Filed 12/29/11

IN THE SUPREME COURT OF CALIFORNIA

FRANCES HARRIS et al.,
Petitioners,
S156555
v.
Ct.App. 2/1 B195121
THE SUPERIOR COURT OF
LOS ANGELES COUNTY,
Los Angeles County
Super. Ct. No. BC 246139
JCCP No. 4234
Respondent;
LIBERTY MUTUAL INSURANCE
COMPANY et al.,
Real Parties in Interest.
___________________________________ )

LIBERTY MUTUAL INSURANCE
COMPANY et al.,
Ct.App. 2/1 B195370
Petitioners,
Los Angeles County
Super. Ct. No. BC 246140
v.
JCCP No. 4234
THE SUPERIOR COURT OF
LOS ANGELES COUNTY,
Respondent;
FRANCES HARRIS et al.,
Real Parties in Interest.

1

This litigation tests whether certain insurance company claims adjusters are exempt
employees, not entitled to overtime compensation under the Labor Code and regulations
of the California Industrial Welfare Commission (IWC or Commission). Reviewing the
trial court‘s denial of a summary adjudication motion, the Court of Appeal held the
adjusters are not exempt employees as a matter of law. In doing so, the Court of Appeal
misapplied the substantive law. We reverse.
FACTS
Plaintiffs are claims adjusters employed by Liberty Mutual Insurance Company and
Golden Eagle Insurance Corporation (collectively defendants). They filed four class
action lawsuits alleging defendants erroneously classified them as exempt
―administrative‖ employees and seeking damages based on unpaid overtime work. The
four actions were coordinated into one proceeding by the Judicial Council. Plaintiffs also
moved for class certification. The trial court certified a class of ―all non-management
California employees classified as exempt by Liberty Mutual and Golden Eagle who
were employed as claims handlers and/or performed claims-handling activities.‖
Plaintiffs moved for summary adjudication of defendants‘ affirmative defense that
plaintiffs were exempt from the overtime compensation requirements under IWC wage
order No. 4. (Cal. Code Regs., tit. 8, § 11040 (Wage Order 4).) Defendants opposed the
motion and moved to decertify the class.
The trial court decertified the class in part, depending on whether plaintiffs‘ claims
arose before or after October 1, 2000, the date the IWC replaced an earlier version of
Wage Order 4. The court afforded the disparate treatment because it felt bound by the
authority of Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805 (Bell II) and Bell
v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715 (Bell III) (collectively Bell cases).
For claims arising before October 1, 2000, the trial court decided that the Bell cases
compelled a ruling that the claims adjusters were nonexempt ―production workers‖ under
the version of Wage Order 4 adjudicated in those cases. (See Bell II, supra, 87
2

Cal.App.4th at p. 826.) The court decertified the class as to all claims arising after
October 1, 2000, the effective date of a new Wage Order 4. The court did not believe the
Bell cases applied to the revised version of Wage Order 4 because those cases did not
consider the new wage order, nor did they apply the federal regulations specifically
incorporated into it. Recognizing that the law was unsettled, the court suggested the
parties seek interlocutory review by the Court of Appeal.
Both parties did so. Plaintiffs sought review of the order partially decertifying the
class and denying their motion for summary adjudication. Defendants sought review of
the trial court‘s partial denial of their motion to decertify the class.
A divided Court of Appeal issued an order to show cause and ruled for plaintiffs. It
directed the trial court to vacate its prior order and enter an order granting plaintiffs‘
motion for summary adjudication of defendants‘ affirmative defense and denying
defendants‘ motion to decertify.
The Court of Appeal‘s analysis focused on Wage Order 4. The majority concluded
that, under the terms of that wage order, plaintiffs could not be considered exempt
employees, either before or after the order‘s amendment. As we explain, the wage order
cannot be interpreted so categorically. The approach employed by the Court of Appeal
majority failed to properly analyze the question.

DISCUSSION
The IWC is a quasi-legislative agency that regulates aspects of the employment
relationship. It promulgates wage orders that provide various exemptions from
California‘s overtime requirements. Labor Code sections 1173, 1178 and 1178.5
authorize the IWC to regulate hours and wages in particular industries. We begin with a
review of the wage orders and statutes at issue here.
Wage Order 4, promulgated by the IWC under Labor Code section 1173, appears in
California Code of Regulations, title 8, section 11040 (Regulations section 11040). It
relates to the hours and wages of those employed in ―Professional, Technical, Clerical,
3

Mechanical, and Similar Occupations.‖ For our purposes, Wage Order No. 4-98 (Wage
Order 4-1998) covers claims arising before October 1, 2000 and Wage Order No. 4-2001
1
(Wage Order 4-2001) applies to claims arising thereafter.
Wage Order 4-1998 made ―persons employed in administrative, executive, or
professional capacities‖ exempt from overtime compensation requirements. (Wage Order
2
4-1998, subd. 1(A).) Wage Order 4-1998 did not articulate the precise scope of the
administrative exemption. It did, however, limit the exemption to employees ―engaged in
work which is primarily intellectual, managerial, or creative, and which requires exercise

1
The Commission initially replaced Wage Order 4-1998 with Wage Order No. 4-
2000, which took effect on October 1, 2000, and applies to claims arising on or after that
date. It then replaced Wage Order No. 4-2000 with Wage Order 4-2001, which was
effective on January 1, 2001.
The Court of Appeal concluded that ―there are no relevant differences between
Wage Order 4-2000 and Wage Order 4-2001 for our purposes‖ and thus considered them
together. We conclude likewise. For the purposes of this matter, we consider Wage
Order 4-2001 as applying after October 1, 2000.
2
Wage Order 4-1998 provided as relevant:
―1.
Applicability of Order. This Order shall apply to all persons employed in
professional, technical, clerical, mechanical, and similar occupations whether paid on a
time, piece rate, commission, or other basis, unless such occupation is performed in an
industry covered by an industry order of this Commission, except that:
―(A) Provisions of Sections 3 through 12 [governing, e.g., hours and days
of work, minimum wages and rest periods] shall not apply to persons employed in
administrative, executive, or professional capacities. No person shall be considered to be
employed in an administrative, executive, or professional capacity unless one of the
following conditions prevails:
―(1) The employee is engaged in work which is primarily
intellectual, managerial, or creative, and which requires exercise of discretion and
independent judgment, and for which the remuneration is not less than $1150.00 per
month; or
―(2) The employee is licensed or certified by the State of
California and is engaged in the practice of [a profession such as law or medicine].‖
4

of discretion and independent judgment, and for which the remuneration is not less than
$1150.00 per month.‖ (Wage Order 4-1998, subd. 1(A)(1).)
The practical effect of Wage Order 4-1998, and other orders issued by the IWC
during that year, was that about eight million workers lost their right to overtime pay
because the orders ―deleted the requirement to pay premium wages after eight hours of
work a day.‖ (Stats. 1999, ch. 134, § 2, subd. (f), p. 1820, enacting Assem. Bill No. 60
(1999-2000 Reg. Sess.).) In response, the Legislature passed the ―Eight-Hour-Day
Restoration and Workplace Flexibility Act of 1999.‖ (Stats. 1999, ch. 134, § 1, p. 1820,
adding and amending provisions of Lab. Code, § 500 et seq.) The act amended Labor
Code section 510, which provides that a California employee is entitled to overtime pay
for work in excess of eight hours in one workday or 40 hours in one week. (Lab. Code, §
510, subd. (a).) However, Labor Code section 515, subdivision (a), added by the act,
exempts from overtime compensation ―executive, administrative, and professional
employees‖ whose primary duties3 ―meet the test of the exemption,‖ who ―regularly
exercise[] discretion and independent judgment in performing those duties‖ and who earn
a monthly salary at least twice the state minimum wage for full-time employees. (Ibid.)
Under the statute then, to qualify as ―administrative,‖ employees must (1) be paid at
a certain level, (2) their work must be administrative, (3) their primary duties must
involve that administrative work, and (4) they must discharge those primary duties by
regularly exercising independent judgment and discretion. The narrow question here
involves the second point, whether plaintiffs‘ work is administrative. That is, whether it
meets the test of the exemption. These statutory standards are further understood in light
of the applicable wage order.

3
Wage Order 4-1998 and Wage Order 4-2001 define ―primarily‖ as ―more than
one-half of the employee‘s work time.‖ (Regs., § 11040, subd. 2(N).) Thus, in order to
be covered by the administrative exemption under either order, employees must spend
over one-half of their work time doing work that fits the test of the exemption.
5

Labor Code section 515, subdivision (a) directs the IWC to conduct a review of the
duties that meet the test of the exemption and, if necessary, modify the regulations. After
4
review, the Commission issued Wage Order 4-2001.

4
In pertinent part, Wage Order 4-2001 provides:
―1.
Applicability of Order. This order shall apply to all persons employed in
professional, technical, clerical, mechanical, and similar occupations whether paid on a
time, piece rate, commission, or other basis, except that:
―(A) Provisions of sections 3 through 12 [governing, e.g., hours and days of
work, minimum wages and rest periods] shall not apply to persons employed in
administrative, executive, or professional capacities. The following requirements shall
apply in determining whether an employee‘s duties meet the test to qualify for an
exemption from those sections:
―(1) Executive Exemption. . . [¶] . . . [¶]
―(2) Administrative Exemption. A person employed in an administrative
capacity means any employee:
―(a) Whose duties and responsibilities involve either:
―(i) The performance of office or non-manual work directly related
to management policies or general business operations of his/her employer or his/her
employer‘s customers; or
―(ii) The performance of functions in the administration of a school
system . . . ; and
―(b) Who customarily and regularly exercises discretion and independent
judgment; and
―(c) Who regularly and directly assists a proprietor, or an employee
employed in a bona fide executive or administrative capacity (as such terms are defined
for purposes of this section); or
―(d) Who performs under only general supervision work along
specialized or technical lines requiring special training, experience, or knowledge; or
―(e) Who executes under only general supervision special assignments
and tasks; and
―(f) Who is primarily engaged in duties that meet the test of the
exemption. The activities constituting exempt work and non-exempt work shall be
construed in the same manner as such terms are construed in the following regulations
under the Fair Labor Standards Act effective as of the date of this order: 29 C.F.R.
Sections 541.201-205, 541.207-208, 541.210, and 541.215. Exempt work shall include,
6

A comparison of Wage Order 4-1998 and Wage Order 4-2001 reveals that the latter
contains a much more specific and detailed description of work that is properly described
as administrative. Whereas Wage Order 4-1998 contains only a single sentence relative
to an employee involved in administrative work, Wage Order 4-2001 discusses the scope
of the administrative exemption in seven fairly extensive and interrelated subdivisions.
(Compare Wage Order 4-1998, subd. 1(A)(1) with Wage Order 4-2001, subd. 1(A)(2)(a)-
(g).) Specifically, Wage Order 4-2001, subdivision 1(A)(2)(f) provides that the terms
―exempt‖ and ―non-exempt‖ are to be construed under certain incorporated regulations
listed in the federal Fair Labor Standards Act then in effect. So, just as the statute is
understood in light of the wage order, the wage order is construed in light of the
incorporated federal regulations.
The precise question here is whether plaintiffs‘ work as claims adjusters is
encompassed by the expanded language of the statute, wage orders, and federal
regulations that delineate what work qualifies as administrative.
The Administrative Exemption
As part of its function, the IWC issues ―Statements As To The Basis‖ (hereafter,
Statement or Commission Statement) explaining ―how and why the commission did what
it did.‖ (California Hotel & Motel Assn. v. Industrial Welfare Com. (1979) 25 Cal.3d
200, 213.) With respect to Wage Order 4-2001, the Commission Statement notes, ―The
IWC intends the regulations in these wage orders to provide clarity regarding the federal

for example, all work that is directly and closely related to exempt work and work which
is properly viewed as a means for carrying out exempt functions. The work actually
performed by the employee during the course of the workweek must, first and foremost,
be examined and the amount of time the employee spends on such work, together with
the employer‘s realistic expectations and the realistic requirements of the job, shall be
considered in determining whether the employee satisfies this requirement.
―(g) Such employee must also earn a monthly salary equivalent to no less
than two . . . times the state minimum wage for full-time employment. . . .‖ (Regs.,
§ 11040.)
7

regulations that can be used [to] describe the duties that meet the test of the exemption
under California law, as well as to promote uniformity of enforcement. The IWC deems
only those federal regulations specifically cited in its wage orders, and in effect at the
time of promulgation of these wage orders, to apply in defining exempt duties under
California law.‖ (Italics added.)
Accordingly, Wage Order 4-2001 specifically directs that whether work is exempt
or nonexempt ―shall be construed in the same manner as such terms are construed in the
following regulations under the Fair Labor Standards Act effective as of the date of this
order: 29 C.F.R. Sections 541.201-205, 541.207-208, 541.210, and 541.215.‖5 (Wage
Order 4-2001, subd. 1(A)(2)(f).)
Like its predecessor, Wage Order 4-2001 exempts ―persons employed in
administrative, executive, or professional capacities.‖ (Wage Order 4-2001, subd. 1(A).)
Unlike its predecessor, subdivision 1(A)(2) of the new wage order describes the
administrative exemption in some detail. It provides, in part, that persons are employed
in an administrative capacity if their duties and responsibilities involve office or
nonmanual work ―directly related to management policies or general business operations
of [their] employer or [the] employer‘s customers.‖ (Wage Order 4-2001, subd.
1(A)(2)(a)(i), italics added.)
Federal Regulations former part 541.205 (2000) is one of the regulations
6
incorporated in Wage Order 4-2001, subdivision 1(A)(2)(f). That regulation defined the

