The Perils of Compulsory Labor Arbitration


The Supreme Court currently has before it a petition for certiorari in Gerawan Farming Inc. v. Agricultural Labor Relations Board (ALRB), which arises from a six-year labor dispute between Gerawan and the United Farm Workers (UFW). The petition asks the Court to invalidate the California ALRB’s Mandatory Mediation and Conciliation process (MMC), which forced a three-year contract on Gerawan Farming against its will, and over the objections of hundreds of Gerawan employees.

The case has added urgency because compulsory arbitration is likely to return to the national stage in lead up to the 2020 election. Progressive Democrats are sure to push yet again to amend the National Labor Relations Act (NLRA) by reintroducing the Employee Free Choice Act (EFCA)—an oxymoron. That bill seeks to realign the balance of power among unions, workers, and employers by imposing compulsory government arbitration for first-time union contracts upon initial organization. Such mandatory arbitration strips employers of the key rights they now enjoy under the NLRA, which requires them to bargain in good faith with unions that win a representation election, but states explicitly that this obligation “does not compel either party to agree to a proposal or require the making of a concession.” Under current law, the union keeps the right to strike, and the employer keeps the right to lock out union members if they cannot resolve their differences. However, the NLRA does not apply to agricultural workers, which left a space for California to pass in 1975 its own Agricultural Labor Relations Act (ALRA), closely patterned on the NLRA. Powerful progressive political forces in California worked to pass the state’s MMC process in 2002.

Gerawan’s petition challenges MMC on the grounds that its coercive action denies Gerawan equal protection of the laws and works a taking of its property without due process of law in violation of the Fourteenth Amendment. The claims here bear a close resemblance to the abuses of union power that the U.S. Supreme Court recently struck down on First Amendment grounds in Janus v. AFSCME. An examination of the record shows why that same healthy skepticism towards the state’s actions in that case should apply here.

The UFW was first selected as the bargaining agent for Gerawan’s employees in 1990. In 1995 it walked away unannounced from the bargaining table, only to return in October 2012, insisting that it still represented Gerawan’s workers, virtually none of whom had participated in the original 1990 election (disclosure: in 2012, I became a legal advisor to Gerawan Farms, a role I still play today). In 2017, the UFW persuaded the California Supreme Court that under the ALRA, the UFW did not lose its status as bargaining agent by abandonment because the ALRA only allows a union to lose its representative status through a decertification vote. Owing to the MMC, the union was able to secure its main objectives. UFW collected back dues of 3 percent of annual wages from workers, financed in large part by a somewhat smaller retroactive wage increase that left workers financially worse off on net under the arbitral award than they were before. The union also secured a coveted union security agreement, whereby current workers could only retain their positions if they joined the union.

Ironically, the UFW also insisted on a no-strike provision because Gerawan employees went on strike against the union. The workers liked Gerawan’s pioneering contractual arrangements, which included a sliding scale compensation system based on quality and productivity, flexible leave time, and the ability of workers to form their own crews with friends and families. That system led to the highest take home income among agricultural workers in the Central Valley. The work rules imposed by the union arbitrator forced Gerawan to abandon many of these novel practices. Yet the arbitrator denied the affected workers any right to participate in, or even observe, the MMC proceedings.

In protest against the UFW, hundreds of Gerawan’s employees went to Sacramento in the summer of 2013 to demand a decertification election. But after a November 2013 election resulted in a strong anti-union turnout, UFW asked the ALRB to set aside that election, claiming that Gerawan had engaged in unfair electioneering practices months before. After a lengthy trial, ALRB and its administrative law judge refused to let the ballots be counted, and still no new election has been held. In the meantime, the arbitral order has been enjoined until the decertification election is held.

In 2017, the California Supreme Court, in a unanimous opinion written by former Berkeley Law Professor Goodwin Liu delivered a sanitized account of these contentious negotiations that backed the UFW on every key issue. On the legal issues, he took the position that the New Deal revolution put an end to all constitutional challenges based on either economic liberty or delegated authority, such as those now raised under the Fourteenth Amendment by Gerawan’s petition. His analysis is incorrect.

MMC goes far beyond the duty to bargain in good faith under the NLRA. The exit right preserved under the NLRA means that no administrator, arbitrator, or judge can impose an economically losing contract on either party. That exit threat induces both sides to make meaningful concessions because neither side can long survive under a lockout or strike. Under MMC, the roles of the two parties become asymmetrical. No employer wants to invoke the compulsory process because it prefers the status quo to any forced agreement, which may introduce new and unpredictable variables and restrictions. But the union, which wants to depart from the status quo, knows that its power to invoke MMC protects it from any bargaining outcome worse than the arbitral award—from which the UFW got a clean victory.

