Major Win for Small Business: California Court of Appeal Holds Government Cannot Force Business into Collective Bargaining Agreement

Date: May 17, 2015

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Major Win for Small Business: California Court of Appeal Holds Government Cannot Force Business into Collective Bargaining Agreement

In a rare bit of good news on
the California legal front, we received a fantastic decision from a Court of
Appeal in Gerawan v. Agricultural
Labor Relations Board. The case calls into question a
controversial regime under California law, which enables a state agency to
force businesses into a Collective Bargaining Agreement (CBA) with a
petitioning labor union. In a nutshell, if a union decides it wants an
agricultural business to enter into a CBA (but the parties cannot agree on the
terms), California law enables the union to ask the Agricultural Labor Relations
Board to write-up a binding contract for the parties. If the parties do not
voluntarily agree to enter into the contract, the Board will issue an order
forcing them to do so.

Yesterday a Court of Appeal,
out of Fresno, California, held that this regime is unconstitutional. The Court
accepted NFIB Legal Center’s arguments that the regime improperly singles out
businesses for heightened legal burdens that are not applicable to any other
businesses. To be sure, once a CBA is imposed on a business, it is no longer
governed by generally applicable law. The State’s minimum wage statute is
displaced by the terms of the agreement, which will likely impose significantly
higher wage requirements. And generally applicable standards governing every
other aspect of business are likewise displaced by the agreement. For example,
a CBA might require the employer to give employees twice as many rest breaks as
state law requires, or more paid sick time leave, or more benefits. Once
imposed these are binding standards—but only applicable to a single business.

As we argued, government should
only be allowed to impose regulatory burdens that are generally applicable to
an entire class of businesses. It is inherently unfair for government singles
out a specific business for special burdens. And further, when government
chooses to impose special burdens on targeted businesses, there is a
substantial risk that these special rules may be imposed for improper
reasons—or as we suggested, that the agency may be captured by union interests.
As the Court noted, “[t]he Legislature may have intended this [system, imposing
individualized legal burdens on targeted businesses] as a way to avoid the
political retribution it might incur if it enacted laws applicable equally
across the class, [but] that motivation is entirely insufficient to justify []
disparate treatment.”   

Further, the Court accepted our
argument that the regime violates California’s Constitution because it
improperly delegates lawmaking power to a state agency. To be sure, in
authorizing a mediator to write the terms of a CBA that will govern businesses
operations, the regime gives lawmaking power to a single individual who is
neither elected nor accountable to the public. And even if the Board was
writing the terms of the CBA it would still be a violation of the
non-delegation doctrine because only the Legislature can write laws—after all,
the Legislature, not administrative bureaucrats, represent the people of

What is more, the U.S. Supreme
Court struck down a nearly identical regime under the Due Process Clause of the
federal Constitution in 1923, in the case of Wolff Packing Co.
v. Ct. of Indus. Relations of State of Kansas
. The Board argues that
subsequent New Deal era case law implicitly overturned Wolff Packing,
but we strongly disagree. Yes, modern case law generally allows government to
limit the freedom of contract with generally applicable restrictions on our
economic liberties (a point of law that we would like to push back on), but the
Supreme Court has never called into question its specific holding, in Wolff
, that government lacks the power to affirmatively force a business
into a contract with a union. As we argued, there are compelling reasons to
think the Court would affirm Wolff Packing if this case should find its
way to the U.S. Supreme Court. For one, it contravenes fundamental contract
principles to assume that government can force non-consenting parties into a
contract—because the law has always required a “meeting of the minds” for a
contract to be enforced.  And of course it’s down-right Orwellian to think
that government can force a meeting of the minds.

As we argued before the Gerawan Court, there are also
serious First Amendment problems with a government mandate forcing unwilling
parties to enter into a contract because a contract requires the parties to
affirm their intent to be so bound. Without doubt, government lacks the power
to compel private businesses to speak against their will, so it follows that
government lacks the power to force them to engage in expressive conduct of the
sort that would be required to have a “meeting of the minds” for a valid

The Gerawan Court did not get
to these due process issues because it had already decided that the regime is
unconstitutional for other reasons. But it’s quite possible the California
Supreme Court may have to wrestle with these issues soon enough. To be sure,
the Gerawan decision creates a split in authority over the legality of this
regime—which means it’s very likely the state supreme court will accept the
case for review. And given the gravity of the constitutional issues at hand,
this case might eventually make its way to the U.S. Supreme Court. To be sure,
it’s already garnishing national
media attention. CNBC
Reason, the Daily
and other outlets have drawn attention to this case.

We will have to wait to see whether the Board seeks further
review. For now a special congratulations is order for David Schwarz  of the
Irell and Manella firm in Los Angeles
, who did a remarkable job arguing
this case and forcing a split in authority among California’s appellate courts.
And of course, NFIB Legal Center was proud to have provided aerial support in
the effort.


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