5
Regulations appearing in title 29 of the Code of Federal Regulations are hereafter
referred to as ― Federal Regulations.‖ Citations to the Federal Regulations are as they
existed on January 1, 2001, the effective date of Wage Order 4-2001. (Current
regulations are found in Fed. Regs. § 541.203 (2011).)
6
Federal Regulations former part 541.205 described when a claims adjuster‘s work
is ― ‗directly related to management policies or general business operations.‘ ‖ In
pertinent part it provided:
―(a) The phrase ‗directly related to management policies or general business
operations of his employer or his employer‘s customers‘ describes those types of
8

activities relating to the administrative operations of a business as distinguished from
‗production‘ or, in a retail or service establishment, ‗sales‘ work. In addition to
describing the types of activities, the phrase limits the exemption to persons who perform
work of substantial importance to the management or operation of the business of his
employer or his employer‘s customers.
―(b) The administrative operations of the business include the work performed
by so-called white-collar employees engaged in ‗servicing‘ a business as, for example,
advising the management, planning, negotiating, representing the company, purchasing,
promoting sales, and business research and control. An employee performing such work
is engaged in activities relating to the administrative operations of the business
notwithstanding that he is employed as an administrative assistant to an executive in the
production department of the business.
―(c) As used to describe work of substantial importance to the management or
operation of the business, the phrase ‗directly related to management policies or general
business operations‘ is not limited to persons who participate in the formulation of
management policies or in the operation of the business as a whole. Employees whose
work is ‗directly related‘ to management policies or to general business operations
include those [whose] work affects policy or whose responsibility it is to execute or carry
it out. The phrase also includes a wide variety of persons who either carry out major
assignments in conducting the operations of the business, or whose work affects business
operations to a substantial degree, even though their assignments are tasks related to the
operation of a particular segment of the business.
―(1) It is not possible to lay down specific rules that will indicate the
precise point at which work becomes of substantial importance to the management or
operation of a business. It should be clear that the cashier of a bank performs work at a
responsible level and may therefore be said to be performing work directly related to
management policies or general business operations. On the other hand, the bank teller
does not. Likewise it is clear that bookkeepers, secretaries, and clerks of various kinds
hold the run-of-the-[mill] positions in any ordinary business and are not performing work
directly related to management policies or general business operations. On the other
hand, a tax consultant employed either by an individual company or by a firm of
consultants is ordinarily doing work of substantial importance to the management or
operation of a business.
―(2) An employee performing routine clerical duties obviously is not
performing work of substantial importance to the management or operation of the
business even though he may exercise some measure of discretion and judgment as to the
manner in which he performs his clerical tasks. . . .
―(3) Some firms employ persons whom they describe as ‗statisticians.‘ If
all such a person does, in effect, is to tabulate data, he is clearly not exempt. However, if
such an employee makes analyses of data and draws conclusions which are important to
9

italicized phrase above. It is this ―directly related‖ phrase that distinguishes between
―administrative operations‖ and ―production‖ or ―sales‖ work. (Fed. Regs. § 541.205(a)
(2000).)
Parsing the language of the regulation reveals that work qualifies as
―administrative‖ when it is ―directly related‖ to management policies or general business
operations. Work qualifies as ―directly related‖ if it satisfies two components. First, it
must be qualitatively administrative. Second, quantitatively, it must be of substantial
importance to the management or operations of the business. Both components must be
satisfied before work can be considered ―directly related‖ to management policies or
general business operations in order to meet the test of the exemption. (Fed. Regs. §
541.205(a) (2000).)

the determination of, or which, in fact, determine financial, merchandising, or other
policy, clearly he is doing work directly related to management policies or general
business operations. . . .
―(4) Another example of an employee whose work may be important to
the welfare of the business is a buyer of a particular article or equipment in an industrial
plant or personnel commonly called assistant buyers in retail or service
establishments. . . .
―(5) The test of ‗directly related to management policies or general
business operations‘ is also met by many persons employed as advisory specialists and
consultants of various kinds, credit managers, safety directors, claim agents and adjusters,
wage-rate analysts, tax experts, account executives of advertising agencies, customers‘
brokers in stock exchange firms, promotion men, and many others.
―(6) It should be noted in this connection that an employer‘s volume of
activities may make it necessary to employ a number of employees in some of these
categories. The fact that there are a number of other employees of the same employer
carrying out assignments of the same relative importance or performing identical work
does not affect the determination of whether they meet this test so long as the work of
each such employee is of substantial importance to the management or operation of the
business.‖ (Fed. Regs. § 541.205(a)-(c) (2000).)
10

The regulation goes on to further explicate both components. Federal Regulations
former part 541.205(b) discusses the qualitative requirement that the work must be
administrative in nature. It explains that administrative operations include work done by
―white collar‖ employees engaged in servicing a business. Such servicing may include,
as potentially relevant here, advising management, planning, negotiating, and
representing the company. Federal Regulations former part 541.205(c) relates to the
quantitative component that tests whether work is of ―substantial importance‖ to
management policy or general business operations.
Read together, the applicable Labor Code statutes, wage orders, and incorporated
federal regulations now provide an explicit and extensive framework for analyzing the
administrative exemption.
Trial Court and Court of Appeal Decisions
As noted, plaintiffs moved for summary adjudication of defendants‘ affirmative
defense that plaintiffs were exempt from overtime compensation requirements. The
motion challenged whether plaintiffs‘ work met the test of the administrative exemption.
Defendants opposed the motion and moved to decertify the class. A summary
adjudication motion must completely dispose of the affirmative defense to which it is
directed. (Code Civ. Proc., § 437c, subd. (f)(1); North Coast Women’s Care Medical
Group, Inc. v. Superior Court (2008) 44 Cal.4th 1145, 1160; Hood v. Superior Court
(1995) 33 Cal.App.4th 319, 322-323.)
As explained, the test for the one element of the administrative exemption at issue
here, the character of plaintiffs‘ duties, has both a qualitative and a quantitative
component. Because the test is conjunctive, plaintiffs need only show that defendants
cannot meet their burden as to either part of the test in order to succeed on their motion
for summary adjudication. (See Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785,
794-795.) Here, plaintiffs attacked defendants‘ showing as to the qualitative component,
i.e, whether the work was administrative in nature. We limit our further discussion to
11

that question. We express no opinion as to whether the record reveals a triable issue on
the quantitative component of the test.
To argue that the test of the administrative exemption could not be met, plaintiffs
placed great emphasis on the so-called administrative/production worker dichotomy.
This dichotomy was applied by the court in the Bell cases. As we explain, the Court of
Appeal majority‘s overreliance on the Bell cases created much of the confusion here. In
order to understand why this is so, some discussion of both the administrative/production
worker dichotomy and the court‘s reliance on it in the Bell cases is necessary.
In basic terms, the administrative/production worker dichotomy distinguishes
between administrative employees who are primarily engaged in ― ‗administering the
business affairs of the enterprise‘ ‖ and production-level employees whose ― ‗primary
duty is producing the commodity or commodities, whether goods or services, that the
enterprise exists to produce and market. [Citation.]‘ ‖ (Bell II, supra, 87 Cal.App.4th at
p. 821.) Plaintiffs here contended that this concept was the touchstone for deciding
whether they fell under the administrative exemption.
As discussed, the trial court decertified the class in part, depending on whether
plaintiffs‘ claims arose before or after October 1, 2000, the date the IWC amended Wage
Order 4-1998. The trial court felt bound by the Bell cases, which interpreted Wage Order
4-1998. In doing so, the Bell cases held that, under the provisions of Wage Order 4-1998,
claims adjusters were nonexempt ―production workers.‖ (See Bell II, supra, 87
Cal.App.4th at p. 826.) The trial court here decertified the class as to all claims arising
after October 1, 2000, when Wage Order No. 4-2000 became effective. (See ante, fn. 1.)
The Bell cases had no occasion to consider Wage Order 4-2001. We examine the Bell
cases in some detail because the Court of Appeal relied so heavily upon them in
construing Wage Order 4-2001.
The Bell litigation involved a class action suit based on an allegation that the
plaintiffs were denied overtime compensation. (Bell II, supra, 87 Cal.App.4th at p. 808.)
12

The plaintiffs were insurance claims representatives employed in a number of branch
offices of Farmers Insurance Exchange (FIE). There was extensive information in the
record about the nature of the plaintiffs‘ work and the way the business was structured.
In the first Bell case, the defendants sought review of the class certification order.
That matter was dismissed on procedural grounds. (See Bell III, supra, 115 Cal.App.4th
at p. 720.)
Bell II arose after the grant of summary adjudication in which the trial court
determined that the claims representatives were not ―administrators‖ and thus the
administrative exemption contained in Wage Order 4-1998 was not applicable to the
plaintiffs. (Bell II, supra, 87 Cal.App.4th at pp. 808-809.) That ruling was affirmed. (Id.
at p. 821.)
Bell III was an appeal taken after a jury trial. As part of that appeal the defendants
urged the court to reconsider its holding in Bell II in light of ― ‗[r]ecent developments in
federal law.‘ ‖ (Bell III, supra, 115 Cal.App.4th at p. 727.) While concluding that actual
reconsideration was precluded by the law of the case doctrine, the Bell III court addressed
the defendants‘ criticism of Bell II at length. (Bell III, at pp. 727-739.) As a result, the
Bell III court provided a judicial gloss to its earlier opinion in Bell II.
Bell II considered Wage Order 4–1998, subdivision 1(A) which directs that the
overtime regulations shall not apply to those working in ―administrative, executive, or
professional capacities.‖ Subdivision 1(A)(1) provided that no person may be considered
to work in one of those capacities unless the work done ―is primarily intellectual,
managerial, or creative, . . . requires exercise of discretion and independent judgment,‖
and is compensated at a given rate. As noted, the wage order itself did not provide any
―independent meaning‖ for the term ―administrative capacities.‖ (Bell II, supra, 87
Cal.App.4th at p. 811.)
13

FIE argued that the scope of the administrative exemption, as it related to those
7
plaintiffs, was defined exclusively by Wage Order 4-1998, subdivision 1(A)(1) and (2).
In rejecting this argument the court noted that the description of qualifying duties was
―very brief‖ and could not ―reasonably be considered . . . an adequate definition of the
phrase ‗administrative, executive, or professional capacities.‘ ‖ (Bell II, supra, 87
Cal.App.4th at p. 811.)
In part, because of the brevity of treatment, the Bell II court concluded that it was
reasonable to give the term ―administrative capacity‖ an independent meaning beyond,
and unlimited by, the description contained in Wage Order 4-1998, subdivision 1(A)(1).
Thus, the court considered the term ―administrative capacity‖ to describe the role of an
employee in the business enterprise. It distinguished between that role and the duties of
an employee as generally set out in subdivision 1(A)(1)—i.e., work that is ―primarily
intellectual, managerial, or creative, and which requires exercise of discretion and
independent judgment.‖ (See Bell II, supra, 87 Cal.App.4th at pp. 819-820.)
It is apparent that many of the same concepts now set out in Labor Code section
515, Wage Order 4-2001, and the incorporated federal regulations were also at play in
Bell II. However, under the new statute and wage order, the way in which those concepts
interrelate has been substantially clarified. The Bell II court did not have the benefit of
these clarifications. As a result, the Bell II court was challenged to reach beyond the
language of the enactments to resolve the thorny issue before it.
In essence, Bell II treated the analysis as a two-pronged inquiry, the first prong
going to role and the second to duties. (See Bell III, supra, 115 Cal.App.4th at p. 736.) It

7
Wage Order 4-1998, subdivision 1(A)(2) related to the professional aspect of the
exemption and covered those practicing a profession like law or medicine. That
subdivision obviously was not implicated in the Bell cases.

14

was in deducing the role denoted by the term ―administrative capacity‖ that the Bell II
court turned to the administrative/production worker dichotomy. (Bell III, at p. 729.)
The Bell II court found the dichotomy a useful tool based on the state of the record
before it and the wording of Wage Order 4-1998. Even so, the court noted that the
dichotomy offers only a ―broad distinction demanding further refinement in some cases.‖
(Bell II, supra, 87 Cal.App.4th at p. 820.)
In reaching its conclusion, the Bell II court relied on the following undisputed facts.
FIE did not sell insurance. It did, however, perform substantial claims-handling work for
other related companies within the Farmers Insurance Group of Companies and was
reimbursed for the cost of those services. FIE performed a specialized function within
the broader corporate structure of the Farmers Insurance Group of Companies. As a
result of the corporate structure, FIE was managed by another company, Farmers Group,
Inc. Farmers Group, Inc., performed a large number of what would normally be
considered administrative activities, including auditing, legal counseling, underwriting,
and other matters not directly related to claims. Claims representatives had no formal
advisory role in setting FIE‘s claims-handling policy. (Bell II, supra, 87 Cal.App.4th at
pp. 823-824.)
The Bell II court concluded that, on its record, there were no triable issues of
material fact supporting any conclusion other than that FIE‘s business was to handle
claims. As a result, the adjusters fell squarely on the production side of the
administrative/production worker dichotomy. (Bell II, supra, 87 Cal.App.4th at p. 826.)
The Bell II court went on to decide whether that conclusion supported a grant of
summary adjudication. It acknowledged that the question was a complex one. It
explicitly recognized the limitations of the dichotomy were it to be applied in other
contexts: ―the administrative/production worker dichotomy is a somewhat gross
distortion that may not be dispositive in many cases.‖ (Bell II, supra, 87 Cal.App.4th at
p. 826.) Further, ―some employees perform specialized functions within [a] business
15

organization that cannot readily be characterized in terms of the . . . dichotomy.‖ (Ibid.)
―Other employees perform jobs involving wide variations in responsibility that may call
for finer distinctions than the . . . dichotomy provides.‖ (Id. at p. 827.) It went on to note
that claims adjusting illustrates the kind of work that may call for such a finer distinction,
because a great variety of employees may be covered by such a job title. Some adjusters
may do fairly routine work, while others may have expansive authority and their
decisions may have substantial importance to the business of their employers. (Ibid.)
The Bell II court warned that in the absence of ―detailed interpretative regulations‖
such as those at play in the federal cases, ―California courts must use great caution in
granting summary judgment or summary adjudication on the basis of such a broad
distinction as the administrative/production worker dichotomy.‖ (Bell II, supra, 87
Cal.App.4th at p. 827.)
The Bell II court concluded that summary adjudication was appropriate in light of
its particular record. It noted that FIE had deliberately decided to structure its operations
in a given manner. (Bell II, supra, 87 Cal.App.4th at p. 827.) The effect of that decision
was to render the work of its claims representatives ―routine and unimportant‖ in terms of
its business impact, as the plaintiffs were merely producers of the product sold by the
defendants. The settlement authority of claims representatives was set at a low level. (Id.
at p. 828.) Conversely, when a decision involved ―matters of greater importance‖ it was
made by a supervisor, with the adjusters functioning merely as ―investigators‖ or
―conduits of information.‖ (Ibid.) Because the FIE adjusters‘ role in the business was
―routine and unimportant‖ they could not be considered administrative workers. (Ibid.)
Because the adjusters were not administrative workers due to their role, defendants
could not satisfy the first prong of Bell II‘s two-part test. As a result, the Bell II court
concluded that it need not consider whether the plaintiffs‘ duties fell under the
description set out in Wage Order 4–1998, subdivision 1(A)(1) of those whose work was
―primarily intellectual, managerial, or creative,‖ and ―require[d] the exercise of discretion
16

