Proposition 226 Paycheck Protection: the California Experience

Free Speech & Election Law Practice Group Newsletter - Volume 2, Issue 2, Summer 1998

August 1, 1998

Charles H. Bell Jr.

"Paycheck Protection" legislation has been introduced in nearly a dozen states and in Congress in 1997 and 1998. California, which sets trends for the nation through its biannual ballot initiative campaigns, witnessed a classic battle between labor unions and proponents of "paycheck protection" in Proposition 226. Proposition 226 was narrowly defeated by a 53%-47% margin at the June 2, 1998 primary election despite the fact that labor organizations spent more than $25 million in "reported" spending contrasted with about $4 million spent by the proponents.

Labor unions, led by the National AFL-CIO and funded primarily by California's public employee unions such as the California Teachers Association, conducted a widely-anticipated campaign of distortions and untruths about Proposition 226. The campaign focused particularly on Hispanic voters, attempting to exploit their unhappiness with Governor Pete Wilson by racist attacks on the Governor. Based on exit polls, this strategy worked, overcoming January 1998 polls indicating more than 60% support for Proposition 226.

Proposition 226 was straightforward. It required employers to obtain consent forms from employees before they could deduct political contributions from the employees' wages. Sirnilarly, it required labor organizations to obtain similar consent forms before they could use union dues or fees collected from nomnembers who are required to pay agency fees for political contributions. Union members or fee payers whose dues were used without their consent would be entitled to a reduction in their dues or fees. A second part of Proposition 226 barred foreign contributions to state or local candidates. Although federal law already bars such contributions in state elections, Proposition 226 provided the added criminal, civil and administrative remedies of the California Political Reform Act to enforce the ban.

Although Proposition 226 was straightforward, numerous false claims were made about its "unintended consequences." For example, unions of police employees spread the allegations that police officers could be targeted by "stalkers" who could obtain their home addresses from the Proposition 226 consent forms. This false allegation was rebutted by California District Attorneys who pointed to the fact that addresses weren't even required on the Proposition 226 consent forms, and the fact that existing public records disclosure laws exempted such information anyway!

Opponents also alleged that employers deductions of health insurance premiums for employees would be required to obtain a consent form for such transactions if the employer was aware that the health insurance carrier made political contributions: This allegation was also easily rebutted by the proponents, who pointed to an exemption from the underlying definition of "political contribution" for payments made for personal purposes or for which equal consideration was provided. In the case of deductions for health insurance premiums, the payment was for a personal purpose and the employee received insurance coverage or health benefits in full consideration of the payments.

Certain nonprofit charities also claimed their charitable fund-raising would be affected if they spent permissible funds for ballot measure support. United Way of America issued such a warning, only to withdraw it almost immediately as the ill-advised product of interns! Other organizations with labor union constituents on their boards followed suit. Several well-known Washington, D.C. and San Francisco tax law firms issued dire pronouncements about this threat, without citing any California statutory or regulatory authority for the claims.

From other sources, Proposition 226 was criticized as too narrowly drawn and likely to be ineffective. These critics compared the narrow scope of "political contributions" for which the Proposition 226 consents would be required with the currently fashionable "issue advocacy" spending not covered by federal or California state campaign reporting laws.

Proposition 226 also was criticized as covering a much narrower class of union dues and fee payer deductions than the United States Supreme Court permitted objecting union nonmember agency fee payers to recoup under Communications Workers of America v. Beck, 487 U.S. 735 (1988).

While both of the latter objections bore some truth, they ignored the fact that Proposition 226 for the first time proposed to give union members the right to object to the spending of their dues for political purposes, as contrasted with Beck's carving out objector rights only for persons who quit the union or resigned their memberships. Although the Clinton Administration revoked the Bush Administration's executive order enforcing Beck notification for union members and agency fee payers in federal government labor-management relations and for government contractors, unions contended however that the NLRB had begun to enforce Beck through the NLRA's adjudicative processes. This claim was belied by the NLRB's lukewarm approach to enforcement, as well as abundant evidence that labor unions were understating Beck deductible expenses for "ideological" or "non-core collective bargaining" functions.

