NLRA v. Cal-WARN: Does the enforcement of the Cal-WARN Act during a labor dispute conflict with federal labor policies under the NLRA?

The public is not likely to forget what ultimately became the longest strike in history for organized labor in the grocery retail industry; however, few probably appreciate the fact that, of the UFCW members who were seen walking the picket line continuously from the fall of 2003 until a new union contract was reached in February of the following year, many of them were not actually on strike but had been "locked out" by the supermarket chains. This preemptive action by the employers, in turn, led to a number of lawsuits filed by the UFCW. One such lawsuit, filed on October 14, 2003, raised issues of first impression under the newly enacted California Worker Adjustment and Retraining Notification Act ("Cal-WARN").¹, Cal-WARN, which became effective on January 1, 2003, requires employers to provide sixty days advance notice to their employees before effecting a "mass layoff" or termination of business operations under certain conditions. The UFCW contended that the lockout by the supermarket chains, done without advance notice to their employees, violated Cal-WARN, thereby triggering the penalties under that law. Those penalties are stiff - a Cal-WARN violation, in addition to other penalties, gives rise to a claim for a day's pay and benefits for each day of the period of the violation up to a maximum of sixty days, or half the number of days the employee was employed with the employer, whichever period is shorter.²

Whether Cal-WARN penalties could be legally enforced in labor disputes of this type is an issue that was never resolved in the UFCW lawsuit because that lawsuit was dismissed in March of 2004, presumably as part of the parties' settlement of their labor dispute. Had that lawsuit gone forward, the court almost certainly would have been faced with the question of whether Cal-WARN conflicted with federal labor law policies, including policies underlying the National Labor Relations Act ("NLRA"). While one can argue as a threshold matter that an employer lockout does not even meet the definition of a mass layoff, termination of business operations, or other triggering event under Cal-WARN,³ the focus of this article is on how the NLRA arguably precludes the application of Cal-WARN to employer lockouts.

The NLRA Preemption Doctrine

The NLRA is the federal law governing labor relations between employers and employees in the private sector. Essentially, the NLRA protects the rights of employees to form, join or assist unions, and to collectively bargain with their employers.⁴ The NLRA makes unlawful certain conduct by the employer, including the refusal to bargain in good faith over a labor contract with a union representing a majority of the employer's employees.⁵ Unions also have a corresponding duty under the NLRA to bargain in good faith with the employer.⁶

Although the NLRA imposes a good faith bargaining obligation on both the employer and the union, this obligation does not mean that the parties actually must reach an agreement on a labor contract. All that is required is that each party, upon demand by the other side, "meet at reasonable times and confer in good faith" with the objective of trying to reach agreement over wages, hours, or other terms and conditions of employment, and, if requested by the other side, to reduce those terms to writing.⁷ When passing the NLRA, Congress recognized that there will be times when, despite good faith efforts to do so, the employer and the union are unable to come to terms on a labor contract. Congress also recognized that there will be times when either the employer or the union may want to apply economic pressure to force one side to reach an agreement on the other side's terms. In the case of unions, this economic pressure typically takes the form of a strike or concerted work stoppage. In the case of employers, the economic pressure typically takes the form of a lockout. A lockout occurs when, for tactical or defensive reasons during the course of collective bargaining or during a labor dispute, an employer refuses to utilize some or all of its employees to perform available work.⁸

Self-help measures such as union strikes and employer lockouts were intended by Congress to be left unregulated;⁹ hence, when application of a state law either enhances or impairs the effectiveness of any of the economic weapons within the arsenal of the employer or the union during a labor dispute, the question arises of whether the NLRA "preempts" the state law by reason of the supremacy clause of the federal constitution.¹⁰

Application of the NLRA preemption doctrine to Cal-WARN

Because Cal-WARN is still fairly new on the books, there are no reported cases concerning the scope of its application to a labor dispute; even so, there is a history of federal case law from which compelling arguments can be made that attempts to enforce Cal-WARN against employers who lock out their employees is inconsistent with the NLRA's policy to keep state regulation out of the equation when employer and union parties are pitted against each other in a labor dispute.

