In an important victory for the business community, the Supreme Court ruled 7-2 last week that the National Labor Relations Act (NLRA) pre-empts state funding requirements designed to restrict employer speech regarding many union activities.  Specifically, the Court struck down a California statute prohibiting employers who receive more than $10,000 annually in state grants from using those funds “to assist, promote, or deter union organizing.” 

Originally enacted in 1935, the NLRA contained provisions creating a right to unionize and making it an “unfair labor practice” for employers to interfere with, or “coerce,” employees in the exercise of that right.  In adopting the Labor Management Relations Act of 1947, Congress amended the NLRA to emphasize that employees also have the right to “refrain from” union activities. At that time, Congress also added Section 8(c), which protects speech by both unions and employers from regulation by the National Labor Relations Board (NLRB).

In Chamber of Commerce v. Brown, the Court held that certain provisions of a California statute were pre-empted under a doctrine that forbids both the NLRB and States from regulating conduct that Congress intended to “be left unregulated because left ‘to be controlled by the free play of economic forces.’” See Machinists v. Wisconsin Employment Relations Comm’n, 427 U.S. 132, 140 (1976).  Applying this doctrine, the Court held that Section 8(c) expressly precludes regulation of speech about unionization so long as the communications do not contain a “threat of reprisal or force or promise of benefit.” Thus, California’s provisions preventing employers from using state funds to “assist, promote, or deter union organizing” constituted impermissible regulation.

In rejecting the union’s arguments, the Court was unpersuaded by the fact that the law at issue restricted union-related speech only as a condition of state funding, rather than as a direct restriction on speech. The Court found that the regulations were drafted so as to impose substantial compliance costs and litigation risks on employers who may seek to use other funds to these ends. For example, the California statutes conclusively presumed that any expenditure made from “commingled” funds constituted a pro rata violation.  Additionally, the term “any expense” was defined so broadly as to include both discrete expenses (e.g., legal and consulting fees) and an allocation of overhead, including “salaries of supervisors and employers.” The penalties imposed for violations could be up to three times the amount spent on the prohibited activity, and in some cases included attorneys fees and costs. “By making it exceedingly difficult for employers to demonstrate that they have not used state funds and by imposing punitive sanctions for non-compliance,” the Court explained, California law “effectively reaches beyond ‘the use of funds over which California maintains a sovereign interest.’”

The Court also rejected the argument that California’s regulations should be permitted because other federal statutes impose similar restrictions on recipients of federal funds under programs such as Head Start, the Workforce Investment Act, and the National Community Service Act. As the Court noted, these other provisions “neither conflict with the NLRA nor otherwise establish that Congress ‘decided to tolerate a substantial measure of diversity’ in the regulation of employer speech.”

As a result of the Court’s decision, employers will enjoy more freedom in California—and other States with similarly limiting regulations—to engage in “robust and wide-open debate” with employees concerning labor issues.