The U.S. Supreme Court has announced that it will rule on the validity of California’s “Union Neutrality” law, which restricts the ability of employers who receive state funds to take steps to maintain union-free status. The case, Chamber of Commerce v. Brown, could have significant implications for California employers, as well as those in other jurisdictions with similar laws, including New York.

The law at issue, California Assembly Bill 1889 (the “Act”), is broad: it provides that employers who receive any state grants, or more than $10,000 from a state program, are prohibited from using those funds “to assist, promote, or deter union organizing.” That restriction applies to “any expense, including legal and consulting fees and salaries of supervisors and employees” incurred in connection with such activities.

The Act also requires employers to create separate accounts for funds traceable to a state grant or program, and to maintain accounting records for all expenditures related to union organizing matters. Employers who fail to maintain these records, or who commingle state funds with other monies, are subject to an automatic presumption that the state funds have been used illegally on a pro rata basis. Remedies for violating the Act include forfeiture of state funds, civil penalties, and liability for attorney’s fees.

The U.S. Chamber of Commerce filed a lawsuit challenging the Act, asserting that it is preempted by the National Labor Relations Act (NLRA) because it restricts noncoercive employer speech about union organizing that the NLRA was intended to protect and encourage. In 2004, a panel of the U.S. Court of Appeals for the Ninth Circuit agreed and held that these portions of the Act were preempted and, therefore, unenforceable. In 2006, however, the full Ninth Circuit vacated the earlier panel decision, and ruled that the Act was not preempted. Chamber of Commerce v. Lockyer, 463 F.3d 1076 (9th Cir. 2006) (en banc).

The Supreme Court’s ruling in Brown is likely to affect the continued validity of similar laws in other jurisdictions. In New York, for example, a broad labor neutrality statute signed into law in 2002 also is being challenged on preemption grounds. Other states, including New Jersey, Illinois, and Florida, have more limited labor neutrality laws that are applicable to employers in certain industries such as apparel and health care.

The Supreme Court will hear oral arguments in Brown early next year, with a decision expected by the end of June.