The seminal cases from which NLRA preemption first developed include a pair of Supreme Court cases: Local 120,Teamster, Chauffeurs, Helpers Union v. Morton, decided in 1964, and International Association of Machinists and Aerospace Workers v. Wisconsin Employment Relations Commission, decided in 1976. ¹¹In the Morton case, the Court held that an Ohio state court could not award damages against a union for peaceful secondary picketing even though the union's conduct was neither protected nor prohibited by the NLRA. Because Congress had focused upon this type of conduct and elected not to proscribe it when later amendments were made to the NLRA, the Court inferred a deliberate legislative intent to preserve this means of economic warfare for use during the bargaining process.¹²

In Machinists, the Court held that the Wisconsin state employment relations commission could not prohibit a union's concerted refusal to work overtime. Although this type of partial strike activity had not been the subject of special congressional consideration, as had the secondary picketing in Morton, the Court nevertheless concluded that it was a form of economic self-help that was "part and parcel of the process of collective bargaining" that Congress implicitly intended to be governed only by the free play of economic forces.¹³ Under this preemption analysis, the Court identified the crucial inquiry as whether the exercise of state authority to curtail or entirely prohibit self-help would frustrate effective implementation of the policies of the NRLA.¹⁴

In 1979 the Court, in New York Telephone Company v. New York State Department of Labor, sought to clarify the scope and reach of its prior decisions concerning NLRA preemption.¹⁵In that case, the Court addressed the question of whether New York's unemployment insurance law, which authorized the payment of unemployment benefits to striking employees, was subject to NLRA preemption. Under New York's unemployment insurance law, unemployment benefits were funded primarily by employer contributions based on the benefits paid to former employees of each employer in past years. The employers who challenged the law argued that because benefits paid to striking employees meant that their employer would be assessed higher rates of contribution into the state's unemployment fund, then the strikers indirectly were being subsidized by their employer.

While the Court appeared to accept the contention that the payment of unemployment benefits to strikers meant that the struck employers were at least partially financing the strike, the Court nevertheless concluded that a finding of NLRA preemption was not warranted. After summarizing its prior cases concerning NLRA preemption, the Court concluded that those cases, all of which involved clear attempts by the state to "regulate or prohibit private conduct in the labor-management relations field," did not govern the analysis of the issue presented in the case then before the Court. In contrast to the previous cases, the case before the Court involved a state law of general application covering the plight of the unemployed worker, regardless of whether the worker's plight was a result of labor unrest. Although recognizing that the award of unemployment benefits to striking employees increased the likelihood that employees would be willing and financially able to weather the strike, the Court viewed this effect as an incidental by-product of the state's legitimate interest in providing generally for the welfare of all citizens who made up the state's labor pool.¹⁶

After concluding that the case before it did not invoke the traditional analysis developed in prior NLRA preemption cases, the Court then looked for other evidence to determine if Congress intended the NLRA to prohibit states from awarding unemployment benefits to striking employees. The Court noted that the state unemployment insurance law worked in tandem with federal unemployment insurance law¹⁷ authorizing the provision of federal funds to states having unemployment insurance programs approved by the Secretary of Labor. The statutory scheme under the federal unemployment insurance law, together with its legislative history, evidenced Congress's intent to give broad discretion to the states, not just in the adoption of their own laws establishing unemployment insurance systems, but in determining the eligibility rules for benefits under those systems.¹⁸ The Court concluded that as between the two federal statutes, the NLRA's implied restriction of state power to regulate economic weapons during a labor dispute, although broad, nevertheless must yield to Congress's countervailing intent under the federal unemployment insurance law to defer to the states on matters concerning the administration of state unemployment insurance programs. The Court indicated that such deference must be inferred "in the absence of compelling congressional direction" to the contrary.¹⁹

The state or federal court that ultimately decides whether Cal-WARN can be applied against employers who lockout their employees²⁰ almost certainly will have to examine that issue in light of the Supreme Court's analysis in New York Telephone. As was true with the state unemployment insurance law in New York Telephone, Cal-WARN is a law that is not directed specifically to governing the relations between employers and unions in a labor dispute; rather, it is a law of general applicability to employees affected by a mass layoff or termination of business operations, whether or not such layoff or termination was the result of a labor dispute. Further, like the state law at issue in New York Telephone, Cal-WARN has the backing of a corresponding federal law, the WARN Act ("fed-WARN").²¹ In addition to imposing advance notice obligations on employers who effect a "mass layoff" or "plant closing,"²² fed-WARN expressly sanctions the states' right to enact their own WARN-type statutes.²³

