Sheppard, Mullin, Richter & Hampton LLP: USA – The National Labor Relations Act Is Like To Preempt State & Local Cannabis Laws Requiring Employers To Enter Into & Abide By Labor Peace Agreements As A Condition Of Doing Cannabis Business

Though having no connection to employee representation or labor management relations, labor unions, and especially the United Food and Commercial Workers Union, have politically aligned themselves with pro-marijuana measures and stumped for their enactment. Unions are doing this because they identify nascent marijuana business as a fertile new source of members and new revenues to bolster Labor’s dwindling membership rolls and flagging financial resources.

Authored By: Keahn Morris

Partner: Sheppard, Mullin, Richter & Hampton LLP

Keahn Morris

In return for that political support, pro-cannabis legislators are including Labor friendly requirements in cannabis legislation designed to help unions organize workers in the new market and to obtain legally enforceable bargaining rights as to cannabis industry employees.  The most notable of these union-friendly requirements are those requiring cannabis employers to commit to enter into and to abide by so-called Labor Peace Agreements (LPA’s) as a condition of their entry into and continued presence in the new marijuana business space.[1] By making LPA’s a price of admission to the cannabis market, states and cities are engaged in labor regulation in violation of the Supremacy Clause of the U.S. Constitution.[2]

Most cannabis laws mandating LPA’s say little about what must actually go into a compliant LPA, leaving those contractual details to be bargained over by affected cannabis employers and unions. For example, California’s current LPA law mandates only that a cannabis employer agree to not “disrupt” a union’s ability to communicate with and organize employees and to allow union organizers to take “access” to the employer’s property to communicate with the employer’s workers.[3] Neither of these operative terms, “disrupt” and “access”, is defined by the new law, leaving cannabis employers to wonder what the state’s LPA law actually requires and positioning unions to make extortionate LPA bargaining demands. This uncertainty and the risk of being denied or losing their license to do business combine to interfere with the free exercise of employer and employee rights under federal labor law.

Further, because contractual terms are typically fashioned by the unions seeking an LPA and because employers are uneducated as to their rights under federal labor law and fearful of losing their state operating authority, it is no small wonder that most LPA’s end up being card check neutrality agreements that contractually waive an employer’s and, more importantly, its employees’ statutory rights to obtain bargaining unit determinations from the National Labor Relations Board (NLRB or Board) and to have questions concerning union representation (QCR’s) resolved by way of secret ballot election and muzzle cannabis employers from speaking to workers regarding unionization.

On their face, such state-mandated regulatory minimums are subject to federal preemption challenge because, through state action, they compel non-union employers to negotiate with minority unions, thwart an employer’s statutorily protected right to engage in non-coercive labor-related speech and require employers to open its premises to unions for organizational purposes.  Moreover, preemptive challenges substantially grow, where an LPA statute is written, interpreted or applied to impose even greater requirements on employers that interfere with employee rights under the National Labor Relations Act (NLRA or Act) or to refrain from market based economic conduct purposefully left unregulated by the Act as well as where state law puts an employer’s ability to do business at risk because it and a union fail to agree on a mutually acceptable LPA.


FEDERAL PREEMPTION BARS STATE REGULATION OF LABOR-RELATED CONDUCT THAT IS EITHER REGULATED BY THE NLRA OR AN ECONOMIC WEAPONS LEFT UNREGULATED BY CONGRESS

NLRA preemption falls into one of two basic categories: Garmon[4] preemption or Machinists[5] preemption. Garmon preemption emanates from the Act’s legislative design and the NLRB’s primary jurisdiction over all things covered by the NLRA. For, when Congress enacted the Act, it not only laid down a substantive set of labor-management rules; it also confided exclusive responsibility for interpreting and applying those rules to the NLRB. Thus, by enacting the NLRA and empowering the NLRB to exclusively administer the labor law, Congress purposefully created an exclusive federal scheme of labor relations regulation. In order to give effect to that Congressional intent and for the purpose of protecting the Board’s primary jurisdiction, state laws that may interfere with and even supplement this exclusive federal scheme are impliedly preempted because they impermissibly invade the field that Congress exclusively assigned to the Board. Thus, under the Garmon doctrine, states may neither issue laws nor render decisions that regulate or require conduct that is either arguably prohibited by the NLRA’s unfair labor practice section, Section 8, or arguably protected by the Act’s Section 7 governing employee rights under the Act. Such conduct must be free from state regulation if the NLRA’s scheme and national labor policy are to be left unhampered.

