Executive Summary: The United States Supreme Court recently denied petitions to consider two U.S. Court of Appeals decisions adversely affecting the airline industry. On June 24, 2019, the Justices declined to review a Seventh Circuit ruling that allowed flight attendants to sue an airline based on state and local minimum wage and employment laws. That same day, the Justices also decided not to disturb a Ninth Circuit ruling that the City of Los Angeles, as proprietor of the Los Angeles International Airport (LAX), could require airline service providers to accept contractual conditions in their licensing agreements, obligating service providers to enter a “labor peace agreement” with any employment organization that so requests. Both decisions adversely affect the airline industry by subjecting airlines and service providers to increasingly onerous state and local laws.

Hirst v. SkyWest, Inc.

Current and former SkyWest flight attendants alleged that they were not paid for certain hours of work or federal minimum wage in violation of the Fair Labor Standards Act (FLSA) and state wage and hour laws. Specifically, the flight attendants challenged SkyWest’s policy of calculating their hours, alleging that the policy compensates them solely by time spent in the air, rather than accounting for their time on the ground.

Under SkyWest’s policies, flight attendants are paid only for their “block time,” which typically covers the time when an aircraft cabin door is closed and ready to leave the gate for departure to when the aircraft door is opened upon arrival at the destination gate. As is typical in the industry, the airline does not pay for hours spent on board the aircraft while the cabin door is open or for time spent in the airport or clearing security checkpoints.

The U.S. District Court for the Northern District of Illinois rejected the federal claims and held that the dormant commerce clause, which limits states’ ability to regulate beyond their borders, barred the local and state claims. The Seventh Circuit affirmed the federal claims but allowed the class action to proceed with claims alleging violations of state law, holding that the dormant commerce clause did not pre-empt state and local claims. The Seventh Circuit found that SkyWest failed to allege any discrimination against interstate commerce, noting that “the existence of a great regulatory burden on an employer does not necessarily mean minimum wage laws have a discriminatory effect on interstate commerce.” Thus, the court allowed the flight attendants to proceed with their Illinois wage law claims.

SkyWest filed a petition for a writ of certiorari with the Supreme Court, asking the Justices to determine: (1) whether a state law is exempt from the dormant commerce clause merely because it does not discriminate against interstate commerce; and (2) whether a state law is exempt from the dormant commerce clause merely because Congress has passed a federal statute saving the law from pre-emption under that statute. In denying the petition, the Supreme Court has allowed the Seventh Circuit decision to stand, which could have damaging consequences for the airline industry, given that flight attendants can cross dozens of states in a single day. Since each one of those states may have conflicting minimum wage laws, as SkyWest contended in its petition for certiorari, this could lead to a “logistical nightmare.” As the airline noted in its petition, the airline industry “could hardly continue to operate properly if the airline or the crew had to start complying with a new regulatory regime each time the plane crossed into a new state.”

Airline Service Providers Ass’n (ASPA) v. L.A. World Airports

Two trade associations sued the City of Los Angeles, which operates the LAX Airport, claiming that federal labor laws pre-empted the city from imposing contractual conditions in LAX’s standard licensing agreement aimed at preventing service disruptions. The condition at issue requires service providers – such as baggage handlers, aircraft fuelers, and wheelchair assistants – to enter into a “labor peace agreement” with any employment organization that requests one, and any such agreement must include “binding and enforceable” provisions that prohibit boycotting, picketing, stopping work, or “any other economic interference.” As discussed in our May 29, 2018 Alert, labor peace ordinances make it easier to organize employees by applying economic pressure on employers to compel them to grant organizing concessions to unions in exchange for such union promises.

The Ninth Circuit Court of Appeals affirmed the lower court’s dismissal of the trade associations’ claims, holding that federal labor laws did not pre-empt the city’s ability to implement the labor peace agreement requirement solely because the city owns and operates LAX. The court reasoned that when a state or local government manages property or buys services as a private party would, it does not act as a regulator, but rather a “market participant.” In such instances, courts presume that the government’s actions are not subject to pre-emption. Only if a federal statute exhibits Congressional intent to preempt such state or local government actions is the presumption overcome and the action pre-empted. This vast expansion of the market participant exception allows LAX, as well as other city airports, to impose regulations on private companies even through the government is not purchasing any goods or services from the companies.

Because the court found that the city was attempting to avoid the disruption of its business as a proprietor of a commercial enterprise by enforcing the condition and that the condition was narrowly tailored to LAX, the Ninth Circuit determined that the City of Los Angeles was acting as a market participant, rather than as a regulator, by imposing the labor peace agreement requirement. Furthermore, the court found that there was no “express or implied indication” that Congress intended the National Labor Relations Act, the Railway Labor Act, or the Airline Deregulation Act to pre-empt actions taken by state and local governments in a non-regulatory capacity. Thus, the court approved Los Angeles’s mandate that service providers at LAX must enter into labor peace agreements with employment organizations.

In its petition for writ of certiorari, ASPA questioned whether the “market participant” exception to federal pre-emption allows a state or local government to impose an otherwise pre-empted rule on private companies even if the government is not procuring any good or service from them. The Supreme Court invited the Solicitor General to file a brief expressing the views of the United States. In its brief, the Solicitor General argued that the lower court did not properly articulate the market-exemption test, and as such, it is not clear that LAX was acting in a proprietary rather than a regulatory capacity. However, the Solicitor General argued that the Supreme Court should deny the petition because it was uncertain that this case would provide an opportunity for the Court resolve the broader questions regarding the market-participation exception.

The LAX licensing agreement condition imposing a labor peace agreement mandate remains in force for the foreseeable future. It is likely that airports will continue to implement ordinances that provide distinct advantages to unions seeking to organize without implicating federal law.

Effects on Airline Industry

The U.S. Supreme Court refused to review either case; therefore, the Circuit Court decisions remain in effect, leaving airlines and airline service providers subject to potentially burdensome state and local laws, and in some cases, multiple conflicting laws governing each employee. Following the SkyWest decision, airlines are now faced with a substantial compliance burden. In a similar matter involving allegations against a different airline, a California federal court held that the airline violated multiple California and City of San Francisco labor and wage laws by failing to pay its flight attendants for hours worked before, after, and between flights, and for time spent in training, on reserve, completing reports or taking mandatory drug tests. The airline appealed the decision to the U.S. Court of Appeals for the Ninth Circuit. Depending on how the Ninth Circuit rules, the Supreme Court may have another chance to decide whether these state and local laws are pre-empted by federal regulations.