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FOLLOW-UP to, “Do ‘Right to work’ Laws Violate the Constitution’s Contracts Clause?”

Last night, in a comment to my post from Tuesday, “Do‘Right to Work’ Laws Violate the Constitution Contracts Clause?”, reader PJR wrote:

To a non-lawyer, it kinda looks like SCOTUS rejected the contracts argument in 1949, so unions would have to find someway to get the court(s) to reconsider–or is this wrong? If wrong, why the heck haven’t unions tried this? ( http://supreme.justia.com/cases/federal/us/335/525/case.html)

I began writing a response that I planned to post in the Comments section, but then realized that the post would be too long (wayyy too long) for that, and that the issue was important enough to post directly as a blog post, in follow-up to the initial post.  So, here’s the follow-up in response to PJS’s comment:

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Hmm.  The opinion PJS links to, Lincoln Union v. Northwestern Co., from 1949, says that the Court earlier decided that the ‘right to work’ laws at issue in that case don’t violate the Contracts clause, but the opinion doesn’t elaborate except to cite, without comment, to a 1934 opinion, Home Building & Loan Assn. v. Blaisdell.  

But Home Building & Loan Assn. had nothing to do with labor contracts.  In that case, the Court upheld the constitutionality of a Minnesota law that required mortgage holders to grant homeowners longer periods of time to begin again to repay their mortgages after missing payments, before the mortgage company could foreclose on the house.  The Court said this didn’t violate the Contracts clause because states must be allowed to address severe emergencies by requiring an altered “remedy” for completion of the contract—in that case, a longer time in which to repay the mortgage—as long as the legislation didn’t alter the ultimate amount owed. 

The opinion recites the economic devastation of the Depression, and says that the Contracts clause must be interpreted to allow states some leeway to protect the state’s residents as long as the leeway wasn’t so great as to deprive the mortgage holder permanently of a property right—the right to eventual full payment of the mortgage. Then, after discussing two 1870s Supreme Court opinion that interpret the Contracts clause as absolute, the opinion says that it really is not, as long as the change is just temporary and in response to a real emergency.  (This is apart from the state’s right to permanently bar contracts or provisions in contracts that violate criminal or civil law—a separate “public policy” exemption that has existed since the founding; people (including corporate people) can’t simply contract away the criminal law or certain types of civil law.  Although lately the Supreme Court, in a series of 5-4 opinions, does pretty much allow corporate people to do exactly that.)  

Yet, in Home Building & Loan Assoc., the Court interpreted Lincoln Union as allowing states to declare exempt from the Contracts clause pretty much anything it wants, simply by declaring it public policy in the interest of the state’s citizens.  Here’s the extent of what that opinion says about the Contract clause issue:

Second. There is a suggestion though not elaborated in briefs that these state laws conflict with Art. I, 10, of the United States Constitution, insofar as they impair the obligation of contracts made prior to their enactment. That this contention is without merit is now too clearly established to require discussion. See Home Bldg. & Loan Ass’n v. Blaisdell290 U.S. 398, 436 -439, 239, 240, 88 A.L.R. 1481, and cases [335 U.S. 525 , 532]   there cited. And also Veix v. Sixth Ward Building & Loan Ass’n310 U.S. 32, 38 , 794; East New York Savings Bank v. Hahn, 326 U.S. 230, 232 , 70, 160 A.L.R. 1279.

After “seeing” Home Building, I can say that that conclusory statement is clearly a deeply distorted interpretation of Lincoln Union.  Read Home Building.  You be the justice, er, the judge, about what it says.

Ditto, and then some, for the other two referenced opinions.  Veix v. Sixth Ward Building & Loan Assoc., decided in 1940, begins:

In 1928 and 1929 appellant purchased prepaid shares of the appellee, a New Jersey building and loan association, paying the pay value of $200 per share. At that time the applicable New Jersey statutes provided that shares in such an association could be withdrawn by giving such written notice as the constitution or by-laws of the association provided, not to exceed 30 days; that withdrawals should be paid in the order in which notices were received, with not more than one-half of the receipts of any month being required to be used for payment of withdrawals, without the consent of the board of directors, until the oldest unpaid claim of withdrawal had been on file for six months; that no payment should be postponed for longer than six months from the date of notice; and that any member who had given notice could sue and recover the withdrawal value if it was not paid within six months of the notice.  