Machinists preemption of state law derives from the delicate labor-management balance that Congress sought to achieve with the passage of the Act. Indeed, federal labor policy is grounded on the notion that while the NLRA structures the labor-management relationship, it does not control or interfere with the free play of economic forces; that is to say that Congress recognized that labor and management proceed from contrary and often antagonistic positions, that neither can be compelled to agree to the other’s bargaining demands and that each holds and must be free to use the economic weapons at their disposal to advance their lawful economic interests. Congress sought to leave such economically interest-driven, market based economic conduct unregulated and outside the purview of the Board’s control. By creating this regulatory void and purposefully placing the use of such economic weapons beyond the reach of permissible labor regulation, Congress also rendered state regulation of that same market-based conduct constitutionally off limits.[6]

 

GARMON AND MACHINISTS PREEMPTION SHOULD BAR STATE LAWS REQUIRING LPA’S AS A CONDITION OF DOING CANNABIS BUSINESS

 

State Action Mandating Or Sanctioning An LPA That Requires A Cannabis Employer To Lend Support To Unionization Organizing Should Be Preempted Under Garmon’s “Arguably Prohibited” Prong

The NLRA’s Section 7 guarantees to all covered employees[7] the right to . . . form, join or assist labor organizations . . . as well as the right to refrain from . . . such activities (Section 7 rights). Central to the Act is the majoritarian selection of a union bargaining representative and the fact that said selection be the result of the employees’ free and uncoerced choice. NLRA Sections 8(a)(2) and 8(b)(1)(A) ensure that guarantee by prohibiting an employer’s support of union organizing and a union’s acceptance of such support. In the NLRB’s view, such support in favor of unionization tends to deprive employees of the freedom of choice and, thus, unlawfully interferes with, restrains and/or coerces employees in the exercise of their Section 7 rights.

By mandating an employer’s negotiation of and/or compliance with an LPA , states compel employers to engage in unlawful organizing support arguably proscribed by Section 8(a)(2). State action causing such arguable violations of Section 8 is preempted under the Garmon doctrine.

Demonstrating this point is Memorandum GC 20-13 issued by Peter B. Robb, the NLRB’s General Counsel (GC), on September 4, 2020 entitled “Guidance Memorandum on Employer Assistance in Union Organizing” and providing a discussion of when and what employer support to union organizing, typically in the form of provisions commonly found in pre-recognition neutrality agreements (and LPA’s), will likely violate the NLRA. Included among these arguably unlawful pre-recognition LPA provisions are those:

 

  1. Allowing non-employee organizers access to employer facilities or informing employees of the presence of union organizers;
  2. Allowing union solicitation during working time;
  3. Calling for the disclosure of employee contact information to a union;
  4. Calling for an employer to express a preference for unionization in general or for a particular union;
  5. Agreeing to the employees’ post-recognition terms and conditions of employment;
  6. Containing strike waivers and promises not to strike; and
  7. Determining the scope of a bargaining unit.

 

Many of these arguably prohibited “support” provisions are commonly required by state cannabis LPA laws. For example, California’s law requires an employer to grant access to its premises to union organizers so they may communicate with workers about unionization. According to the NLRB’s GC, such access is employer support arguably prohibited by Section 8(a)(2) of the Act. Likewise, LPA statutes allegedly exist to prevent strikes. Accordingly, a LPA must preclude a union from engaging in strikes. However, if the GC’s memo is correct, such pre-recognition no strike clauses are also unlawful under Section 8(a)(2). Moreover, almost all of the provisions identified by the GC’s memo, i.e. access, solicitation during worktime, disclosure of employee contact information and a union friendly bargaining unit, are commonly demanded by unions and appear in LPA’s, not because they are the result of an employer’s voluntary choice, but because employers reluctantly agree to them in order to avoid putting their licensure at risk. Since unions obtain this arguably prohibited support by operation of actual or threatened state action against an employer, that state action and the provisions resulting therefrom should too be Garmon preempted. Finally, should a state take adverse action against an employer by virtue of its failure to reach an LPA based on it unacceptance of union demands for such arguably prohibited support, that adverse state action should also be Garmon preempted.

