Labor & Employment Law Daily Premature to find NLRA preempted NYC car wash law before discovery on law’s interference with collective bargaining
Friday, December 14, 2018

Premature to find NLRA preempted NYC car wash law before discovery on law’s interference with collective bargaining

By Marjorie Johnson, J.D.

In a win for unionized labor, the Second Circuit held that a district court prematurely invalidated a provision in a New York City law that allowed unionized car washes to pay a lower bond amount when seeking a license to operate in the city. Whether the bond provision had the effect of imposing financial pressure on car wash owners to support unionization was relevant in determining whether the law impermissibly interfered with the collective bargaining process to the extent of being preempted by the NLRA. Since the district court erred by granting the car wash plaintiffs’ motion for partial summary judgment before the completion of discovery on this crucial issue, the case was remanded (Association of Car Wash Owners, Inc. v. City of New York, December 12, 2018, Kuntz, W.).

Car Wash Law. In 2015, New York City adopted the Car Wash Accountability Law to address concerns regarding the lack of regulatory oversight of the car wash industry and its history of underpayment of wages, unsafe practices, and environmental issues. The law requires car washes to obtain a license and sets forth certain licensure requirements. At issue was its two-tiered surety bond provision, which reduces the required bond amount from $150,000 to $30,000 if the car wash is a party to a collective bargaining agreement (CBA) “that expressly provides for the timely payment of wages and an expeditious process to resolve disputes concerning nonpayment or underpayment of wages.”

The Association of Car Wash Owners Inc. and two of its members (the car wash plaintiffs) filed this lawsuit against the city and its commissioner of consumer affairs (the city), asserting several challenges to the law, including that the bond provision favored unionization and was preempted by the NLRA. Granting their motion for partial summary judgment prior to the completion of discovery, the district court held that the NLRA preempted the bond provision and declared the entire law invalid, but later severed the bond provision from the remainder of the law.

NLRA preemption. The category of NLRA preemption at issue here, known as Machinists preemption, forbids states and localities from intruding upon the labor-management bargaining process. However, the Supreme Court has recognized that while states are precluded from regulating the bargaining process, they have traditionally possessed “broad authority under their police powers to regulate the employment relationship” and the “substantive labor standards that they enact set a baseline for employment negotiations.” Thus, the crucial inquiry to preemption is whether state action frustrates the effective implementation of the NLRA’s processes. Because the establishment of labor standards falls within the traditional police power of the state, the Supreme Court has warned that preemption should not be “lightly inferred” where regulations concern in any way the complex interrelationships between employees, employers, and unions.

Minimum labor standard. The Second Circuit rejected the car wash plaintiffs’ first contention that the NYC law did not qualify as a minimum labor standard since it also addressed topics outside the scope of labor, such as environmental regulations. Because the licensing scheme enforced by the bond requirement was expressly intended to improve compliance with state and federal minimum wage laws, it “most emphatically” concerned implementing minimum wage and hour regulations. Its concern with minimum labor conditions was not nullified by the fact that other industry problems were also addressed.

Triable issues as to significant financial pressure. While a law that addresses “such legitimate, non-preempted local concerns” may not do so by creating significant pressure on employers to encourage unionization, it was too early in the proceedings to conclude as a matter of law that the bond provision had such an effect. In granting partial summary judgment, the district court concluded that the bond provision impermissibly encouraged unionization by imposing a penalty that required “a fivefold increase” in the amount of a surety bond required for car washing companies that were not parties to a CBA. However, this conclusion regarding purported financial pressure was prematurely reached before the completion of discovery.

While a higher surety bond requirement will undoubtedly impose some costs more than what a lower bond requirement would impose, the plaintiffs’ claims of financial pressure were far from undisputed and failed to show the NLRA preempted the bond provision as a matter of law. For example, the plaintiffs represented that the costs of obtaining a higher $150,000 surety bond will likely be between 1 and 3 percent of the amount of the bond ($1,500 to $4,500) while the costs of obtaining a $30,000 surety bond would likely be $300 to $900. These were “relatively minor” differences in cost.

Must also consider cost of unionization. The plaintiffs also asserted that car washes may be required to obtain CPA-prepared financial statements because a surety will typically wish to review such statements before deciding whether a given car wash qualifies for a $150,000 bond, but acknowledged substantial uncertainty about the costs and difficulty of securing a bond. Moreover, none of the plaintiffs submitted sufficient information about their own or other car-washing company’s financial condition. Crucially, their claims of financial pressure also had to be considered “in tandem” with the financial costs of unionization since suggesting that a car wash owner would have to choose between obtaining a $150,000 bond with its attendant costs (whatever they may be) or supporting unionization at no cost “ignored economic reality.”

Severability. While the car wash plaintiffs also appealed the district court’s order severing section the bond provision, the issue of severability only arose if any portion of the Car Wash Law was deemed invalid and would not need to be considered if no part of it was preempted. Therefore, the Second Circuit declined to express any opinion as to the severability holding.

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