AB 1291 Forces California Cannabis Companies To Sign “Labor Peace Agreements” With Unions, But Statute May be Unconstitutional

On October 12, 2019, Governor Newsom signed Assembly Bill 1291 (“AB 1291”) into law, which requires companies to sign a so-called “labor peace” agreement with a union or risk losing their cannabis license; thereby, strengthening already union-friendly statewide cannabis law. AB 1291 was supported and endorsed by various unions, including the United Food and Commercial Workers Western States Council, a 170,000-member branch representing thousands of cannabis workers. This bill, as well as other California statutes and local laws, signals a growing insistence by state and local regulators that employers doing business in California accept pro-union requirements. However, many of these new pro-union laws, including AB 1291, may be unconstitutional.

The main takeaways of AB 1291 are as follows:

1. Effective January 1, 2020, California cannabis license applicants must sign so-called labor peace agreements with a union within 60 days of their 20^th hire or risk losing their cannabis license.

2. Employers and business associations seeking to challenge AB 1291, and other similar state or local union-related ordinances, are encouraged to speak with experienced labor counsel to discuss their options.

3. Employers seeking to comply with AB 1291 and sign labor peace agreements should conduct due diligence on the labor unions they are considering entering into negotiations with. Not all unions are the same. Additionally, businesses should be thoughtful about what they agree to put into a labor peace agreement to satisfy the requirements under California’s cannabis laws. For example, these agreements are frequently mistakenly referred to as “neutrality agreement.” Neutrality agreements typically contain a commitment from the employer to remain “neutral” through a union organizing campaign. In contrast, AB 1291 does not use the term “neutral(ity)” and, thus, arguments can be made that strict “neutrality” is not required under the statute and may not need to be included in the labor peace agreement. Thus, employers should speak with experienced labor counsel before negotiating labor peace agreements with unions.

Background

Since its adoption into law in 2018, the Medicinal and Adult Use of Cannabis Regulation and Safety Act (“MAUCRSA”) has required applicants for state cannabis licenses with 20 or more employees to “provide a statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement.”¹ (Cal. Bus. & Prof. Code § 26015.5(a)(5)(A).) A labor peace agreement, as defined under California’s cannabis laws, must contain the following commitments, at a minimum:

1. Employer shall not “disrupt” efforts by the union to “communicate with, and attempt to organize and represent” the employer’s employees;

2. Employer shall give the union “access at reasonable times to areas in which the 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;” and

3. Union and its members shall not engage in picketing, work stoppages, boycotts, and any other economic interference with the employer’s business.

(Cal. Lab. & Prof Code § 26001(x).)

Effective January 1, 2020, AB 1291 requires an applicant for a state license under MAUCRSA with 20 or more employees to provide a notarized statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement. If the applicant has less than 20 employees and has not yet entered into a labor peace agreement, AB 1291 requires the applicant to provide a notarized statement as a part of its application indicating that the applicant will enter into and abide by the terms of a labor peace agreement within 60 days of employing its 20th employee. By expanding the scope of the crime of perjury, AB 1291 imposes a state-mandated local program and authorizes the Bureau of Cannabis Control, the Department of Food and Agriculture, and the State Department of Public Health to revoke or suspend a license for a violation of these requirements.

AB 1291 May Be Unconstitutional

AB 1291 poses substantial questions as to whether it is unconstitutional due to preemption by the National Labor Relations Act (“NLRA”) under two complementary preemptions doctrines: Garmon and Machinists. In San Diego Building Trades Council v. Garmon, 359 U.S. 236 (1959), the U.S. Supreme Court declared that the states are constitutionally barred by the U.S. Constitution’s supremacy clause from regulating conduct that NLRA protects, prohibits, or arguably protects or prohibits. Garmon preemption exists to protect the National Labor Relations Board’s (“NLRB”) primary jurisdiction and to preclude a state’s interference with its interpretation and enforcement of the integrated regulatory scheme that is the NLRA. Indeed, Congress delegated exclusive authority to the NLRB because it sought to establish a single, uniform national labor policy that would be unaffected by the vagaries of state law or shaped by local attitudes or prejudices. (Garner v. Teamsters Union, 346 U.S. 485, 490 (1953).) In Machinists v. Wisconsin Employment Relations Comm’n, 427 U. S. 132 (1976), the U.S. Supreme Court similarly declared that the NLRA forbids states to regulate conduct that Congress intended “to be unregulated because left ‘to be controlled by the free play of economic forces.’” Together, Garmon and Machinists preempt state and local policies that would otherwise interfere with the “integrated scheme of regulation” and disrupt the balance of power between labor and management embodied in the NLRA.

