How a Recent Supreme Court Case About Labor Unions Foreshadowed the Obamacare Ruling

Last month, in Knox v. Service Employees International Union, Local 1000, the Supreme Court imposed new procedural limits on how public-sector unions may bill non-union members for services that redound to the non-members’ benefit.  In the course of the majority opinion by Justice Alito, the Court also cast doubt on the longstanding precedent that permits unions to bill such non-members in the first place.

Much of the commentary on Knox has focused on its ideological cast.  The Court’s five Republican appointees voted to restrict the power of public-sector unions over the disagreement of four Democratic appointees—at a time when the rights of public-sector unions have become a hotly contested political issue.  Although some budget-conscious Democratic governors have sought to curtail union rights, the assault on public-sector unions has been led by the likes of Wisconsin’s Republican governor, Scott Walker.

Against this backdrop, it is easy to read the disagreement in Knox as simply another battle in the long-running ideological fight on the Supreme Court.  To be sure, one occasionally sees a curveball—as in the Obamacare case, when Chief Justice Roberts voted to uphold the individual mandate under the taxing power, and Justices Breyer and Kagan joined the conservatives to invalidate the Medicaid expansion conditions as beyond the scope of the spending power.  But on the whole, Knox appears to confirm the bigger picture of a Supreme Court in which ideology is the best predictor of how any given justice will vote in any given case.

That picture is accurate, but the Knox majority nonetheless raises an important question, to which I shall turn after describing what the Knox case held.  The question is this: Under what circumstances is it fair to charge people for services that they say they do not want?  The answer given by the conservative Justices in the Knox majority is easy to reconcile with the votes of those same Justices in the Obamacare case, but both the conservative Justices’ answer in Knox and their answer in the Obamacare case are difficult to reconcile with conservative principles themselves.

The Issue and the Ruling in Knox

California law, like the law of many other states, permits the designation of particular workplaces as “agency shops.”  In an agency shop, an employee labor union negotiates employment terms and conditions for all members of the designated bargaining unit.  Thus, even if an employee in a California agency shop does not wish to join the union, the union will still represent his or her interests.

Supreme Court precedent long predating Knox established the following four key propositions: (1) Because a union’s collective bargaining activities benefit all workers in the bargaining unit, unions are permitted to charge non-members for their fair share of those activities; (2) however, unions may not charge non-members for “ideological” activities, such as supporting political candidates, that are not connected to bargaining, because doing so would infringe the free speech rights of the non-members; and therefore (3) unions must give non-members an opportunity to opt out of the non-bargaining-related fees; which (4) they may do through an annual accounting that is based on the prior year’s audited statements of the ratio of bargaining-related to non-bargaining-related costs.

In one sense, Knox presented a technical interstitial question: When a union issues a special mid-year assessment for non-bargaining-related activities, do precisely the same rules that I have just listed above still apply?

Justices Breyer and Kagan thought the answer to that question was yes.  Prior precedent already established the legitimacy of the opt-out procedure, they noted, and the fact that the special assessment was for ideological, rather than bargaining-related, activities would be adequately reflected in the following year’s ratio of chargeable to non-chargeable fees.

Another two Justices would have ruled that the answer to the question was no, and stopped there.  Justices Sotomayor and Ginsburg thought that the non-members who had already opted out of the non-bargaining-related portion of the union fees at the beginning of the year were entitled not to be charged the special assessment for ideological activities.

Thus, all four of the Court’s Democratic appointees thought that Knox presented a straightforward and relatively minor issue under well-settled law.

But the conservative majority, in sharp contrast, used Knox as an opportunity to lay down a marker that could endanger agency shops entirely.  The majority held that for a special assessment, an opt-out system is constitutionally inadequate.  And, although the particular facts of Knox involved a special assessment for purely ideological activities, the majority’s rule appears to apply to all special assessments.

Moreover, the Court hinted that, in later cases, it may drop two additional shoes:  First, Justice Alito’s majority opinion repeatedly referred to any opt-out system as an “impingement” on the free speech rights of non-union members.  It thus strongly hinted that, in some future case, the Court might say that even for annual assessments, a union can only collect fees from non-members by an opt-in system, rather than by an opt-out system.  Given what we know about human psychology, fewer would opt in, in an opt-in system, than would have simply stayed in an opt-out system, and such a change in the default rule would thus substantially reduce the amount of money that is available to unions.

Second, calling into question decades of precedent, the Court suggested that even allowing unions to collect money from non-members for bargaining-related activities may in itself be unconstitutional.  If the Court were to convert that suggestion into a rule of constitutional law in some future case, then that new rule would certainly have a substantial impact on the ability of unions to represent the interests of workers.  It would create—or more precisely, it would leave unremedied—a “free rider” problem.

