June 21, 2012
Bodie on Knox Decision: Political Spending = Business Spending (by Unions as well as Corporations)
Cross-Posted at PrawfsBlawg by Matt Bodie (St. Louis/Notre Dame):
Earlier this week, the WSJ touted a new Manhattan Institute study showing that political contributions by corporations have a positive effect on the bottom line. The study found that "most firms, like most individuals, behave rationally and strategically in their spending decisions on campaigns and lobbying, devoting resources in ways that, they have reason to expect, will benefit the corporations themselves and their shareholders." And benefits do come, in the form of lower taxes, more favorable regulation, and earmarks that help the business. The authors calculate that these political benefits improve returns for shareholders by 2% to 5% a year.
It should not be a surprise that corporate political spending helps corporations. This recent study follows upon research by Jill Fisch on FedEx's political spending, which found that "FedEx has successfully used its political influence to shape legislation, and FedEx's political success has, in turn, shaped its overall business strategy." The WSJ uses the Manhattan Institute report to beat back critics of Citizens United who are looking to get corporations out of politics. The Journal opines:
Liberals have been trying to persuade CEOs and corporate boards to stop spending money on politics by claiming that it doesn't pay. But according to a new study by the cofounder of the Democratic-leaning Progressive Policy Institute, corporate participation in politics works for the companies and their shareholders. * * *
In a better world, corporations wouldn't have to devote money and time to politics. . . . But politicians have created a gargantuan state that is so intrusive that businesses have no alternative than to spend money to defend themselves and their shareholders from such arbitrary looting as the medical device tax in ObamaCare. Liberals want business to disarm unilaterally.
Oddly, neither the Journal nor the Supreme Court seem to understand these principles when it comes to unions.
In today's Knox v. SEIU, the Court again privileges the rights of represented employees to opt out--or rather, not to have to opt-out in the first place--from union political spending. The Court clings to the trope that the union's political spending is somehow extraneous to the core services provided by the union to the represented employees. But political spending is perhaps even more important to unions than it is to corporations. I have posted before about SEIU's electoral activity, but it bears repeating--SEIU spent an estimated $85 million to help elect Barack Obama in 2008. Although the Obama administration failed to get the Employee Free Choice Act passed, it did pass healthcare reform -- which was arguably more of a SEIU priority. (See Chapter 9 of this book by Steve Early, entitled "How EFCA Died for Obamacare"). Former SEIU President Andy Stern had the highest number of oval office visits of any outsider--22--during the president's first six months in office. Stern was not in there based on his individual perspicacity about the nation's various problems. He was in there as president of the fastest-growing union in the U.S. -- one whose members largely worked in the health care field and would benefit from an expansion of health care benefits.
Knox v. SEIU concerns a "Political Fight-Back Fund" levied against represented employees, including nonmembers, to fund political activities in California. Two propositions were on the California ballot: Proposition 75, which would have required an opt-in system for charging members fees to be used for political purposes, and Proposition 76, which would have given the Governor the ability to reduce state appropriations for public-employee compensation. In response to the petitioner's objection to the special assessment, an SEIU employee said, "we are in the fight of our lives," and it's easy to see the urgency. If you accede to the principles that (1) employees can choose as a majority whether to have union representation, and (2) all represented employees need to pay for their representation, then political spending should not be excluded. In an era where state governments are reconsidering collective bargaining rights for public sector unions, political spending is critical to the unions' very existence as businesses. Unions need to have collective bargaining rights in order to bargain collectively on behalf of represented employees.
The majority's opinion in Knox v. SEIU assumes the distinction between collective bargaining expenses and political expenses without much discussion, other than an interesting block-quote from a Clyde Summers's book review. (I would argue that all of Summers' examples don't really prove his or the Court's point.) And at this point, not even the dissent questions the Hudson framework. But it makes no sense. Unions and academics should start fighting the framework: unions are businesses, and political spending is business spending.
I did see one glimmer in the Court's opinion, in the following passage:
Public-sector unions have the right under the First Amendment to express their views on political and social issues without government interference. See, e.g., Citizens United v. Federal Election Comm’n, 558 U. S. ___ (2010). But employees who choose not to join a union have the same rights.
The Manhattan Institute report, like the Wall Street Journal, recognizes that corporations are not merely "express[ing] their views on political and social issues" when they make political contributions. They are fighting for their businesses. The Court should not continue to disarm unions unilaterally in a post-Citizens United world.
