The General Counsel for the National Labor Relations Board (“Board” or “NLRB”) has signaled what may be a major resetting of the law on the Board’s position concerning the legality of so called neutrality agreements, in which employers make concessions and accommodations to labor unions seeking to organize and represent their employees.  This occurred with the General Counsel’s consideration of an appeal by the National Right to Work Legal Defense Foundation, Inc. (the “Fund”) of a dismissal of an unfair labor practice charge had filed  against United Here! Local 8 (“Union”) and Embassy Suites by Hilton, Seattle Downtown Pioneer Square (“Employer”) on behalf of an employee who did not wish to be represented by the Union after the Employer had entered into an agreement with the Union that enabled the Union to gain recognition of employees of the Employer without having to win a secret ballot representation election conducted by the Board.

Challenges to Neutrality Agreements

The original charges alleged that the Employer unlawfully assisted the Union in numerous ways during the Union’s 2018 organizing campaign.  The charges alleged that one such way the Employer unlawfully assisted the Union was by entering into a “neutrality agreement” with the Union.  Under the neutrality agreement the Employer agreed to provide the Union with employees’ contact information to assist it in organizing, something it was not obligated to do under the National Labor Relations Act (the “Act”) and to recognize the Union, without an election if the Union presented cards signed by a majority of the employees in the proposed bargaining unit indicating the employees wished to be represented by the Union. The Fund arty alleged that the neutrality agreement, and various other actions on the part of the Employer constituted unlawful assistance and support to the Union and constituted things of value.  The Fund further alleged that these actions Union being granted and subsequently accepting recognition by the Employer even though the Union lacked uncoerced majority support, in violation of the Act and that the actions of the Employer and the Union unlawfully interfered with the right of the Employer’s employees to decide whether or not they wished to be represented by the Union.

Following an investigation of the ULP charges, the Board’s Regional Director in Seattle found that the allegations lacked legal merit, explaining that current Board law finds that such neutrality agreements are lawful and enforceable and do not interfere with employees’ rights under the Act.  Following the Regional Director’s dismissal of the ULP charges, the Fund requested review of the Regional Director’s decision by the General Counsel in Washington.

What Happens Next

Upon review of the appeal, the General Counsel agreed in part with the Fund and concluded that it was the view of the Office of the General Counsel that portions of the charge had legal merit and that a complaint should issue so that the General Counsel could ultimately ask the Board to hold that such neutrality agreements violated the Act.   In his letter partially sustaining the Fund’s request for review, the General Counsel opined that in his view the Employer appeared to have violated the Act by entering into and maintaining a neutrality agreement with the Union, because the neutrality agreement provided the Union with far more than “ministerial aid” during the Union’s organizing campaign.  For the same reasons the General Counsel opined that the Union violated the Act by accepting such aid from the Employer. Accordingly, the case was remanded to the Regional Director of Region 19 for further action.  Absent a settlement, it is expected that the Regional Director will issue a complaint, against the Employer and the Union, alleging that the Employer provided and the Union accepted unlawful assistance and presumably seeking an order directing the Employer to withdraw its recognition of the Union unless and until the Union is certified in a Board-conducted secret ballot election. While the hearing will be heard before an NLRB administrative law judge who will be bound to follow existing Board precedents, it can be expected that the General Counsel will ultimately seek to have the five member Board in Washington consider the issue and adopt a new standard for determining whether a neutrality agreement is lawful or goes too far.

What This Means

The significance of the General Counsel’s decision to challenge the existing standards surrounding neutrality agreements conclusions revolve around the fact that in many areas and industries unions have been shunning the use of NLRB secret ballot elections when they seek to organize employees and instead attempting to pressure employers to enter into broad neutrality and card check agreements.  In many localities where unions are strong, cities and counties are also seeking as a condition of various tax incentives and other benefits to force employers to agree to neutrality agreements and labor peace agreements.

The General Counsel’s actions described above are a clear signal that the Office of the General Counsel will be taking the position that many, if not all, such agreements constitute a form of unlawful assistance and interference with the rights of employees under the Act. It cannot be overstated how significant the impact would be of such a reversal in the law.

