Split High Court Finds Mid-Year Agency Fees Require New Notice, Consent

Split High Court Finds Mid-Year Agency Fees Require New Notice, Consent

WASHINGTON, D.C. - (Mealey's) An appeal of a lawsuit by nonunion employees who pay an annual fee to their union and are challenging what constitutes proper notice of temporary mid-year fees assessed by a union and used for political purposes is not moot, a U.S. Supreme Court majority ruled June 21, finding that a special assessment or increase in dues requires a fresh notice and affirmative consent from nonunion members (Dianne Knox, et al. v. Service Employees International Union, Local 1000, No. 10-1121, U.S. Sup.). 

(Opinion available.  Document #73-120713-010Z.) 

"Giving employees only one opportunity per year to make this choice is tolerable if employees are able at the time in question to make an informed choice.  But a nonmember cannot make an informed choice about a special assessment or dues increase that is unknown when the annual notice is sent.  When a union levies a special assessment or raises dues as a result of unexpected developments, the factors influencing a nonmember's choice may change.  In particular, a nonmember may take special exception to the uses for which the additional funds are sought," Justice Samuel Anthony Alito Jr. wrote for the majority. 

Union Fees 

The Service Employees International Union, Local 1000, and the State of California entered into a series of memoranda of understanding controlling the terms and conditions of employment for employees, including a provision requiring that all state employees in the bargaining units join the union as formal union members or, if opting not to join, pay an "agency" or "fair share" fee to the union for its representational efforts on their behalf.  The agency fee is calculated as a percentage of the union dues paid by members of the union. 

Each June, the union issues a notice as required under Teachers v. Hudson (475 U.S. 292 [1986]) to all nonmembers.  The notice is meant to provide nonmembers with an explanation of the basis for the agency fee.  Nonmembers have 30 days after each notice to object to the collection of the full agency fee and instead elect to pay a reduced rate based on the percentage ratio of chargeable expenditures to total expenditures.  All objections are to be resolved by an impartial decision maker. 

Temporary Assessment 

On July 30, 2005, the union's Budget Committee proposed an emergency temporary assessment to create a "Political Fight Back Fund."  It was stated that the fund would be used for a variety of political expenses in response to several anti-union propositions on the November 2005 special election ballot in California. 

On Aug. 27, 2005, union delegates voted to implement the temporary dues increase.  On Aug. 31, 2005, the union sent a letter to all members and agency fee payers stating that they were subject to the new increase, which would be used "to defeat Propositions 76 and 75."   However, later, in response to inquiries, the union stated that the funds would be used for political and collective bargaining actions. 

Eight agency fee payers, representing nonunion employees who objected to the union's 2005 Hudson notice and those who did not object, sued the union in the U.S. District Court for the Eastern District of California.  The plaintiffs alleged that the assessment violated their First, Fifth and 14th Amendment rights under 42 U.S. Code Section 1983.  Judge Morrison C. England Jr. granted the plaintiffs' summary judgment motion.  The union appealed. 

Ruling Reversed 

A Ninth Circuit U.S. Court of Appeals majority on Dec. 10, 2010, reversed and remanded with instructions to deny the plaintiffs' motion for summary judgment.  It also reversed the denial of the union's motion for partial summary judgment regarding the consent of nonobjectors under California law and remanded with instructions to grant the motion. 

The agency fee payers petitioned the high court in March.  In June, the high court agreed to hear the appeal.  During the briefing process, the union moved to dismiss the case as moot based on a Sept. 29 notice it sent offering refunds of the fee.  Oral arguments were heard by the high court on Jan. 10.  

Writing for the majority, Justice Alito added that "by allowing unions to collect any fees from nonmembers and by permitting unions to use opt-out rather than opt-in schemes when annual dues are billed, our cases have substantially impinged upon the First Amendment [to the U.S. Constitution] rights of nonmembers.  In the new situation presented here, we see no justification for any further impingement.  The general rule-individuals should not be compelled to subsidize private groups or private speech-should prevail." 

Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Anthony M. Kennedy and Clarence Thomas joined in the opinion. 

Other Constitutional Issues 

Justice Sonia Sotomayor filed an opinion concurring in judgment.  She opined that nonunion members must be provided an opportunity to opt out of contributing to solely political lobbying efforts.  However, she concurred only in the judgment because she could "not agree with the majority's decision to address unnecessarily significant constitutional issues well outside the scope of the questions presented and briefing.  By doing so, the majority breaks our own rules and, more importantly, disregards principles of judicial restraint that define the Court's proper role in our system of separated powers."  Justice Ruth Bader Ginsburg joined in that opinion. 

Justice Stephen G. Breyer dissented, opining that there is no reason to modify the unanimous decision in Hudson (475 U.S. 292 [1986]), which held that "the Union cannot be faulted for calculating its fee on the basis of its expenses during the preceding year."   

He explained that "[t]he special assessment as administered here has worked no constitutional harm upon those nonunion employees who raised a general objection at the beginning of the year.  The union has honored their objections by subtracting from their special payments the same 44% that it subtracts from each of their ordinary monthly payments.  . . .  And we know that the special assessment here did not even work temporary constitutional harm.  That is because audited figures showed that the union's total nonchargeable (e.g., political) expenses for that year ended up as a lower percentage of total expenses than the previous year.  Hence the objecting nonmembers ended up being charged too little, not too much, even with the special assessment thrown into the mix."  Justice Elena Kagan joined in that opinion.   

Counsel 

W. James Young and Milton L. Chappell of National Right To Work Legal Defense Foundation Inc. in Springfield, Va., and Neal K. Katyal and Dominic F. Perella of Hogan Lovells US in Washington represent the nonunion employees.  Jeffrey B. Demain and P. Casey Pitts of Altshuler Berzon in San Francisco represent the union.   

James B. Coppess, Lynn K. Rhinehart and Laurence Gold of Washington filed an amicus brief on behalf of the American Federation of Labor and Congress of Industrial Organizations.  Jeremiah A. Collins of Bredhoff & Kaiser and Alice O'Brien and Jason Walta of the National Education Association, all in Washington, filed an amicus brief on behalf of the National Education Association.

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