Opinion analysis: Knox knocks unions on mid-year assessment for non-members

Thursday’s decision in Knox v. Service Employees International Union (SEIU) dealt a blow against public sector labor unions and in favor of employees who are represented by a union but are not members. Justice Alito wrote the strongly worded majority opinion, which was joined by the Chief Justice and Justices Scalia, Kennedy, and Thomas. Justices Sotomayor and Ginsburg concurred in the judgment, and Justices Breyer and Kagan dissented.

The case has three holdings: (1) When a public-sector union imposes a special assessment or dues increase, the union must provide a fresh Hudson notice (the Court’s vote on this issue was seven to two); (2) the union cannot require nonmembers to pay the increased amount unless they opt in by affirmatively consenting (vote of five to four); and (3) the case was not rendered moot by the union’s post-certiorari offer of a full refund (unanimous).

Legal background

Nearly all collective bargaining agreements between unions and employers contain a requirement that union members pay dues and that nonmembers pay an “agency fee” to pay for the union’s expenses of performing services that benefit the bargaining unit. The agreement will also require the employer to fire anyone who does not make these payments. In 1977, in Abood v. Detroit Board of Education the Court held that non-union employees in the public sector (federal, state, and local government employees) have a First Amendment right to prevent their union from spending these compulsory fees on political campaigns that are not directly related to the union’s role as a bargaining representative. Later, in Chicago Teachers Union v. Hudson, (1986), the Court approved a system for administering the Abood doctrine. Unions could, on an annual basis, send out a notice explaining how the fees were actually spent during the preceding year; nonmembers could then object and have a neutral arbitrator sort out which expenditures could properly be charged to the objecting nonmembers. The notice described in the Hudson case has come to be known as a “Hudson notice.”

The facts in Knox v. SEIU

SEIU represents California public-sector employees and has agency shop agreements which require nonmembers to pay an annual fee for “chargeable” expenses — nonpolitical costs related to collective bargaining. In June 2005, the union sent out its annual Hudson notice, which estimated (based on the prior year’s audited expenses) that chargeable expenses for the coming year would be 56.35% of its total expenditures. Nonmembers had thirty days to object. After the thirty-day period, the union announced a twenty-five-percent increase for an “Emergency Temporary Assessment to Build a Political Fight-Back Fund” to achieve the union’s objectives in two political campaigns. The union made it clear that the increase was not for regular costs such as salaries and rent. Nonmember objectors were given no choice as to whether they would pay into this fund; the union would allow them to object during the next annual Hudson notice period.

Knox and others filed a class action on behalf of 28,000 nonmembers. Some of these had objected to the regular annual Hudson notice in June 2005, and they contended that they should not have to pay 56.35% of the new assessment. Others had not objected to the June notice, and they contended that they should have a new opportunity to object. The district court granted summary judgment for the nonmembers, but the U.S. Court of Appeals for the Ninth Circuit reversed.

More facts that raised an issue of mootness

After the Supreme Court granted certiorari, right in the middle of the briefing process, the union sent a notice to all nonmember class members offering to refund one hundred percent of the fee increase they paid, and it attached a one-dollar bill in satisfaction of the district court’s award of nominal damages. Then the union asked the Supreme Court to dismiss the whole case on the ground that it was moot, arguing that the nonmembers had now received everything they had asked for.

The case is not moot (9-0 vote)

The only issue on which all Justices agreed is that the case is not moot. This is because a dismissal for mootness would allow the union to resume the conduct that the nonmembers are challenging. Also, a live dispute still remains because the nonmembers now claim that the notice the union sent out does not comply with the district court’s order because it contains a host of conditions; moreover, the union has not recognized requests for refunds that were faxed and emailed.

A fresh Hudson notice is required (7-2 vote)

The Court rejected the Ninth Circuit’s view that the union has a “right” to collect fees that is to be balanced against nonmembers’ First Amendment rights. Instead, the Court reiterated its view that a union is able to collect fees from nonmembers only as a matter of “legislative grace,” and that this ability is both “unusual” and “extraordinary.” Nonmembers, on the other hand, are being compelled to fund the speech of other private speakers, which is “[c]losely related to compelled speech and compelled association.” Therefore, the Court insisted upon applying “exacting First Amendment scrutiny,” so that “any procedure for exacting fees from unwilling contributors must be ‘carefully tailored to minimize the infringement’ of free speech rights.” This analysis is the familiar one of requiring that there be a compelling state interest and that the state’s intrusion on free speech be necessary to carry out that interest.

Although the Court recognized that compulsory payment of fees can be justified by the state’s interest in preventing free-riding by nonmembers, the majority described that as an “anomaly.”

The Court found no justification for the union’s failure to give a fresh Hudson notice. The once-a-year notice approved in Hudson was based on employees having a fair opportunity to judge the impact of paying for non-chargeable expenses, but when there is a special assessment those employees may wish to consider other factors that influence their choice. On top of that, it would have been a relatively simple matter for the union to cast its announcement letter in the form of a Hudson notice.

Court requires an opt-in procedure (5-4 vote)

The Court majority rejected the union’s argument that nonmembers’ rights would be protected if they wait for the next annual Hudson notice process to make their objections and to opt out, characterizing this as an “aggressive use of power” that is “indefensible.” The majority described the normal Hudson notice process as one that forces nonmembers to make a loan that later may be refunded, adding that the Court’s ” prior decisions approach, if they do not cross, the limit of what the First Amendment can tolerate.” “[T]he First Amendment,” the Court continued, “does not permit a union to extract a loan from unwilling nonmembers even if the money is later paid back in full.” The majority emphasized that in this case the union asks the Court to go further – permitting the union to extract fees representing more than half of the special assessment from those who previously opted out even though the union had said the fees were for political purposes. The cure for all of this is to have a procedure under which nonmembers do not have to pay the extra assessment unless they opt in by affirmatively consenting.

The majority’s position (and the takeaway from the case) can be summed up by this quote: “To respect the limits of the First Amendment, the union should have sent out a new notice allowing nonmembers to opt in to the special fee rather than requiring them to opt out.”

Dissent

In a dissent that was joined by Justice Kagan, Justice Breyer argued that there was no reason to modify the basic Hudson approach of annual notices based on the prior year’s audited expenditure, along with an opportunity for objectors to opt out. Calling this “at least one reasonably practical way” to protect objectors, the dissent saw little distinction between ordinary and special assessments.

Did the majority break its own rules by requiring an opt-out procedure?

It is noteworthy that only five Justices voted in favor of requiring an opt-in procedure. Two dissenters opposed it on the merits. Concurring in the judgment, Justices Sotomayor and Ginsburg argued that the majority should not have addressed this issue at all; to do so “breaks our own rules” by reaching “significant constitutional issues not contained in the questions presented, briefed, or argued.” The other seven members of the Court made the point that the issue was well within the questions presented in the petition for certiorari.

Plain English summary

The First Amendment allows labor unions that represent public employees to force nonmembers whom they represent to pay periodic fees to pay the costs of collective bargaining, but nonmembers do not have to pay for the unions’ political campaigns. Once a year, the union in this case sends out a Hudson notice that explains how the prior year’s fees were spent and allows nonmembers to object. In 2005, in between the annual notices, the union imposed a twenty-five-percent increase but did not send out a fresh notice. The Court held that the union was required to send out a fresh mid-year notice and that it could not collect additional fees unless the nonmembers opted in by affirmatively giving their assent.

Ross Runkel is editor of Employment Law Memo at LawMemo, Inc., in Portland, Oregon. He is professor of law emeritus at Willamette University College of Law, and is an arbitrator in labor-management disputes.