In the chaos of a global health pandemic and what some economists are calling the Great Suppression, Americans have shown amazing solidarity in the battle against the coronavirus (“COVID-19”).  Nationwide, citizens are social distancing and staying home while businesses are closing their doors and redeploying their resources to meet emergent demands.  However, this collective American commitment has come at a steep economic cost.  Millions of Americans suddenly find themselves unemployed or unable to work while previously thriving businesses have been thrown into financial despair.  Unfortunately, rather than join in the collective effort, labor unions seized on the desperation to gain unprecedented advantages, suppress employer rights and deprive employees of their full freedom of choice – namely unions were able to obtain a single sentence in the CARES Act which mandates employers remain silent and commit to not oppose unionization of their employees in order to obtain the loans needs to maintain those jobs and save their businesses.

After Almost a Week of Wrangling, Congress Passed the CARES ACT Stimulus

Reeling from shelter-in-place, isolation orders and mandated closures, American businesses and citizens will soon receive some much needed relief.  After stalling in Congress for nearly a week, on Friday, March 27, President Trump signed into law the Coronavirus Aid Relief Economic Security Act (“CARES Act”), a historical stimulus package that will provide a broad range of critical financial assistance to American workers, families and businesses confronting the extraordinary challenges of the COVID-19 crisis.  (For a broader analysis of the CARES Act see here).

This bill is unprecedented in both its momentous scale and its overwhelming bipartisan support.  In a time when most acts of Congress seem to split directly down party lines, the CARES. Act passed unanimously in the Senate and nearly unanimously in the House of Representatives, and President Trump signed it into law the very same day.  This begs an important question, though.  Why, if the bill had such widespread support among Democrats and Republicans alike, did it take nearly a week to reach the President’s desk when every day delayed was another day where uncertainty wreaked havoc on economic markets and Americans went without critical relief?

The answer is disappointingly simple.  It was politics as usual as legislators vied for advantages for their top political contributors.  One of the political demands that held the bill up, and ultimately made its way into the signed law, was a Democratic-backed union neutrality mandate.  Tucked away in a single line in the middle of the multi-hundred page Act, this provision dramatically alters core rights of employers and employees under the National Labor Relations Act (“NLRA”) and could have seismic repercussions for businesses who have no choice but to submit to this condition in order to secure an economic lifeline during the coronavirus pandemic.

What is “Neutrality”?

Simply put, “neutrality” is a waiver of an employer’s statutorily protected free speech rights.  Under the NLRA both unions and employers enjoy federally protected free speech rights.  For employers, these rights, which are known as 8(c) rights, allow an employer to share facts, opinions and experiences about unions with its employees.  These rights are essential tools during union organizing drives, necessary to allow employers to combat misinformation and educate employees on the realities of unionization, particularly those unions often downplay or ignore such as the cost to employees on investment of union dues, the impact of strikes on employees and the workplace, the loss of a direct relationship with their employer and the reality that employees can, and often do, lose wages and benefits in union negotiations.

Hearing both perspectives allows employees to make informed and free choices on whether  or not they want to be represented by a union.  “Neutrality,” however, destroys this crucial balance of perspectives by requiring employers to remain impartial and silent on unions while unions remain free to give their one-sided point of view to employees.  It is of course not surprising, then, that the ultimate consequence of “neutrality” is that it is much easier for unions to organize employees.

The CARES Act Neutrality (Hush Money) Mandate 

Although the CARES Act provides multiple different kinds of loans and other financial assistance – including Paycheck Protection Program loans (for small businesses with up to 500 employees and nonprofit organizations), expanded Economic Injury Disaster Loans (for small businesses with up to 500 employees, sole proprietors, independent contractors,  and nonprofit organizations), Emergency Relief Loans (for air carriers, businesses critical to maintaining national security, and credit facilities established by the Federal Reserve) and various tax credits – probably the most fundamental part of the assistance package is the Act’s Mid-Sized Business loan program.  Under the CARES Act Mid-Sized Business loans, mid-size businesses (those with 500 to 10,000 employees) can obtain a loan with no greater than a two-percent annualized interest rate, and no interest or principal payments for six months, to enable them to retain at least 90 percent of the business’s workforce, at full compensation and benefits, until September 30, 2020.

