Opinion ID: 757587
Heading Depth: 2
Heading Rank: 4

Heading: Subsection (I) of Section 3599.031 Violates the Contracts Clause

Text: 58 Subsection (I) of section 3599.031 mandates that the wage checkoff ban of subsection (H) supersedes any provision in a pre-existing agreement between public employers and labor organizations granting public employees the right to wage checkoffs for political causes. Subsection (I) is challenged as violating the Contracts Clause of the United States Constitution. We find this contention to be meritorious. 59 Article I, section 10 of the United States Constitution provides that No State shall ... pass any ... law impairing the Obligation of Contracts. In Federalist 44, James Madison characterized the Contracts Clause as a constitutional bulwark in favor of personal liberty and private rights. However, it is clear that this prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula. Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 428, 54 S.Ct. 231, 78 L.Ed. 413 (1934). Contracts Clause jurisprudence evinces a concern for ensuring that the regulatory power of the States is not eviscerated by a per se ban on legislation impairing private contracts. See United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 22, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977). Citizens cannot be permitted to place any matters they wish beyond the reach of the state's police power merely by entering into a contract. But the Supreme Court's Contracts Clause jurisprudence also recognizes the high value the Framers placed on the protection of private contracts. Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978). After all, [c]ontracts enable individuals to order their personal and business affairs according to their particular needs and interests. Once arranged, those rights and obligations are binding under the law, and the parties are entitled to rely on them. Ibid. Thus, this body of law recognizes that private contracts are not subject to unlimited modification under the police power. Id. at 244 n. 15, 98 S.Ct. 2716. The conflicting values of protecting the right of individuals to order their affairs by contract and allowing the states to exercise  'essential attributes of sovereign power' which are necessarily reserved by the states to safeguard their citizens are both recognized in the analytic framework used to assess Contracts Clause claims. Linton v. Commissioner of Health and Env't, 65 F.3d 508, 517 (6th Cir.1995). 60 This analytic framework first requires us to determine whether the complaining party has established that the challenged legislation in fact operates as a  'substantial impairment of a contractual relationship.'  Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983). A substantial impairment may exist even where there has not been a [t]otal destruction of contractual expectations. Ibid. If a substantial impairment exists, the severity of the impairment is said to increase the level of scrutiny to which the legislation will be subjected. Ibid. In assessing the extent of the impairment, we consider the industry in which the complaining party is involved. If that enterprise has previously been regulated with respect to the particular aspect that is the subject of the challenged legislation, then it may be assumed that further legislation of that specific area does not work as substantial an impairment as a law affecting a hitherto unregulated aspect of the industry. See ibid. 61 Once it is determined that the state regulation is a substantial impairment and the extent of the impairment is measured, the burden shifts to the state. The state must proffer a significant and legitimate public purpose for the regulation warranting the extent of the impairment caused by the measure. Ibid. If the state proffers such a significant and legitimate public purpose for the regulation, the court must determine whether the adjustment of the 'rights and responsibilities of contracting parties [is based] upon reasonable conditions and [is] of a character appropriate to the public purpose justifying [the legislation's] adoption.'  Energy Reserves, 459 U.S. at 412, 103 S.Ct. 697 (alterations in original) (quoting United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 22, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977)). When the impaired contract is between private parties [n]ormally, we defer to the state's judgment as to the necessity and reasonableness of a measure. Linton, 65 F.3d at 519. But, when the state itself is a contracting party, we will look to see whether the state's self-interest makes such deference inappropriate. Linton, 65 F.3d at 519. 62 Applying this mode of analysis to the present case, it is clear that subsection (I) of section 3599.031 operates as a substantial impairment of the state's contractual relationship with public employee unions whose CBAs expressly grant the right to checkoffs for political purposes. The measure totally obliterates the affected workers' contractual expectation that the state will allow them to use this highly effective method of political fundraising for the term of the CBA. The record makes clear that the affected unions and their local affiliates were well aware at the time they negotiated and entered into the collective bargaining agreements at issue that over 90% of the financial support for AFSCME's PAC targeting national political candidates and issues comes from wage checkoffs. As we have already noted, it is beyond peradventure that the Constitution does not obligate the state to administer wage checkoffs for the unions no matter how minimal a burden this creates. However, we are equally certain that the union members and the union officials who negotiated the affected CBAs considered the promise by public employers to administer the checkoffs a significant and important aspect of their collective bargaining agreements. 63 The state concedes that the challenged measure impairs a right secured by some pre-existing CBAs that public employers entered into with public employee unions. It argues, however, that these impairments are not substantial for two reasons: (1) because the affected workers have not shown that the wage checkoff provision in the CBAs was one that induced the parties to contract in the first place; and (2) because both labor agreements and elections are highly regulated areas. 