and independent judgment.‖ The court was careful to point out that its separate
determination as to the plaintiffs‘ role in FIE‘s business disposed of that case but
recognized that in other cases careful analysis of employees‘ duties might be necessary to
determine whether their status was exempt or not. (Bell II, supra, 87 Cal.App.4th at p.
829.) As the Bell III court noted, ―our opinion in Bell II was based on the restricted
record before us and cannot be read out of that context.‖ (Bell III, supra, 115 Cal.App.4th
at p. 730.)
The Bell cases are distinguishable from this case in two important ways. First, those
opinions carefully limited their holdings to their facts, including the defendants‘
stipulation that the work performed by all plaintiffs was ―routine and unimportant.‖ In
light of the stipulation, there was no dispute that the plaintiffs‘ work placed them on the
production side of the administrative/production worker dichotomy. (Bell II, supra, 87
Cal.App.4th at p. 826.) In so concluding, the Bell II court effectively conflated the
qualitative and quantitative aspects of the ―directly related‖ test now set out in Wage
Order 4-2001 and amplified in Federal Regulations former part 541.205(a), (b), and (c).
(See ante, at pp. 7-11.)
Second, because Wage Order 4-1998 did not provide sufficient guidance, the Bell II
court looked beyond the language of the wage order and employed the
administrative/production worker dichotomy as an analytical tool. The whole approach
in Bell II rested on the conclusion that Wage Order 4-1998 failed to provide a sufficient
explanation of the extent of the administrative exemption. (Combs v. Skyriver
Communications (2008) 159 Cal.App.4th 1242, 1260 (Combs).) By comparison, Wage
Order 4-2001, the operative order here, along with the incorporated federal regulations,
set out detailed guidance on the question.
In concluding that plaintiffs were not exempt administrative employees, the Court of
Appeal majority placed substantial reliance on the Bell cases. It was unpersuaded by
defendants‘ argument that Bell II is distinguishable because there FIE had conceded that
17

its claims adjusters‘ duties were ―routine and unimportant.‖ (Bell II, supra, 87
Cal.App.4th at p. 828.) The majority here stated, ―We agree that defendants have
introduced substantial evidence that plaintiffs‘ work is not routine and unimportant, and
that Bell II is distinguishable on that ground. But the fact remains that plaintiffs‘ work —
investigating claims, determining coverage, setting reserves, etc. — is not carried on at
the level of policy or general operations, so it falls on the production side of the
dichotomy. Not all production work is routine or unimportant.‖
The Court of Appeal majority was correct in noting that Bell II is distinguishable. It
erred when it relied on distinguishable authority to create a rigid rule, an outcome even
the Bell cases cautioned against. The majority below did acknowledge new Wage Order
4-2001 and some of the applicable federal regulations. It did not, however, consider all
of the relevant aspects of Federal Regulations former part 541.205, specifically subpart
(b). Instead, it reached out for support to other federal regulations not incorporated in
Wage Order 4-2001.
The majority below focused on Federal Regulations former part 541.205(a),
concluding that ―only work performed at the level of policy or general operations can
qualify as ‗directly related to management policies or general business operations.‘ In
contrast, work that merely carries out the particular day-to-day operations of the business
is production, not administrative, work. That is the administrative/production worker
dichotomy, properly understood. [Fn. omitted.]‖
The majority below provided its own gloss to the administrative/production worker
dichotomy and used it, rather than applying the language of the relevant wage order and
regulations. Such an approach fails to recognize that the dichotomy is a judicially created
creature of the common law which has been effectively superseded in this context by the
more specific and detailed statutory and regulatory enactments.
While it bolstered its conclusion by citing Federal Regulations former part
541.205(a), the majority failed to adequately consider other subparts of that regulation.
18

Such an approach violates the long-standing rule of construction that an enactment is to
be read as a whole and that interpretations are to be avoided if they render part of an
enactment nugatory. (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735; McLaughlin v.
State Bd. of Education (1999) 75 Cal.App.4th 196, 211.)
As discussed above (see ante, at pp. 8-11), Federal Regulations former part
541.205(a), (b), and (c) must be read together in order to apply the ―directly related‖ test
and properly determine whether the work at issue satisfies the administrative exemption.
For example, former part 541.205(b) supplied a general description of the types of duties
that constitute ―administrative operations of the business.‖ It included work performed
by ―white-collar employees engaged in ‗servicing‘ a business as, for example, advising
the management, planning, negotiating, [and] representing the company.‖ The dissent
below argued, ―That is what claims adjusters do—they negotiate settlements (and
conclude some without seeking approval), advise management, and process claims.‖ The
incorporation of former part 541.205(b) shows that whether work is part of the
―administrative operations‖ of a business depends, in part, on whether it involves
advising management, planning, negotiating, and representing the company. It is not so
narrowly limited as the majority below declared.
The Court of Appeal also cited Bratt v. County of Los Angeles (9th Cir. 1990) 912
F.2d 1066 (Bratt) in support of its holding. Bratt held that under the federal Fair Labor
Standards Act, the administrative exemption does not apply to probation officers, stating,
―[T]he test is whether the activities are directly related to management policies or general
business operations. . . . [¶] . . . [W]hile the regulations provide that ‗servicing‘ a business
may be administrative, . . . § 541.205(b), ‗advising the management‘ as used in that
subsection is directed at advice on matters that involve policy determinations, i.e., how a
business should be run or run more efficiently, not merely providing information in the
course of the customer‘s daily business operation.‖ (Bratt, at p. 1070.)
19

Applying Bratt to this case, the majority below reasoned that ―although advising
management about the formulation of policy is exempt administrative work, advising
management about the settlement of an individual claim is not.‖ The majority held that
plaintiffs‘ duties here are ―not carried on at the level of policy or general operations.‖
Bratt‘s persuasiveness is in doubt. The Ninth Circuit has subsequently held that
under more recent applicable federal regulations, claims adjusters are exempt from the
Fair Labor Standards Act‘s overtime requirements ―if they perform activities such as
interviewing witnesses, making recommendations regarding coverage and value of
claims, determining fault and negotiating settlements.‖ (Miller v. Farmers Ins. Exch. (In
8
Re Farmers Ins. Exch.) (9th Cir. 2007) 481 F.3d 1119, 1124.) In addition, Bratt
involved probation officers, not claims adjusters. The Bratt court concluded that the
probation officers were more like inspectors who merely supply information:
―[A]lthough probation officers provide recommendations to the courts, these
recommendations do not involve advice on the proper way to conduct the business of the
court, but merely provide information which the court uses in the course of its daily
production activities.‖ (Bratt, supra, 912 F.2d at p. 1070.)
The analysis in Bratt highlights the difficulty in relying on the particular role of
employees in one enterprise to deduce a rule applicable to another kind of business. It
also reveals the limitations of the administrative/production worker dichotomy itself as an

8
We note that many federal courts are in accord with this conclusion. (See Smith v.
Government Employees Ins. Co. (D.C. Cir. 2010) 590 F.3d 886, 897; Roe-Midgett v. CC
Services, Inc. (7th Cir. 2008) 512 F.3d 865, 875; Cheatham v. Allstate Ins. Co. (5th Cir.
2006) 465 F.3d 578, 585-586; McAllister v. Transamerica Occidental Life Ins. Co. (8th
Cir. 2003) 325 F.3d 997, 998, 1001; Jastremski v. Safeco Ins. Companies (N.D. Ohio
2003) 243 F.Supp.2d 743, 753; Palacio v. Progressive Ins. Co. (C.D.Cal. 2002) 244
F.Supp.2d 1040, 1045, 1047.) These cases are instructive because the regulations
enacted by the United States Department of Labor after Wage Order 4-2001 were
intended to be consistent with the old regulations. (See, e.g., Miller v. Farmers Ins. Exch. (In Re Farmers Ins. Exch.), supra, 481 F.3d at pp. 1128-1129.)
20

analytical tool. As the dissent below points out, ―[B]ecause the dichotomy suggests a
distinction between the administration of a business on the one hand, and the ‗production‘
end on the other, courts often strain to fit the operations of modern-day post-industrial
service-oriented businesses into the analytical framework formulated in the industrial
climate of the late 1940‘s.‖
The Court of Appeal majority also sought to bolster its conclusion by observing:
―[U]nder the [federal Fair Labor Standards Act], employees whose duties ‗necessitate
irregular hours of work‘ may enter contracts with their employers guaranteeing constant
pay for varying workweeks that might otherwise violate the maximum hour requirements
of the statute. [Citation.]‖ It then referred to Federal Regulations part 778.405, which
lists ―insurance adjusters‖ as employees who are eligible to enter into the varying
workweek contracts permitted by the Fair Labor Standards Act. The majority reasoned
that, by implication, plaintiffs are nonexempt employees, ―otherwise, the provision
concerning varying-workweek contracts would have nothing to do with them.‖ The
implication is unwarranted. The IWC Statement issued in connection with Wage Order
4-2001 clearly states that “only those federal regulations specifically cited in its wage
orders, and in effect at the time of promulgation‖ shall be applied in defining exempt
duties under California law. (Italics added.) Federal Regulations part 778.405 is not
listed, and was thus not incorporated by the IWC for the purposes of construing the wage
order.
Defendants also argue that the Court of Appeal improperly relied on opinion letters
issued in 1998 and 2003 by the Division of Labor Standards Enforcement (DLSE), the
state agency that enforces IWC orders. Although we generally give DLSE opinion letters
―consideration and respect,‖ it is ultimately the judiciary‘s role to construe the language.
(Compare Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1105, fn. 7
with Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 576.) The
1998 letter applies the administrative/production worker dichotomy and concludes that
21

claims adjusters described by the Bell plaintiffs‘ attorneys were not exempt. The 2003
letter states that the Bell II analysis of the dichotomy is still viable after the IWC‘s
adoption of Wage Order 4-2001. Our decision is not inconsistent with these letters. We
do not hold that the administrative/production worker dichotomy was misapplied to the
Bell II plaintiffs, based on the record in that case, or that the dichotomy can never be used
as an analytical tool. We merely hold that the Court of Appeal improperly applied the
administrative/production worker dichotomy as a dispositive test.
The essence of our holding is that, in resolving whether work qualifies as
administrative, courts must consider the particular facts before them and apply the
language of the statutes and wage orders at issue. Only if those sources fail to provide
adequate guidance, as was the case in Bell II, is it appropriate to reach out to other
sources.
We express no opinion on the strength of the parties‘ relative positions. We merely
9
hold that the Court of Appeal majority erred in its analysis.

9
Defendants contend that if the Court of Appeal erred, this court should decertify
the class in its entirety. In light of our limited ruling, we decline to decertify the class.
However, defendants are free to raise the issue on remand.
22

DISPOSITION
We reverse the judgment of the Court of Appeal and remand with directions that it
review the trial court‘s denial of the summary adjudication motion, applying the
appropriate legal standard set out herein.

CORRIGAN, J.
WE CONCUR:

CANTIL-SAKAUYE, C. J.
KENNARD, J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
LIU, J.

23

See last page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Harris et al. v. Superior Court __________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted
Rehearing Granted XXX 154 Cal.App.4th 164

__________________________________________________________________________________

Opinion No. S156555
Date Filed: December 29, 2011
__________________________________________________________________________________

Court: Superior
County: Los Angeles
Judge: Carolyn B. Kuhl

__________________________________________________________________________________

Counsel:
Lerach Coughlin Stoia Geller Rudman & Robbins, Coughlin Stoia Gellar Rudman & Robbins, Patrick J. Coughlin,
Theodore J. Pintar, Steven W. Pepich, Kevin K. Green, Steven M. Jodlowski; Cohelan & Khoury, Cohelan Khoury
& Singer, Timothy D. Cohelan, Isam C. Khoury, Michael D. Singer; Spiro, Moss, Barness & Harrison, Spiro Moss
Barness, Dennis F. Moss, Ira Spiro; Law Offices of Michael I. Carver and Michael I. Carver for Petitioners and Real
Parties in Interest Frances Harris, Dwayne Garner, Marion Brenish-Smith, Steven Brickman, Kelly Gray, Adell
Butler-Mitchell and Lisa McCauley.

Arbogast & Berns and David M. Arbogast for Consumer Attorneys of California as Amicus Curiae on behalf of
Petitioners and Real Parties in Interest Frances Harris, Dwayne Garner, Marion Brenish-Smith, Steven Brickman,
Kelly Gray, Adell Butler-Mitchell and Lisa McCauley.

Hud Collins as Amicus Curiae on behalf of Petitioners and Real Parties in Interest Frances Harris, Dwayne Garner,
Marion Brenish-Smith, Steven Brickman, Kelly Gray, Adell Butler-Mitchell and Lisa McCauley.

Rudy, Exelrod & Zieff, Rudy, Exelrod, Zieff & Lowe and Kenneth J. Sugarman for California Employment
Lawyers Association as Amicus Curiae on behalf of Petitioners and Real Parties in Interest Frances Harris, Dwayne
Garner, Marion Brenish-Smith, Steven Brickman, Kelly Gray, Adell Butler-Mitchell and Lisa McCauley.

Sidley Austin, Douglas R. Hart, Geoffrey D. Deboskey; Sheppard Mullin Richter & Hampton, Robert J. Stumpf,
William V. Whelan and Karin Dougan Vogel for Petitioners and Real Parties in Interest Liberty Mutual Insurance
Company and Golden Eagle Insurance Corporation.
Leland Chan for California Bankers Association as Amicus Curiae on behalf of Petitioners and Real Parties in
Interest Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation.

Winston & Strawn, Lee T. Paterson and Audrey Shen Chui for Employers Group as Amicus Curiae on behalf of
Petitioners and Real Parties in Interest Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation.

Page 2 – S15655 – counsel continued:

Counsel:
Gregory F. Jacob, Steven J. Mandel, Paul L. Frieden and Joanna Hull for the Secretary of Labor, U.S. Department of
Labor as Amicus Curiae on behalf of Petitioners and Real Parties in Interest Liberty Mutual Insurance Company and
Golden Eagle Insurance Corporation.

Sonnenschein Nath & Rosenthal, Paul E. B. Glad, Gayle M. Athanacio and Virginia K. Young for Association of
California Insurance Companies, Personal Insurance Federation of California and Pacific Association of Domestic
Insurance Companies as Amici Curiae on behalf of Petitioners and Real Parties in Interest Liberty Mutual Insurance
Company and Golden Eagle Insurance Corporation.

National Chamber Litigation Center Inc., Robin S. Conrad; Mayer Brown and Donald M. Falk for Chamber of
Commerce of the United States of America as Amicus Curiae on behalf of Petitioners and Real Parties in Interest
Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation.

Berger Kahn and Teresa R. Tracy for Progressive Casualty Insurance Company as Amicus Curiae on behalf of
Petitioners and Real Parties in Interest Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation.
Bien & Summers, Elliot L. Bien and Catherine S. Meulemans for American Insurance Association as Amicus Curiae
on behalf of Petitioners and Real Parties in Interest Liberty Mutual Insurance Company and Golden Eagle Insurance
Corporation.
Seyfarth Shaw, George Preonas, Michael D. Mandel and Gilmore F. Diekmann, Jr., for California Employment Law
Council as Amicus Curiae on behalf of Petitioners and Real Parties in Interest Liberty Mutual Insurance Company
and Golden Eagle Insurance Corporation.
No appearance for Respondent.