Moreover, Proposition 226 required for the first time affirmative consent before union members' funds could be used for political purposes, and contained an important enforcement provision, which required the reduction of members' union dues and nonmembers agency fees spent for political purposes without their prior consent.

Legal Issues

Proponents fully expected the AFL-CIO immediately to seek to enjoin enforcement of Proposition 226 after the June 2, 1998 election had it passed. Propositions 187, 209 and more recently, Proposition 227, the "bilingual education" measure on the same ballot, faced such "day after the election" lawsuits. A similar "paycheck protection" measure in Nevada recently was invalidated by a state court before it went on the ballot.

The chief legal claims expected to be raised were: (1) federal preemption (by the NLRA) of the measure to non-public employee union members and nomnembers; (2) interference with the associational rights of labor unions and their members, as the measure applied to require the unions to honor the objections of union members to the use of their dues by the unions; and, (3) non-retroactivity and interference with contract issues with respect to existing labor-management collective bargaining agreements.

A. Federal Preemption Claim.

Unions were expected to contend that section 8(a)(3) of the National Labor Relations Act ("NLRA"), 29 U.S.C. §§ 141 et seq., which provides for NLRB adjudication of unfair labor practice claims in labor management disputes, and had been applied in Beck to the question of nonmember rights to object to the use of their funds for "ideological" or "non-core collective bargaining" matters, pre-empted the Proposition 226 consent requirement. If employee claims must be brought before the NLRB to obtain a refund of dues spent for political purposes, it was argued, that NLRA remedy was the sole remedy permitted under the federal statute. Proposition 226's limitation of employee deductions for union-related activities was preempted.

This claim could be met by two objections: (1) the NLRA clearly does not apply to restrictions on state public employee unions, which is exempt from federal regulation under 28 U.S.C. § 152(2); (2) with respect to private employer-union arrangements, the NLRA also does not have exclusive jurisdiction over such matters, as is clear from the Supreme Court's analysis of the courts' jurisdiction to consider duty of fair representation claims under section 8(a)(3) of the NLRA and section 2, eleventh, of the Railway Labor Act (Beck, 487 U.S. at p. 742.); and (3) Section 14(b) of the NLRA expressly exempts union security agreements from federal preemption and permits state regulation thereof, permitting states to prohibit union security agreements entirely or to regulate them by less drastic alternatives; and (4) Congress has in both the NLRA and the Labor Management Reporting and Disclosure Act ("LMRDA") made its non-preemptive intentions in the context here quite clear. (29 U.S.C. § 164(b); LMRDA § 103, 29 U.S.C. 413, and LMRDA § 603(a), 29 U.S.c. § 523(a).)

1. NLRA does not affect Proposition 226's regulation of state and local public employee union deduction arrangements. Union opponents of Proposition 226 were not expected to contend that the NLRA had exclusive jurisdiction over state public employee union relationships. This is because the NLRA, 29 U.S.C. § 152(2) expressly provides that the NLRA will not govern state or local government labor relations, including the provisions of Proposition 226 requiring affirmative consent of public employee union members before using their dues or fees for political purposes. (Abood v. Detroit Board of Education, 431 U.S. 209 (1977).)

2. The Supreme Court has made clear that the NLRA does not have exclusive jurisdiction over section 8(a)(3) duty of fair representation claims with respect to dues and fee deductions.

Union opponents were likely to assert that Communication Workers of America v. Beck made clear that the NLRA provided exclusive jurisdiction of the Labor Board to adjudicate or regulate dues deduction issues under section 8(a)(3). However, the Court in Beck affirmed the right of a union member to raise duty of fair representation claims and potentially constitutional claims in federal court, while interpreting section 8(a)(3) so that it would not authorize the use of dissenting, union-represented employees' dues for political activity. After reviewing a long line of cases previously decided under the Railway Labor Act and in public sector union employment limiting the use of mandatory union dues for political activity, and observing the similarity of language in the RLA and NLRA section 8(a)(3), the court held: "[W]e do not believe that the absence of any constitutional concerns in this case would warrant reading the nearly identical language of § 8(a)(3) and § 2, Eleventh differently. *** We conclude that § 8(a)(3), like its statutory equivalent, § 2, Eleventh, authorizes the exaction of only those fees and dues necessary to 'performing the duties of an exclusive representative of the employees in dealing with the employment on labor-management issues.' Ellis [v. Railway Clerks], 466 U.S.[435], at 448 [(1984)]." Thus, it is clear that in Proposition 226, the voters of California were asked to exercise the powers which Congress clearly reserved to the states to legislate further protections on how moneys exacted through ''union security" clauses could be used.