64 The state cites the Fourth Circuit case of Baltimore Teachers Union v. Mayor and City Council of Baltimore, 6 F.3d 1012 (4th Cir.1993). Upon review of Judge Luttig's thoughtful opinion in that case, it is clear to us that the state misconstrues the opinion to the extent it claims that a substantial burden cannot exist unless the affected term was a term that induced the parties to contract in the first place. This is because the opinion states we are confident that, at the very least, where the contract right or obligation impaired was one that induced the parties to enter into the contract ... the impairment must be considered 'substantial' for purposes of the Contracts Clause. Id. at 1018 (emphasis in original). This language declares that showing the affected term induced the parties to enter into the contract is sufficient to establish a substantial impairment for purposes of the Contracts Clause. It cannot be construed as declaring that such a showing is necessary to establish a substantial impairment. Just as the Fourth Circuit in Baltimore Teachers Union did not state a general rule for determining what is necessary to establish a substantial impairment, we find that this case does not require us to do so. It merely requires us to determine whether the impairment in this case is substantial. We think it is because the state has completely deprived the affected workers and their unions of a meaningful benefit they negotiated for in their CBAs. 65 The fact that labor agreements and elections are highly regulated does not alter our conclusion. Again, the state misconstrues the applicable precedents. The substantiality of an impairment is not discounted simply because the affected contract provision is in some way connected to a previously regulated area. Rather, prior regulation of a field mitigates the substantiality of an impairment only to the extent that it opens a contracting party's eyes to the prospect of changes in the existing regulations or to new regulations that may affect the value of negotiated terms in the contract. As the Eighth Circuit explained, this makes sense because if the complaining party could see it coming, it can reflect the possibility of interference in the negotiated price, and thus the value of performance is not reduced. Holiday Inns Franchising, Inc. v. Branstad, 29 F.3d 383, 385 (8th Cir.), cert. denied, 513 U.S. 1032, 115 S.Ct. 613, 130 L.Ed.2d 522 (1994). 66 This is consistent with existing Supreme Court precedents relying upon the heavily regulated nature of an industry as grounds to discount the severity of impairments resulting from subsequent regulations. In Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983), the state passed a law establishing a price ceiling on natural gas in the intrastate market. The complaining natural gas companies had previously entered into agreements with a state-run utility containing indefinite price escalator clauses. Id. at 403-04, 103 S.Ct. 697. They claimed that in the wake of federal deregulation, a state-imposed price ceiling impaired their expectation of higher prices under the escalator clauses. The Supreme Court found that the gas companies' reasonable expectations [had] not been impaired by the Kansas Act. Id. at 416, 103 S.Ct. 697. The Court relied essentially on two facts in reaching its conclusion that the companies knew their contractual rights were subject to alteration by state price regulation. First, the affected contracts were entered into before prices were deregulated, which indicated that the companies never expected to receive deregulated prices. Id. at 415, 103 S.Ct. 697. Second, although the State was not regulating prices for intrastate gas at the time the agreements were made, the State had previously regulated the price of natural gas and had been regulating the production, distribution and sale of natural gas for seventy-five years. Id. at 415 n. 17-18, 103 S.Ct. 697. 67 Elections are a highly regulated area in the sense that they are run by the State, and are subject to detailed regulation, as to how elections are to be conducted free of fraud or coercion, and as to how candidates are selected and placed on the ballot. At the same time, elections are the occasion for quintessential core political speech concerning the choice of how and by whom we will be governed. They must therefore also be considered an area to be regulated very lightly, if at all, in that respect. Thus, one choosing to enter the arena of political discourse and influence should not be considered on a par with one who has willingly injected himself into a rather dubious enterprise and must take the consequences thereof. See Exxon Corp. v. Eagerton, 462 U.S. 176, 103 S.Ct. 2296, 76 L.Ed.2d 497 (1983); Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983). 68 In the present case, Ohio simply alludes to the fact that labor agreements and elections are heavily regulated. It does not point to any specific regulations that it claims placed the affected unions and workers on notice that their contractual right to wage checkoffs might be extinguished during the term of the CBAs they negotiated. Nor has our independent review of Ohio's past and current regulation of labor agreements and elections uncovered anything that should reasonably have put the unions and workers on any notice that the legislature would simply abolish one section of their bargained-for benefits. Accordingly, we see no reason to discount the extent of the impairment created by the application of the wage checkoff ban to pre-existing collective bargaining agreements with public employees. 