One of the “compromise” amendments Democratic legislators were able to exact was labor unions’ demands that as a condition of any Mid-Sized Business loan, the borrowing employer must make a “good-faith certification” that they “will remain neutral in any union organizing effort for the term of the loan.”

In other words, if a mid-size business needs a loan in order to weather their temporary closure, shelter-in-place orders, new mandated paid leaves, or loss of revenue from other economic impacts of COVID-19, it must agree to waive its free speech rights and acquiesce to a targeted union misinformation campaign to unionize its employees.  Notably, while hopefully COVID-19 will be a short term crisis, this unprecedented disruption of the Labor-Management balance will silence employers for the duration of their loan term and, if the employees are misled into unionizing, the impact is usually permanent given the restrictions and difficulties the NLRA places on decertifications.

Moreover, it remains unclear who will determine when a violation occurs and what the consequences for violation will be.  Some may argue that a violation is an unfair labor practice that should be adjudicated by the National Labor Relations Board with all the attendant Board remedies.  However, given that Section 8(c) of the NLRA specifically protects employers’ right to not remain neutral, the Board would presumably be without jurisdiction to hear such claims absent further legislation.  That said, the other potential consequences outside Board processes could be even more impactful and range from mid-term calling of the remaining balance of the loan, detrimental modification of loan terms, financial penalties, and/or the loss of tax advantages.  Questions still remain as to who would decide an actual violation occurred and when such penalties are warranted and whether labor unions would have third party rights to enforce them.

While the CARES Act is silent on such matters, regulations illuminating the answers to these questions may be forthcoming.  The CARES Act gives the Secretary of the  Treasury the authority to promulgate regulations to enforce the provisions of the CARES Act, and these regulations could shed more light on the actual consequences for violating the neutrality mandate and who will adjudicate violations.  Notably, this authority is not limited in time and theoretically a different Secretary of the Treasury in a different Presidential Administration could amend or create new regulations which have significant consequences.

Unions Have Already Begun Efforts to Profit from Hush Money Neutrality – What Employers Should Expect

For businesses to whom these loans are a vital lifeline through the coronavirus pandemic, the union neutrality mandate in the CARES Act amounts to a compelled waiver of employers’ federally-protected free speech rights that will give unions a significant advantage in organizing drives.  Legislatively-mandated union neutrality inevitably leads to an uptick in union organizing drives, and since these loans will be a matter of public record, unions will have a literal roadmap on which employers to target.  Thus, employers who obtain these loans should be fully prepared to contend with union organizing campaigns.  In fact, the loans are not even available yet, some employers are reporting that unions are not waiting to exploit this political advantage and have already started inquiring about the employer’s intent to obtain  a CARES Act loan and raising the union neutrality mandate.

Clearly in these troubling times employers need to take necessary steps, including seeking CARES Act loans, to maintain their financial solvency and ensure their ability to maintain jobs and payroll for their employees, they should do so understanding that their silence is part of the cost.

As private sector unionization rates have continued to fall over recent decades, organized labor has increasingly turned to the state and local politicians it supports for assistance in the form of state legislation and local ordinances imposing burdens on employers and aid to unions, while depriving employees of the process and balance intended by the National Labor Relations Act (“NLRA”).  These often come in the form of “Labor Peace” requirements which mandate employers enter into agreements with unions that do not represent their employees as a condition of doing business with government entities or as a condition of entry into government controlled or regulated sectors.  The emerging legalization of marijuana and cannabis in California is one of the latest examples of this trend.

Why AB 1291 Will Make It Easier for Unions to Organize Cannabis Employees and How Cannabis Employers Can Prepare and Protect Themselves

California’s AB 1291, which goes into effect on January 1, 2020, mandates that all cannabis license applicants employing more than 20 employees must enter into a “labor peace agreement,” as defined by Business and Professions Code Section 26001(x), that prohibits a union from engaging in strikes, work stoppages and other economic interferences.  Employers without a qualifying labor peace agreement will not qualify for a cannabis license.  While on its face this ordinance purports to protect the cannabis industry from the disruption of labor disputes, in reality, it effectuates a compelled waiver of fundamental rights guaranteed under the NLRA and makes it much easier for unions to organize cannabis employees.

