Agency Fees Under Attack on Two Fronts

Gary Messing, Jennifer S. Stoughton, and Amber L. West
Carroll, Burdick & McDonough

Traditionally, most peace officers associations have very high membership rates not enjoyed by other public sector unions, which rely heavily on agency fees to fund the important work they do. Procedures regarding agency fees are crucial for many associations, to ensure that non-members, who receive the benefits of collectively bargained working conditions, do not get a free ride. Thus, California law permits unions to require every employee in the bargaining unit to pay an agency fee (or fair share fee) to defray the costs of collective bargaining, contract administration, and grievance representation.

Until recently, the matter of collecting fees was clear cut (set forth in Chicago Teachers Union, Local No. 1, AFT, AFL-CIO v. Hudson (1986) 475 U.S. 292 (“Hudson”)). This case provided for collection of agency fees and allowed non-members to opt-out from paying fees used for political or ideological purposes (this “opt-out system” is discussed further below). However, two recent cases threaten the destruction of this system, which is the very foundation on which many unions rely for survival.

U.S. Supreme Court Decision in Knox v. SEIU

The first attack on agency fees came last year from the U.S. Supreme Court. Knox et al., v. SEIU, Local 1000, 567 U.S. ___ (2012) is a case so full of troubling language that it raises concern for the possibility of similar opinions in the future.

In Knox, non-members challenged a special assessment aimed at raising funds to combat certain anti-union referenda. The controversy that preceded the Knox case arose when SEIU did not provide non-members with a new notice (a Hudson letter) to opt-out of the special assessment dues. The Court held the union must provide a new notice and receive the consent of non-members (i.e., “opt-in”). Even though SEIU’s annual Hudson notice had previously stated that the agency fee was subject to increase at any time without further notice, the Court found this insufficient. The Court also found a special assessment must be opt-in.

While this case was about a special assessment and not the agency’s annual fee, the Court made hostile statements and encouraged future, broader challenges to agency fees collection methods, including the annual agency fee. In addition, the conservative Court called the agency shop system a “remarkable boon” to unions. The Court stated that the set of cases that hold agency shops constitutional are “an anomaly” and the group of cases finding opt-out systems constitutional are a “historical accident” instead of the result of a thorough analysis of First Amendment principles. This is a very concerning sign that the next time the Court hears an agency fee case, it will ignore precedent and create new law.

Several times the Court showed animosity toward opt-out systems. For instance, the Court stated that even though prior decisions permitted the use of opt-out systems, those decisions “approach, if they do not cross the limit for what the First Amendment can tolerate.” Moreover, the Court said it is wrong for a court to balance the right of the union to collect agency fees against the rights of non-members. And, disturbingly, the Court said unions do not have any constitutional rights to collect union dues and the only constitutional rights to be considered are the First Amendment rights of non-members with regard to fees. The underlying message is that one day soon, use of an opt-out system may be found unconstitutional.

The Court also questioned the way most unions use the prior year’s audits to calculate the chargeable fees for the coming year. It said fees cannot be charged in advance unless the union can ensure the estimate calculated from the audit will not result in overcharging non-members for the actual amount they owe. The result is that, for special assessments, a refund does not remedy the First Amendment violation no matter when it comes (and no matter that it includes interest). So, when estimating chargeable amounts, the union must take the risk of undercharging and may never overcharge in any year. The Court also seemed to invite the opportunity to address this aspect as to regular agency fee collections.

In addition, the Court questioned SEIU’s characterization of what is chargeable, calling it “expansive.” The Court found no merit to SEIU’s argument that lobbying the electorate is “germane” to the implementation of its contracts.

The Knox case was about special assessments, but it seems the Court would have held the same had the challenge been about regular agency fees. The hostility in Knox toward opt-out systems and agency fees, in general, indicates that, in the future, the U.S. Supreme Court may choose to rule on the basic tenets of the agency shop, upon which unions have relied for decades.

Wisconsin Law Stripping Rights of Public Employees Upheld

Previously well-established rights of public employees were also eviscerated in Wisconsin Education Association Council v. Walker, in which a federal appellate court recently ruled that certain of these rights could be stripped without violating the U.S. Constitution.

The conflict leading to this case arose in 2011 when Wisconsin passed legislation impairing public employees’ rights—that is, all public employees except for those categorized as “public safety workers.” Without explanation, the act categorized prison correctional officers and probation officers as not working in public safety. The method of categorization appears to have been politically motivated: All of the associations representing public employees categorized as “public safety workers” had supported Governor Walker’s election; all that had not been subject to the act’s rights-stripping provisions. The court upheld the act’s elimination of the following rights as to all public employees not categorized as public safety workers: A ban on mandatory dues and fair share fees; a bar on collective bargaining rights (except with respect to “total base wages” under the consumer price index); a blanket prohibition on withholding dues; and a new annual recertification requirement (all covered workers, not just those casting ballots, must approve the union by an absolute majority of the bargaining unit for the union to remain certified as the bargaining representative).

Defendants justified the public safety employee exemption as designed to limit the risk of strikes or other orchestrated work stoppages among public safety employees in response to the act’s passage. But again, this was belied by the fact that all labor organizations that endorsed Governor Walker’s election fell into the classification of “public safety employees” and all that had not supported the Governor fell within the “general employee unions” classification. (One would think that the Governor would have included correctional officers and probation officers in the exemption from the act, given that a strike by those individuals would certainly impact public safety.)

Like Knox, the court’s decision in Walker is devastating to public employees’ rights. The federal appellate court admitted that the political favoritism of differing treatment of public safety employees and general employees was obvious, but favoritism is commonly a part of legislative action. The court went on to say that, because only a rational basis for the legislation is required, the court does not consider the actual motives of those involved to determine whether constitutional rights are violated—only what their motives might have been. The court concluded that a reasonable motive for carving out public safety would be to prevent strikes and work stoppages.

For the same reason, the federal appellate court also found constitutional the act’s annual recertification requirement, rejecting the trial court’s description of the requirement as burdensome. Similarly, the court decided that the bar on payroll deductions as to general employee unions and not public safety unions were allowed—even as it also conceded some evidence exists that the act was politically motivated. Specifically, the court found evidence existed of discrimination in statements by Wisconsin’s then-Senate Majority Leader, who expressed a hope that the act if passed, would make it harder for President Obama to win reelection in Wisconsin because unions’ fundraising activity would be limited. The court noted the discrimination was not of the sort that would invalidate the law because the law itself was “viewpoint neutral” (that is, nothing in its provisions targeted a specific political point of view). The court also stated the bar on payroll deductions is permitted because such deductions were simply removing a logistic obstacle that was “not created” by the state, so the state was under no obligation to continue to remove that obstacle.

Knox and Walker display a disturbing hostility toward the rights of public employees and condone the politically motivated gutting of unions’ ability to collect fees. We have already begun our work with clients to actively protect them against the fallout of these decisions and of those yet to come.

About the Authors

Gary M. Messing is a partner at the Sacramento office of Carroll, Burdick & McDonough LLP, and co-chair of the firm’s Public Sector Labor Law Group. Gary has been with CBM representing peace officers for 35 years. Jennifer S. Stoughton is an associate at the San Francisco office of CBM and has been with the firm representing peace officers for six years. Amber L. West previously worked for the federal courts and recently joined CBM’s Public Sector Labor Group as an associate in the San Francisco office.