TrackBack URL for this entry:
Listed below are links to weblogs that reference Bodie on Knox Decision: Political Spending = Business Spending (by Unions as well as Corporations) :
Nice try, but on what planet are corporations granted a monopoly and permitted to compel people to buy their stock?
Not this one. Last time I checked, there was a law against monopolies (the Sherman Anti-Trust Act) and another one (the Clayton Act) excepting unions from its provisions.
Posted by: James Young | Jun 21, 2012 7:43:33 PM
If union dues were voluntary, then Matt's equation of union political spending with business political spending would be plausible. Just as consumers can choose whether to deal with a business that might spend part of its income politically, so could employees choose whether to deal with a union that does the same.
The problem is that the union dues in question in Hudson and the other cases were not voluntary. Compelled contributions are the very reason why the Court adopted the Hudson approach in the first place. Government laws that authorize compulsory dues collection indirectly force support of political speech and action that some employees oppose. That presents a serious First Amendment problem. The Court's desire to avoid that problem led it to distinguish between political and non-political expenditures and to force objectors to pay only for the latter. Simply calling union political expenditures "business" expenses doesn't solve that problem, even rhetorically: to the contrary, it only aggravates the constitutional problem.
The political/non-political distinction is unstable, given the fungibility of union income and the impossibility of policing use of compelled union resources for political purposes. Hudson (and now Knox) are at best jerry-rigged contraptions that delay resolution of the underlying issue. A cleaner answer would be to make union membership and dues voluntary and then let unions spend whatever money they receive however they want to. (Yes, I understand the Free Rider problem just as well as the Forced Rider problem. There is a better way to resolve that issue, too, but that's the subject of a different lecture.)
Posted by: Dennis Nolan | Jun 21, 2012 9:18:18 PM
Ok, Dennis, thanks for the thoughtful comment, but I still would like to see your thoughts on the Free Rider issue that you teased us with at the end. Don't you think that is flip side of the same coin?
On the main point, in dealing with corporate spending, isn't there an appropriate analogy to the inability of shareholders to opt-out? It strikes me that an evenhanded application of the court's union security doctrine to shareholder rights would guard against an ownership interest being implicated in political causes that a shareholder opposes and that are unrelated to the core business function. Yes, I know there is the very rare dust-up at shareholder meetings. We are both old enough to remember Dow's corporate gatherings to protest napalm during the 1960s. The answer to this analogy is not that Knox dealt with public sector employees and state action directy, while corporations are in the private sector and state action (through corporation laws) is indirect. Beck and Ellis (and the earlier RLA cases) put that distinction to bed, as have the bar association and agricultural marketing cases.
Shareholder rights aside, and placing Professor Bodie's comments in perspctive, I still favor the historical perspective of Justice Frankfurter (Justice Harlan concurring) as expressed in his dissent in Street. Here is a snippet from a much longer passage dealing with the legislative history of the RLA's union security text:
"The statutory provision cannot be meaningfully construed except against the background and presupposition of what is loosely called political activity of American trade unions in general, and railroad unions in particular -- activity indissolubly relating to the immediate economic and social concerns that are the raison d'etre of unions. It would be pedantic heavily to document this familiar truth of industrial history and commonplace of trade union life. To write the history of the Brotherhoods, the United Mine Workers, the Steel Workers, the Amalgamated Clothing Workers, the International Ladies Garment Workers, the United Auto Workers, and leave out their so-called political activities and expenditures for them, would be sheer mutilation. Suffice it to recall a few illustrative manifestations. The AFL, surely the conservative labor group, sponsored as early as 1893 an extensive program of political demands calling for compulsory education, an eight-hour day, employer tort liability, and other social reforms." (367 US 740, 800.)
Last, I do not think we can escape the irony that the union in Knox was raising funds to fight, in part, against legislation that would have established an opt-in requirement in California - an initiative measure that ultimately was defeated - only to have the Supreme Court in a very activist mode reach out to impose such a requirement nationally without any say by the electorate.
Posted by: Barry Winograd | Jun 22, 2012 6:28:20 AM
Prof. Winograd (still seems appropriate, at least until I've done an arbitration with you) -
Might the "answer" to your analogy be a comparison of corporate fiduciary duties and the analogous union duties w/r/t political spending? Do fiduciary duties more effectively ensure a congruence between business interests and political spending, such that you can't make the Hudson/Knox type of distinction? Leaving aside how it would actually work in practice, would corporate fiduciary duties be a good (or at least better) model for drawing that distinction?