3. Section 14(b) of the NLRA permits state regulation of union security agreements in private employer-union relationships, such as the Proposition 226's protection for the affirmative consent requirement for use of dues and fees for political purposes. Union supporters, such as NLRB Chairman William Gould, who intervened in the election both in his official capacity and as a California registered voter, obviously were troubled by the argument of Proposition 226' s proponents that section 14(b) of the NLRA exempted the measure from NLRA exclusive jurisdiction claims.

Section 14(b) of the NLRA, commonly known as the "right to work" provision, permits states to prohibit entirely the kind of compulsory union membership arrangements, the use of the dues deduction process for political purposes inimical to the wishes of members and nonmembers Proposition 226 purported to remedy. The Supreme Court in Algoma Plywood & Veneer Co. v. Wisconsin Employment Relations Board, 335 U.S. 301 (1949), made clear that a state could prohibit ''union security" arrangements or regulate them as a less drastic alternative. (See also, Communication Workers of America v. Western Electric Co, Inc., 191 Colo. 128, 551 P.2d 1065 (1976)[Colorado's "Labor Peace Act" could require a 3/4 supermajority vote of state workers before a union security agreement was implemented and enforceable.] The Supreme Court in Algoma, supra, held that the Wisconsin requirement of a super-majority vote of affected workers before a compulsory union shop/compulsory dues-paying provision could be enacted. The Court specifically held that section 14(b) did not displace state regulations which were short of prohibitions of union security provisions. Proposition 226' s affirmative consent requirement for use of dues or fees for political purposes relates to both public and private union security agreements and the use of dues or fees compelled by those security agreements, within the ambit of the section 14(b) categories of non-preempted regulations.

4. Other provisions of the NLRA and LMRDA also reflect Congressional intent not to preempt state law regulation of union dues deductions for political purposes. Congress has in both the NLRA and the LMRDA made its non-preemptive intentions in the context here quite clear. (29 U.S.C. § 164(b); LMRDA § 103, 29 U.S.C. § 413, and LMRDA § 603(a), 29 U.S.C. § 523(a).) For example, LMRDA, at 29 U.S.C. § 401 et seq., contains a "Bill of Rights of Members of Labor Organizations." The Bill of Rights includes provisions related to the manner by which labor union dues are set or increased, and section 413 provides in relevant part: "Nothing contained in this subchapter shall lirnit the rights and remedies of any member of a labor organization under any State ... law .... " Section 603(a) of LMRDA provides in relevant part that: " ... nothing in this chapter shall reduce or limit the responsibility of any labor organization or any officer, agent, shop steward, or other representative of a labor organization ... under the law of any State, and ... nothing in this chapter shall take away any right or bar any remedy to which members of a labor organization are entitled under such other Federal law or law of any State." Clearly, union security provisions are topics which Congress has left open for state regulation, and Proposition 226 is within the ambit of such regulation.

B. First Amendment Issues

1. Proposition 226 vindicated First Amendment rights of employees not to have their dues or fees used for political causes they do not favor.

Proposition 226 sought to vindicate the First Amendment rights of union members and nonmember agency fee payers to control the use of their compulsory dues and fees used for political causes with which they disagreed, as affirmed in Abood, supra, and Chicago Teachers Union v. Hudson, 475 U.S. 292 (1986). Both these cases held that the "objection" method was constitutionally sufficient. More recently, in the only reported case thus far to address an "affirmative consent" requirement proposed in Proposition 226, the Sixth Circuit Court of Appeals held such a requirement was a constitutionally permissible form of regulation of campaign activity. (Michigan AFL-CIO v. Miller, 103 F.3d 1240( 1997).)

