WASHINGTON – The Supreme Court on Wednesday struck down collective bargaining laws in Illinois and other states that require public employees who are represented by a labor union to pay agency fees on First Amendment grounds.

The 5 to 4 ruling, involving an Illinois state employee named Mark Janus, could ultimately free up more spending flexibility for state and local governments by weakening organized labor in the sector of the economy where the rate of unionization is the highest.

Union membership among state and local employees totaled 6.8 million in 2017, according to the U.S. Bureau of Labor Statistics, including 33% of state government workers and 44% of those employed by local government. Private sector union membership, in contrast, stood at 6.5% last year.

The court ruling involved an agency fee, also referred to as a "fair share" fee, that non union members are required to pay to their bargaining unit to cover the cost of contract negotiations and grievance representation.

Twenty two states, the District of Columbia and Puerto Rico allow public sector unions to collect agency fees, according to court briefs.

Union officials and some governors and mayors who filed friend of the court briefs argued that these fees have helped establish labor peace, pointing to crippling public employee strikes in the late 1960s and early 1970s before states enacted public sector employment laws to require their collection.

Mark Janus is an Illinois state employee who is the lead plaintiff in the union agency fees case heard by the U.S. Supreme Court in February.
Mark Janus is an Illinois state employee who is the lead plaintiff in the union agency fees case heard by the U.S. Supreme Court in February. Brian Tumulty, The Bond Buyer

The ruling “may be very disruptive for labor peace in the United States,” said William Herbert, executive director of Hunter College’s National Center for the Study of Collective Bargaining in Higher Education and the Professions.

Agency fees are not collected in the 27 states that have right-to-work laws prohibiting mandatory union membership or dues collection.

Additionally, the right-to-work states of North Carolina, South Carolina and Virginia prohibit any formal collective bargaining between local governments and public employees, according to the Center for Economic and Policy Research.

“It’s a patchwork quilt that’s the nature of federalism,” said Herbert.

The first state to allow public sector employee unions to collect agency fees was Hawaii in 1968 followed by Rhode Island and New York, Herbert said. Other states followed in the 1970s. The Supreme Court unanimously ruled the fees to be legal in 1977 in Abood v. Detroit Board of Education.

In Abood the court also ruled that non-members of the union had a right to opt out of the portion of union fees that are used for political purposes.

"It became an important element of public sector collective bargaining like in the private sector," Herbert said.

The majority opinion written by Justice Samuel Alito said, "The state’s extraction of agency fees from nonconsenting public-sector employees violates the First Amendment. Abood erred in concluding otherwise, and stare decisis cannot support it."

The court majority also rejected the argument that agency fees are necessary to secure labor peace.

"Exclusive representation of all the employees in a unit and the exaction of agency fees are not inextricably linked," the ruling said. "To the contrary, in the Federal Government and the 28 States with laws prohibiting agency fees, millions of public employees are represented by unions that effectively serve as the exclusive representatives of all the employees.

"Whatever may have been the case 41 years ago when Abood was decided, it is thus now undeniable that 'labor peace' can readily be achieved through less restrictive means than the assessment of agency fees," the court said.

Justice Elena Kagan, who wrote the dissenting opinion, said state and local governments have "substantial latitude" in regulating workplace speech as a way to regulate the workplace.

Kagan predicted that the new ruling "will have large-scale consequences."

"Public employee unions will lose a secure source of financial support," Kagan wrote. "State and local governments that thought fair-share provisions furthered their interests will need to find new ways of managing their work-forces. Across the country, the relationships of public employees and employers will alter in both predictable and wholly unexpected ways."

Moody’s Investors Service said the ruling would result “in a positive long-term impact on government finances” while Fitch Ratings downplayed the impact.

“These developments could change how state and local governments set employee wages and pensions,” Emily Raimes, vice president and senior credit officer at Moody’s said in a press release.

"We expect the Supreme Court decision may lower public union revenues, membership, and bargaining power in the 22 states that can no longer allow mandatory fees,” Raimes said.

