Labor & Employment Law Daily Employee who paid fair share fees under protest not entitled to refund of money
Friday, November 8, 2019

Employee who paid fair share fees under protest not entitled to refund of money

By Ronald Miller, J.D.

Even assuming that the Supreme Court’s decision in Janus v. AFSCME, Council 31 was applied retroactively, an employee who paid fair share fees under protest was not entitled to refund of some or all of that money, ruled the Seventh Circuit. In a matter of first impression, the appeals court found that the state relied on Abood when it adopted a labor relations scheme permitting the union to receive fair-share fees from nonmembers. The union then relied on that state law. Accordingly, the appeals court declined to grant monetary damages to the employee, on the ground that the union’s good-faith defense shielded it from such liability. Judge Manion filed a separate concurring opinion (Janus v. American Federation of State, County and Municipal Employees, Council 31, November 5, 2019, Wood, D.).

Fair-share fees from non-members. In its 2018 decision in Janus v. AFSCME, Council 31, the Supreme Court reversed 41 years of precedent that authorized state-government entities and unions to enter into agreements under which unions could receive fair-share fees from nonmembers to cover the costs incurred when the union negotiated or acted on their behalf. The Court held that compulsory fair-share or agency fee arrangements impermissibly infringed on employees’ First Amendment rights.

The question now before the Seventh Circuit is whether an employee who paid fair-share fees under protest, is entitled to a refund of some or all of that money.

Overview of system. On May 23, 1977, the Supreme Court issued its opinion in Abood v. Detroit Bd. of Educ., in which a group of public-school teachers challenged a Michigan law establishing an exclusive representation scheme that authorized agency shop clauses in collective bargaining agreements between public-sector employers and unions. The Court upheld that system.

Over time, Abood began to be characterized as an “anomaly,” and the Court started paying more attention to the “significant impingement on First Amendment rights” Abood allowed and less to the balancing of employees’ rights and unions’ obligations. In Harris v. Quinn, the Court worried that Abood had “failed to appreciate the conceptual difficulty of distinguishing between union expenditures that are made for collective bargaining purposes and those that are made to achieve political ends” and to anticipate “the practical administrative problems that would result.” Still, the Court did not overrule Abood.

The Janus case. The employee worked as a child-support specialist for the State of Illinois. A union was designated as the exclusive bargaining representative of his employee unit. The employee exercised his right not to join the union. He also objected to the withholding of $44.58 from his paycheck each month to compensate the union for representing the employee unit.

The then-governor challenged the Illinois Public Labor Relations Act (IPLRA), which established an exclusive representation scheme and authorized public employers and unions to enter into CBAs that included a fair-share fee provision. After the district court dismissed the governor for lack of standing, the employee was permitted to intervene as a plaintiff. The employee asserted that the state’s compulsory fair-share scheme violated the First Amendment. Although the lower courts rejected his position, the Supreme Court overruled Abood.

Free riders. Several aspects of the Court’s opinion are relevant to the employee’s current claim for damages. First, the Court characterized the harm inflicted by the agency-fee arrangement as “compelled subsidization of private speech,” whereby “individuals are coerced into betraying their convictions.” The Court held that any legitimate interest the union had in those fees had to yield to the objecting employees’ First Amendment rights. In so doing, it rejected the approach to free riding that earlier opinions had taken, and that “avoiding free riders is not a compelling interest.”

However, the Court did not hold that the employee had an unqualified constitutional right to accept the benefits of union representation without paying. Its focus was instead on freedom of expression. The only right the Janus decision recognized was that of an objector not to pay any union fees. This is not the same as a right to a free ride. Finally, the Court did not specify whether its decision was to have retroactive effect. In the end, however, the Court remanded the case to the district court for further proceedings related to remedy.

Remedies. The most immediate effect of the Janus decision was that the state employer promptly ceased its collection of fees from the employee and all other nonmembers of the union. The employee followed up the Court’s decision with a request for damages from the union in the amount of all fair-share fees he had paid, pursuant to 42 U.S.C. § 1983. The district court entered summary judgment in favor of the union and state. The employee timely filed a notice of appeal.

Retroactivity. On review, the Seventh Circuit began with the question whether the Supreme Court’s decision in Janus is retroactive. The employee relied on the Supreme Court’s decision in Harper v. Virginia Dep’t of Taxation, for the proposition that “a rule of federal law, once announced and applied to the parties to the controversy, must be given full retroactive effect by all courts adjudicating federal law.” Here, the appeals court agreed with the union that it was not at all clear that the Supreme Court’s decision in this case was to be applied retroactively.

However, the appeals court assumed that the right recognized in Janus should be applied to the full sweep of people identified in Harper (that is, the employee and all others whose cases were in the pipeline at the time of the Court’s decision). Thereafter, it turned to consider whether the employee was entitled to the remedy that he sought.

Union is a “person” that can be sued. Section 1983 supports a civil action against every person who, under color of state law, causes a citizen to be deprived of any rights, privileges, or immunities secured by the Constitution and laws. Here, the appeals court found that the union was sufficiently like other entities that have been sued under § 1983 to permit this action. Next, the court determined that the union acted under “color of state law” since its receipt of fair-share fees from a public employer was attributable to the state. Moreover, the employee’s claim was timely under the applicable statute of limitations. Borrowing Illinois’ two-year limitations period for personal injury actions, the court noted that the employee commenced this action within two years of the Janus decision.

Good-faith defense. While this is a matter of first impression in the Seventh Circuit, every federal appeals court that has decided the question has held that, while a private party acting under color of state law does not enjoy qualified immunity from suit, it is entitled to raise a good-faith defense to liability under § 1983. The Seventh Circuit now joins its sister circuits in recognizing that, under appropriate circumstances, a private party that acts under color of law for purposes of § 1983 may defend on the ground that it proceeded in good faith.

Although this is a new question for the Seventh Circuit, the appeals court observed that every district court that has considered the question whether there is a good-faith defense to liability for payments collected under Janus, has answered it in the affirmative. Like its sister circuits, the Seventh Circuit read the Supreme Court’s language in Wyatt v. Cole and Luger v. Edmondson Oil Co., Inc., as a strong signal that it intended to recognize a good-faith defense in § 1983 actions when the defendant reasonably relies on established law.

In this instance, the State of Illinois relied on Abood when it adopted a labor relations scheme providing exclusive representation of public-sector workers and the remit of fair-share fees to the recognized union. The union then relied on that state law in its interactions with other actors. Thus, until the Janus court said otherwise, the union had a legal right to receive and spend fair-share fees collected from nonmembers as long as it complied with state law and the Abood line of cases. Accordingly, the appeals court agreed with the district court judgment declining to grant monetary damages on the ground that the union’s good-faith defense shielded it from such liability.

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