Opinion ID: 3033697
Heading Depth: 3
Heading Rank: 1

Heading: Gould, Rust and State Spending Power

Text: In Gould, the Supreme Court found preempted a statute that used a state’s spending power to directly regulate labor relations. Id. at 291. The statute held that a company found to have violated the NLRA three times within any five year period would be barred from doing any business with the state. In doing so, the statute made an employer’s unionrelated conduct (in this case, whether or not it had violated the NLRA) a condition for the receipt of state funds. If an employer violated the statute, it could not receive the state funds (or, of course, spend them) for any purpose. Id. at 28384. Likewise, in Golden State, the Court found preempted a city’s decision to condition renewal of a cab franchise on settlement of a labor dispute. Golden State, 475 U.S. at 616-18. Once again, the employer’s labor-related activity (in this case, settling a labor dispute) was made a condition for the receipt of state funds. If the employer did not act in the labor arena in the way the city demanded, the employer could not receive the state funding (or franchise). In both cases, the Supreme Court concluded that such conditioning of funds constituted direct regulation of the activity at issue — and was therefore preempted. If California had made employer neutrality a condition of the receipt of state grants or funds — that is, if it had made employer neutrality a condition of doing business with the state — I have little doubt that such a restriction would be preempted by the NLRA. As in Gould and Golden State, a condition on the receipt of funds would encourage employers to modify the spending of their private funds in labor disputes in order to become eligible for state funding, and would therefore be a transparent effort to use the spending power to “inCHAMBER OF COMMERCE v. LOCKYER 12227 troduce some standard of properly balanced bargaining power” and alter employers’ private spending decisions. Machinists, 427 U.S. at 149-150 (internal quotation marks and citation omitted). The California statute at issue here has a crucial difference. A restriction on the use of state funds is different from a restriction imposed as a condition for the receipt of state funds. In the former instance, the employer has absolute freedom to spend its own funds however it wishes, so long as it does not spend state funds on its union-related advocacy; in the latter, the employer’s use of its own funds is curtailed by the restriction. Preventing private employers from using state funds on pro- or anti-union activity does not, in and of itself, undermine the NLRA bargaining process protected by Machinists. Such a restriction affects that process only to the extent that it allows the state to maintain its own neutrality even as it funds private employers. As such, the difference between the statutes at issue in Gould and Golden State and AB 1889 can be analogized to the circumstances of Rust v. Sullivan, 500 U.S. 173 (1991), where the Supreme Court distinguished between statutes that impose conditions on the receipt of state funds from statutes that simply limit the uses to which those funds may be put. Id. at 198. I agree with the majority that “the question before us . . . is not whether AB 1889 is consistent with the First Amendment.” Maj. Op. at 12205. However, Rust is about more than just the First Amendment. It also reveals the Supreme Court’s understanding of what constitutes direct regulation through a state’s spending power. The Court held in Rust that “[b]y requiring that the . . . grantee engage in abortion-related activity separately from activity receiving federal funding, Congress has . . . not denied it the right to engage in abortion-related activities.” Rust, 500 U.S. at 198. With these words, the Court signaled what the majority misses today: such a restriction on the use of government funds is not direct regulation of the activity. Instead, “Con12228 CHAMBER OF COMMERCE v. LOCKYER gress has merely refused to fund such activities out of the public fisc.” Id. Likewise, here, California has not “denied” employers the “right to engage in [union]-related activity,” but “merely refused to fund such activities out of the public fisc.” Id. This conclusion operates independently of First Amendment doctrine: it simply follows from the Court’s observations about what is regulation and what isn’t. The issue in Rust was whether a statute was invalidated by the First Amendment; here, it is whether a statute is invalidated by federal labor preemption doctrine. These are different inquiries, but they share the same predicate inquiry into what activity is being regulated. In Rust, the Supreme Court offered guidance on this separate inquiry, and we should not ignore its obvious relevance here. The Supreme Court was clear in Gould that “[n]o other purpose [than regulating labor relations] could credibly be ascribed [to the statute], given the rigid and undiscriminating manner in which [it] operates: firms adjudged to have violated the NLRA three times are automatically deprived of the opportunity to compete for the State’s business.” Gould, 475 U.S. at 287-88. By contrast, AB 1889 is both flexible and discriminating: it discriminates between employers’ use of their own funds, which is permitted, and of state funds, which is not; and it allows employers the flexibility to use their own funds for union-related advocacy. Further, a very different purpose could credibly be ascribed to it: to help the state remain neutral in labor disputes. Rust’s analysis of what kinds of exercises of the state spending power constitute direct regulation of activity is arguably controlling here. At the very least, it illustrates how the majority has misunderstood the nature of the regulation at issue. CHAMBER OF COMMERCE v. LOCKYER 12229