Posted by: Alek Felstiner | Jun 22, 2012 8:38:52 AM
Thanks, Barry, for that nice quote from Justice Frankfurter's dissent. Ben Sachs has a nice article making the shareholder-union member comparison; he argues that there's more compulsion in some shareholder relationships than generally recognized:
In our system, the majority rules. If 40% of a bargaining unit wants union representation, they are "compelled" not to join the union by the other 60% -- and vice versa. The antitrust exemption is in fact another of the benefits of unionism that go to nonmembers and members alike; it provides unions with more power to increase wages and benefits for all represented employees. Yet another reason nonmembers should have to pay the full costs of their representation.
Posted by: Matt Bodie | Jun 22, 2012 9:10:08 AM
I have always found the larger implications of the compelled speech jurisprudence interesting. If I cannot be compelled to contribute coin towards speech by my union, why can't I opt out of government speech I dislike. Yes, I recognize the agricultural promotion cases, but why not speech by the government via general revenue resources (sales tax, income tax, estate tax, etc.)? The answer is the lack of procedural standing. Where revenue is being raised for multiple purposes (bargaining, contract servicing, and political speech) why should anyone get to raise this issue in this context?
Posted by: Anonymous | Jun 22, 2012 5:55:41 PM
Of course, Barry, NO one is talking about denying unions a place in the marketplace of ideas, and to suggest otherwise is sophistry and inaccurate. The issue, as the Court quite clearly and unanimously recognized in Davenport, is about "the union's extraordinary state entitlement to acquire and spend other people's money." 551 U.S. at 187.
It never fails to amaze me that people who will vigorously affirm their undying allegiance to the First Amendment are more upset about how people spend THEIR OWN money to advance their political ideas than how a favored cohort --- labor unions --- spends OTHER PEOPLE'S money to advance their political ideas.
And Matt, that certainly reflects the union view, which would ignore the First Amendment. And you only speak of monopoly representation. Unions are of course free to represent a minority of workers who want their representation, though employers are not compelled to recognize them. And, of course, those workers remain free to "join the union." Suggesting that somehow a vote against monopoly representation prevents them from "join[ing] the union" is simply silly.
And Anonymous, it's quite disturbing that you would compare a labor union with the government (though in some places, the confusion is understandable).
Posted by: James Young | Jun 22, 2012 7:09:04 PM
As usual, Barry, you raise far too many good issues to deal with in a short format like this. We'd do much better sitting down over a beer, or several beers, preferably with Matt and a few others. Very briefly, though:
1. Yes, there's an analogy between employees and shareholders, but it's not a very strong one. (And argument by analogy is usually the weakest form of argument, but leave that aside.) Corporations are not really meant to be democratic in the sense in which we understand industrial democracy. It’s one dollar, one vote, rather than one person, one vote, to mention the most obvious difference. With rare exceptions, shareholders simply authorize the board to run the business. Moreover, opting in and out is easier for shareholders. You can’t be forced by some majority to become a shareholder; you have to decide to become one. If you don’t like what the board does you can simply sell your shares and buy those of a competitor that runs its business better. An employee can’t escape except by quitting his job. That’s a difference of kind, not of quantity.
2. The Frankfurter quote is typically well-written. I don’t disagree with a word of it. Although my post might not have been as clear as it should have been, I believe unions should be free to spend their money on politics or anything else — provided the money is freely given to them. The problem here, the First Amendment problem, arises only because many employees are forced to give the union money. You can’t dodge the compelled speech issue by citing the history of political activity or by showing how beneficial that activity might be to the union.
3. Regarding Matt’s reply:
(A) The "majority rules" only on those matters on which we decide it does. That statement begs the question of whether the majority SHOULD be able to decide who represents me in bargaining with my employer. We should not let a majority of workers or any other majority compel dissenters to support speech with which they disagree.
(B) Contrary to Matt’s statement, an anti-union majority CANNOT compel a pro-union minority “not to join the union.” That’s a flippant statement and an inaccurate justification for compulsory unionism. All employees remain free to join any organization that will have them. (Cue the Groucho Marx joke here.) All a nonunion majority can do, given our current majoritarian/exclusivity labor law, is to say that a union seeking to represent a group of employees in collective bargaining will not gain the legal authority to do so. It has nothing to do with joining or not joining a union. I’m sure Matt understands that distinction.