It appears AB 1291’s purpose is to afford unions greater rights than provided under the NLRA and make it easier for unions to organize cannabis employers. AB 1291 arguably presents the type of state interference in labor-management relations that Garmon and Machinists preemption forbids. For example, in Golden State Transit Corp. v. City of Los Angeles (“Golden State I”), 475 U.S. 608, 616 (1986), the Supreme Court held that while the NLRA “requires an employer and a union to bargain in good faith, … it does not require them to reach agreement,” nor does it demand a particular outcome from labor negotiations.” The substance of labor negotiations, and the results therefrom, are among those areas Congress intentionally left to the free play of economic forces when it legislated in the field of labor law. (Id.) In that case, the Supreme Court found that Machinists preempted the City of Los Angeles’ (“City”) refusal to renew a taxi cab company’s license when it failed to reach an agreement with striking union members. By conditioning the renewal of the taxi cab franchise on the acceptance of the union’s demands, the City effectively imposed a timeline on the parties’ negotiations and undermined the taxi cab company’s ability to rely on its own economic power to resist the strike. (Id. at 615.) The Supreme Court held that the City could not pressure the taxi cab company into reaching a settlement and thereby “destroy[] the balance of power designed by Congress, and frustrate[] Congress’ decision to leave open the use of economic weapons.” (Id. at 619.)

The facts of Golden State I are instructive here. Like the taxi cab company in Golden State I, California cannabis businesses now face a Hobson’s “all or nothing” choice under AB 1291. If a cannabis business refuses to negotiate a labor peace agreement with a labor organization, it effectively loses the right to do business in California. But if the cannabis business negotiates a labor peace agreement, the union knows full well that it can hold out for significant concessions in exchange for its members giving up one of their most valuable economic weapons – the power to strike.

The U.S. Supreme Court’s decision in Chamber of Commerce v. Brown, 554 U.S. 60 (2008) is also instructive. At issue in Brown was California’s Assembly Bill 1889 (“AB 1889”), prohibiting certain private employers from using state funds to “assist, promote, or deter union organizing.” (Id. at 63 [quoting Cal. Govt. Code §§ 16645.1–16645.7].) The Court held that AB 1889 was unconstitutional. As explained by the Court, the current text of Sections 7 and 8 of the NLRA are amendments made to the NLRA in 1947 as part of the Labor Management Relations Act, also known as the Taft Harley Act, for the purpose of overturning earlier NLRB precedent. The NLRA was amended in in several key respects. First, it emphasized that employees “have the right to refrain from any or all” union activities. (29 U.S.C. § 157.) Second, it added Section 8(b), which prohibits unfair labor practices by unions. (29 U.S.C. § 158(b).) Third, it added Section 8(c), which protects speech by both unions and employers from regulation by the NLRB. (29 U.S.C. § 158(c).) Specifically, Section 8(c) provides:

The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this subchapter, if such expression contains no threat of reprisal or force or promise of benefit.

With the amendments, Section 8(c) “manifested a “congressional intent to encourage free debate on issues dividing labor and management.” (Id. at 6-7.) That Congress amended the NLRA, rather than leaving to the courts the task of correcting the NLRB’s decisions on a case-by-case basis, is “indicative of how important Congress deemed such ‘free debate.’” (Id. at 7.) In addition, Sections 8(a) and 8(b) “demonstrate that when Congress has sought to put limits on advocacy for or against union organization, it has expressly set forth the mechanisms for doing so.” (Brown, 554 U.S. at 67.) Moreover, “the amendment to §7 calls attention to the right of employees to refuse to join unions, which implies an underlying right to receive information opposing unionization.” (Id.) “[T]he addition of §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.” (Id. [internal quotation omitted].) Thus, based on these overriding principles, the Court concluded that “California’s policy judgment that partisan employer speech necessarily interfere[s] with an employee’s choice about whether to join or to be represented by a labor union” and struck down AB 1889. (Id. at 68 [internal quotation omitted].)

AB 1291 is arguably no different. By forcing unwilling cannabis businesses to negotiate and accept labor peace agreements, AB 1291 compels a result Congress deliberately left to the free play of economic forces. The NLRA does not allow state and local governments to interfere with employer rights to communicate with employees regarding unionization under Section 8(c). Nor does it allow state and local governments to “introduce some standard of properly balanced bargaining power . . . or to define what economic sanctions might be permitted negotiating parties in an ideal or balanced state of collective bargaining.” (Machinists, 427 U.S. at 149-50.) Yet, this is exactly what AB 1291 appears to do. Accordingly, AB 1291 may be unconstitutional.

¹ A labor peace (aka a labor harmony agreement) is essentially a contract between an employer and an organized labor union in which the employer agrees to help the union organize the employer’s workforce (i.e., unionize) by providing, for example, certain information or agreeing not to interfere with the union organizing efforts, in exchange for the union’s agreement not to strike or cause other disruption in the employer’s workforce during a union organizing campaign. Because these agreements open the door to union activity within the workplace, they should not be entered into casually. Rather, unionization may result in increased labor costs, contractual contributions to union pension plans, loss of flexibility, and adherence to union rules set forth in a legally binding contract. In addition, once a union is recognized or certified as the collective bargaining representative of employees, it is practically impossible to terminate that relationship. Indeed, only after a costly and divisive decertification election can a workforce return to the merit-based and flexible non-union environment.