How AB 1291 Impacts NLRA-Protected Rights and Makes It Easier to Organize Employees

Waiver of Employer’s Property Rights.  Under the NLRA, unions generally enjoy no greater access to an employer’s property than any other member of the public, which allows cannabis employers to exclude union organizers from their property.  AB 1291, however, compels cannabis employers to waive their property rights by mandating that any cannabis employer that is party to a labor peace agreement, which typically will be with a union that is seeking to represent that employer’s workers, provide the union “access at reasonable times to areas in which the applicant’s employees work for the purpose of meeting with employees to discuss their right to representation, employment rights under state law, and terms and conditions of employment.”  This means that union organizers must be permitted to enter the working areas of a cannabis employer’s private property and speak to employees about joining and being represented by the union.

“Neutrality.”  The NLRA, a federal law, protects employers’ free speech rights – their Section 8(c) rights – and allows employers to share their opinions, experiences and facts about unions with employees.  These are essential tools for employers facing union organizing drives as they allow employers to educate employees about the reality of union representation and respond to misinformation disseminated by the union.  More important, hearing both perspectives allows employees to make informed and free choices on whether they or not they want to be represented by a union.  Neutrality provisions in labor peace agreements contractually waive employers’ ability to deploy these dynamic tools and typically require employers to remain impartial on all union matters.  While AB 1291 does not explicitly waive cannabis employers’ free speech rights, neutrality is one of the most common union demands in labor peace agreement negotiations, and employers can expect that unions will insist on neutrality as consideration for entering into a labor peace agreement.  Because a labor peace agreement with a union is required to do business, AB 1291 provides unions the necessary leverage to impose these type of provisions.

Card Check Not Required Notably, AB 1291 stops short of many other state and local “labor peace” mandates by expressly not permitting “card check” provisions which deprive employees of NLRB supervised secret-ballot elections.  Such card checks are typically imposed as a result of other “labor peace” statutes, but are expressly not permitted under the definition of labor peace agreement under Section 26001.  This is likely an attempt to avoid a finding that the statute is preempted by the NLRA as card checks have long been argued to be unlawful – a position the NLRB General Counsel seemingly recently adopted.

Why AB 1291 Is Likely Preempted by Federal Law

AB 1291’s impact on fundamental NLRA-guaranteed rights is precisely why a strong case for preemption exists.  Preemption renders a state or local law unconstitutional when it either (1) regulates activity protected or prohibited by the NLRA (known as Garmon preemption) or (2) regulates conduct that effectively disrupts the balance of power between employers and unions (known as Machinists preemption).  AB 1291 is likely unconstitutional under both preemption doctrines, even without requiring card check.

First, AB 1291 explicitly regulates economic weapons and property rights protected by the NLRA.  Second, AB 1291 implicitly regulates free speech rights guaranteed by Congress to employers in the NLRA, since unions invariably insist on a waiver of employer free speech rights as consideration for entering into a labor peace agreement.    Because the state conditions a cannabis license on a labor peace agreement, a cannabis employer is forced into a position of choosing between either losing their business or giving up its and its employees’ federal rights.  In this regard, the state indirectly regulates employer speech by essentially forcing employers to submit to neutrality in order to receive a cannabis license, and it indirectly regulates employees’ rights to choose by encouraging employers not to share opposing views with employees.

An exception to preemption is recognized where the state is acting as a market participant and its actions further a proprietary interest.  This exception does not apply here, though, because the state is not acting as a market participate seeking to procure goods and services for itself in enacting AB 1291.  Rather, AB 1291 targets private businesses seeking to deliver cannabis products to private citizens through a licensing scheme that regulates conduct exclusively regulated to the purview of the NLRA.  Similar licensing schemes have been declared preempted by the United States Supreme Court and federal district courts.  Building and Const. Trades Council of Metropolitan Dist. v. Associated Builders and Contractors of Massachusetts, 507 U.S. 218, 227 (1993); Aeroground, Inc. v. City and county of San Francisco, 170 F. Supp.2d. 950, 958 (2001).