On April 22, 1932, these statutes were amended in four respects: (1) ‘total receipts’ of an association, one-half of which were required to be used for the payment of withdrawals and which had not been previously defined, were defined as income on authorized investments, dues on shares of the association which were pledged with it to secure loans, and repayments from loans; (2) if in any one month the funds required to be payable for withdrawals were insufficient to pay all requested withdrawals, withdrawing members were to receive $500 each in the order of priority until the fund for withdrawals was exhausted; (3) no withdrawals were to be paid if the funds available for payment of matured shares were insufficient to pay all matured shares, the payment of which had been requested within thirty days after maturity; (4) so long as the funds of an association were applied as required by the amendment, no member who had filed his withdrawal notice should have a right to sue for the withdrawal value of his shares.   In 1935 another amendment was passed providing that one-third of the ‘net receipts’ of an association were to be payable for withdrawals, with ‘net receipts’ defined as monies, other than borrowed monies, received by the association less operating expenses, payments on creditor obligations, payments for protecting the property of the association and reserves for any of these purposes. At the same time payments of withdrawals in the order in which notices had been received was continued but the payments were limited to $50 per member.

And here’s its holding, and the explanation for it:

In Home Building & Loan Association v. Blaisdell  10 this Court considered the authority retained by the state over contracts ‘to safeguard the vital interests of its people.’ The rule that all contracts are made subject to this paramount authority was there reiterated. Such authority is not limited to health, morals and safety. 11  It extends to economic needs as well. 12 Utility rate contracts give way to this power,  13  as do contractual arrangements between landlords and tenants. 14  
The cases cited in the preceding paragraph make repeated reference to the emergency existing at the time of the enactment of the questioned statutes. Many of the enactments were temporary in character. We are here considering a permanent piece of legislation. So far as the contract clause is concerned, is this significant? We think not. ‘Emergency does not create (constitutional) power, emergency may furnish the occasion for the exercise of power.’ 15 We think of emergencies as suddenly arising and quickly passing. The emergency of the depression may have caused the 1932 legislation, but the weakness in the financial system brought to light by that emergency remains. If the legislature could enact the legislation as to withdrawals to protect the associations in that emergency, we see no reason why the new status should not continue. When the 1932 act was passed commercial and savings banks, insurance companies and building and loan associations were suffering heavy withdrawals. The liquid portion of their assets were being rapidly drained off by their customers, leaving the long term investments and depreciated assets as an inadequate source for payment of the remaining liabilities. An acceleration or a continuance of this tendency to withdraw available funds threatened a quick end to the ability of the institutions to meet even normal demands. Such threatened insolvency demands legislation for its control in the same way that liquidation after insolvency does. Such legislation may be classed as emergency in one sense but it need not be temporary. 16  

And East New York Savings Bank v. Hahn, issued in 1945, pretty much sums it up:

Since Home Bldg. & L. Ass’n v. Blaisdell290 U.S. 398 , 54 S.Ct. 231, 88 A.L.R. 1481, there are left hardly any open spaces of controversy concerning the constitutional restrictions of the Contract Clause upon moratory legislation referable to the depression. The comprehensive opinion of Mr. Chief Justice Hughes in that case cut beneath the skin of words to the core of meaning. After a full review of the whole course of decisions expounding the Contract Clause-covering almost the life of this Court-the Chief Justice, drawing on the early insight of Mr. Justice Johnson2 in Ogden v. Saunders, 12 Wheat. 213, 286, as reinforced by later decisions cast in more modern terms, e.g., Manigault v. Springs199 U.S. 473, 480 , 26 S.Ct. 127, 130; Marcus Brown Co. v. Feldman256 U.S. 170, 198 , 41 S.Ct. 465, 466, put the Clause in its proper perspective in our constitutional framework. The Blaisdell case and decisions rendered since (e.g., Honeyman v. Jacobs, 306 U.S. 539 , 59 S.Ct. 702; Veix v. Sixth Ward Ass’n310 U.S. 32 , 60 S.Ct. 792; Gelfert v. National City Bank313 U.S. 221 , 61 S.Ct. 898, 133 A.L.R. 1467; Faitoute Co. v. Asbury Park316 U.S. 502 , 62 S.Ct. 1129), yield this governing constitutional principle: when a widely diffused public interest has become enmeshed in a network of multitudinous private arrangements, the authority of the State ‘to safeguard the vital interests of its people,’ 290 U.S. at page 434, 54 S. Ct. at page 239, 88 A.L.R. 1481, is not to be gainsaid by abstracting one such arrangement from its public context and treating it as though it were an isolated private contract constitutionally immune from impairment.