Despite the factual and legal parallels between the case of striking employees who were given unemployment benefits in New York Telephone and the case of employees who, after having been locked out by their employer, seek to obtain Cal-WARN penalties, there are other marked differences that warrant the conclusion that Cal-WARN cannot survive NLRA preemption even under the New York Telephone analysis. First, although fed-WARN preserves the state's right to also regulate the subject of an employer's advance notice obligations to employees in the event of a mass layoff or termination of business operations, the fed-WARN provision that preserves that right hardly compares to the comprehensive federal statutory scheme relied on by the Supreme Court in New York Telephone. Among other things, the Supreme Court noted that the federal unemployment insurance law authorized federal subsidies to help fund the state's own unemployment insurance program; the federal law established specific guidelines and conditions to which state unemployment insurance programs were required to conform in order to participate in the federal subsidies; and these federally imposed guidelines and conditions failed to provide that persons would be disqualified from receiving unemployment benefits if the unemployment was caused by a labor dispute. "The fact that Congress [had] chosen not to legislate on the subject of labor dispute disqualifications" when enacting the federal unemployment insurance law "confirm[ed] [the court's] belief that . . . the [law] was [not] intended to restrict the state's freedom to legislate in this area."²⁴

In contrast to the federal unemployment insurance law, fed-WARN's statutory scheme does not contemplate cooperative interplay between the federal government and the states in connection with the subject matter covered by fed-WARN; it does not provide federal subsidies to assist states in setting up and administering their own WARN type statutes; and, most importantly, it does not purport to define any criteria by which it may be inferred that states seeking to enact their own WARN type statutes can permissibly intrude on matters affecting relations between employer and union parties engaged in collective bargaining or involved in a labor dispute.

Fed-WARN's failure to permit states to inject themselves into the private conduct of the parties during a labor dispute, or to impact, even indirectly, a party's use of economic weapons during that dispute, is particularly significant in view of the fact that fed-WARN itself contains a provision exempting from fed-WARN coverage any "plant closing or mass layoff if . . . the closing or layoff constitutes a strike or constitutes a lockout not intended to evade the requirements of this [statute]."²⁵ The federal cases that have interpreted this provision have held that the exemption applies if the employer can prove that the employee layoffs or terminations were "related" to a strike or a lockout.²⁶

That Congress included in fed-WARN an express provision limiting its application where labor disputes are involved is compelling evidence of Congress's intent not to erode the NLRA rights of unions and employers to use the economic weapons respectively available to them during a labor dispute. If Congress saw fit not to disturb those rights when enacting fed-WARN, it follows that states that pass similar WARN laws cannot enforce them in a manner or under circumstances that would interfere with those rights. As observed by the three dissenting justices in New York Telephone, under "well settled" Supreme Court precedent, "[i]t has not mattered whether the states have acted through laws of broad general application rather than laws specifically directed towards the governance of industrial relations. [citation] Instead, the cases reflect a balanced inquiry into such factors as the nature of the federal and states' interests in regulation and the potential for interference with federal regulation." ²⁷ Here, the potential for Cal-WARN to "interfere with federal regulation" is heightened by the fact that the comparable federal law itself has given deference to the employer's rights under the NLRA to lockout its employees during a labor dispute.

Conclusion

Although Cal-WARN has not been on the books long enough to be tested under the NLRA preemption doctrine, one still would expect to find cases from other states that have applied the doctrine to statutes comparable to Cal-WARN. Unfortunately, while there are a handful of states that have enacted WARN type statutes,²⁸ there are no reported cases discussing the application of NLRA preemption to those statutes. It therefore appears that the UFCW's lawsuit raising this issue was a case of first impression, not just in California but nationwide. Even so, the federal caselaw that already has developed and shaped our labor policies under the NLRA over these many years provides rather clear directives to the states and to employers and unions alike to tread cautiously when attempting to use state law to outlaw conduct arising out of a labor dispute.

As with fed-WARN, Cal-WARN was enacted to provide workers and their families advance notice of a job loss in order that there would be transition time to adjust to that event, and to seek and obtain alternative employment. Yet, the UFCW appeared to attempt to use Cal-WARN as a means of financially penalizing employers who, in a show of solidarity, locked out their employees in response to the UFCW's strike. In essence, by invoking Cal-WARN, the UFCW sought to render the threat and actual use of a lockout toothless. Whether or not that was the union's intent, it clearly would have been the natural effect of any court decision that awarded damages or penalties against the supermarket chains under Cal-WARN. Absent compelling evidence that Congress intended to permit such a result - and none appears to have existed in the UFCW case - that union's lawsuit under Cal-WARN probably would not have survived constitutional scrutiny under our federal labor policy.

¹ California Labor Code § 1400-1408.

² California Labor Code § 1402.

³ California Labor Code § 1400.

⁴ 29 USC § 157.

⁵ 29 USC § 158(a)(5); § 158(d).

⁶ 29 USC 158(b)(3); § 158(d).

⁷ 29 USC § 158(d).

