As the cannabis industry has rapidly progressed over the years, states such as New York, New Jersey and Illinois have begun to implement legislation that encourages employers to engage in labor peace agreements with unions. On October 12, 2019, California went even further than encouragement when Governor Gavin Newsom signed into law Assembly Bill 1291, which amended California’s Medicinal and Adult Use of Cannabis Regulation and Safety Act (MAUCRSA). Distinct from other state legislation, California’s new law mandates that employers with 20 or more employees maintain a labor peace agreement as a condition of obtaining a state cannabis license. For this reason, California’s new bill has raised constitutional concerns.
Labor Peace Agreements for Employers in the Cannabis Industry
Labor peace agreements are agreements between an employer and a bona fide labor organization to exchange obligations. The ostensible purposes of state regulations promoting labor peace agreements are to create union protections for cannabis industry workers, while protecting employers from strikes and other disruptions of business. Prior to the signing of California’s latest bill, most state licensing and regulatory schemes listed the existence of a labor peace agreement as an optional factor to be evaluated in the overall licensing process. For example, the Illinois law operates on a “point system” and awards five points out of a possible 250 to employers who maintain labor peace agreements, which only marginally improves an applicant’s prospects for approval.
Most notably, under regulations such as those in Illinois, organizations that refuse to enter into a labor peace agreement receive zero points toward their total state permit evaluation, but they can still be approved if they meet other criteria. Under California’s new bill, however, an employer that fails to provide a notarized statement or demonstration that it has entered or will enter into a labor peace agreement within 60 days of employing its 20th employee would be automatically denied a state cannabis license.
Thus, the new California law makes labor peace agreements no mere categorical assessment but a mandatory requirement to obtain a state cannabis license under MAUCRSA. Since California makes it difficult to utilize independent contractors instead of employees (as noted in our Alert discussing AB 5), this provision could have a significant impact on the unionization of the cannabis industry in California. Indeed, making labor peace agreements a mandatory requirement for a state license has raised constitutional concerns.
Constitutionality of California’s Assembly Bill 1291
As an initial matter, the National Labor Relations Board (NLRB) has sole authority to regulate labor relations in the private sector in all industries, including the marijuana industry, even where production and consumption is solely intrastate. To the extent that these labor peace agreements require employers to abandon rights secured by the National Labor Relations Act (NLRA) as a condition of receiving government benefits, they may be preempted by the Supremacy Clause of the United States constitution.
The NLRA does not require employers to reach an agreement with a union, but does require the parties to bargain in good faith. If good faith negotiations are unsuccessful, the NLRA permits an employer to declare impasse and implement its last proposal to the union. The union may disagree and file an unfair labor practice charge with the NLRB claiming the employer has refused to negotiate in good faith. If the NLRB finds that the employer has not bargained in good faith, the agency may require further bargaining, thereby prolonging labor peace agreement negotiations. However, by requiring cannabis employers to negotiate and accept union offers within 60 days or effectively lose the right to do business in California, AB 1291 attempts to regulate rights protected by the NLRA and attempts to change the balance of economic power between cannabis employers and labor unions. Thus, the law could be preempted under the Garmon standard (preempting state laws that regulate conduct that is either arguably protected or prohibited by NLRA) and the Machinists standard (preempting state laws that regulate conduct within the zone of activity that Congress meant to be left to the free play of economic forces).
Therefore, California’s new legislation may be unconstitutional if it is found to force cannabis companies to sign labor peace agreements or to force them to accept union offers, since such requirements would conflict with the integrated regulatory scheme governing labor relations established under federal law.
As of now, only about seven percent of the United States private sector is unionized, but as the cannabis industry continues to grow and state legislatures weigh in on unions’ side, employers should expect to see an increase in unionization. Labor peace agreements tend to be highly specialized, and state regulations on the cannabis industry tend to include additional requirements apart from labor peace agreements. As such, employers should make sure to review all requirements before applying for their state cannabis license and consult with counsel to confirm their business is compliant with state regulation.