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New rules will make the Californian cannabis industry more union friendly

Written by
FordHarrison LLP, nationwide U.S. law firm with a singular focus on HR law.
A new legal provision in California will make concluding a labour ‘peace agreement’ with unions a mandatory requirement to obtain a licence to operate in the cannabis industry.

As the cannabis industry has rapidly progressed over the years, states such as New York, New Jersey and Illinois have begun to implement legislation that encourages employers to engage in labour ‘peace agreements’ with unions. On 12 October 2019, California went even further than encouragement when Governor Gavin Newsom signed into law Assembly Bill 1291, which amended California’s Medicinal and Adult Use of Cannabis Regulation and Safety Act (MAUCRSA). Distinct from other state legislation, California’s new law mandates that employers with 20 or more employees maintain a labour peace agreement as a condition of obtaining a state cannabis licence. For this reason, California’s new bill has raised constitutional concerns.

What are labour peace agreements and how do they apply to employers in the cannabis industry?

Labour peace agreements are agreements between an employer and a bona fide labour organisation to exchange obligations. The ostensible purposes of state regulations promoting labour peace agreements are to create union protections for cannabis industry workers, while protecting employers from strikes and other disruptions of business. Prior to the signing of California’s latest bill, most state licensing and regulatory schemes listed the existence of a labour peace agreement as an optional factor to be evaluated in the overall licensing process. For example, the Illinois law operates on a ‘point system’ and awards five points out of a possible 250 to employers who maintain labour peace agreements, which only marginally improves an applicant’s prospects for approval.

Most notably, under regulations such as those in Illinois, organisations that refuse to enter into a labour peace agreement receive zero points toward their total state permit evaluation, but they can still be approved if they meet other criteria. Under California’s new bill, however, an employer that fails to provide a notarised statement or demonstration that it has entered or will enter into a labour peace agreement within 60 days of employing its 20th employee would be automatically denied a state cannabis licence.

Thus, the new California law makes labour peace agreements no mere categorical assessment but a mandatory requirement to obtain a state cannabis licence under MAUCRSA. Since California makes it difficult to use independent contractors instead of employees (as noted in our Alert discussing AB 5, here), this provision could have a significant impact on the unionisation of the cannabis industry in California. Indeed, making labour peace agreements a mandatory requirement for a state licence has raised constitutional concerns.

Constitutionality of California’s Assembly Bill 1291

As an initial matter, the National Labor Relations Board (NLRB) has sole authority to regulate labour relations in the private sector in all industries, including the marijuana industry, even where production and consumption is solely intrastate. To the extent that these labour peace agreements require employers to abandon rights secured by the National Labor Relations Act (NLRA) as a condition of receiving government benefits, they may be preempted by the Supremacy Clause of the United States constitution (that is, the clause which states that federal law takes precedence over state law).

The NLRA does not require employers to reach an agreement with a union, but does require the parties to bargain in good faith. If good faith negotiations are unsuccessful, the NLRA permits an employer to declare impasse and implement its last proposal to the union. The union may disagree and file an unfair labour practice charge with the NLRB, claiming the employer has refused to negotiate in good faith. If the NLRB finds that the employer has not bargained in good faith, the agency may require further bargaining, thereby prolonging labour peace agreement negotiations. However, by requiring cannabis employers to negotiate and accept union offers within 60 days or effectively lose the right to do business in California, AB 1291 attempts to regulate rights protected by the NLRA and attempts to change the balance of economic power between cannabis employers and labour unions. This means that the law could be preempted (invalidated or overruled) under the Garmon standard (preempting state laws that regulate conduct that is either arguably protected or prohibited by NLRA) and the Machinists standard (preempting state laws that regulate conduct within the zone of activity that Congress meant to be left to the free play of economic forces).

Therefore, California’s new legislation may be unconstitutional if it is found to force cannabis companies to sign labour peace agreements or to force them to accept union offers, since these requirements would conflict with the integrated regulatory scheme governing labour relations established under federal law.

Bottom line

As of now, only about 7% of the United States private sector is unionised, but as the cannabis industry continues to grow and state legislatures weigh in on unions’ side, employers should expect to see an increase in unionisation. Labour peace agreements tend to be highly specialised, and state regulations on the cannabis industry tend to include additional requirements apart from labour peace agreements. As such, employers should make sure to review all requirements before applying for their state cannabis licence and take legal advice to confirm their business is compliant with state regulation.