Counsel who argued in Supreme Court (not intended for publication with opinion):
Patrick J. Coughlin
Coughlin Stoia Gellar Rudman & Robbins
655 West Broadway, Suite 1900
San Diego, CA 92101
(619) 231-1058

Douglas R. Hart
Sidley Austin
555 West Fifth Street, Suite 4000
Los Angeles, CA 90013
(213) 896-6122

Petition for review after the Court of Appeal granted and denied petitions for peremptory writ of mandate. This case presents the following issue: Do claims adjusters employed by insurance companies fall within the administrative exemption (Cal. Code Regs, tit. 8, section 11040) to the requirement that employees are entitled to overtime compensation?

Filed 7/18/11



IN THE SUPREME COURT OF CALIFORNIA



CALIFORNIA GROCERS

ASSOCIATION,

Plaintiff and Respondent,

S176099

v.

Ct.App. 2/5 B206750

CITY OF LOS ANGELES,

Los Angeles County

Defendant and Appellant;

Super. Ct. No. BC351831

LOS ANGELES ALLIANCE FOR A

NEW ECONOMY,

Intervener and Appellant.



The City of Los Angeles, like numerous other municipalities in California

and elsewhere, regulates the ability of certain employers to summarily replace the

workforce upon acquiring a new business. Is such a worker retention ordinance

preempted as intruding upon either matters of health and safety already regulated

by the state or matters of employee organization and collective bargaining fully

occupied by federal law? We conclude it is not. As well, we conclude the

challenged ordinance is fully consistent with both the state and federal equal

protection clauses. As the Court of Appeal found the ordinance preempted, we

reverse.

1

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FACTUAL AND PROCEDURAL BACKGROUND

In December 2005, the City of Los Angeles (City) adopted the Grocery

Worker Retention Ordinance (Ordinance). (L.A. Ord. No. 177,231, adding

ch. XVIII, § 181.00 et seq. to L.A. Mun. Code.)1 For grocery stores of a specific

size (15,000 square feet or larger) that undergo a change of ownership, the

Ordinance vests current employees with certain individual rights during a 90-day

transition period. First, the incumbent owner is to prepare a list of nonmanagerial

employees with at least six months‘ employment as of the date of transfer in

ownership, and the successor employer must hire from that list during the

transition period. (L.A. Mun. Code, § 181.02.) Second, during that same period,

the hired employees may be discharged only for cause. (Id., § 181.03(A)-(C).)

Third, at the conclusion of the transition period, the successor employer must

prepare a written evaluation of each employee‘s performance. The Ordinance

does not require that anyone be retained, but if an employee‘s performance is

satisfactory, the employer must ―consider‖ offering continued employment. (Id.,

§ 181.03(D).) If the workforce is unionized, however, the union and the employer

may agree on terms that supersede the Ordinance. (Id., § 181.06.)

1

The Ordinance mirrors grocery worker retention ordinances adopted by

various other California municipalities (see Gardena Mun. Code, ch. 5.10; S.F.
Police Code, art. 33D; Santa Monica Mun. Code, ch. 5.40), and is substantially
similar to worker retention ordinances for other fields adopted in California (e.g.,
Berkeley Mun. Code, ch. 13.25 [marina business workers]; Emeryville Mun.
Code, ch. 32, § 5-32.1.1(b) [hotel workers]; L.A. Mun. Code, § 183.00 et seq.
[hotel workers]; Oakland Mun. Code, ch. 2.36 [hospitality workers]; San Jose
Mun. Code, § 25.11.700 et seq. [airport business workers]) and throughout the
United States (N.Y.C. Admin. Code, tit. 22, ch. 5, § 22-505 [building service
workers]; Philadelphia Mun. Code, ch. 9-2300 [service contract workers];
Providence, R.I., Code of Ord., §§ 2-18.5 [hospitality workers], 14-16 [building
service workers]; D.C. Official Code, § 32-101 et seq. [health care, food service,
and janitorial workers]).

2

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Plaintiff California Grocers Association (Grocers) filed a complaint against

the City seeking to enjoin enforcement of the Ordinance on the grounds that it was

preempted by provisions of the Health and Safety Code, the Labor Code, and

federal labor law, and that it violated the equal protection provisions of the state

and federal Constitutions. The Los Angeles Alliance for a New Economy, a

nonprofit organization, intervened to defend the Ordinance.

After a two-day bench trial, the trial court entered a judgment enjoining

enforcement of the Ordinance, declaring it void on two of the four asserted

grounds. The court concluded the Ordinance affected health and sanitation

standards for retail food establishments, an area fully occupied by state law, and

was on that basis preempted, and further concluded the Ordinance violated equal

protection because there was no rational basis for its differential treatment of

grocery stores smaller than 15,000 square feet or its permitting employers and

unions to contract around the Ordinance‘s terms.

A divided Court of Appeal affirmed. The majority agreed with the trial

court that the California Retail Food Code (Retail Food Code) (Health & Saf.

Code, § 113700 et seq.) fully occupied the field of health and sanitation standards

for retail food establishments, and the Ordinance had the impermissible purpose

and effect of regulating in the same area. It further concluded, contrary to the trial

court, that the Ordinance was also preempted by the National Labor Relations Act

(NLRA or the Act) (29 U.S.C. § 151 et seq.) because, in the majority‘s view,

federal labor law guaranteed successor employers the right to pick and choose

whom they wished to employ, free of local regulation. The majority did not

address the trial court‘s further equal protection conclusions. In contrast, the

dissent argued that the Ordinance was neither preempted nor inconsistent with

equal protection principles.

3

---

We granted review to resolve significant preemption and constitutional

questions placing into doubt the validity of this and other similar worker retention

ordinances throughout the state.

DISCUSSION

I. State Preemption

A. Preemption Principles

Local ordinances and regulations are subordinate to state law. (Cal. Const.,

art. XI, § 7.) Insofar as a local regulation conflicts with state law, it is preempted

and invalid. (O’Connell v. City of Stockton (2007) 41 Cal.4th 1061, 1067;

Sherwin-Williams Co. v. City of Los Angeles (1993) 4 Cal.4th 893, 897.) ― ‗ ―A

conflict exists if the local legislation ‗ ―duplicates, contradicts, or enters an area

fully occupied by general law, either expressly or by legislative implication.‖ ‘ ‖

[Citations.]‘ ‖ (O’Connell, at p. 1067, quoting Sherwin-Williams, at p. 897;

accord, American Financial Services Assn. v. City of Oakland (2005) 34 Cal.4th

1239, 1251.)

Only the last of these bases for conflict, field preemption, is at issue here.

―Local legislation enters an area ‗fully occupied‘ by general law when the

Legislature has expressly manifested its intent to fully occupy the area or when it

has impliedly done so in light of recognized indicia of intent.‖ (Big Creek Lumber

Co. v. County of Santa Cruz (2006) 38 Cal.4th 1139, 1150.) Grocers contend the

Ordinance impermissibly intrudes into an area the state has, in the Retail Food

Code, expressly reserved for itself. (See Health & Saf. Code, § 113705.) Express

field preemption turns on a comparative statutory analysis: What field of

exclusivity does the state preemption clause define, what subject matter does the

local ordinance regulate, and do the two overlap? (See, e.g., Big Creek Lumber, at

pp. 1152-1157; Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 748-

4

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751.) The burden of proving the existence of such an overlap rests on Grocers, as

the party asserting preemption. (Big Creek Lumber, at p. 1149.)

B. Express Preemption

We begin with the language of the preemption clause and the Ordinance.

Health and Safety Code section 113705‘s definition of the regulatory field it

reserves for the state is clear and precise: ―Except as provided in Section

113709,[2] it is the intent of the Legislature to occupy the whole field of health and

sanitation standards for retail food facilities, and the standards set forth in this part

and regulations adopted pursuant to this part shall be exclusive of all local health

and sanitation standards relating to retail food facilities.‖ Thus, the state alone

may adopt ―health and sanitation standards for retail food facilities.‖ (Ibid.) The

remainder of the statutory scheme demonstrates by way of example the precise

scope of exclusive state regulation, comprehensively detailing standards for, e.g.,

employee training on health matters (id., §§ 113947-113947.3), employee health

and hygiene (id., §§ 113949-113978), food transportation, storage, and preparation

(id., §§ 113980-114057.1), food display and service (id., §§ 114060-114083), food

labeling (id., §§ 114087-114094), the design and sanitizing of food preparation

areas and utensils (id., §§ 114095-114185.5), and the design and cleanliness of

food facilities (id., §§ 114250-114282).3


2

Health and Safety Code section 113709, a savings clause preserving local

authority over certain subjects not relevant here, does not affect our disposition of
this case.

3

As examples of the sorts of concerns addressed and level of detail provided

by the Retail Food Code, the statutory scheme specifies, to the degree and minute,
the temperatures at which various foods must be stored and cooked (Health & Saf.
Code, §§ 113996, 114004), to the hour, how long food contact surfaces may go
between cleanings (id., § 114117), and, to the inch, how large food preparation
sinks must be (id., § 114163).

5

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In contrast, the Ordinance imposes no substantive food safety standards.

Its provisions regulate, for certain grocery stores during ownership transitions,

how a new owner may select its workforce. (See generally L.A. Mun. Code,

§§ 181.02-181.04.) It does not speak to how employees must conduct themselves

to ensure sanitation, how food should be handled or transported, how grocery

stores should be designed or cleaned, or any of the various other topics for which

the Retail Food Code sets out exclusive state standards. The face of the Ordinance

thus discloses no incursion into the exclusive realm reserved for the state by

Health and Safety Code section 113705; the former regulates employment, not

food safety, while the latter regulates food safety, not employment.

In concluding that the Ordinance nevertheless is preempted, the Court of

Appeal majority relied on language in the Ordinance‘s preamble and statements by

City officials indicating the City, in passing the Ordinance, was concerned with

promoting health and safety. The preamble notes in part: ―The City has an

interest in ensuring the welfare of the residents of [Los Angeles] through the

maintenance of health and safety standards in grocery establishments.

Experienced grocery workers with knowledge of proper sanitation procedures,

health regulations, and understanding of the clientele and communities they serve

are instrumental in furthering this interest.‖ (L.A. Mun. Code, § 181.00.)

Remarks by members of the city attorney‘s office and some city council members

during deliberations similarly suggest the promotion of health and safety may have

been a City concern.

We may accept for the sake of argument that the promotion of health and

safety was one of the City‘s purposes in passing the Ordinance. That the

Ordinance is preempted does not, however, follow. Purpose alone is not a basis

6

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for concluding a local measure is preempted.4 While we and the Courts of Appeal

have occasionally treated an ordinance‘s purpose as relevant to state preemption

analysis (see, e.g., Lancaster v. Municipal Court (1972) 6 Cal.3d 805, 809-810;

Bravo Vending v. City of Rancho Mirage (1993) 16 Cal.App.4th 383, 404-409),

we have done so in the context of a nuanced inquiry into the ultimate question in

determining field preemption: whether the effect of the local ordinance is in fact

to regulate in the very field the state has reserved to itself.

Thus, in Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, we upheld

against a preemption challenge a local ordinance requiring a permit to provide an

escort service. The state had impliedly occupied the field with respect to the

criminalization of prostitution and sexual conduct. (See In re Lane (1962) 58

Cal.2d 99, 103.) Although the ordinance‘s likely purpose was to reduce vice and

deter conduct proscribed by the state, this purpose did not support preemption:

―An ordinance is not transformed into a statute prohibiting crime simply because

the city uses its licensing power to discourage illegitimate activities associated

with certain businesses. Most licensing ordinances have a direct impact on the

enforcement of state laws which have been enacted to preserve the health, safety

and welfare of state and local citizens. This fact does not deprive a municipality

of the power to enact them.‖ (Cohen, at p. 299.) The ordinance in actual effect

did not enter the field of criminalizing sexual conduct, but only controlled who

might operate an escort service, leaving the regulation of any such conduct to the


4

To rest preemption analysis solely on considerations of purpose would

generate the anomalous circumstance, rejected by the United States Supreme
Court, that one jurisdiction‘s measure might survive preemption, while another
identical measure passed in a different jurisdiction might fall, ―merely because its
authors had different aspirations.‖ (Shady Grove Orthopedic Associates, P.A. v.
Allstate Ins. Co. (2010) 559 U.S. ___ [130 S.Ct. 1431, 1441].)

7

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state; as such, it was not preempted. (Id. at pp. 295-296, 299-300; see also EWAP,

Inc. v. City of Los Angeles (1979) 97 Cal.App.3d 179, 191 [upholding an

ordinance regulating picture arcades so as to discourage violations of state law,

without criminalizing or imposing any new standard for sexual conduct]; cf.

Lancaster v. Municipal Court, supra, 6 Cal.3d at pp. 809-810 [concluding an

ordinance was preempted where its effect was to criminalize aspects of sexual

conduct].)

Similarly, in Bravo Vending v. City of Rancho Mirage, supra, 16

Cal.App.4th 383, a tobacco company challenged a local ordinance forbidding

vending machine cigarette sales. The tobacco company contended that, because

the ordinance was intended to reduce sales to minors and the state had expressly

occupied the field of penal sanctions for sales to minors, the ordinance was

preempted. The Court of Appeal found no preemption. While the local ordinance

was intended to make less likely violations of the laws against sales to minors, in

actual effect it neither expanded upon nor detracted from the state-mandated

prohibitions and sanctions for sales. (Id. at p. 412.)

More recently, in Personal Watercraft Coalition v. Marin County Bd. of

Supervisors (2002) 100 Cal.App.4th 129, the Court of Appeal rejected the

argument that, because a municipality had adopted an ordinance banning the use

of personal watercraft out of a concern for pollution, the ordinance was preempted

by federal law prohibiting the adoption of state and local emission standards for

nonroad vehicles. The Court of Appeal correctly recognized that the purpose of

the federal preemption provision was only to alleviate the problems that would

arise from ―a multiplicity of conflicting state and local exhaust emission

standards.‖ (Id. at p. 155.) Consequently, state and local laws were preempted

only to the extent they adopted such standards. Laws that simply promoted the

8

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same antipollution goals without setting pollution standards were entirely valid.

(Ibid.)

These cases are on point here. The Retail Food Code does not preempt all

laws that have as their purpose the promotion of food health and safety; it

preempts only those that establish ―health and sanitation standards‖ for retail food

establishments, so as to ensure uniformity for such facilities. (Health & Saf. Code,

§ 113705.) The Retail Food Code itself dictates those uniform standards, but does

not specify by whom they are to be carried out; as far as state law is concerned, a

retail food store may employ whomever it likes, so long as those it employs

comply with the state‘s standards for distributing food in a safe and healthful

manner. For its part, the Ordinance, like the escort service ordinance in Cohen v.

Board of Supervisors, supra, 40 Cal.3d 277, regulates only who may be hired to

engage in certain work, and though it may have been intended in part to reduce

violations of state law by those workers, it does not itself add to or subtract from

the state‘s uniform standards of conduct for whoever engages in that work. Like

the watercraft ordinance in Personal Watercraft Coalition v. Marin County Bd. of

Supervisors, supra, 100 Cal.App.4th 129, the Ordinance promotes the same goals

as the enactment of a higher governmental authority, but does so without entering

the field that enactment preempts, i.e., the setting of specific uniform standards.

