This post was also written by Daniel J. Moore.

In a 7–2 decision, the U.S. Supreme Court held that California’s Assembly Bill 1889 (“AB 1889” or the “Act”) is preempted by the National Labor Relations Act (“NLRA”). Chamber of Commerce v. Brown, 554 U.S. ___ (2008). The decision represents a significant victory for employers and maintains the current federal policy favoring free debate between employers and employees on unionization.

Background — On September 28, 2000, California enacted AB 1889, known as the union “neutrality law.” AB 1889 forbids private employers who receive either state grants or more than $10,000 in state funds during a calendar year from using such funds to “to assist, promote, or deter union organizing.” Although termed the “neutrality law,” AB 1889 benefited employees because few, if any, employers would dedicate funds to encourage its employees to unionize. AB 1889 requires employers to maintain strict accounting records demonstrating a complete separation of state funds. The penalties for violating AB 1889 are severe—employers found in violation of AB 1889 are subject to treble damages, attorneys’ fees, and costs.

The U.S. Chamber of Commerce, along with a group of employers and business associations, filed a lawsuit challenging the Act. In 2002, a federal district court held that the Act was preempted by the NLRA and therefore unenforceable. The U.S. Court of Appeals for the Ninth Circuit struggled with the case. In two separate decisions, a three-judge panel affirmed the district court’s decision. However, in 2006, the full Ninth Circuit vacated the earlier panel decisions, and ruled that the Act was not preempted by the NLRA. Chamber of Commerce v. Lockyer, 463 F.3d 1076 (9th Cir. 2006) (en banc).

The Decision — In reversing the Ninth Circuit, the Supreme Court relied on a doctrine known as Machinists preemption, which forbids states to regulate conduct that Congress intended to be unregulated and left to the free play of economic forces. The Court found that both the text and the history of the NLRA demonstrated a congressional policy “favoring uninhibited, robust, and wide-open debate in labor disputes.” The NLRA protects an employee’s right not only to unionize, but also to refuse to join a union, which implies an underlying right to receive information opposing unionization. Accordingly, AB 1889, which embodied California’s judgment that partisan employer speech necessarily interferes with an employee’s choice about whether to join a labor union, violated Congress’s policy in favor of free debate.

Practical Impact — AB 1889, and similar statutes, threatened to seriously undermine the speech rights of employers related to union organizing campaigns. The potential costs of litigation, plus the threat of severe penalties gave employees tremendous leverage to halt employer campaigns in opposition to labor organizing activities. The Supreme Court’s decision preserves the federal policy in favor of free debate on unionization. It also maintains a consistent policy throughout the nation, thereby avoiding a patchwork approach to employer speech varying from state to state.