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Supreme Court Restricts Public Sector Unions’ Collection of Nonmember Fees

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June 29, 2012

By Lindsey M. Marcus

In a decision upholding the free speech rights of public employees represented by but not belonging to a union, the U.S. Supreme Court held last week that a public sector union must provide the requisite “Hudson notice” and receive affirmative consent from nonmembers prior to imposing a special assessment or other mid-year dues increase. Knox v. Service Employees Int’l Union Local 1000.

The case involved the Service Employees International Union (SEIU), which represents certain state employees in California. Under state law, public sector employees may vote to create an “agency shop” arrangement, whereby all bargaining unit employees are represented by a union. While employees in an agency shop are not required to join the union, they are required to pay a “fair share” or “agency fee” associated with collective bargaining costs (so-called “chargeable” expenses). These nonmembers are not required, however, to fund a union’s non-chargeable expenses, such as those for political and ideological purposes. 

In Teachers v. Hudson, the Supreme Court laid out the procedural requirements with which a union must comply when collecting annual agency fees. These requirements include providing notice of the percentage of fees that fund non-chargeable expenses and the opportunity to opt out of contributing to these expenses. In this case, SEIU sent its annual Hudson notice in June 2005, informing employees that approximately 56% of its total expenditures would be dedicated to chargeable expenses and 44% would fund non-chargeable expenses, and giving nonmembers 30 days to opt out of contributing to the non-chargeable expenses.

Later that summer, and after the opt-out window under the annual Hudson notice had closed, SEIU sent bargaining unit employees a second notice indicating that, for a limited time, their fees would be raised in order to fund a SEIU political initiative. Nonmembers were not given an opportunity to opt out in the second notice; however, nonmembers who had objected pursuant to the earlier notice were required to pay 56% of the special assessment, rather than the full amount. The petitioners filed suit on behalf of 28,000 nonunion employees who were obligated to financially support SEIU’s political initiative, arguing that they should have been given a new opportunity to opt out of the special assessment.

Writing for the majority of the Court, Justice Samuel Alito began by noting that allowing unions to collect fair share fees from nonmembers is a “significant impingement” on the nonmembers’ First Amendment rights because it constitutes a form of compelled speech and association. Although this practice has been justified by the notion that nonmembers should not be allowed to free-ride on the union’s efforts, the Court called such a scheme an “anomaly.” Due to these First Amendment concerns, the procedures unions use to collect fees from nonmembers must be “carefully tailored to minimize the infringement” on nonmembers’ free speech rights. 

The Court also questioned the justification for allowing opt-out schemes for collecting agency dues from nonmembers, calling the opt-out framework a “remarkable boon for unions.”  Reviewing its prior cases, the Court found that the opt-out approach had arisen “more as a historical accident than through the careful application of First Amendment principles.” It found that, while an opt-out requirement might be acceptable during the collection of regular dues on an annual basis, there was no way to justify the “additional burden of imposing yet another opt-out requirement to collect special fees whenever the union desires.”

Against this backdrop, the Court concluded that SEIU’s failure to send a new Hudson notice when it implemented the special assessment was “indefensible.” In particular, the Court found no justification for requiring nonmembers who had objected to the annual Hudson notice to pay even a portion of the special assessment where the special assessment was to be used for political purposes. Rejecting SEIU’s argument that objecting nonmembers could recoup the fees the following year by opting out, the Court found that even a full refund would not cure the First Amendment violation because SEIU would still be receiving an impermissible loan from these nonmembers. It therefore held that, “when a public-sector union imposes a special assessment or other dues increase [that was not contemplated in the annual Hudson notice], the union must provide a fresh Hudson notice and may not exact any funds from nonmembers without their affirmative consent,” e.g., an opt-in feature.

Knox limits a public sector union’s ability to raise funds from nonmembers for purely political or ideological causes by way of a mid-year special assessment and, therefore, may impact a union’s ability to push its political agenda. Knox also suggests that the Supreme Court may be willing to consider whether an opt-out scheme is consistent with the First Amendment at all where a public sector union seeks to exact money from nonmembers to fund its solely political or ideological initiatives. Indeed, Justice Alito noted that the Court’s prior decisions authorizing unions to collect fees from nonmembers and allowing them to use an opt-out system “approach, if they do not cross, the limit of what the First Amendment can tolerate.” The opt-out scheme while an “anomaly” is still viable in certain circumstances but may come under closer scrutiny in the future.

For private sector employers, the impact of Knox is less certain. Private sector employees who are represented by a union have the ability to opt out of paying for union political spending, but the framework for doing so is regulated by the National Labor Relations Board. The NLRB has not required unions to provide an opt-in feature, but it is conceivable that Knox may require the NLRB to review its precedent on this issue. 

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