The formal mode of reasoning by means of which this ‘protective power of the state,’ 290 U.S. at page 440, 54 S.Ct. at page 241, 88 A.L.R. 1481, is acknowledged is of little moment. It may be treated as an implied condition of every contract and, as such, as much part of the contract as though it were written into it, whereby the State’s exercise of its power enforces, and does not impair, a contract. A more candid statement is to recognize, as was said in Manigault v. Springs, supra, that the power ‘which, in its various ramifications, is known as the police power, is an exercise of the sovereign right of the government to protect the … general welfare of the people, and is paramount to any rights under contracts  between individuals.’ 199 U.S. at page 480, 26 S.Ct. at page 130. Once we are in this domain of the reserve power of a State we must respect the ‘wide discretion on the part of the legislature in determining what is and what is not necessary.’ Id. So far as the constitutional issue is concerned, ‘the power of the State when otherwise justified,’ Marcus Brown Co. v. Feldman256 U.S. 170, 198 , 41 S.Ct. 465, 466, is not diminished because a private contract may be affected.

In other words, a state can use what is in essence its police power to limit the state the absolute right to freely contract, but only “to safeguard the vital interests of its people.”  Suffice it to say that none of those three opinions gave any indication, much less outright held, that a vital interest of the people of any state was to be able to avoid payment of union dues, much less to avoid payment of lower union-administration fees, as a union-beneficiary employee in a union shop. 

In any event, Lincoln Union, in pretending that Home Building and the other two New Deal era opinions say things contrary to what they actually say, dealt only with compulsory union membership, not with required non-union-member administrative fees paid to unions.  That case was decided two years after passage of the Taft-Hartley Act.  And Taft-Hartley itself bars required union membership, while also requiring that unions negotiate compensation and working conditions on behalf of all the employees within unionized categories, irrespective of whether the employee has chosen to join the union., and also requires the union to represent those employees in controversies between the individual employee and the employer other just as they do for union members in other words, to provide all the union benefits even to employees who opted out of union membership.

In return, that law does allow the non-union employees to be required as a provision of the collective-bargaining agreement to pay union-administration fees.

I don’t think the administrative-fee requirement is “materially” (a legalese term of art) the same as the pre-Taft-Hartley contractual agreements that barred employers from hiring people who will refuse to join the union. And, certainly, it does not involve addressing severe long-term emergency that even remotely brings it within the reach of the Home Building & Loan Assoc. public-policy exemption from a narrow Contracts Clause interpretation. So, best as I can tell—and I am NOT an expert in labor law—the Supreme Court has never actually held that state ‘right to work’ laws do not violate the Contracts Clause.

That said, although the rightwing justices normally are all for upholding the right of contract, when the shoe is on the pro-Democratic Party foot rather than the pro-Republican one (or is it the reverse? I’m not sure), they probably would not uphold that right in this circumstance.  These people are the ultimate hypocrites.  And stunningly, unabashedly so.  And they hold a bare majority on the Court.  
For now.

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COOL UPDATE, here.  H/T Matthew Yglesias.

