By Laura J. Maechtlen and Robb D. McFadden

Key workplace issues often arise in the class action context.

Fresh on the heels of an historic defeat in the State of Wisconsin’s recall election, organized labor was dealt another blow in a class action on June 21, 2012, when the U.S. Supreme Court ruled in Knox v. Service Employees International Union, Local 1000, No. 10-1121, 2012 U.S. LEXIS 4663 (June 21, 2012), that a public-sector labor union violated the First Amendment when it required non-union employees to finance the union’s political activities without their affirmative consent. The decision is a major defeat for organized labor and will undoubtedly lead to further challenges in the way union dues are assessed and collected.

Background

To combat the “free rider” problem, California law permits public-sector unions to require public employees who do not join the union to pay dues related to the union’s collective bargaining efforts. Knox, 2012 U.S. LEXIS 4663 at *8-9. However, the union must provide non-union employees with an opportunity to opt-out of contributing to its political or ideological projects. Id. at *9-2.

In June 2005, the SEIU sent a notice to bargaining unit employees estimating that 56% of its total expenditures would be chargeable expenses. Id. at *10-11. Shortly after the 30-day objection period expired, the SEIU sent another letter to unit employees announcing a “special assessment” amounting to a temporary 25% increase in dues to build a “Political Fight-Back Fund” to pay “for a broad range of political expenses” aimed at defeating several anti-union propositions that had been placed on the ballot by then-California Governor Arnold Schwarzenegger. Id. at *12-13. Because the opt-out period for annual dues had already expired, the Union told those who complained about the special assessment that they had no choice but to pay the assessment. Id. at *14-15.

Plaintiffs filed a class action on behalf of 28,000 non-union employees who were forced to make financial contributions to the Political Fight-Back Fund, arguing that the SEIU violated their First Amendment rights by forcing them to support the union’s political causes. Id. at *15. The District Court granted the plaintiffs’ motion for summary judgment, but the Ninth Circuit reversed, finding that the special assessment “reasonably accommodated the interests of the union, the employer, and the non-member employees.” Id. at *15-16. 

The Supreme Court’s Ruling In Knox v. SEIU

By a 5-2 decision, the Supreme Court reversed the Ninth Circuit, holding that “when a public-sector union imposes a special assessment or dues increase, the union … may not exact any funds from non-members without their affirmative consent.” Id. at *42. Writing for a five-member majority, a highly skeptical Justice Alito dismantled the Union’s arguments one by one. First, the Supreme Court recognized that a statutory scheme compelling individuals to fund the speech of private speakers or groups implicates the First Amendment and is “closely related” to the principle that the “government may not prohibit the dissemination of ideas that it disfavors, nor compel the endorsement of ideas that it approves.” Id. at *20-21. For this reason, compelled speech must be carefully tailored to further a “compelling state interest.” Id. at *27-28. To this end, the Supreme Court found that the “free-rider” principle is not sufficiently compelling to justify a violation of the First Amendment, characterizing it as “something of an anomaly” intended to further “labor peace.” Id. at *24-25. 

The Supreme Court also took aim at the Union’s “opt-out” procedure, which “appears to have come about more as a historical accident than through the careful application of First Amendment principles.” Id. at *25-26. Noting that judges “do not presume acquiescence in the loss of fundamental rights,” the Supreme Court questioned “the justification for putting the burden on the non-member to opt out of making such a payment” where such a system “creates a risk that the fees paid by non-members will be used to further political and ideological ends with which they do not agree.” Id. at *24-26. The Supreme Court found that the opt-out procedure “approach[es], if [it does] not cross, the limit of what the First Amendment can tolerate.” Id. at *29. 

The Supreme Court rejected the Union’s argument that non-members who objected to the special assessment would be reimbursed after the election, finding that “the First Amendment does not permit a union to extract a loan from unwilling non-members even if the money is later paid back in full.” Id. at *33. The Supreme Court also dismissed the Union’s claim that non-members “actually received a windfall” because its chargeable expense turned out to be 10% higher than originally estimated. Id. at *37-38. Pointing to the fact that the Union self-servingly defined several types of political activities as chargeable expenses and that its “auditors take the union’s characterization for granted,” the Supreme Court found that the Union’s statistics were not reliable and its rhetoric would “eviscerate the limitation on the use of compulsory fees to support unions’ controversial political activities.” Id. at *39-40. 

Accordingly, the Supreme Court concluded that “the side whose constitutional rights are not at stake” should bear the greater burden and held that “the union should have sent out a new notice allowing non-members to opt in to the special fee rather than requiring them to opt out.” Id. at *34 (emphasis added). 

The Significance Of Knox v. SEIU

The Supreme Court’s holding in Knox may have a profound impact on the way public employee unions do business. It will undoubtedly discourage the use of special assessments and reduce the amount these unions collect for political and ideological causes. More significantly, however, is the fact that Knox undermines the “free rider” rationale, questions the union’s “chargeable determinations,” and all but invites a challenge to union’s use of opt out procedures in general.