 

State Action Mandating Or Giving Effect To An LPA That Deprives Cannabis Employers And Employees Of The Right To An NLRB Bargaining Unit Determination And/Or A Board-Conducted Secret Ballot Election Should Be Preempted By Garmon’s “Arguably Protected” Prong

As noted previously, employees’ Section 7 rights grant them the unbridled right to select bargaining representatives of their own choosing. Central to this Section 7 right is the majoritarian selection of a union and that that selection be made in a unit that is “appropriate for the purposes of collective bargaining”. NLRA Section 9 gives effect to that statutory protection by mandating that all QCR’s be resolved by way of a secret ballot election in an appropriate bargaining unit to be conducted by the NLRB. Thus, employees have a Section 7 right to have bargaining unit appropriateness determined by the Board and to have questions of a union’s majority status in that appropriate unit resolved by way of a Board-conducted secret ballot election. A state’s requirement that an employer enter into or abide by a LPA that adversely affects these Section 7 protected rights should, therefore, be preempted under Garmon’s “arguably protected” prong.

 

State Action Mandating Involuntary Bargaining Between A Nonunion Cannabis Employers And A Minority Union Over A LPA Regulates The Use Of Economic Weapons And Should, Therefore, Be Preempted Under The Machinists Doctrine

Provided their actions do not violate the NLRA’s prohibition on bargaining over the wages, hours and working condition with a minority union, nonunion employers may to elect to bargain with unions as to matters unrelated to working conditions. Indeed, such minority union conversations are sometimes extorted out of companies as a result of a corporate campaign a union mounts against the company. However, nothing in the NLRA requires such minority union bargaining and, if given their choice, most employers choose not to engage such pre-recognition conversations. An employer’s refusal to engage in such bargaining with a minority union is an economic weapon that is purposefully unregulated by the NLRA, just as a union corporate campaigns against that employer is. Accordingly, a state law that compels an employer to engage in such minority union discussion regulate the use of an economic weapon that Congress sought to leave unregulated. Insofar as state cannabis licensing statutes compel employers to engage in such minority union conversations, that statutory compulsion contravenes the Machinists doctrine and is, therefore, preempted.

 

A State’s Sanction Against A Cannabis Employer For Failing To Accede To A Union’s LPA Demands Regulates The Use Of Economic Weapons And Is, Therefore, Likely To Be Preempted Under The Machinists Doctrine

The NLRA’s Section 8(d) defines the duty to bargain with respect to a majority union. It

describes that duty as the mutual obligation of both employers and unions to meet at reasonable times and to confer in good faith with respect to wages, hours and other terms and conditions of employment. However, the Section goes on to emphasize that the duty to bargain does not compel either an employer or a union to agree to a proposal of the other or to their being required to make a concession. Thus, despite the obligation to bargain in good faith, each is free to reject the demands of the other in the pursuit of a contract that favors their economic interests.

If an employer with a federal legal bargaining obligation to bargain is free to say “no” to a majority union’s demands, it stands to reason that an employer who has no statutory duty to bargain and an unregulatable right refuse to bargain with a minority union also has an unregulatable right to say “no” to the demands of that same minority union. Indeed, saying “no” to such demands is just the kind of market driven, self-interested conduct that Congress sought to leave free of both federal and state regulation with the passage of the NLRA. Thus, should the state sanction a cannabis employer for failing or refusing to accede to a union’s LPA demands, those sanctions regulate labor relations within the meaning of the Machinists doctrine and should be found to be preempted by the Act.