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Do ‘Right to Work’ Laws Violate the Constitution’s Article I Contracts Clause? [Updated]*

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

— Article I, Section 10, Constitution of the United States

No, I didn’t post this to highlight the prohibition against states’ granting any title of nobility.  I posted it to highlight the prohibition against states’ enacting a law impairing the obligation of contracts—which the Supreme Court has interpreted as a guarantee of the right to freely enter into contracts.  
That guarantee does have exceptions, of course, none of which includes the type of contract that state so-called ‘right to work’ laws bar.  Including the ones passed today by the Michigan legislature, after springing out of nowhere last week.  (Although maybe the proponents of these laws think these statutes come within this exception created by the current Supreme Court’s majority: any law that helps corporations is constitutional.  It’s a corollary to the majority’s maxim that any federal statute, such as ones concerning compelled contractual arbitration, or labor unions, or federal-court jurisdiction, be distorted beyond plausible recognition of the statute’s actual language, if necessary, to favor corporations.  This is known by them as “originalism” and “textualism.”  And known by others, not all of whom are justices, as cute, pick-and-choose gimmickry.)

But as Slate’s Matthew Yglesias points out today, what these bills do is use the force of law—state law—to interfere with the right of contract between two private parties: labor unions and private employers.  In Michigan, the legislature actually passed two separate laws today: one pertaining to labor contracts between labor unions and private employers, the other pertaining to contracts between labor unions and public employers (i.e., state and local governments).  But as a constitutional matter, this doesn’t matter.

Yglesias points out what does matter, although he argues it only as a matter of hypocrisy, not as a possible violation of constitutional law.  After saying that the concrete economic impact of these statutes is murky—something that Paul Krugman and most Angry Bears would dispute (and have disputed)—he hits the nail on the head about the actual nature of these laws:

[What is] not murky is the absurd hypocrisy that has to go into making the case for right-to-work legislation.

The way this works is that if there’s a labor union at a given business establishment that’s bargaining for some higher pay or benefits or better work-rules or whatever it’s rapidly going to find that there’s a free rider problem. Everyone in the relevant class of workers gets the benefits whether or not they join the union. So something the union is often going to want to bargain for is some kind of rule stating that everyone hired in the relevant class has to join the union, or has to pay dues to the union, or something else along those lines.

Now naturally an employer’s not going to want to agree to that. But he’s not going to want to agree to higher pay or more vacation days either. That’s why it’s a negotiation. A right-to-work law is a law banning employers from making that concession.

The impact, obviously, is to make it hard to form strong unions in a given jurisdiction and thus make it a more business-friendly jurisdiction. But note that this same trick works across the board. You could just ban pay raises in general. Any one firm, after all, faces a dilemma. On the one hand it would be more profitable to pay people less. On the other hand, it’s also unprofitable to have everyone quit to go work for some other higher-paying company. So a law against pay raises would make everyone more profitable, spurring crazy business investment and job creation. Except nobody does that because it would be (a) insane and (b) obviously unfair. And yet the proponents of right-to-work laws are generally exactly the people most inclined to stand up for freedom of contract under other circumstances.

And yet the proponents of right-to-work laws are generally exactly the people most inclined to stand up for freedom of contract under other circumstances, indeed.  They do this standing up in legislatures, think tanks, and lobbying firms.  And in court, including the Supreme one.  Some of them doing this standing from the black-robes-wearing, comfortable-leather-chair-sitting side of the courtroom bench.

Now that the gauntlet has been thrown, labor should pick it up and take it to court.  There is, I think, little doubt that these laws impair the obligation of current labor contracts and also impinge upon the right to freely enter into contracts.  The proponents of these laws will defend them on the ground that state laws impairing the obligation of this particular type of contract isn’t what the framers had in mind.  And undoubtedly they’re right; it’s a historical fact that the Washington, Madison, and the others considered union organizing right up there with sodomy and murder as unprotected by the Fourteenth Amendment, which they foresaw would be added to the Constitution a few decades later, or by the clause in Article 1, Section 10, prohibiting states from impairing the obligation of contracts. 

But labor unions still should challenge the constitutionality of these laws, even if they have to try to convince the courts, and eventually the Court, that the laws are Letters of Marque and Reprisal. 

Which, at least regarding the Reprisal part, sounds about right. 

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UPDATE: Excellent, thorough article by Rick Ungar in Forbes today, titled “Right-to-Work’ Laws Explained, Debunked & Demystified.” Don’t miss it.

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*I just posted a lengthy follow-up post, here.

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