The trial court erred in concluding that, because the Ordinance arguably was

intended to enact ―a different approach to ensuring food safety than that crafted by

the Legislature,‖ ipso facto it was preempted.

Grocers argue, purpose aside, that the Ordinance goes beyond issues of

worker retention and does impose food sanitation standards. As foundation for

this argument, Grocers focus on the portion of the Retail Food Code that regulates

employee training and knowledge. (See Health & Saf. Code, §§ 113947-

113947.6.) Health and Safety Code section 113947, subdivision (a) requires ―[t]he

9

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person in charge and all food employees [to] have adequate knowledge of, and . . .

be properly trained in, food safety as it relates to their assigned duties.‖ The Retail

Food Code further requires that specified food facilities have either an owner or

employee who has received state certification in food safety (see id., §§ 113947.1,

subds. (a), (b)(1), 113947.2, 113947.3) or otherwise be able to demonstrate to an

enforcement officer that the employees have adequate knowledge of food safety as

it relates to their duties (id., § 113947.1, subd. (b)(2)). For facilities that have just

opened, gone through a change in ownership, or otherwise lost their certified food

safety specialist, the scheme offers a 60-day grace period. (Id., subd. (e).)

Grocers contend the Ordinance, too, regulates employee qualifications.

Contrary to Grocers‘ argument, this portion of the Retail Food Code and

the Ordinance do not overlap. The Retail Food Code establishes standards for

what certain employees, particularly one certified owner or supervising food

service employee, must know or be taught, but does not regulate who must be

hired; the Ordinance regulates the pool of nonsupervising, nonmanagerial

employees from which a new owner temporarily must hire, but imposes no

standards concerning what the hired employees must know or be taught about food

safety. Notably, the Retail Food Code‘s required certified food safety specialist is

by definition a managerial or supervisorial employee,5 while the Ordinance by its

terms expressly excludes from its scope all such employees6 and thus does not

5

See Health and Safety Code section 113947.1, subdivision (f) (―The

responsibilities of a certified owner or employee . . . shall include the safety of
food preparation and service, including ensuring that all employees who handle, or
have responsibility for handling, nonprepackaged foods of any kind, have
sufficient knowledge to ensure the safe preparation or service of the food, or
both.‖).

6

See Los Angeles Municipal Code section 181.01(C) (― ‗Eligible Grocery

Worker‘ does not include a managerial, supervisory, or confidential employee.‖).

10

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regulate or restrict in any way an employer‘s freedom to hire whomever it chooses

to satisfy that position. As such, the Ordinance does not intrude upon the field the

state has expressly reserved to itself and is not preempted by state law.

II. Federal Preemption

A. Machinists Preemption Principles

We consider as well whether the Ordinance is preempted by the NLRA, a

federal law enacted to protect ―the right of employees to organize and bargain

collectively.‖ (29 U.S.C. § 151.) The supremacy clause of the United States

Constitution vests Congress with the power to preempt state law. (Viva! Internat.

Voice for Animals v. Adidas Promotional Retail Operations, Inc. (2007) 41

Cal.4th 929, 935; see U.S. Const., art. VI, cl. 2.) While Congress may exercise

that power by enacting an express preemption provision, the NLRA contains no

such provision; indeed, ―Congress has not seen fit to lay down even the most

general of guides to construction of the Act, as it sometimes does, by saying that

its regulation either shall or shall not exclude state action.‖ (Bethlehem Co. v.

State Board (1947) 330 U.S. 767, 771.) Instead, Grocers contend the Ordinance is

impliedly preempted under the Machinists doctrine. (Machinists v. Wisconsin

Emp. Rel. Comm’n (1976) 427 U.S. 132 (Machinists).) Determining whether

Machinists preemption extends here requires that we examine its principles in

some depth.

In Machinists, supra, 427 U.S. 132, the United States Supreme Court

considered whether labor or management self-help (economic pressure tactics

such as boycotts, strikes, and lockouts used to extract concessions during the

collective bargaining process), although neither protected nor prohibited by the

NLRA, might nevertheless be ― ‗deemed privileged against state regulation.‘ ‖

(Machinists, at p. 141.) A union, seeking to pressure an employer to make

concessions in negotiations over renewal of an expired collective bargaining

11

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agreement, urged its members to refuse all overtime work. A state labor

commission, concluding the conduct was neither arguably protected nor arguably

prohibited by federal labor law, enjoined the concerted activity as being in

violation of state law, and the state supreme court upheld the injunction.

The United States Supreme Court reversed. It explained that even where

the NLRA does not address a particular economic weapon, preemption may still

apply. ―Whether self-help economic activities are employed by employer or

union, the crucial inquiry regarding pre-emption is the same: whether ‗the

exercise of plenary state authority to curtail or entirely prohibit self-help would

frustrate effective implementation of the Act‘s processes.‘ ‖ (Machinists, supra,

427 U.S. at pp. 147-148.) Except insofar as the NLRA itself regulates the use of

particular economic weapons, Congress intended a ―no-fly‖ zone, with neither

states nor the National Labor Relations Board (NLRB) permitted to interfere in the

bargaining process by dictating which weapons labor and management might

employ in negotiations. ―To sanction state regulation of such economic pressure

deemed by the federal Act ‗desirabl[y] . . . left for the free play of contending

economic forces, . . . is not merely [to fill] a gap [by] outlaw[ing] what federal law

fails to outlaw; it is denying one party to an economic contest a weapon that

Congress meant him to have available.‘ ‖ (Machinists, at p. 150.)

In subsequent years, the United States Supreme Court has extended

Machinists principles to other instances in which, from the text or structure of the

NLRA, it could infer Congress intended the subject matter to be free from state or

municipal regulation. Thus, in Golden State Transit Corp. v. Los Angeles (1986)
475 U.S. 608, 618, again addressing regulation of economic weapons in the

bargaining process, the United States Supreme Court concluded the City of Los

Angeles was preempted from conditioning renewal of a taxicab company‘s

operating license on the company‘s settling a labor dispute. The taxi drivers were

12

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permitted under the NLRA to strike to pressure the taxi company, and the taxi

company was permitted to resist that pressure and seek to outlast the drivers. The

city, by requiring the taxi company to settle in order to keep operating, was

effectively placing a time limit on the company when none was contemplated,

thereby interfering with its use of permitted economic weapons, and was imposing

an obligation to agree where the text and legislative history of the NLRA

contemplated only an obligation to bargain. (Golden State Transit, at pp. 615-

617.)

Most recently, in Chamber of Commerce of United States v. Brown (2008)
554 U.S. 60, the United States Supreme Court concluded California could not

prohibit employers who received state funding from using those funds to influence

support for or opposition to union organizing. (See Gov. Code, §§ 16645.2,

16645.7.) Reviewing the history of federal labor regulation, the court noted

Congress had ―expressly preclude[d] regulation of speech about unionization ‗so

long as the communications do not contain a ―threat of reprisal or force or promise

of benefit.‖ ‘ ‖ (Brown, at p. 68; see 29 U.S.C. § 158(c).) As well, Congress

could have included in section 8(a) and (b) of the NLRA (see 29 U.S.C. § 158(a),

(b)) further limits on pro- and anti-unionization advocacy; the limits it chose to

include could thus be seen as this-much-and-no-more determinations by Congress.

Accordingly, state law was preempted. (Brown, at p. 69.)

The foregoing cases each dealt with circumstances where, from the

structure of the NLRA, it was evident Congress had spoken to a particular topic

and no state interference could be countenanced. A second line of post-Machinists

decisions, by contrast, has articulated significant limits on the scope of Machinists

preemption arising from the fact the NLRA is a regulation of process, not

substance.

13

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The NLRA was enacted ―to remedy ‗[t]he inequality of bargaining power

between employees who do not possess full freedom of association or actual

liberty of contract, and employers who are organized in the corporate or other

forms of ownership association.‘ ‖ (Metropolitan Life Ins. Co. v. Massachusetts

(1985) 471 U.S. 724, 753 (Metropolitan Life), quoting 29 U.S.C. § 151.) ―One of

the ultimate goals of the Act was the resolution of the problem of ‗depress[ed]

wage rates and the purchasing power of wage earners in industry,‘ 29 U. S. C.

§ 151, and ‗the widening gap between wages and profits,‘ 79 Cong. Rec. 2371

(1935) (remarks of Sen. Wagner), thought to be the cause of economic decline and

depression.‖ (Metropolitan Life, at p. 754.) Congress addressed this problem not

by directly dictating particular wage levels, but by establishing procedures for

employee organization and collective bargaining that, it hoped, would result in

fairer negotiations and higher wages. (Ibid.) The resulting law was ―concerned

primarily with establishing an equitable process for determining terms and

conditions of employment, and not with particular substantive terms of the bargain

that is struck when the parties are negotiating from relatively equal positions.‖

(Id. at p. 753.)

The United States Supreme Court in Metropolitan Life analyzed whether

the process-oriented NLRA was intended to have any effect on local employment

laws of general application. A Massachusetts law required that employee health

care plans include certain minimum benefits, a subject that otherwise might have

been addressed in collective bargaining. Rejecting the argument that Machinists

preemption applied, the Supreme Court drew a line between laws that regulate

process and those that regulate substance: ―No incompatibility exists . . . between

federal rules designed to restore the equality of bargaining power, and state or

federal legislation that imposes minimal substantive requirements on contract

terms negotiated between parties to labor agreements, at least so long as the

14

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purpose of the state legislation is not incompatible with these general goals of the

NLRA.‖ (Metropolitan Life, supra, 471 U.S. at pp. 754-755.) While the NLRA

facilitates collective bargaining over the terms of employment, it does not

dictate—nor does it preclude states from dictating—any particular substantive

terms of employment.

As the Supreme Court further explained, because the NLRA regulates only

the process of organizing and bargaining, ―[f]ederal labor law in this sense is

interstitial, supplementing state law where compatible, and supplanting it only

when it prevents the accomplishment of the purposes of the federal Act.‖

(Metropolitan Life, supra, 471 U.S. at p. 756.) The NLRA operates against the

background of the vast tapestry of substantive state regulation of employer-

employee relations—the ― ‗backdrop of state law that provided the basis of

congressional action.‘ ‖ (Metropolitan Life, at p. 757.) Congress did not intend

―to disturb the myriad state laws then in existence that set minimum labor

standards, but were unrelated in any way to the processes of bargaining or self-

organization.‖ (Id. at p. 756.) Massachusetts thus could exercise its broad police

powers to regulate the terms of employee health benefits without trespassing into

any area cordoned off by the NLRA for exclusive federal regulation.

In Fort Halifax Packing Co. v. Coyne (1987) 482 U.S. 1 (Fort Halifax), the

United States Supreme Court extended these principles to a state law guaranteeing

employees a severance payment in the event of a plant closing. The high court

reiterated that ―the NLRA is concerned with ensuring an equitable bargaining

process, not with the substantive terms that may emerge from such bargaining.‖

(Id. at p. 20.) States may regulate what might otherwise be the subject of

negotiation: ― ‗[T]here is nothing in the NLRA . . . which expressly forecloses all

state regulatory power with respect to those issues . . . that may be the subject of

collective bargaining.‘ ‖ (Id. at pp. 21-22.) Given that ― ‗Congress developed the

15

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framework for self-organization and collective bargaining of the NLRA within the

larger body of state law promoting public health and safety‘ ‖ (id. at p. 22), Maine

could by statute provide employees some minimal economic security, in the event

of a plant closing, without running afoul of the NLRA.

Our own decision in Industrial Welfare Com. v. Superior Court (1980) 27

Cal.3d 690 presaged the high court‘s later recognitions of the power of localities to

promote public health and safety through regulation of the employer-employee

relationship without falling prey to Machinists preemption. We considered there

whether federal preemption precluded the state Industrial Welfare Commission

from issuing wage orders regulating the minimum wages, maximum hours, and

conditions of employment for employees in a range of industries. We rejected the

argument out of hand, relying on what we viewed as settled precedent that ―the

federal labor laws do not ‗preempt [] . . . the field of regulating working conditions

. . . .‘ ‖ (Industrial Welfare Com., at p. 728, fn. 16, quoting Terminal Assn. v.

Trainmen (1943) 318 U.S. 1, 7.) Instead, we recognized preemption was confined

to circumstances in which local regulation interfered with the process of

organizing and bargaining, including the use of economic weapons to achieve

particular bargaining goals. (Industrial Welfare Com., at p. 728, fn. 16.)

As these cases demonstrate, at the core of Machinists preemption is the

principle that, in specific instances, one may discern from the text and structure of

the NLRA a basis for inferring that Congress affirmatively intended to leave a

particular subject free from further NLRB and state and local government

regulation. ―Machinists pre-emption is based on the premise that ‗ ―Congress

struck a balance of protection, prohibition, and laissez-faire in respect to union

organization, collective bargaining, and labor disputes.‖ ‘ ‖ (Chamber of

Commerce of United States v. Brown, supra, 554 U.S. at p. 65, quoting

Machinists, supra, 427 U.S. at p. 140, fn. 4.) ―[A]s in any pre-emption analysis,

16

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‗ ―[t]he purpose of Congress is the ultimate touchstone.‖ ‘ ‖ (Metropolitan Life,

supra, 471 U.S. at p. 747.)

Given that Congress‘s purpose was to regulate the process of establishing

terms of employment, not the content of those terms (Metropolitan Life, supra,

471 U.S. at p. 753; Fort Halifax, supra, 482 U.S. at p. 20), it follows that the areas

Congress intended to leave free of local regulation are those relating to the process

by which an employment agreement is reached: matters of self-organization and

collective bargaining. (See Metropolitan Life, at p. 751.) In sharp distinction,

because the NLRA is not a federal code of employment law, Machinists

preemption does not extend to local establishment of substantive employment

terms: ―Such regulation provides protections to individual union and nonunion

workers alike, and thus ‗neither encourage[s] nor discourage[s] the collective-

bargaining processes that are the subject of the NLRA.‘ ‖ (Fort Halifax, at pp. 20-

21; see also Southern California Edison Co. v. Public Utilities Com. (2006) 140

Cal.App.4th 1085, 1100 [Local employment regulation is permitted ―as long as the

purpose of the law or regulation is not incompatible with the general goals of the

NLRA to restore the equality of bargaining power and resolve the problem of

depressed wages.‖].)

With these principles in mind, we consider whether the text or structure of

the NLRA evidences any intent to preclude worker retention ordinances such as

the one at issue here.

B. Application to the Ordinance

We begin with an initial presumption against preemption. (E.g., Building

& Constr. Trades Council v. Associated Builders & Contractors of Mass./R. I.,

Inc. (1993) 507 U.S. 218, 224.) This presumption is particularly heavy here

because the subject matter, the employer-employee relationship, is one

traditionally regulated by state and local governments under their police powers.