Amy Laskey, managing director of Fitch Ratings, said, “Despite the landmark Janus ruling, state and local governments will remain limited in their ability to control labor spending.”

Laskey said that even in states “with right-to-work laws that limit collective bargaining powers’’ those governments “can still confront labor-related spending pressures.”

Fitch said the ruling in favor of Janus puts all states in the same situation as right-to-work states. Fitch rates spending flexibility for 962 state and local governments, of which 57% are in right to work states.

Among right-to-work states, Fitch gives 9.4% triple A ratings and 77% are rated double A. Among the non-right-to-work states, 6.6% are rated triple A and 73.2% are double A.

When the Fitch report was released, Laskey said in press release, “A productive and flexible working relationship can be achieved regardless of the legal structure, in which case the workforce evaluation is a neutral factor.”

“Statewide teacher strikes in several [right-to-work] states in recent months demonstrate that management's flexibility to adjust spending can still be inhibited in the absence of required agency fees,” the report said.

“Although Fitch's workforce evaluation focuses on local governments, these events underscore how states can also be affected by labor pressures even though they are generally funders of services rather than employers.

The statewide teacher walkouts occurred in Arizona, Oklahoma and West Virginia despite laws in those states that prohibit teacher strikes. As of 2014, 37 states had laws prohibiting teacher strikes, according to the CEPR study.

Wednesday's ruling may lead to smaller unions and lower wages.

The Illinois Economic Policy Institute — a non-profit research organization that focuses on the impact of labor-management cooperation on the economy, wages, and inequality — issued a report on May 9 predicting an 8.2% drop in union membership among state and local government employees, which could result a 3.6% decline in wages because of a drop bargaining clout.

Those changes could occur over three-to-five years, said Robert Bruno, a co-author of the Illinois EPI report who is director of the labor education program at the University of Illinois at Urbana-Champaign School of Labor and Employment Relations.

“If you go to Wisconsin, if you go to Michigan, if you go to Iowa or Indiana, there aren’t just right-to-work laws, there are other limitations on bargaining,” Bruno said.

Montana Gov. Steve Bullock said in one of the briefs filed in the case that “overturning Montana’s longstanding collective bargaining framework would generate massive costs for the state.”

“Agency fees are crucial for attracting a competent workforce,” the Montana brief said. “Eliminating them would weaken the communication channels that workers currently use to advocate for better working conditions, in turn undermining the state’s ability to compete for the best workers. Montana is already losing employees at an unsustainable level.”

The high court split 4-4 in an earlier, similar case decided in 2016 after the death of conservative justice Antonin Scalia. That case, Friedrichs v. California Teachers Association , involved Rebecca Friedrichs, a longtime public school teacher in Orange County, California who objected to paying dues to the California Teachers’ Association, an affiliate of the National Education Association.

But the court re-examined that ruling this year in a challenge by Mark Janus, an Illinois state employee who wanted the court to abolish a requirement that he must pay agency fees to his union, the a local of the American Federation of State County and Municipal Employees.

Janus is a child care support specialist who has worked for the state of Illinois for about 11 years. His agency fees are equivalent to about 78% of full union dues. Full union dues include money spent on political advocacy.

Justice Neil Gorsuch, who joined the court last year, was a key vote in the 5-4 decision.

Organized labor groups have predicted that a ruling in favor of Janus would invalidate immediately many existing worker protections they have bargained for.

Supreme Court Justice Elena Kagan, a member of the liberal wing of the court, agreed with the labor unions when oral arguments were held in the case in February. “Thousands of municipalities would have contracts invalidated,” she said. “Those contracts probably cover millions, maybe up to over 10 million, workers.”

David Frederick, who represented AFSCME. told the court in February that the issue is whether “states, as part of our sovereign system, have the authority and the prerogative to set up a collective bargaining system in which they mandate that the union is going to represent minority interests on pain of being subject to any fair labor practice.”