2. Michigan's law similar to Proposition 226 was upheld against First Amendment speech challenges by the Sixth Circuit in Michigan AFL-CIO v. Miller. The Michigan law upheld in Miller allowed corporations or unions to withhold employee funds for political purposes only if the individual contributing to the fund "affirmatively consents to the contribution at least once in every calendar year." (Mich. Comp.Laws. Ann. § 169.255(6)) The Court recognized that unions solicitation of funds for political purposes was within the scope of the First Amendment, but also recognized that "the right of individuals not to contribute to an advocacy message" was "accorded the same constitutional status as the [unions'] right to solicit political funds," citing Abood, 431 U.S. at 234-235. (103.F.3d at pp. 1250-1251.) The Court applied intermediate scrutiny to what it considered a "content neutral" regulation, which by its own terms applied both to corporations and labor unions, concluding that the right of the members not to contribute to causes they do not favor is as central a First Amendment right as is the right to solicit funds, and the protection of that right is "important or substantial, if not compelling." (103 F.3d at p. 1253.) Thus, the Court concluded, the govemment has a legitimate interest in ensuring that political contributions are both voluntary and made in accordance with the contributors' wishes. The Court also concluded that the Michigan law did not suppress labor unions' speech, because it did not purport to put any limits on the ability of labor unions to solicit or make political contributions. The Court also concluded the annual affirmative consent record-keeping was a minimal burden on unions that did not rise to the level of a constitutional violation, calling the contention otherwise "border[ing] on the frivolous."

Like the Michigan law, Proposition 226 did not attempt to suppress union political solicitation or spending activity. Its record keeping requirements, similar to those of the Michigan statute, imposed not more than minimally burdensome requirements upon employers and unions to maintain copies of consent forms.

3. Proposition 226 did not infringe rights of association of labor unions. Labor unions were also expected to argue that Proposition 226 infringed their First Amendment right of association. Unions' clearly enjoy such a right of participation in the political process. (Abood, 431 U.S. at p. 233.) However, since labor unions predominant purpose is not to engage in expressive activity, but rather collective bargaining and employment-related matters, they are subject to minimal constitutional protection from government regulation. (See, e.g., Glickman v. Wileman Bros. & Elliott, Inc., 117 S.Ct. 2130, 2140 n.16.)

Moreover, in the governmental or public employees union situation, public employees in California are compelled either to remain union members, and with it obtain the right to participate in collective bargaining, or to leave the union and lose that right, along with collateral benefits of union representation. Thus, in Abood, the Supreme Court struck down a state statutory scheme in which the union member and nonmember plaintiffs alike were compelled to finance their unions political contributions in order to retain their public sector jobs. (431 U.S. at 212 n.2.) The Court held a dissenting employee could not be required to support a political cause or relinquish First Amendment rights as a condition of public employment. (431 U.S. at 234.) A California public employee without Proposition 226 would be forced to choose between state-conferred benefits of union membership and the preservation of his First Amendment rights not to subsidize political expenditures with which he disagrees, namely an "unconstitutional condition." (Board of County Commr's v. Umbehr, 116 S.Ct. 2343 (1996); Perry v. Sindermann, 408 U.S. 593 (1972).) The Supreme Court also recognized in a union context some similar "unconstitutional conditions" limitation. In Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990), the court recognized that under Abood, "[a]n employee who objects to a union's political activities ... can decline to contribute to these activities, while continuing to enjoy the benefits derived from the union's performance of its [collective bargaining] duties on labor management issues." (Id., at 665-666.) Thus, by disenfranchising those California public employees who chose to exercise their First Amendment rights, California's public employment law penalized the exercise of First Amendment rights, and produced coerced support of union political activity, that the state could not command directly. (O'Hare Truck Service v. City of Northlake, 116 S.Ct. 2353, 2356-57 (1996).)

Conclusion

Proposition 226 narrowly failed in California in June 1998. However, proponents of the measure have announced their intention to bring the measure back to voters in the next two years. Congress, and other states, likely will face similar attempts to pass such legislation to protect the First Amendment rights of labor union members and nonmembers not to have their compulsory dues or fees used for political causes with which they disagree. No matter how the issue may be obscured by massive labor union spending, ironically with the compulsory dues and fees of members who may well object to that use, such an issue of fundamental fairness and cornmon sense will not go away.

*Charles H. Bell, Jr., Esq. is of counsel at Bell, McAndrews & Hiltachk.