17

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(Fort Halifax, supra, 482 U.S. at p. 21 [―[P]re-emption should not be lightly

inferred in this area, since the establishment of labor standards falls within the

traditional police power of the State.‖].) Thus, we consider whether there is

evidence of a ― ‗ ―clear and manifest‖ ‘ ‖ congressional intent (Bronco Wine Co. v.

Jolly (2004) 33 Cal.4th 943, 957) to bar at any level the regulation of employee

retention during ownership transitions (see Metropolitan Life, supra, 471 U.S. at

p. 749).

Examining the text and structure of the NLRA, we discern no evidence that

Congress affirmatively intended to leave the subject of employee retention

unregulated by states and municipalities. On the subject of employee hiring and

firing, the text of the NLRA is, with one notable exception, resoundingly silent.

It neither guarantees nor prohibits the retention of employees; it does not

affirmatively protect new employers‘ latitude to hire and fire whomever they

please, nor does it address in any way the power of states and localities to regulate

the subject. The only portion of the NLRA to speak to these matters, section

8(a)(3), protects employees from discrimination on the basis of union affiliation;

an employer may not use the power to hire and fire to exercise anti-union animus

and eliminate pro-union employees from its workforce. (See 29 U.S.C.

§ 158(a)(3).)

This silence leaves unrebutted the initial presumption that Congress did not

intend preemption. The NLRA‘s statutory text does not disturb state and local

authority to address, as these entities see fit, matters of hiring and firing, authority

traditionally recognized as a core incident of their police power. (See De Canas v.

Bica (1976) 424 U.S. 351, 356 [―States possess broad authority under their police

powers to regulate the employment relationship to protect workers within the

State.‖].) Thus it is that states and localities have long been permitted to provide

common law wrongful discharge remedies (e.g., Tameny v. Atlantic Richfield Co.

18

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(1980) 27 Cal.3d 167) and enact statutes of general application regulating hiring

and firing (e.g., Gov. Code, § 12900 et seq. [Cal. Fair Employment & Housing

Act]) without intruding upon the NLRA‘s narrowly tailored concerns.

The congressional silence concerning the subject matter of the Ordinance

distinguishes this case from those where the United States Supreme Court has

found Machinists preemption. (See Machinists, supra, 427 U.S. 132.) Without

exception, preemption in each was traceable in part to specific statutory language

evincing a congressional intent to regulate only at the federal level. (See Chamber

of Commerce of United States v. Brown, supra, 554 U.S. at pp. 67-69 [preempting

a statute that effectively limited employer speech about union organizing, where

Congress in §§ 7, 8(a), 8(b), and 8(c) of the NLRA (29 U.S.C. §§ 157, 158(a), (b),

(c)) already had regulated the extent to which employer speech should be

permitted]; Golden State Transit Corp. v. Los Angeles, supra, 475 U.S. at pp. 614-

618 [preempting municipal action that compelled a settlement, where Congress in

§ 8(d) of the NLRA (29 U.S.C. § 158(d)) had imposed only a duty to bargain, not

to agree]; Machinists, at pp. 143-151 [preempting a state bar on slowdowns, where

Congress in § 8 of the NLRA (29 U.S.C. § 158) had already identified those

economic weapons it found necessary to bar]; Teamsters Union v. Morton (1964)
377 U.S. 252, 258-260 [preempting regulation of economic weapons, where

Congress had already spoken in §§ 7 and 8 of the NLRA (29 U.S.C. §§ 157, 158)

to the availability of economic weapons in obtaining negotiating concessions, and

specifically to secondary boycotts in 29 U.S.C. § 187].)

Instead, the Ordinance on its face appears of a piece with other state and

local regulations upheld against claims of Machinists preemption, a part of the

background tapestry of state and local laws against which unions and employers

may negotiate when reaching the terms of a collective bargaining agreement.

While the Ordinance regulates the existence of the employment relationship rather

19

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than just its terms, this distinction is not crucial; federal courts routinely have

upheld as not preempted under Machinists employment laws that broadly regulate

hiring and firing. (See St. Thomas-St. John Hotel v. Govern. of U.S. VI (3d Cir.

2000) 218 F.3d 232, 243 [upholding a Virgin Islands wrongful termination statute

as a minimum substantive requirement permitted under Metropolitan Life and Fort

Halifax]; Peabody Galion v. Dollar (10th Cir. 1981) 666 F.2d 1309, 1316-1319

[upholding an Okla. wrongful discharge statute against claimed Machinists

preemption].) Like the health benefits law in Metropolitan Life, supra, 471 U.S.

724, and the severance benefits law in Fort Halifax, supra, 482 U.S. 1, the

Ordinance regulates the terms and conditions of employment, extending the

benefit of a potential temporary extension of employment to each employee

individually, rather than conferring a collective right, and applying the benefit to

all employees equally, irrespective of union or nonunion status. (See Fort Halifax,

at pp. 20-21; Metropolitan Life, at p. 755.)7

What the Ordinance does not do, in contrast, is ― ‗[enter] into the

substantive aspects of the bargaining process to an extent Congress has not

countenanced.‘ ‖ (Machinists, supra, 427 U.S. at p. 149.) It does not regulate the


7

The Ordinance‘s neutrality is essential to its validity. Just as employment

regulations aimed solely at unionized workers may intrude into aspects of
organizing and bargaining Congress intended the states not to regulate, so may
regulations that apply only to nonunionized workers and select out unionized
workers for disfavored status be preempted as forcing employees to choose
between exercising their right to enter a collective bargaining agreement and
having their state-granted employment rights enforced. (See Livadas v. Bradshaw
(1994) 512 U.S. 107, 116-118.) In contrast, employment regulations, such as the
90-day retention period imposed by the Ordinance, that ―affect union and
nonunion employees equally . . . neither encourage nor discourage the collective-
bargaining processes that are the subject of the NLRA.‖ (Metropolitan Life,
supra, 471 U.S. at p. 755.)

20

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process by which a bargaining agreement may be reached. Nor does the

Ordinance speak directly to the process of organizing; rather, it temporarily

preserves the status quo, whatever that might be, whether the workforce is

unionized or not. (See Metropolitan Life, supra, 471 U.S. at p. 755 [―Nor do

[local labor and employment standards] have any but the most indirect effect on

the right of self-organization established in the Act.‖].) And, while the Ordinance

does confer on each employee, as an individual, certain rights the individual

employees might otherwise have obtained only through organizing and collective

bargaining, it is well established that so doing is no basis for Machinists

preemption. (See Fort Halifax, supra, 482 U.S. at pp. 21-22; Metropolitan Life, at

pp. 751-758; Malone v. White Motor Corp. (1978) 435 U.S. 497, 504-505.)8

While recognizing that the Ordinance on its face does not regulate

organizing or bargaining, Grocers contends it is nevertheless preempted because

of its indirect effects on those subjects. Grocers‘ principal argument, accepted by

the Court of Appeal majority, is that the Ordinance alters how the NLRB would


8

Grocers argue that the Ordinance cannot qualify as a generally applicable

employment standard because it regulates only a single industry. (See Chamber of
Commerce of U.S. v. Bragdon (9th Cir. 1995) 64 F.3d 497, 504.) However, the
Ninth Circuit Court of Appeals has effectively repudiated Bragdon (see Associated
Buil. and Contrac., Sout. Cal. v. Nunn (9th Cir. 2004) 356 F.3d 979, 990), and a
majority of other circuits have limited Bragdon to its facts (see Rondout Elec., Inc.
v. NYS Dept. of Labor (2d Cir. 2003) 335 F.3d 162, 169; St. Thomas-St. John
Hotel v. Govern. of U.S. VI, supra, 218 F.3d at p. 244; but see 520 South Michigan
Ave. Associates v. Shannon (7th Cir. 2008) 549 F.3d 1119, 1131-1137 [following
Bragdon]). Bragdon also has been squarely rejected by the only previous
California decision to consider its reasoning. (See Southern California Edison Co.
v. Public Utilities Com., supra, 140 Cal.App.4th at pp. 1103-1104.) Nothing in
the NLRA indicates Congress intended to prevent states and localities from
attacking employment problems industry by industry, as they traditionally have.
(See, e.g., Martinez v. Combs (2010) 49 Cal.4th 35, 57 [discussing Industrial
Welfare Com.‘s historic industry-by-industry approach to wage orders].)

21

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decide successorship questions, i.e., whether and to what extent labor liabilities

and bargaining or contractual obligations should follow when ownership of a

unionized business is transferred from one entity to another.

The NLRA does not speak to successorship. Consequently, successorship

questions are governed by federal common law. (Howard Johnson Co. v. Hotel

Employees (1974) 417 U.S. 249, 255-256.) In a trilogy of cases (John Wiley &

Sons v. Livingston (1964) 376 U.S. 543; NLRB v. Burns Security Services (1972)
406 U.S. 272; Howard Johnson Co., supra, 417 U.S. 249), the United States

Supreme Court outlined the circumstances and considerations that might lead a

court to conclude the new owner of a business should be bound by an existing

bargaining agreement entered into by its predecessor or have an independent duty

to negotiate with a union that had represented the predecessor workforce.9

A premise of Grocers‘ general argument is that these cases ratify a new

owner‘s right, untouchable by state or local regulation, not to hire its predecessor‘s

employees upon acquiring a new store. The Court of Appeal majority agreed;

reversing the trial court on this point, it embraced the existence of such a right as a

basis for federal preemption. Upon close examination, these authorities do not

support Grocers‘ claim.

The language Grocers and the Court of Appeal majority rely upon traces to

NLRB v. Burns Security Services, supra, 406 U.S. 272. In the course of analyzing


9

As the court subsequently summarized, successorship depends on a

consideration of the ―totality of the circumstances,‖ including ―whether the
business of both employers is essentially the same; whether the employees of the
new company are doing the same jobs in the same working conditions under the
same supervisors; and whether the new entity has the same production process,
produces the same products, and basically has the same body of customers.‖ (Fall
River Dyeing & Finishing Corp. v. NLRB (1987) 482 U.S. 27, 43.)

22

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a new employer‘s legal obligations, the United States Supreme Court explained:

―The [NLRB] has never held that the National Labor Relations Act itself requires

that an employer who submits the winning bid for a service contract or who

purchases the assets of a business be obligated to hire all of the employees of the

predecessor though it is possible that such an obligation might be assumed by the

employer.‖ (Id. at p. 280, fn. 5, italics added.) The Supreme Court reiterated the

point the following year, noting that ―the purchaser [of a business] is not obligated

by the Act to hire any of the predecessor‘s employees . . . .‖ (Golden State

Bottling Co. v. NLRB (1973) 414 U.S. 168, 184, fn. 6, italics added, citing Burns,

at p. 280, fn. 5.)

Notwithstanding these statements, the petitioner union in Howard Johnson

Co. v. Hotel Employees, supra, 417 U.S. 249, contended federal common law and

the existing collective bargaining agreement should be interpreted so that ― ‗the

successor does not have the right not to hire . . . .‘ ‖ (Id. at p. 261, fn. 7.) The

Supreme Court rejected the argument: ―What the Union seeks here is completely

at odds with the basic principles this Court elaborated in Burns. We found there

that nothing in the federal labor laws ‗requires that an employer . . . who purchases

the assets of a business be obligated to hire all of the employees of the predecessor

though it is possible that such an obligation might be assumed by the employer.‘ ‖

(Id. at p. 261, quoting NLRB v. Burns Security Services, supra, 406 U.S. at p. 280,

fn. 5, and citing Golden State Bottling Co. v. NLRB, supra, 414 U.S. at p. 184,

fn. 6.) The court thereafter used shorthand for the principle that the NLRA and

federal common law do not compel retention of predecessor employees. (See

Howard Johnson, at p. 262 [―Clearly, Burns establishes that Howard Johnson had

the right not to hire any of the former Grissom employees, if it so desired.‖]; id. at

p. 264 [recognizing that ―employees of the terminating employer have no legal

right to continued employment with the new employer‖ and acknowledging ―the

23

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new employer‘s right to operate the enterprise with his own independent labor

force‖]; see also Fall River Dyeing & Finishing Corp. v. NLRB, supra, 482 U.S. at

p. 40 [explaining that Burns held a ―successor is under no obligation to hire the

employees of its predecessor‖].)

That the United States Supreme Court was using ―right‖ in this instance in

the sense of a Hohfeldian privilege10 against any asserted duty arising from federal

common law or an existing collective bargaining agreement to hire particular

workers, and not to describe an immunity from state or local regulation of such

hiring,11 is clear from context. This was what Burns had said (see NLRB v. Burns

Security Services, supra, 406 U.S. at p. 280, fn. 5), what Golden State Bottling had

said (see Golden State Bottling Co. v. NLRB, supra, 414 U.S. at p. 184, fn. 6), and

what Howard Johnson itself said when it explained that ―nothing in the federal

labor laws ‗requires‘ ‖ a business purchaser to hire predecessor employees.

(Howard Johnson Co. v. Hotel Employees, supra, 417 U.S. at p. 261.)12 Howard

Johnson was not a preemption case and did not at any point contemplate whether a

successor‘s hiring choices might be regulated or restricted by sources other than an

existing collective bargaining agreement or federal common law. It thus does not


10

See Hohfeld, Fundamental Legal Conceptions as Applied in Judicial

Reasoning and Other Legal Essays (1919) pp. 38-50 (explaining a ―privilege‖ as
the negation of a duty to another).

11

As Justice Kennedy has explained, Machinists preemption arises when the

NLRA confers on an entity in ―the familiar Hohfeldian terminology . . . an
immunity from‖ state and local regulation. (See Golden State Transit Corp. v. Los
Angeles (1989) 493 U.S. 103, 115 (dis. opn. of Kennedy, J.).)

12

Indeed, it was what the court had said as far back as 1937. (See Labor

Board v. Jones & Laughlin (1937) 301 U.S. 1, 45 [―The Act does not interfere with
the normal exercise of the right of the employer to select its employees or to
discharge them.‖ (Italics added.)].)