What Cannabis Employers Can Do In Response to AB 1291

Not surprisingly, although there is a strong case against AB 1291, challenging the new law will likely be economically infeasible for most cannabis employers.  However, there are important steps employers can take both before and after the law takes effect to protect its interests.

Strategic Labor Relations Plan.  The best offense is a good defense, and for cannabis employers, a tactical labor relations strategy is the best defense to AB 1291.  Unions win elections because they promise to change the way employees are treated, not because they promise more money.  Often, a few small changes in an employer’s internal processes can make a dramatic difference in employee morale and contentment, and a strategic labor relations plan ensures employers have optimized their internal processes so that a union cannot promise employees a dramatic improvement in working conditions.

Educate Employees Now.  AB 1291 does not directly impose neutrality upon employers starting January 1, 2020; rather, neutrality will be the likely result of any mandated labor peace agreement ultimately agreed upon.  Accordingly, until cannabis employers finalize a labor peace agreement with a union, they should consider taking advantage of their 8(c) rights and appropriately educate their employees about unions and their impact on employees and the workplace.

Review of Workplace Policies.  Workplace policies are the key to retaining control over the workplace and minimizing disruption once a union organizing drive begins.   Cannabis employers should have their workplace policies reviewed by a labor relations specialist to ensure (1) they are lawfully compliant and (2) they afford the employer maximum control over the workplace and workforce.  It will become more difficult to change workplace policies once a labor peace agreement is in place and a union organizing drive beings, so prudent cannabis employers should aim to have their policy review completed before finalizing a labor peace agreement with a union.

Minimize Concessions in Negotiations for a Labor Peace Agreement.  Cannabis employers should use the labor peace agreement negotiations to minimize concessions to the union and obtain gains of their own.  For example, while AB 1291 requires that unions be granted reasonable access at reasonable times, a cannabis employer can negotiate provisions that specifically delineate when and where union organizers can access its property, which can significantly curtail the disruption such access can cause.  Additionally, employers can negotiate affirmative provisions into their agreement which are designed to actually enhance, advantage or protect their business in exchange for the neutrality or related provisions a union may demand.

A new Act Now Advisory will be of interest to many of our readers in the retail and food service industries: “Union Organizing at Retail and Food Service Businesses Gets Boost from New York City ‘Labor Peace’ Executive Order,” by our colleagues Allen B. Roberts, Steven M. Swirsky, Donald S. Krueger, and Kristopher D. Reichardt from Epstein Becker Green.

Following is an excerpt:

New York City retail and food service unions got a boost recently when Mayor Bill de Blasio signed an Executive Order titled “Labor Peace for Retail Establishments at City Development Projects.” Subject to some thresholds for the size and type of project and the amount of “Financial Assistance” received for a “City Development Project,” Executive Order No. 19 mandates that developers agree to a “labor peace clause.” In turn, the labor peace clause will compel the developer to require certain large retail and food service tenants to enter into a “Labor Peace Agreement” prohibiting their opposition to a “Labor Organization” that seeks to represent their employees. …

If the objective of the Executive Order is to assure labor peace by way of insulation from picketing, work stoppages, boycotts, or other economic interference, it is not clear how its selective targeting of retail and food service tenants occupying more than 15,000 square feet of space—and the exclusion of other tenants and union relations—delivers on its promise. There are multiple non-covered tenants and events that could occasion such on-site disruptions as picketing, work stoppages, off-site boycotts, or other economic interference.

As a threshold matter, there is no particular reason why a labor dispute with a tenant occupying space shy of 15,000 square feet—among them high-profile national businesses—somehow is less disruptive to the tranquility of a City Development Project than one directed at a tenant whose business model requires larger space.

Also, the Executive Order does not address the rights or responsibilities of either landlords or their tenants that are Covered Employers bound to accept a Labor Peace Agreement when faced with union demands for neutrality that go beyond the Executive Order’s “minimum” neutrality requirements. There could be a dispute over initial labor peace terms if a union, dissatisfied that the Executive Order’s Labor Peace Agreement secured only a Covered Employer’s “neutral posture” concerning representation efforts, were to protest to obtain more ambitious and advantageous commitments that are coveted objectives of union neutrality demands, such as …

Read the full Advisory here.