For employers with small teams and a single workspace, it may be impossible to comply with this requirement. In fact, if every employee is somehow involved in work funded by a government contract or grant, discouragement of unionization could be prohibited altogether.

While the scope of actual enforcement of the ordinance is still unclear, it has the potential to impose complicated requirements on employers that receive city funds.

Potential Legal Implications

State and local governments in numerous states have attempted to implement laws similar to the Bellingham ordinance. These attempts are frequently challenged on free speech and NLRA preemption grounds. The Bellingham ordinance, if enacted, would also be vulnerable to challenges under these theories.

NLRA Preemption

Labor relations between private employers and their employees are regulated by the NLRA. As a general rule, any attempt by state or local governments to regulate matters within the ambit of federal labor policy is preempted by the NLRA, and thus invalid. One theory of NLRA preemption is known as Machinists preemption, which provides that any state or local labor law that regulates activity that Congress intended to “be unregulated and left to be controlled by the free play of economic forces,” is preempted by the NLRA. Accordingly, local governments lack the authority to impose additional requirements related to such activities to establish “some standard of properly balanced bargaining power.”

There is an important exception to Machinists preemption, where state/local governments act not as regulators, but as “market participants.” Governments act as market participants when they seek to procure goods or services in a proprietary capacity. In these cases, the government may impose restrictions that would otherwise be preempted by the NLRA, but such restrictions cannot reach beyond the immediate parties with which the government transacts business.  

In 2008, the United States Supreme Court considered whether state and local “union neutrality” laws are preempted by the NLRA. The case, Chamber of Commerce v. Brown, involved AB 1889, a California law which prohibited employers that receive state funds from using such funds to “assist, promote, or deter union organizing.” Much like the Bellingham ordinance, AB 1889 stated that its purpose was to protect “an employee’s choice about whether to join or to be represented by a labor union.”

The Supreme Court held that the California law was preempted under Machinists because it sought to regulate within “a zone protected and reserved for market freedom.” The NLRA expressly protects the right of both employers and unions to engage in non-coercive speech about unionization, meaning California’s attempt to regulate such speech was an unlawful encroachment on federal labor policy. The Court explained that the state was clearly acting as a regulator and not a market participant, so no exception applied. This was the case in part because the stated purpose of the law was the furtherance of a labor policy, not the procurement of goods or services.

The Bellingham initiative is nearly identical to AB 1889 in several ways. The ordinance would prohibit non-coercive speech about unionization, contrary to the federal labor policy favoring “uninhibited, robust, and wide-open debate.” The ordinance’s stated purpose is also nearly identical to AB 1889, indicating that Bellingham would act as a labor regulator, rather than a market participant, while enforcing the ordinance. Given the close parallels between the Bellingham ordinance and AB 1889, there is a significant likelihood that a court would find the ordinance to be preempted under Machinists.

Free Speech

The US Supreme Court held in NLRB v. Virginia Elec. & Power Co. that employers have a First Amendment right to engage in non-coercive speech about unionization. As mentioned above, this right was incorporated into the NLRA itself. Section 8(c) of the Act explicitly protects an employer’s right to express its views on unionization as long as such expression contains no threat of reprisal or promise of benefit. The Bellingham ordinance would prohibit use of city funds for “any communication in any form that advocates . . . that employees should vote against representation.” The ordinance would even prohibit communication between the employer’s supervisors that disfavors unionization. These broad prohibitions clearly restrict the kind of non-coercive speech that is protected by Section 8(c) of the NLRA.

Because the ordinance conflicts with the free speech protections of Section 8(c), it could provide a basis for preemption under a second theory, known as Garmon preemption. The Garmon principle forbids states and local entities from regulating activities that are protected or prohibited by the NLRA., in order to avoid conflicting rules. In 2006, the Second Circuit struck down a New York state law that was also nearly identical to the Bellingham ordinance. The Court stated that Congress assigned the responsibility of regulating employer speech during union organizing campaigns to the NLRB, not the state and local governments. This direct conflict meant that the New York law was preempted under Garmon. The Bellingham ordinance conflicts with Section 8(c) of the NLRA in the same way, meaning it could be vulnerable to preemption on the same grounds.

Conclusion

Ordinance 2021-03, if voted into law, has the potential to significantly restrict employers’ ability to oppose unionization in ways that are expressly permitted by the NLRA. It also has the potential to create administrative and accounting headaches for Bellingham businesses, especially small businesses. However, Supreme Court precedent suggests that there is a significant likelihood of successful legal challenge to the ordinance on the basis of NLRA preemption.

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