24

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resolve the preemption issue here. (See R. A. V. v. St. Paul (1992) 505 U.S. 377,

386, fn. 5 [―It is of course contrary to all traditions of our jurisprudence to

consider the law on this point conclusively resolved by broad language in cases

where the issue was not presented or even envisioned.‖].)13

The dissent‘s assertion otherwise, viz., that the NLRA was founded on and

assumes an employer‘s unfettered right to select its employees, cannot withstand

historical scrutiny. For decades, the United States Supreme Court had invoked

employer liberty of contract to strike down employee-protective legislation. (See,

e.g., Adair v. United States (1908) 208 U.S. 161, 174 [holding unconstitutional a

federal ban on yellow-dog contracts conditioning hiring on an agreement not to

join a union because ―it is not within the functions of government . . . to compel

any person in the course of his business and against his will to accept or retain the

personal services of another . . .‖]; see also Coppage v. Kansas (1915) 236 U.S. 1,

9-21 [invalidating a state ban on identical grounds].) Far from yielding to such

edicts, Congress in the NLRA defied them. (See 29 U.S.C. § 158(a)(3)

[prohibiting yellow-dog contracts].)14 The Supreme Court acceded to this


13

We observe that the United States Court of Appeals for the District of

Columbia Circuit, considering essentially the identical claim, viz., that
successorship principles compelled preemption of a local 90-day retention
ordinance, has similarly concluded that nothing in the NLRA guarantees to new
employers the right to refuse to hire predecessor employees, or even the right to
refuse to recognize a union constituted of them; thus, ―[a]pplication of the
successorship doctrine under [a 90-day retention ordinance] . . . would not require
the employer to do anything that it has a right under the NLRA to refuse.‖ (Wash.
Serv. Contractors v. Dist. of Columbia (D.C. Cir. 1995) 54 F.3d 811, 817, cert.
den. (1996) 516 U.S. 1145.)

14

If an employer‘s liberty of contract to hire whom it chooses truly were a

foundation of the NLRA, the Act‘s proponents would have mentioned as much in
support of the measure. They did not. (See, e.g., Remarks of Sen. Wagner, 79
Cong. Rec. 2371 (daily ed. Feb. 21, 1935) [the NLRA, also known as the Wagner


(footnote continued on next page)

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judgment, reversing course and holding that both Congress and the several states

could constrict an employer‘s freedom to hire without violating liberty of contract.

(See Labor Board v. Jones & Laughlin, supra, 301 U.S. at pp. 43-46 [rejecting

liberty of contract challenge to the NLRA]; Lincoln Union v. Northwestern Co.

(1949) 335 U.S. 525, 534-537 [rejecting Adair and Coppage and upholding a

state‘s right similarly to regulate employer hiring].) To start from the premise that

the NLRA is founded upon employer liberty of contract, as the dissent does, is to

stand history on its head.15

We think the closer question is whether, as Grocers contend, the Ordinance

is preempted because its indirect effects impermissibly intrude on successorship

determinations that Congress intended to leave free of local regulation. The party

asserting preemption, Grocers, has the burden of demonstrating both the minor

and major premises: that the Ordinance intrudes on successorship determinations,


(footnote continued from previous page)

Act, ―merely provides that employees, if they desire to do so, shall be free to
organize for their mutual protection or benefit‖]; Remarks of Sen. Wagner, 79
Cong. Rec. 6184 (daily ed. Apr. 23, 1935) [decrying employers‘ abuse of their
ability to hire and fire as an impediment to economic recovery and describing the
NLRA as a corrective measure]; Sen.Rep. No. 74-573, 1st Sess. pp. 1-4 (1935)
[discussing the NLRA‘s purposes without mentioning protection of employer
liberty of contract].) Instead, it was the NLRA‘s opponents who invoked
employer liberty of contract in arguing against the Act‘s constitutionality. (See,
e.g., Remarks of Sen. Hastings, 79 Cong. Rec. 7676-7680 (daily ed. May 15,
1935).)

15

The dissent acknowledges the NLRA enacted what were new, fiercely

contested restrictions on an employer‘s liberty of contract. In so doing, the dissent
implicitly surrenders the larger point as well: the NLRA addresses employer
liberty of contract solely to limit it; employer liberty of contract was defended
only by those who opposed the Act. (Ante, at fn. 14; see also Labor Board Cases
(1937) 301 U.S. 76, 103 (dis. opn. of McReynolds, J.) [arguing the NLRA should
be struck down for violating an employer‘s right to ―freely select[] those to whom
his [business] operations are to be entrusted‖].)

26

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and that Congress did not want such indirect effects. (See Bronco Wine Co. v.

Jolly, supra, 33 Cal.4th at pp. 956-957.) Because neither premise has been

established, we decline to find preemption on this basis as well.

The successorship inquiry is highly fact dependent, to be decided on a case-

by-case basis after consideration of numerous factors. (See Fall River Dyeing &

Finishing Corp. v. NLRB, supra, 482 U.S. at p. 43; Howard Johnson Co. v. Hotel

Employees, supra, 417 U.S. at p. 256.) The United States Supreme Court has not

had occasion to consider whether in assessing business continuity for

successorship purposes a temporary, involuntary retention of a workforce is

materially different from a permanent, voluntary retention, but language in the

court‘s opinions supports the view that it is. (See Fall River Dyeing, at p. 41

[considering as relevant to successorship whether a ―new employer makes a

conscious decision‖ to retain employees, because it demonstrates ―the employer

intends to take advantage of the trained work force of its predecessor‖]; NLRB v.

Burns Security Services, supra, 406 U.S. at p. 278 [upholding the imposition of a

duty to bargain based in part on the fact a successor employer had ―selected as its

work force the employees of the previous employer‖].)

The NLRB likewise has not formally spoken to the effect of a 90-day

retention ordinance on the successorship inquiry, but several of the agency‘s

administrative law judges (ALJ‘s) have. In United States Services Industries, Inc.

(NLRB Dec. 13, 1995, No. 5-CA-24575 (1995 NLRB Lexis 1151, *11-*13)), an

ALJ imposed a bargaining obligation on a new employer because there was

substantial business continuity, as the employer had conceded. But

notwithstanding that concession, the employer argued it should not succeed to the

predecessor‘s bargaining obligation because its initial hiring was dictated by a

temporary retention ordinance. Because the NLRB had not as yet formally

27

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differentiated between voluntary and involuntary initial hiring, the ALJ, not

feeling at liberty to establish new precedent, rejected the argument. (Id. at p. *12.)

More helpful in discerning the current federal rule is M&M Parkside

Towers LLC (NLRB Jan. 30, 2007, No. 29-CA-27720 (2007 NLRB Lexis 27)).

There, an ALJ found an obligation to bargain where the new employer was

running the same business with the same employees, who had been initially hired

pursuant to a 90-day retention ordinance but thereafter retained voluntarily based

on their satisfactory performance. (Id. at pp. *11-*14.) Although the employer

argued that in the absence of a retention ordinance it would not have hired the

predecessor‘s employees, the ALJ rejected the argument inter alia for want of

proof. Because the employer had offered no lawful, nondiscriminatory reason for

why it would have refused to hire the predecessor employees, it had failed to

establish as a factual matter that the retention ordinance affected the initial hiring.

(Id. at p. *13.)

Of significance, the ALJ embraced the NLRB general counsel‘s argument

that the obligation to bargain as a successor arose only after expiration of the

initial 90-day period. During the temporary retention period, whether the new

employer would ultimately retain a majority, or indeed any, of the predecessor

workforce was unclear. Only on day 113—when the new employer was free of

any retention ordinance restrictions, had evaluated each employee‘s performance,

had judged each satisfactory, and had voluntarily extended to each an offer of

permanent employment—did a bargaining obligation attach. (M&M Parkside

Towers LLC, supra, 2007 NLRB Lexis 27, at pp. *6-*8, *15-*18.)16


16

A similar result would have obtained if the employer had voluntarily

offered permanent employment to a majority of its predecessor‘s employees


(footnote continued on next page)

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Summarizing the import of these decisions, the federal district court in

Rhode Island Hospitality Assn. v. City of Providence (D.R.I. Mar. 31, 2011, No.

09-527-ML) __ F.Supp.2d ___ [2011 U.S. Dist. Lexis 34821] recently concluded:

―[E]xisting case law indicates that the successor employer will be obligated to

bargain with [a union] only if the successor employer retains its predecessor‘s

employees beyond the mandatory employment period or if it extends an offer for

permanent employment prior to expiration of the mandatory retention period.‖

(Id. at pp. *39-*40.) We agree. Until that point, the predecessor‘s employees are

essentially probationary and no basis exists for concluding one of the prerequisites

of a successorship bargaining obligation, the hiring of a majority of the

predecessor‘s employees (see Fall River Dyeing & Finishing Corp. v. NLRB,

supra, 482 U.S. at p. 47; NLRB v. Burns Security Services, supra, 406 U.S. at

p. 278), will come to pass. It follows that retention ordinances like the Ordinance

here do not dictate the outcomes of the successorship inquiry in any way that

would call for Machinists preemption. (Rhode Island Hospitality Assn., at pp.

*41-*42; see also Wash. Serv. Contractors v. Dist. of Columbia, supra, 54 F.3d at

pp. 816-817.)

Additionally, we can discern in the NLRA no clear and manifest

congressional intent to foreclose indirect impacts on successorship. As with any

preemption question, ― ‗ ―[t]he purpose of Congress is the ultimate touchstone‖ ‘ ‖

(Metropolitan Life, supra, 471 U.S. at p. 747), and on this point we find neither

textual nor historical support. Successorship is a question of federal common law

because ―[n]o provision of the [NLRA] even mentions successorship.‖ (McLeod,


(footnote continued from previous page)

before expiration of the 90 days. (M&M Parkside Towers LLC, supra, 2007
NLRB Lexis 27, at p. *17.)

29

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Rekindling Labor Law Successorship in an Era of Decline (1994) 11 Hofstra Lab.

L.J. 271, 342, fn. 289.) By ignoring entirely the issue of successorship, Congress

left no indication of any views on the matter. Accordingly, nothing suggests it

intended states and their subdivisions to be displaced from regulating in any

otherwise permissible way that could affect, even incidentally, how a federal court

or agency ultimately might decide an individual successorship question.17

In a related vein, Grocers contend the Ordinance affects successorship by

preserving unionized workplaces intact, preventing a new owner from hiring

without regard to union status, and placing new owners at risk from unfair labor

practice charges if they elect not to retain a significant portion of the workforce

after expiration of the temporary 90-day window. What these arguments omit is

that the Ordinance applies equally to unionized and nonunionized workplaces. It

does not selectively preserve or favor unionization or unionized workers; it simply

preserves, temporarily, the status quo, whatever that might be. Just as an

employer taking over a formerly unionized workplace might, if left to its own

devices, hire a less union-friendly workforce through regression to the mean,


17

We do not deal here with legislation whereby a state or locality has

specifically regulated the collective bargaining process, either by imposing on
state-defined successors a duty to bargain and assessing state law sanctions for the
refusal to bargain (Com. Edison Co. v. Intern. Broth. of Elec. Workers (N.D.Ill.
1997) 961 F.Supp. 1169, 1181-1183) or by obligating state-defined successors to
agree to the terms of existing bargaining agreements on a going-forward basis
rather than negotiate their own terms with any duly authorized bargaining
representative (United Steelworkers v. St. Gabriel’s Hosp. (D.Minn. 1994) 871
F.Supp. 335, 342-344). (See Rhode Island Hospitality Assn. v. City of Providence,
supra, __ F.Supp.2d at p. ___ [2011 U.S. Dist. Lexis 34821, at pp. *41-*42]
[distinguishing retention ordinances from such direct regulations of the bargaining
process].) Such regulations of the very subject matter Congress expressly did
choose to regulate in enacting the NLRA understandably are preempted.

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rather than because of any animus, so might an employer taking over a formerly

nonunionized or even anti-union workplace through a similar effect tend to wind

up with a more pro-union workforce in the absence of the Ordinance. In the

aggregate, a new owner hiring nonmanagement employees from the pool dictated

by the Ordinance is neither more nor less likely to wind up with pro-union workers

than if it were to hire freely from the workforce at large, assuming anti-union

animus truly plays no part in its hiring decisions, as the NLRA demands.

(29 U.S.C. § 158(a)(3); Howard Johnson Co. v. Hotel Employees, supra, 417 U.S.

at p. 262, fn. 8; NLRB v. Burns Security Services, supra, 406 U.S. at pp. 280-281,

fn. 5; Phelps Dodge Corp. v. Labor Board (1941) 313 U.S. 177, 183-185.)

Nor does the Ordinance place the new owner at greater risk of an unfair

labor practice charge than were there no Ordinance. Irrespective of the Ordinance,

a new owner would be subject to an unfair labor practice charge if it manipulated

its hiring specifically to discriminate against union members and avoid

successorship obligations. (Great Lakes Chemical Corp. v. N.L.R.B. (D.C. Cir.

1992) 967 F.2d 624, 627-628; see Howard Johnson Co. v. Hotel Employees,

supra, 417 U.S. at p. 262, fn. 8.) In deciding whom to hire from the Ordinance

pool and whom to retain or dismiss at the conclusion of the 90-day period, a new

owner has the same freedom to choose employees without regard to union status

or sentiment, and the same theoretical exposure to an unfair labor practice charge

if it were to allow anti-union animus to enter its decisionmaking, as it would

without the Ordinance.18


18

More generally, there is, as the District of Columbia Circuit has recognized,

no federal right to a nonunion workplace. (See Wash. Serv. Contractors v. Dist. of
Columbia, supra, 54 F.3d at p. 817.) What matters under the NLRA is the
employees‘ choice of a bargaining representative (or no representative). (E.g.,
Labor Board v. Jones & Laughlin, supra, 301 U.S. at p. 33 [The NLRA


(footnote continued on next page)

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Grocers posit the hypothetical of a union organizing and being named

bargaining representative for the workplace within the first 90 days, then filing an

unfair labor practice charge if many or most of the employees are discharged and

the new employer refuses to recognize the union. They do not explain how this

scenario is a particular risk occasioned by the Ordinance. If the retained workers

were already represented by a union, there would be no occasion for an immediate

organizing drive, while if they were not, a union could mount the very same

organizing drive absent the Ordinance and would be as likely to file the very same

unfair labor practice charge if the response was to dismiss employees en masse.

We are not the first court to consider these questions. The City is not

unique in California in enacting a worker retention ordinance, nor is California

alone in having its municipalities do so.19 A small but growing number of federal

courts have considered the argument that such ordinances are preempted under

Machinists (see Machinists, supra, 427 U.S. 132); to a one, they have concluded,

as we do, that neither indirect effects on successorship nor any other aspect of the

ordinances gives rise to preemption. (See Wash. Serv. Contractors v. Dist. of

Columbia, supra, 54 F.3d at pp. 817-818 [D.C. retention ordinance does not

―disturb[] the process established by the NLRA for resolving labor disputes‖ and

is permissible ―substantive employee protective legislation having nothing to do

with rights to organize or bargain collectively‖]; Rhode Island Hospitality Assn. v.

(footnote continued from previous page)

―safeguard[s] the right of employees to self-organization and to select
representatives of their own choosing for collective bargaining or other mutual
protection without restraint or coercion by their employer.‖].) Whether its
employees prefer representation is, as a purely legal matter, of no moment to an
employer, and whatever its employees choose, an employer under the NLRA is
bound to respect. (See 29 U.S.C. §§ 158(a)(2), (5).)

19

See ante, footnote 1.