(C) The problem with Matt’s second point, about the benefits of the labor antitrust exemption, is the same problem that appears in any argument over compulsory unionism that relies on the benefits to be achieved through collective bargaining: it assumes an answer not in evidence. Not all employees believe that all unions in all circumstances produce net benefits. Some may believe that collective bargaining in general is a bad idea. Some might believe that collective bargaining at that moment for that employer would be unwise. Some might believe that the union seeking certification is not the appropriate representative. If those employees are a minority, the majority can (except in right to work states) force them to contribute even though they don’t believe that unionization will produce a net benefit.
4. Finally, to Barry’s question about my tease on the free rider issue. Almost by definition, every dilemma has at least two resolutions, as unpalatable as they may be. The normal assumption in these discussions is that the only resolution is to continue make unions represent all members of the bargaining unit while allowing some employees to avoid paying their share. That’s one unpalatable option because it violates individual liberty and disrespects the dissenters’ agency by denying them their choice. The other option is the one I prefer: relieve unions of the obligation to represent non-members. Just as with every other private organization that offers to do good things for me, I should be free to decline the offer. The union then should be free to ignore me altogether or to charge me for performing any particular service I later request.
You’ll immediately detect that my target is the exclusivity principle — and you’d be right. But that REALLY is a topic for another day.
Posted by: Dennis Nolan | Jun 22, 2012 8:08:09 PM
The original point of this post raises an interesting question. How is one's right to terminate a stockholder relationship (i.e. selling stock) any different than terminating one's employment to avoid unwanted union representation (quitting). Of course, thIs whole argument fails if we assume that there is not equality of bargaining power in an employment relationship.
Posted by: Anonymous | Jun 22, 2012 9:17:30 PM
Thank you for taking the time to respond as you did. Here are a few thoughts.
1. The shareholder distinction you pose is really a matter of the weight you give to the argument, as you acknowledge. The fact that unions are, generally, more democratic - and expected to be so compared to corporations - strengthens the argument in the favor of leeway to be afforded to unions, and does not weaken it. On the issue of voluntariness, does it really matter if I can opt to sell shares in the offending company in favor of purchasing stock in another corporation if the one that I own a piece of now chooses to spend its money on "irrelevant" subjects. Where's the so-called benefit of the bargain on that? My former (top) student Alex Felstiner aptly points to the fiduciary duty model, which the court itself has referred to in the DFR context (in the ALPA) case. Maybe that's a sounder approach. (Hello, Alex!)
2. On the Frankfurter quote, history is not a "dodge," as you put it, but simply what it is. In Street, history provides the statutory context for the court's interpretation.
3. On the teaser discussed in the last point, you are correct that your objection to the exclusivity principle is easily detected in the passages that preceded it. Nevertheless, I'll bite since the topic is important to the overall approach. Given your admiration for First Amendment principles in the context of a members-only union, I suppose you would accept not only a First Amendment right to form and join that union, but also a First Amendment right for that union to engage in peaceful strikes and boycotts, with picket signs, signal effects, and all that goes with such speech-conduct, in an attempt to drum up support for permissible association-based speech. If that is the trade-off you are willing to make to support volunteerism as you have fashioned it, we and others might want to form an alliance. We would not get much support for the alliance from employers who, understandably, would fear being whipsawed by competing members-only unions in negotiations (and in arbitrations, I would add), but perhaps it is worth a try. Meanwhile, putting aside our dreams about such matters, we are left with the complex statutory structure of the Wagner Act, as amended, which includes exclusivity and other restraints on the First Amendment, subject of course to whatever the current Supreme Court decides the statute means, precedent aside.
P.S. Given our work together on arbitration issues, I wonder if you have been impressed by the majority's ongoing gymnastics in lauding the principle of voluntariness, even on the issue of a "temporary loan" of a modest sum for a period of months (the Knox case), while so readily throwing overboard the principle of voluntariness when it comes to mandatory arbitration imposed on individuals as a condition of employment. Yes, yes, I know there are more distinctions to be drawn, but I couldn't resist working that one into the discussion.
Back to work!
