It is black letter law that states can prohibit contracts from requiring bargaining unit members to pay money to unions, right?  Maybe not, at least according to the Chief Judge of the Seventh Circuit.  On September 2, 2014, the Seventh Circuit upheld Indiana’s Right to Work Act in a contested 2-1 decision that ultimately may raise more questions than it resolves.  Sweeney v. Pence, Case No. 13-1264 (7th Cir. Sept. 2, 2014).  And the Indiana Supreme Court will soon be weighing in on state constitutional issues as well.

Indiana’s 2012 Right to Work Act (“Act”) prohibits any person from being required to become a union member or to pay dues, fees, assessments or other charges of any kind or amount to a union (or a similar equivalent to charity in lieu to the union).  Such right to work acts have existed for decades, even well before the 1947 Taft-Hartley Act added Section 14(b) to the National Labor Relations Act (“NLRA”), which expressly recognized the right of states to prohibit union “membership” as a condition of employment.

The Union challenged the Act on two grounds.  First, the Union claimed that the Act was preempted by NLRA Section 8(a)(3), which expressly permits bargaining parties to require union membership as a condition of employment.  According to the Union, NLRA Section 14(b) only gave states the limited right to ban union security agreements requiring “membership,” and thus states had no authority to interfere with provisions addressing what non-union bargaining unit members might have to pay for to cover their “fair share” of bargaining costs.  As long as bargaining unit personnel who did not want to be members did not have to become members or pay full membership dues, the Union claimed, they could be required to pay for the costs the Union incurred in representing them under its statutory duty of fair representation.

The Court majority disagreed.  Initially, the majority found “membership” to have the same meaning under both NLRA Sections 8(a)(3) and 14(b), and noted that the Supreme Court had described union membership under Section 8(a)(3) to be whittled down to its “financial core,” given decisions preventing unions under union security agreements from requiring non-members to pay more than the union’s actual bargaining costs.  Thus, according to the majority, any bargaining unit member who paid money to the Union was a union financial core “member” under both Sections 8(a)(3) and 14(b).  Accordingly, under Section 14(b) states could ban parties from negotiating provisions requiring the payment of any fees to the union.  Moreover, when it adopted the Taft-Hartley Act, Congress did so to protect existing right to work laws, seven of the twelve of which had language similar to Indiana’s law.  Thus, the legislative history supported the majority’s view that Indiana’s law fell within a state’s authority under Section 14(b).  Last but not least, the sole appellate court to directly address the issue similarly found as much.

Second, the Union raised numerous federal constitutional claims.  The Court dismissed the Contracts and Ex Post Facto Clause arguments since the Act expressly provided it would only apply prospectively as existing collective bargaining agreements expired.  The Court also dismissed the Unions’ Equal Protection Clause claim that somehow the Act infringed on union members free speech rights by taking away union financial resources, and/or infringed on the right of union membership, which the Union asserted was a fundamental right since it involved the exercise of First Amendment association and assembly rights.  The Court found that unions have no constitutional right to non-member fees, and that there is no fundamental right to union membership.  Given the Act did not encroach on any “fundamental” rights, the Court applied a deferential standard of review to the law to find that the statute bore a reasonable relation to its legislative purpose of contributing to a business friendly environment.

The Court majority also found that the Act did not constitute an unconstitutional taking — i.e., that the Union was being required to provide a service (fair representation regardless of membership) without just compensation.  The majority noted that the Union never raised the argument, and thus had forfeited it.  Nonetheless, the majority questioned whether the state was even the proper party in such a claim since, while Indiana law prohibited the Union from collecting fees, it was federal law that required it to provide fair representation.  The majority asserted that the Union nonetheless was justly compensated for its fair representation obligation by the federal law’s grant of exclusive representation to the Union — something which provided the Union with benefits and powers that it would not otherwise have.

Chief Judge Wood issued an extensive dissent.  Judge Wood agreed with the Union that Section 14(b) only permitted states to prohibit union membership, not to prohibit unions from collecting fees for representational services rendered.  In her review of the underlying precedent, Judge Wood found the Supreme Court never considered non-members who were required to pay representation fees to be “members” under Section 14(b).  Moreover, in its cases addressing Section 14(b), the Supreme Court had not addressed the issue at hand but instead only found that states could prohibit agreements from requiring membership or attempting an end run by imposing non-member fees equal to those paid by union members.  Judge Wood dismissed the legislative history argument, noting that the Court had no idea what Congress thought, and that Congress also could have easily believed the courts would decide which state laws complied with Section 14(b).  In any event, the statutory language itself should control.

If the Act was not preempted, Judge Wood argued that it violated the Takings Clause.  The government may only confiscate private property for public use with just compensation, and is prohibited from taking property from one private party for the sole purpose of transferring it to another private party, regardless of whether “just” compensation is paid.  Here, according to Judge Wood, the state did exactly that by forcing one private party, the Union, to give services to another private party, non-union members.  Judge Wood  claimed no public purpose for the taking was even alleged.  Judge Wood compared the situation to the equivalent of requiring a gas station, if it wanted a business license, to give away gas to customers who did not want to pay.  Wood rejected the majority’s just compensation claims for numerous reasons, including that it ignored the tangible costs placed on unions in administering the contract and handling grievances.

Thus, Indiana’s Right to Work Act survived federal preemption and constitutional challenge, for now.  Judge Wood’s dissent may give the Union cause to consider a petition for rehearing en banc or a petition for certiorari, and no doubt it will give others the idea to bring their own challenges to Indiana’s Act or other similar state right to work statutes.

While Indiana’s Act survived Judge Wood, it is not out of the woods.  Two state courts, in cases involving IUOE Local 150 in September 2013 and the USW just last July, found the Act violated an Indiana State Constitutional provision barring the delivery of particular services without just compensation.  The Indiana Supreme Court is set to hear oral argument on IUOE Local 150’s case on September 4th.  Stay tuned.  This fight is far from over.