69 The state proffers 12 four justifications for this severe impairment of the unions' contractual rights: (1) preventing political corruption and the appearance of corruption; (2) ensuring that public employees are not coerced into making contributions; (3) avoiding entangling alliances between public sector employment and political parties; and (4) preventing the politicization of government offices. The state does nothing more than posit these justifications. Ohio's Campaign Finance Reform Act has no legislative history. The statute does not contain a statement of purpose. We have absolutely no basis for determining why this law was enacted beyond the four post hoc justifications asserted by the state. This is cause for grave concern, given the circumstances of this case. 70 The state may indeed have been motivated by one of the justifications it now asserts. However, even if all of these alternative motivations are imputed to the state, we cannot defer to the state's judgment that to effectuate these goals the substantial impairment of existing contracts was necessary and reasonable. This is because the state has an obvious self-interest in muting public employee unions. The unions seek to compel public employers to give union members the greatest remuneration and benefits available in exchange for the workers' labor. As an employer, the state has an interest in diminishing the ability of public employees to gain the support of politicians and citizens in their efforts to maximize their remuneration. Since the state has a compelling self-interest in abrogating its obligation to permit checkoffs that fund union political activities, and because obliterating these terms constitutes a very severe impairment, we must carefully scrutinize whether it is necessary and reasonable for the state to terminate the right to checkoffs in pre-existing CBAs to further any of the asserted interests. 71 We do not think that this severe impairment of pre-existing CBAs is either a necessary or reasonable measure to prevent political corruption and the appearance of corruption. We cannot see how workers being presented with the option to make checkoffs to their union's PAC fosters political corruption to a degree warranting the impairment of a contract. Cases such as Buckley recognize that large contributions to a candidate pose a threat of corruption because a politician may promise to do the bidding of large contributors. Checkoffs are quite different. Not even a labor-friendly politician is likely to promise favors to a public employee in return for the employee's promise to contribute a few dollars a month to the union's PAC, in the hope that the contribution will increase the amount of money the politician is able to coax out of the union's coffers. The state already has a law limiting how much a union can give to a candidate. 13 The state also prohibits people from soliciting contributions for PACs, legislative campaign funds, political parties, and campaign committees from public employees while the employees are performing their official duties or while they are in those areas of a public building where official duties are performed. O.R.C. § 3517.092. 72 Nor do we think that the state's effort to evade its contractual obligation is justified by the desire to ensure that public employees are not coerced into making contributions. This interest is already protected by laws against coercive solicitations. See O.R.C. § 3517.09. It could be further promoted by regulating the way checkoffs are done rather than by terminating them. For instance, the state could prohibit the dissemination of information regarding whether and how much employees contributed. Since the state, not the unions, administers the checkoffs, it can code contribution data just as universities disguise student names on grade postings. In short, the state has already taken many steps to ensure that contributions are not the result of coercion and it can enact additional safeguards short of reneging on its contractual obligation to permit public employees to contribute through wage checkoffs if they so desire. 73 We are not sure what to make of the state's claim that the very substantial impairment of the CBAs is necessary and reasonable to serve the significant and legitimate end of avoiding entangling alliances between public sector employment and political parties. We are, however, sure that even if we impute to this phrase a meaning that constitutes a significant and legitimate public purpose, it is neither necessary nor reasonable for the state to renege on its contract to achieve this goal. The same is true of the state's asserted interest in preventing the politicization of government offices. The Hatch Act cases the government cites in its brief (see, e.g., U.S. Civil Serv. Comm'n v. National Ass'n of Letter Carriers, 413 U.S. 548, 93 S.Ct. 2880, 37 L.Ed.2d 796 (1973)) demonstrate that the state has numerous equally if not more effective means at its disposal to further this goal without substantially impairing its contracts with the unions. The fact that ridding the workplace of the taint of partisan politics survives rational basis scrutiny for purposes of our equal protection analysis does not mean that it justifies a very substantial impairment of a pre-existing contract. Something more than the showing made to survive rational basis scrutiny is required to justify such an impairment. The hurdle is even higher given the state's obvious self-interest and the lack of any evidence as to what actually motivated the state to seek to abrogate its contractual obligation. 74 The state has been permitting checkoffs for quite some time. Throughout this time, it has been willing to tolerate or been unaware of the evils it now claims are associated with permitting public employees and their unions to utilize checkoffs for political causes. If the state has known of, but tolerated, these problem throughout this time, it can tolerate them a bit longer until its contractual obligations expire. If the state's concern is the result of a recent epiphany, it has failed to persuade us that the newly discovered danger of checkoffs justifies the extreme solution of substantially impairing existing contracts. What is to prevent such epiphanies from serving as the basis for the state to abrogate any other contractual obligation it has undertaken? Certainly, the state is permitted to enact measures to deal with a newly discovered evil. But, the achievement of even a good goal (newly discovered) can normally wait until existing contracts expire. 75 In summary, we find that the state's application of the wage checkoff ban to pre-existing CBAs promising public employees the right to wage checkoffs for certain political causes is a substantial impairment of these contracts. Even if we assume that this substantial impairment was prompted by the state's asserted justifications rather than its self-interest in weakening public employee unions, and that the asserted justifications are significant and legitimate public purposes, we cannot find that the impairment was necessary and reasonable to effectuate any of the asserted ends. Therefore, subsection (I) of section 3599.031 violates the Contracts Clause. IV 76 For the foregoing reasons, the judgment of the district court is AFFIRMED in part and REVERSED in part. 77