In a ruling that will affect how unions conduct business and collect fees, the U.S. Supreme Court held that non-member employees represented by a public-sector union cannot be compelled to fund the union’s political and social speech without proper notice. Knox et al. v. Service Employees International Union, Local 1000, slip op. No. 10-1121 (June 20, 2012). A central issue in the case was what notice was required to be given to non-members by unions as to how their money would be spent. The Supreme Court previously held that unions are required to issue notices to non-members as to how their dues would be spent, to allow them to opt-out of non-collective bargaining activities. These are often referred to as “Hudson Notices” based on their decision in Teachers v. Hudson, 475 U.S. 292 (1986).

In this case, Service Employees International Union, Local 1000 (SEIU) gave initial notice allowing an opt-out.  Shortly thereafter, the union issued an additional 25% special assessment for political and social endeavors, for which it did not provide another opt-out notice. The Supreme Court held this practice to be a violation of notice provisions. Acknowledging that public-sector unions have a First Amendment right to express their views on political and social issues, the Court nevertheless concluded that an individual could not be compelled to subsidize the union’s speech. Consequently, a union leveling a special fee assessment or unexpected fee increase must provide objecting non-members a fresh opportunity to opt-out of the percentage of the fee earmarked for the union’s political or social mission, and may not charge nonmembers any fees without their “affirmative consent.”

May a State, consistent with the First and Fourteenth Amendments, condition employment on the payment of a special union assessment intended solely for political and ideological expenditures without first providing a Hudson notice that includes information about that assessment and provides an opportunity to object to its exaction? And

May a State, consistent with the First and Fourteenth Amendments, condition continued public employment on the payment of union agency fees for purposes of financing political expenditures for ballot measures?

In addition, the plaintiffs point out that in Lehnert v. Ferris Faculty Ass’n, the Supreme Court held that “the State constitutionally may not compel its employees to subsidize legislative lobbying or other political union activities outside the limited context of contract ratification or implementation.” Therefore, the plaintiffs argue, the Ninth Circuit’s decision “is directly contrary to this Court’s holding in Lehnert that the lobbying and electoral politics at issue there are constitutionally nonchargeable.”

Ultimately, the decision in this case will have a real impact on public sector unions’ ability to require non-members to subsidize non-representational activities by timing the announcement of new, required fees to occur after the issuance of the annual Hudson notice.

The Court (7-2) held that the question of exactly when the parties formed an agreement to arbitrate certain disputes was not itself subject to resolution through arbitration. The Court also declined to recognize Granite Rock’s cause of action under Section 301 of the Labor Management Relations Act (LMRA) against the International Brotherhood of Teamsters’ (IBT) for tortious interference with a collective bargaining agreement. The Court remanded the case to the lower court to allow Granite Rock to proceed against the International on the theory that the local union was acting as the IBT’s agent when it refused to abide by the no-strike clause of the parties’ collective bargaining agreement.

Despite the new agreement, Local 287 continued its strike activities, insisting that Granite Rock waive its right to take action against individual employees for their misconduct during the strike. Granite Rock refused to agree to hold the strikers harmless and informed the union that the continuation of the strike was in violation of the new contract’s no-strike provision. At the direction of the IBT, the local union refused to end its strike. Granite Rock then sought an injunction in federal court, adding a claim for tortious interference with the collective bargaining agreement against the IBT under section 301 of the LMRA, based on the International’s support of the strike and continued financial and legal support to Local 287. In response, the union asserted that the new agreement was not effective until it held a second ratification vote on August 22, 2004, after which the union finally called off the strike, and the employees returned to work. The union claimed that the no-strike clause of the new contract did not prevent its ongoing strike activity between July 2 and August 22. Moreover, the union argued that the dispute over the effective date of the contract should be submitted to arbitration per the agreement’s arbitration clause.

During the trial phase in the U.S. District Court for the Northern District of California, a number of Granite Rock employees came forward to testify that the union had in fact submitted the agreement to its membership for ratification on July 2. The district court agreed, finding the agreement to be in effect as of July 2.

The district court dismissed Granite Rock’s claim of tortious interference on the basis that Section 301 only recognizes a cause of action for breach of a labor agreement, and the IBT was not a signatory to the agreements in question. The Ninth Circuit affirmed the district court on the tortious interference claim. The Ninth Circuit reversed the district court, however, on the issue of whether the effective date of the collective bargaining agreement was subject to arbitration. The court ruled that this issue was subject to arbitration and should not have been decided by the district court. The court reasoned that the dispute over the agreement’s effective date was bound and related to the dispute over the union’s strike (which was itself subject to arbitration), and cited the “national policy favoring arbitration” where ambiguities exist as to the scope of an agreement to arbitrate.

The Supreme Court agreed with Granite Rock and overruled the Ninth Circuit, holding that contract formation and the date on which it occurred is properly decided by the court, not the arbitrator. The decision reinstates the unanimous jury verdict that the collective bargaining agreement containing a no-strike clause was ratified on July 2, and was in place when Local 287 resumed its strike. On the second issue, the Court declined under the circumstances of the case to hold that a federal cause of action for tortious interference could be brought against the IBT. The Court remanded the case, however, in order to allow Granite Rock to proceed against the IBT on the theory that the local union was acting as the IBT’s agent (or alter ego) when it disavowed the collective bargaining agreement. As a result, Granite Rock still has the opportunity to proceed on a cause of action against the international union for interfering with the collective bargaining agreement between the local union and the employer.

This entry was written by Jack Lambremont.

For more information on this decision and its implications, see Littler's ASAP:  U.S. Supreme Court Rules that Contract Formation Issues Are for Court Determination and Provides Guidance for Litigation Against International Union by Garry Mathiason, Alan Levins, Adam J. Peters and Rachelle Wills.

The question raised by a number of appellate courts was whether two members constitute a valid quorum in this instance, or whether three members were still required to give the Board full authority to issue decisions. The Seventh Circuit in New Process Steel upheld the authority of the two-member Board. The Supreme Court in today’s 5-4 opinion reverses and remands that decision, reasoning that “reading the delegation clause to require that the Board’s delegated power be vested continuously in a group of three members is the only way to harmonize and give meaningful effect to all of the provisions in §3(b).” Allowing only two members to act as the Board “dramatically undercuts the significance of the Board quorum requirement by allowing its permanent circumvention. That reading also makes the three-member requirement in the delegation clause of vanishing significance, because it allows a de facto delegation to a two-member group . . .” The Court further explained that if Congress had intended to allow two members alone to act as a fully-functioning Board on an ongoing basis, “it could have said so in straightforward language.”

The Court emphasized that its reading of the delegation clause permits the Board to act in panels of three members, while the quorum provision allows a two-member panel to issue a decision if the third is disqualified. In a press release, (pdf) Board Chairman Wilma Liebman responded to the Court’s decision:

In proceeding to issue decisions in nearly 600 cases where we were able to reach agreement, we brought finality to labor disputes and remedies to individuals whose rights under our statute may have been violated. We believed that our position was legally correct and that it served the public interest in preventing a Board shut-down. We are of course disappointed with the outcome, but we will now do our best to rectify the situation in accordance with the Supreme Court’s decision.

For more information on this decision and its implications, see Littler's ASAP:  U.S. Supreme Court Potentially Invalidates Hundreds of NLRB Decisions by Adam Wit.