The Free Rider Problem in Knox and Beyond

What is a “free rider” problem?  It is a collective-action problem in which individuals can choose to benefit from the decisions of others to act in the interest of the group by acting only in their own individual interest.  A litterbug who likes clean streets and sidewalks “free rides” on his neighbors’ willingness to clean up both their own and his trash, for example.

To return to the union context, suppose that the Supreme Court were eventually to rule that unions may not even charge non-members for collective bargaining activities.  Any individual worker might then decide that it is not in his interest to join the union, because he will still benefit from whatever favorable terms the union negotiates.  Let somebody else pay for it, the free rider says.

Free riding is not simply a fairness problem.  Once enough people decide to free ride, the people who would otherwise be inclined to pay their fair share begin to feel like suckers; they too may refuse to pay; and the underlying collective good goes away.  Soon, there are not enough civic-minded people to pick up the trash, or not enough workers to support an effective union.

Why, then, did the Knox majority suggest that unions perhaps should not be allowed to charge non-members for bargaining-related activities?  Surely Justice Alito and the other conservative Justices must have been aware of the potential free rider problem.

Indeed they were, but, citing a paper by the late labor law scholar Clyde Summers, they explained that the problem of free ridership does not ordinarily entitle those who take it upon themselves to act in the public interest to tax the rest of us to recoup our fair share of the cost of their efforts.  As Summers (quoted by the Court) explained: “If a community association engages in a clean-up campaign or opposes encroachments by industrial development, no one suggests that all residents or property owners who benefit be required to contribute.”

True enough, but the fact that no one suggests something does not mean that it would violate the First Amendment if someone were to suggest it.  The reason that private organizations do not ordinarily get to charge strangers who benefit from their actions their fair share is that such private organizations lack the power to do so.  But what if the government gives them that power?  That is what happened in Knox, after all.  Local 1000 did not unilaterally attempt to bill non-members for its efforts.  It was granted that authority by California law.

The Same Logic as in the Obamacare Case

Why does it matter that the union in Knox was authorized by the state to combat the free rider problem?  Because government routinely uses taxation and other forms of coercion to solve free rider problems.

Littering itself is a good example.  Municipalities do not merely rely on a social norm against littering.  They impose fines on those who litter.

Or consider the other example from Summers that is quoted above.  Local governments could rely on community groups to protect residential neighborhoods from industrial encroachment, but mostly they enact zoning laws to do the job for them.  Those laws ensure that everyone pays for the benefit of peace and quiet by being subject to the same limitations on the use of their own property.

Or, most fundamentally, consider taxation for any of the myriad of services that government provides, from police and fire protection, to national security, to health insurance for the poor and elderly.  In none of these instances does society rely on self-organizing volunteers.  Instead, the government imposes taxes to ensure that everyone pays his or her fair share.

Why then, should there be a problem if the government chooses to solve a free rider problem through private actors, rather than solving it directly?  No good answer suggests itself, which may be why so many commentators have seen hostility to labor unions in the tone of the Knox opinion.

But if there is no good answer, there is at least a by-now familiar answer.  The Knox ruling was handed down just a week before the Obamacare ruling.  The five Justices in the Knox majority were the same five who voted that the Affordable Care Act’s so-called individual mandate could not be sustained under the Commerce Clause because Congress supposedly lacks the authority to mandate purchases of insurance in the private sector—even though Congress undoubtedly does have the authority to tax people and then provide them with public health insurance.

Here is the similarity:  In both cases, the Court’s conservatives thought that government was forbidden to solve a free rider problem through the private sector, even though it could solve the same problem directly.  In Knox, the majority hinted that in the future, it may invoke the First Amendment to deny government the ability to authorize agency shops in which unions charge non-members for free-riding on their bargaining activities.  In the health care case, the same five conservative Justices (including Chief Justice Roberts, on this point), said that the Commerce Clause forbade Congress from mandating health-insurance purchases as a means of preventing currently healthy people from free-riding on the premiums that are being paid by others who now have insurance.

Yet the consistency that was exhibited by the Court’s conservatives in Knox and the health care case only deepens the mystery, because it suggests that these Justices are deeply committed to a principle that is not only difficult to justify, but upon scrutiny, not at all conservative: The principle that it is better (so far as the Constitution is concerned) for government to achieve its aims through government programs than to achieve them through the private sector and private organizations.

Indeed, Obamacare’s individual mandate was originally proposed by conservatives precisely because it relied on the private sector, rather than government programs—making the individual mandate a peculiar target of libertarian critiques all along.  And while it is to be expected that pro-business conservatives would seek to undermine unions, the particular means chosen in the broad language of the Knox majority opinion are, likewise, a very awkward choice for jurists who profess to worry about the overweening power of government.

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