This entire MMC procedure is vulnerable under existing constitutional law. To be sure, the law forbids common carriers and public utilities to refuse to deal with potential customers, all of whom it must serve on reasonable and nondiscriminatory terms. But at the same time, the Due Process Clause also requires that the regulated firm receive sufficient revenues to allow it to earn a reasonable rate of return on its invested assets. The ALRA does not offer similar protections from confiscatory awards against firms hauled before it.

Judge Liu made light of this problem by insisting that the hoary doctrine of liberty of contract does not limit the arbitral process. More concretely, he claimed that the key 1923 U.S. Supreme Court decision of Wolff Co. v. Industrial Court, which invalidated Kansas’ compulsory arbitration system, had been “completely repudiated,” both nationally and in California, by the general implications of the New Deal revolution of the 1930s. But that historical point is wrong. The rejection of the pre-New Deal precedents by the late Roosevelt Court of the 1930s and 1940s only went so far as to allow for mandatory collective bargaining. At no point did the Supreme Court reverse Wolff’s invalidation of the compulsory arbitration system.

To be sure, California sustained rent control laws in 1976 in Birkenfeld v. City of Berkeley, but there too the rent control system required that any order under any local ordinance guarantees landlords a reasonable return on investment, and thus invalidated the “blanket rollback” of rents at issue in that case. Even today, no legal authority expressly allows for either a labor or leases regime in which the government can force parties to enter into losing contracts against their will. MMC thus fails because it imposes no similar restraint on arbitral discretion.

The MMC is invalid as well for its impermissible delegation of unbounded authority to the arbitrator. Judge Liu describes MMC as a “quasi-legislative action by which the terms of the ‘agreement’ determined by the arbitrator [are] imposed upon [the employer] by force of law.” But the word “quasi” in this context conceals a multitude of sins. By no stretch of the imagination does a single arbitral order against an unwilling party count as any form of legislation, quasi or not, as opposed to an action targeting particular parties, thereby implicating Due Process protections. No simple order gains the legitimacy that comes from a bicameral legislature enacting a general law after extensive collective deliberation and broad public input. Nor is the arbitrator’s order “quasi executive” because there is no prior law to enforce. Finally, this order is not “quasi judicial” because it creates new rights out of whole cloth rather than adjudicating preexisting rights.

MMC thus leaves the arbitrator to his own bidding. Judge Liu thought that statutory guidelines cured MMC’s procedural defects by supplying a list of relevant factors to guide the arbitral decision: the firm’s financial conditions; parallel terms in other collective bargaining agreements; wages and other terms in comparable firms; consumer prices for the goods grown, and the like. But these worthless restraints offend the Equal Protection Clause because they sanction any arbitral award whether it requires or forbids a dues check off, includes or rejects a union security clause, raises or lowers wages, or keeps or alters working conditions. Like cases need not be treated alike. Distinct cases need not be treated differently. The point has special force for innovative firms like Gerawan, which charts its own distinctive path.

In the end MMC is a naked exercise of state power that the legislature cannot delegate to any arbitrator to effectuate what amounts to a partial government takeover of the firm. Before such epic changes become embedded in American law, the Supreme Court needs to take a hard look at MMC.

© 2018 by the Board of Trustees of Leland Stanford Junior University

There is 1 comment.

Become a member to join the conversation. Or sign in if you're already a member.
  1. Full Size Tabby Member
    Full Size Tabby

    I maliciously enjoy the occasions in which a law or regulation or union that purports to help employees blocks a system employees want. Here, Prof. Epstein says that the employees liked at least some of the work allocation systems management put in, but the union wouldn’t allow them. A few years ago, workers at some restaurants devised new methods of distributing tips that the workers thought were “fairer” than the default tip-distribution methods. But, the workers learned that the labor laws wouldn’t allow them to do so. The son of a co-worker discovered when he went to work for a unionized supermarket that he had to pay significant union dues, but because he was a part-time employee he was not permitted to participate in many of the union benefits.

    • #1
Become a member to join the conversation. Or sign in if you're already a member.

Comments are closed because this post is more than six months old. Please write a new post if you would like to continue this conversation.