State marijuana labor regulation may be federally preempted

A clause in a state law regulating cannabis businesses which requires them to enter "labor peace agreements" in order to be licensed is preempted by federal law, according to labor attorneys. However, it has gone unchallenged in the year since the bill was passed.

Senate Bill 94, which was signed by Gov. Jerry Brown in June 2017, places the requirement on cannabis businesses with 20 or more employees. In some municipalities, such as San Francisco, the bar is lowered to 10.

In a labor peace agreement, employers agree to allow unions access to their employees while the union concedes some tactics, such as strikes or picketing to interrupt business. The National Labor Relations Act supersedes all other regulations on labor relations with few exceptions, such as when a state or city acts as a market participant.

"I don't think they are in the cannabis market at all. It's strictly regulation, bypassing an entire regulatory scheme that has been established for many years to regulate how an employee agrees to be represented," said Daniel T. Berkley of Fox Rothschild LLP.

"Here it's not like the state is acting as a market participant. The state is clearly regulating," said Gina M. Roccanova of Meyers Nave Riback Silver & Wilson PLC. Roccanova is the chair of the firm's labor practice.

"Any challenge to that requirement wouldn't come from the government. It would come from members of the industry," Roccanova said.

"It would require some larger company to challenge it," echoed Berkley.

In a case pending before the U.S. Supreme Court, the 9th U.S. Circuit Court of Appeals ruled the city of Los Angeles could require vendors at the international airport to enter such agreements before being licensed to operate. The 9th Circuit ruled in that instance the city had a market interest as operator of the airport.

In that case, Airline Service Providers Association v. Los Angeles World Airports et al., 17-1183, the challenge came from an association of vendors.

So in the year since passage of the Medicinal and Adult-Use Cannabis Regulation and Safety Act, why has no challenge come from the multi-billion dollar marijuana industry?

According to Roccanova, any suit over preemption of SB 94 could meet immediate obstacles in federal court, making such a suit a nonstarter.

"There's an interesting legal question, which is the standing question," said Roccanova. "Let's say that some business or consortium brings suit to challenge this requirement. Could the state say they don't have standing because here in federal court, what harm would they suffer?"

"The harm you suffer would be not gaining a license in an industry that, at the federal level, is not recognized as legitimate," she explained.

Roccanova added that businesses may not want to be the first through the wall on the issue while their industry walks a legal knife's edge. While legal for recreational use in California, marijuana remains federally prohibited. The legal gray area in which the industry lives already causes major issues with banking, taxes and employment for its members.

"This is an industry that relies on the good graces of a liberal legislature, state, and populace who voted their industry into existence," she said.

According to Jack Schaedel of Scali Rasmussen, the politics of the industry itself might explain why the labor peace requirement has stood, despite clear preemption.

"The average cannabis industry individual may have a different way of ordering values. They may have different value systems. They may think a labor peace agreement is wonderful and never think of not having one," he said.

"I think if you went and polled 100 businesses at LAX, close to unanimity would prefer not to be unionized, not to have a labor peace agreement," said Schaedel, suggesting that owners of cannabis businesses have a different attitude than other commericial businesses.

Schaedel added that the requirement is in line with the politics of California's Legislature.

"It's a very distinct worldview that it comes from, which is consistent with the worldview that labor peace agreements come from," he said.

According to Roccanova, some firms are keeping an eye out for a business with the clout and wherewithal to challenge the state.

"I know there are law firms out there that are looking for a test case. ... It's on the radar, and I think it's likely to happen eventually," she said.

However, she added it may be too late by then. Once a labor peace agreement opens the door to unions, the workplace is effectively permanently unionized. Schaedel echoed the sentiment, adding that the nascent cannabis industry's relationship with government regulation is unique.

"The government sort of created the industry by breathing life into it," he said. "No player existed five years ago, so they can't say, 'Hey you're upsetting the way things are.'"