Posted by: Barry Winograd | Jun 23, 2012 5:27:36 AM
Of course, Barry, that "'temporary loan' of a modest sum for a period of months" only seems "modest" when you consider the individual employee. Knox involves a class of more than 35,000 nonunion California state employees ("A million here, a million there; pretty soon, you're talking about real money"), which represented approximately 40% of the bargaining units at issue. In fact, millions were extracted from nonmembers for political purposes without notice or their consent. Moreover, by design, it was extracted and spent at precisely the time when it had the maximum impact: on the election on four ballot initiatives sponsored by Governor Schwarzenegger.
Regarding Dennis' point 3(c), and the "fact not in evidence," all the "benefit" of collective bargaining has ever been is a "legislative fact," not one that unions have ever been required to prove --- and have affirmatively fought against having to prove --- in court. Of course, generally, Dennis chooses the right target: exclusivity.
Posted by: James Young | Jun 23, 2012 5:30:53 PM
I would also note that Ohio public-sector unions did NOT try to extract monies from nonmembers for their battle against Governor Kasich's reforms in Ohio last year. Which is why, of course, there was no lawsuit against their successful efforts to reverse them.
I was blessed with the opportunity to pursue this case, in no small part, by SEIU's overreaching.
Posted by: James Young | Jun 23, 2012 5:34:04 PM
James and Dennis correctly point out that my hypothetical 40% of employees who are union supporters are free to join SEIU, just as I am free to join SEIU. But neither they nor I can have SEIU represent us in collective bargaining, which was the point I was trying to make. I don't think there was any real misunderstanding of this.
Dennis's and James's comments reflect that their real bete noire is "compulsory" unionism itself -- a.k.a. the majority-rules system of representation selection. My point is that if you assume the current system, separating out political expenses because they are not "real costs" of representation makes no business sense. Dennis and James don't want to assume the current system; they (like the Supreme Court, I suspect) are hostile to the majority-rules model. In that context, diminishing the returns to the union from nonmembers makes sense.
Posted by: Matt Bodie | Jun 24, 2012 3:55:26 PM
You are correct on a number of points, Matt, but I was more concerned about the casual reader/inquisitive amateur, as I have had occasion to talk to a couple of media types over the past few weeks have had to give them a primer in basic labor law and its intricacies (I acknowledge the shudders in horror of some readers), and did not want your comment to leave them confused. In fact, some have told me of labor law practitioners who seemed unaware of a union's right to disclaim monopoly representation, and/or the possibility of members-only bargaining (though not, of course, under the provisos of the NLRA).
Primarily, you are correct about my opposition (I do not speak for Dennis) to monopoly bargaining which is, of course, the structural framework underlying forced-unionism schemes. It's the premise creating the so-called "free rider" problem in the same way that the Federal mandate that: (1) forces hospitals to treat all comers in emergency rooms; and (2) the bar on insurance companies rejecting those with preexisting conditions "burdens" the health-care "system" And yes, you can presume a general hostility to liberty-limiting Federal schemes to solve "problems" created by Federal legislation. Obviously, monopoly representation is not the only model, and as I understand it, does not predominate in Europe.
Posted by: James Young | Jun 25, 2012 5:20:12 AM
Matt's June 24 post nails the fundamental issue. Balancing individual liberty and collective action is the fundamental question of labor law.
There are, so far as I can think of right now, three possibilities: (1) ignore individual liberty and allow the majority to compel contributions that they can use for anything, including lobbying and support of candidates and ballot positions; (2) ignore collective action by denying unions the right to compel contributions; or (3) allow some compelled contributions for some purposes but not others. (As to the second option, the harm to collective action could be substantially mitigated by abandoning the exclusivity principle and allowing unions to bargain only for those who choose to join.)
The Supreme Court opted in Hudson and other cases for the compromise position. As clumsy as that is, it is the only possible way (so long as we have exclusivity) to guarantee payment for non-political expenses while avoiding the First Amendment problem presented by political expenditures.
It appears that Matt favors the first option. Doing so, however, requires ignoring and overruling objections from those who oppose the union's political positions. To put it more simply, that position says that the majority's right to collective action trumps the minority's First Amendment right to be free from compelled speech. That's a pretty extreme position, even from the strongest union advocates. It has no support in current constitutional law and even less from any philosophy that values individual agency.
Posted by: Dennis Nolan | Jun 26, 2012 7:24:53 AM