 

A State’s Action Sanctioning A Cannabis Employer For Its Either Refusing To Agree To Or Not Abiding By LPA Speech Neutrality Provisions Regulates Conduct That Congress Meant To Be Free Of Regulation And Is, Therefore, Likely To Be Preempted Under The Machinists Doctrine

In addition to the requirements of the First Amendment, Congress meant to leave employers free to talk to workers about the cons of unionization as demonstrated by NLRA Section 8(c) which declares that an employer’s expression of views, arguments or opinions or the dissemination thereof shall not constitute or be evidence of an unfair labor practice if such expression contains no threat of reprisal or force or promise of a benefit. This text reflects a Congressional intent to leave such expressions free of regulation by both the federal and state governments, rendering those expressions an economic weapon within the meaning of the Machinists doctrine.

Without saying it in so many words, states with LPA cannabis statutes seek to muzzle such free speech by using statutory euphemisms to quell employer expressions in opposition to unionization. For example, even though California’s LPA statute says nothing about an employer’s exercise of its free speech rights, it requires a LPA contain language precluding an employer from “disrupt[ing]” a union’s ability to organize employees which may be interpreted as shorthand to mean that an employer may not speak to employees in opposition to organizing. Moreover, unions who are the beneficiaries of such labor friendly provisions and statutory imprecision typically press for the inclusion in a LPA of a provision in which an employer waives its 8(c) rights and agrees to refrain from speaking out and educating workers as to the downsides of unionization. Insofar as a state reads a cannabis LPA statute to require such speech neutrality or sanctions an employer for either refusing to agree to the waiver of its right of free speech, that state action regulates conduct that Congress sought to leave unregulated by both the federal and state government. In that event, such state action is preempted under the Machinists doctrine.

 

TAKEAWAYS

Cannabis businesses seeking a place in the new cannabis industry face the dilemma of whether and how to satisfy the LPA requirements of the states and cities in which they do business. Many take the course of least resistance and simply complying with these state mandates without understanding the long-term consequences of unionization and figuring that all of their competitors are entering into LPA’s as well. However, a few employers who look beyond that short-sighted business horizon and recognize the differences between operating union free and operating with a union contract that may complicate the running of their businesses. For those few who do look over that horizon and maintain control over their labor relations, NLRA preemption provides them with a vehicle for avoiding LPA requirements and minimize the risks of unionization. For those reasons, cannabis employers should consider their legal options before making an LPA decision that they may long regret.

 

[1] For example, when considering issuance of an adult use license, Illinois awards “points” to an applicant for “describ[ing] plans” for “entering” into an LPA. See 410 ILCS 705/15-30(c)(6). In New York, the “maintenance” of an LPA is an “ongoing material condition” for medical marijuana licensure. See N.Y. Public Health Law §§3360, 3365. While in New Jersey, state law not only requires “maintenance” of an LPA as an “ongoing material condition” of medical marijuana licensure, but “failure to enter into a collective bargaining agreement within 200 days after the date that a medical cannabis cultivator, medical cannabis manufacturer or medical cannabis dispensary first opens shall result in suspension or revocation” of a permit. See N.J. Stat §24:61-7.2.e.

[2] See U.S. Const. art. VI, cl. 2.

[3] Cal. Business and Professions Code (BPC) Section 26001(x).

[4] San Diego Building Trades v. Garmon, 359 U.S. 236 (1959)

[5] Machinists Lodge 76 v. Wisconsin Employment Relations Commission, 427 U.S. 132 (1976)

[6] Golden State Transit v. City of Los Angeles, 475 U.S. 608 (1986); Building and Construction Trades v. Associated Builders and Contractors of Massachusetts, 507 U.S. 218 (1993).

[7] Exempted from the NLRA are agricultural employees. Accordingly, the discussion of employee rights does not apply to agricultural employees. However, some states, California, in particular, have state agricultural labor laws that are patterned after the NLRA and that are interpreted and applied in a manner consistent with the NLRA to the extent that the federal precedent is applicable. See, California Labor Code Section 1140 et. seq.

 


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