⁸ Laclede Gas Co. v. NLRB (8^th Cir. 1970) 421 F.2d 610, 615, fn 9, citing to Justice White’s definition in American Ship Building Co. v. NLRB (1965) 380 U.S. 300, at 321, 85 S.Ct. 955.

⁹ Local 120, Teamsters, Chauffers, Helpers Union v. Morton(1964) 377 U.S. 252, 84 S.Ct. 1253; Lodge 76 International Association of Machinists and Aerospace Workers v. Wisconsin Employment Relations Commission (1976) 427 U.S. 132, 96 S.Ct. 2548.

¹⁰ Machinist, supra.There are actually two recognized doctrines pertaining to NLRA preemption.The first doctrine, known as the "Garmon preemption doctrine," was enunciated by the S.Ct. in San Diego Building Trades Council Millmen’s Union, Local 2020 v. Garmon (1959) 359 U.S. 236, 79 S.Ct. 773.Under the Garmon doctrine, if a state statute regulates an activity that is "arguably or actually prohibited or is arguably or actually protected by the NLRA, then the statute is preempted."Cannon v. Edgar (N.D.Ill. 1993) 825 F.Supp 1349, 1354.The second doctrine, known as the "Machinist preemption doctrine," was enunciated by the Court in Machinist, supra.The Machinist doctrine applies to preempt state law under circumstances in which "Congress intended that the conduct involved be unregulated because [such conduct was] left to be controlled by the free play of economic forces."New England Health Care, Employees Union, District 1199, SEIU AFL/CIO v.Rowland (D.Conn. 2002) 221 F.Supp. 2d 297, 324.Attempts to apply Cal-WARN to employer lockouts more likely will raise issues and arguments concerning the Machinist doctrine, not the Garmon doctrine.See Kapiolani Medical Center For Women and Children v. State of Hawaii (D.Ha. 2000) 82 F.Supp 2d 1151, 1155 ("[t]he Garmon preemption analysis does not apply to this case since the use of economic weapons are not arguably protected nor prohibited by the NLRA.") Consequently, this article focuses on an analysis of how the Machinist doctrine of NLRA preemption applies to Cal-WARN.

¹¹ See fn 9, supra.

¹² 377 U.S. at 259-260, 84 S.Ct. at 1258.

¹³ 427 U.S. at 149, 96 S.Ct. at 2557.

¹⁴ 427 U.S. at 147-148, 96 S.Ct. at 2557.

¹⁵ New York Telephone Company v. New York State Department of Labor (1979) 440 U.S. 519, 99 S.Ct. 1328.

¹⁶ 440 U.S. at 534-535, 99 S.Ct. at 1338.

¹⁷ See Title IX of the Social Security Act, which established the federal unemployment compensation scheme.29 USC §§ 3301, et seq., 42 USC §§ 501 et seq., §1101 et seq.

¹⁸ 440 U.S. at 536-540, 99 S.Ct. at 1339-1341.

¹⁹ 440 U.S. at 1341, 99 S.Ct. at 540.

²⁰ In addition to raising NLRA preemption as an affirmative defense to the UFCW’s state court action, the supermarket chains presumably could initiate their own lawsuit in federal court seeking declaratory and injunctive relief to challenge the enforcement of Cal-WARN.St. Thomas - - St. John Hotel & Tourism Association Inc. v. Government of US Virgin Islands  (3^rd Cir. 1999) 218 F.3d 232.

²¹ 29 USC §§ 2101-2109.

²² 29 USC § 2102 (a).

²³ 29 USC §2105.

²⁴ 440 US at 538, 99 S.Ct. at 1340.

²⁵ 29 USC §2103.

²⁶ Teamsters National Freight Industry Negotiating Committee v. Churchill Trucklines, Inc. (WD Mo.1996) 935 F.Supp. 1021, 1026; New England Healthcare Employees Union, District 1199, SEIU AFL-CIO v. Fall River Nursing Home, Inc. (D Mass. 1998) 14 IER Cases 400, 1998 WL 518188; see also federal regulations interpreting fed-WARN at 20 C.F.R. §639.5 (d) ("a plant closing or mass layoff at a site of employment where a strike or lockout is taking place, which occurs for reasons unrelated to a strike or lockout, is not covered by this exemption.An employer need not give notice when permanently replacing a person who is deemed to be an economic striker under the National Labor Relations Act.")

²⁷ 440 US at 558, 99 S.Ct. at 1350.

²⁸ In addition to California, a number of states have some type of advance notice obligations for employers that contemplate mass layoffs or the closure of all or part of their business operations, including Connecticut, Hawaii, Kansas, Maine, Massachusetts, New Jersey, Pennsylvania, Rhode Island, South Carolina, and Wisconsin.