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City of Providence, supra, __ F.Supp.2d at p. ___ [2011 U.S. Dist. Lexis 34821, at

p. *42] [Providence retention ordinance ―is primarily designed to provide

temporary job protection to both unionized and nonunionized employees[,] which

does not constitute a significant intrusion into the equitable collective bargaining

process established by the NLRA‖]; Alcantara v. Allied Properties, LLC

(E.D.N.Y. 2004) 334 F.Supp.2d 336, 345 [N.Y.C. retention ordinance ―does not

conflict with or inhibit the bargaining or dispute resolution process established by

the NLRA,‖ nor does it ―regulate economic self-help activities‖].) We join the

developing consensus.

We close with an observation concerning our role. ―In labor pre-emption

cases . . . our office is not to pass judgment on the reasonableness of state [or

local] policy . . . .‖ (Livadas v. Bradshaw, supra, 512 U.S. at p. 120.) When

evaluating claims of NLRA preemption, we may not substitute our own views of

sound economic policy for those of the elected branches. (See St. Thomas-St.

John Hotel v. Govern. of U.S. VI, supra, 218 F.3d at p. 246 [rejecting the

―unsettling supposition‖ that courts should use preemption to strike down local

hiring and firing laws as impermissible intrusions into ―an area that has

traditionally been left to the freedom of contract between an employer and an

employee‖].) Rather, we inquire solely into whether the challenged regulation is

one Congress sought to preclude; if the text and structure of the NLRA

demonstrate an affirmative intent to leave the subject matter of the Ordinance

untouched by state and local regulation, only then may we find it preempted.

Having found no such indication, we conclude the presumption against

preemption has not been rebutted and Machinists does not apply.

III. Equal Protection

As an alternate basis for affirmance, Grocers contend the Ordinance

violates the equal protection clauses of both the state and federal Constitutions.

33

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(U.S. Const., 14th Amend.; Cal. Const., art. I, § 7(a).) We consider the question

de novo. (E.g., Garcia v. Four Points Sheraton LAX (2010) 188 Cal.App.4th 364,

381.) We conclude the Ordinance is constitutional.

A. Constitutional Principles

As the trial court concluded, and as all parties agree, because the Ordinance

involves neither suspect classifications nor fundamental rights or interests it is

subject only to ―rational basis‖ or ―rational relationship‖ review. (See Hernandez

v. City of Hanford (2007) 41 Cal.4th 279, 299.) ― ‗[I]n areas of social and

economic policy, a statutory classification that neither proceeds along suspect

lines nor infringes fundamental constitutional rights must be upheld against equal

protection challenge if there is any reasonably conceivable state of facts that could

provide a rational basis for the classification.‘ ‖ (Warden v. State Bar (1999) 21

Cal.4th 628, 644, quoting FCC v. Beach Communications, Inc. (1993) 508 U.S.

307, 313 (italics added by Warden).) So long as the challenged distinction

―bear[s] some rational relationship to a conceivable legitimate state purpose‖

(Westbrook v. Mihaly (1970) 2 Cal.3d 765, 784; accord, Hernandez, at p. 299;

Warden, at p. 641), it will pass muster; once we identify ― ‗ ―plausible reasons‖ for

[the classification] ―our inquiry is at an end‖ ‘ ‖ (Warden, at p. 644, quoting FCC

v. Beach Communications, Inc., at p. 313). Of significance to our inquiry,

―because we never require a legislature to articulate its reasons for enacting a

statute, it is entirely irrelevant for constitutional purposes whether the conceived

reason for the challenged distinction actually motivated the legislature.‖ (FCC v.

Beach Communications, Inc., at p. 315.) The burden is on Grocers, as the party

challenging the Ordinance, to negate any such rational basis or relationship to a

conceivable legitimate purpose. (FCC v. Beach Communications, Inc., at p. 315;

Hernandez, at p. 299.)

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B. Application

Subject to a union‘s and employer‘s ability to opt out through collective

bargaining (L.A. Mun. Code, § 181.06), the Ordinance applies to retail stores over

15,000 square feet in size that primarily sell household food for offsite

consumption—in other words, large grocery stores (id., § 181.01(E); see also id.,

§ 12.24(U)(14)(a) [excluding membership stores]). Grocers take issue with four

distinctions implicit in this scope: (1) between nonmember grocery stores and

membership stores; (2) between grocery stores more than and less than 15,000

square feet in size; (3) between grocery stores and restaurants; and (4) between

grocery stores where a unionized workforce has agreed to different terms and

those where it has not.

In evaluating the City‘s determination of the scope of the Ordinance, we are

mindful that the decision how broadly and in what manner to attack perceived

problems is for the elected branches in the first instance. Past decisions by both

this court and the United States Supreme Court ―establish that, under the rational

relationship test, the state may recognize that different categories or classes of

persons within a larger classification may pose varying degrees of risk of harm,

and properly may limit a regulation to those classes of persons as to whom the

need for regulation is thought to be more crucial or imperative.‖ (Warden v. State

Bar, supra, 21 Cal.4th at p. 644, citing American Bank & Trust Co. v. Community

Hospital (1984) 36 Cal.3d 359, 371, and Williamson v. Lee Optical Co. (1955) 348

U.S. 483, 489.) ―Evils in the same field may be of different dimensions and

proportions, requiring different remedies. Or so the legislature may think.

[Citation.] Or the reform may take one step at a time, addressing itself to the

phase of the problem which seems most acute to the legislative mind.‖

(Williamson, at p. 489.) Such line-drawing is the province of legislative bodies,

and ―the precise coordinates of the resulting legislative judgment [are] virtually

35

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unreviewable, since the legislature must be allowed leeway to approach a

perceived problem incrementally.‖ (FCC v. Beach Communications, Inc., supra,

508 U.S. at p. 316.)

Here, the City elected to impose temporary job retention requirements on

large grocery stores, but not on, e.g., restaurants or membership clubs that also sell

food. (See L.A. Mun. Code, §§ 12.24(U)(14)(a), 181.01(E).) The City believed

supermarkets function as community anchors, a judgment it is not our role to

question. (See id., § 181.00 [―Supermarkets and other grocery retailers are the

main points of distribution for food and daily necessities for the residents of Los

Angeles and are essential to the vitality of any community.‖].) Given their

perceived significance, the City rationally could conclude it was more important to

ensure stability and continuity at such entities than at restaurants or members-only

stores that arguably do not serve a similarly crucial function. The trial court

correctly rejected Grocers‘ equal protection argument on these grounds.

As to the constitutionality of the Ordinance‘s size distinction, the

Ordinance on its face has as one of its purposes the promotion of job security and

the minimization of community disruption that arises from job losses and changes.

(See L.A. Mun. Code, § 181.00 [―Through this ordinance, the City seeks to sustain

the stability of a workforce that forms the cornerstones of communities in Los

Angeles.‖].) The City rationally could conclude both that disruptions at larger

stores, involving larger workforces, would have a larger impact on the community,

and that larger stores would be more readily positioned to absorb any short-term

burdens the Ordinance‘s requirements might impose on employers. (See Garcia v.

Four Points Sheraton LAX, supra, 188 Cal.App.4th at p. 384 [upholding size

classification as rationally related to a business‘s ability to bear regulatory

burdens].) Both Congress and the state Legislature frequently, and

constitutionally, have incorporated exceptions for smaller employers when

36

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regulating the employment relationship. (See, e.g., 42 U.S.C. § 2000e(b) [tit. VII

small-employer exception]; Gov. Code, § 12926, subd. (d) [Cal. Fair Employment

& Housing Act small-employer exception].) So long as we can identify a rational

relationship between a classification and at least one legitimate purpose of an

enactment, the classification will pass constitutional muster. (See Hernandez v.

City of Hanford, supra, 41 Cal.4th at pp. 299-302 [rejecting an equal protection

challenge to a store size classification because size was rationally related to

community impact].)

Finally, concerning the Ordinance‘s opt-out provision (L.A. Mun. Code,

§ 181.06), the United States Supreme Court has made clear that affording

employers and unions the right to opt out and negotiate their own terms increases

the likelihood a given regulation will be found not preempted by the NLRA. (Fort

Halifax, supra, 482 U.S. at p. 22.) An opt-out provision thus is rationally related

to the desire to enact valid (nonpreempted) legislation, as well as to the legitimate

goal of ―balanc[ing] the desirability of a particular substantive labor standard

against the right of self-determination regarding the terms and conditions of

employment.‖ (Ibid.; see also Viceroy Gold Corp. v. Aubry (9th Cir. 1996)
75 F.3d 482, 490-491 [upholding labor protections subject to a collective

bargaining opt-out provision because the Legislature rationally could have

believed unionized workers are competent to negotiate their own protections];

Garcia v. Four Points Sheraton LAX, supra, 188 Cal.App.4th at pp. 385-386

[applying Viceroy‘s rationale to uphold an L.A. Mun. Code collective bargaining

opt-out provision identical to the one at issue here].)

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DISPOSITION

For the foregoing reasons, we reverse the Court of Appeal‘s judgment and

remand this case for further proceedings consistent with this opinion.

WERDEGAR, J.

WE CONCUR:

CANTIL-SAKAUYE, C. J.
KENNARD, J.
BAXTER, J.
CHIN, J.
CORRIGAN, J.


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DISSENTING OPINION BY GRIMES, J.

I respectfully dissent, finding City of Los Angeles Ordinance No. 177,231

is preempted by the National Labor Relations Act (NLRA) (29 U.S.C. § 151 et

seq.).

In my view, the ordinance intrudes on the collective bargaining process in

an extraordinary and fundamental way, at its very source. It determines the

individual workers who will comprise a new employer‘s work force for the first 90

days of its operation. During those 90 days, the new employer must provide

employment to a group of workers it did not choose. In addition, the new

employer must provide to this mandated work force specified benefits (such as

termination for cause only) for which the workers did not bargain and to which the

new employer did not agree. I recognize that governments, including states and

municipalities, have the authority to impose minimum employment standards of

general application – including restrictions on hiring and firing. Consequently, an

employer has no absolute right to choose its employees by, for example,

discriminating on the basis of some group characteristic or union membership.

But federal labor law does not permit a government mandate that an employer hire

either a particular worker or a specific group of workers based on a group

characteristic (or on anything else). That fundamental choice is left under federal

law to the employer and employee, that is, to the free play of economic forces.

This has been clear since the Supreme Court first upheld the constitutionality of

the NLRA in Labor Board v. Jones & Laughlin (1937) 301 U.S. 1, 45 (Jones &

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Laughlin), when the high court said that the NLRA ―does not interfere with the

normal exercise of the right of the employer to select its employees or to discharge

them.‖

The point – that the NLRA does not interfere with an employer‘s selection

of its work force – has been reiterated many times by the high court: in NLRB v.

Burns Security Services (1972) 406 U.S. 272, 294 (Burns) [an employer ―is

ordinarily free to set initial terms on which it will hire the employees of a

predecessor‖]; in Howard Johnson Co. v. Hotel Employees (1974) 417 U.S. 249,

262 (Howard Johnson) [―Clearly, Burns establishes that [the new employer] had

the right not to hire any of the former [employer‘s] employees, if it so desired‖];

and in Fall River Dyeing & Finishing Corp. v. NLRB (1987) 482 U.S. 27, 40 (Fall

River Dyeing) [―[w]e further explained [in Burns] that the successor is under no

obligation to hire the employees of its predecessor . . .‖].

The majority says these high court precedents establish only a principle of

federal common law, and have no bearing on the authority of state and local

governments to require the hiring for 90 days of a particular bloc of workers.

With this I cannot agree. Under the preemption doctrine established in Machinists

v. Wisconsin Emp. Rel. Comm’n (1976) 427 U.S. 132 (Machinists) and its

progeny, the salient inquiry is ―whether Congress intended that the conduct

involved be unregulated because left ‗to be controlled by the free play of

economic forces.‘‖ (Id. at p. 140.) The implicit right of the employer to select its

employees in the first instance – recognized by the high court since 1937 – is, it

seems to me, as fundamental to the structure of the NLRA as is the correlative

express right of those selected employees to organize to secure the redress of

grievances and to promote agreements with the employer on working conditions.

(See Jones & Laughlin, supra, 301 U.S. at pp. 43-44.) State or municipal

regulation that directly interferes with that right is preempted by the NLRA under

Machinists doctrine as surely as is regulation that is directed at the collective

bargaining process itself. And, even if we ignore the employer‘s right to select its

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work force as a fundamental premise of the NLRA, the impact of the ordinance on

the determination whether the new employer is a successor – and thus bound to

bargain with the union selected by the predecessor‘s employees – likewise is an

unpermitted intrusion on the collective bargaining process.

1.

The ordinance

The City of Los Angeles (City) adopted the Grocery Worker Retention

Ordinance in 2005. (L.A. Ord. No. 177,231, adding ch. XVIII, § 181.00 et seq. to

L.A. Mun. Code.) The ordinance is described fully in the majority opinion. In

brief, it applies to grocery stores exceeding a specified size that undergo a change

of ownership. It gives nonmanagerial employees of the former owner who have

worked for that owner for at least six months the right to demand employment by

the new owner: the new employer must select its employees from among that

group, by seniority, and must retain them for 90 days, discharging them only for

cause. After 90 days, the new employer must prepare a written performance

evaluation for each such employee and consider offering continued employment to

those with satisfactory evaluations. As the majority notes, other municipalities in

California and elsewhere have adopted similar ordinances.

2.

The NLRA

The NLRA ―is a comprehensive code passed by Congress to regulate labor

relations in activities affecting interstate and foreign commerce. As such it is of

course the law of the land which no state law can modify or repeal.‖ (Nash v.

Florida Industrial Commission (1967) 389 U.S. 235, 238.) The NLRA declares

the policy of the United States: ―to eliminate . . . obstructions to the free flow of

commerce . . . by encouraging the practice and procedure of collective bargaining

and by protecting the exercise by workers of full freedom of association, self-

organization, and designation of representatives of their own choosing, for the

purpose of negotiating the terms and conditions of their employment or other

mutual aid or protection.‖ (29 U.S.C. § 151.)

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The need for the NLRA flowed from a free market economy in which

equality of bargaining power did not exist. Employers were (and are) ―organized

in the corporate or other forms of ownership association‖ and employees ―[did]

not possess full freedom of association or actual liberty of contract . . . .‖ (29

U.S.C. § 151.) Congress found it unnecessary to say in the NLRA that the

composition of an employer‘s work force is a matter of the employer‘s choice, but

in our country, hiring has always occurred on an individual basis, one employee at

a time: the employer advertises, prospective workers apply, and the employer

selects.

The Supreme Court recognized this underlying premise of the NLRA

almost immediately, when it said in 1937 that the NLRA ―does not prevent the

employer ‗from refusing to make a collective contract and hiring individuals on

whatever terms‘ the employer ‗may by unilateral action determine.‘‖ (Jones &

Laughlin, supra, 301 U.S. at p. 45.) The NLRA prohibits specified unfair labor

practices by employers and unions (29 U.S.C. § 158) and empowers the National

Labor Relations Board (NLRB) to prevent anyone from engaging in those unfair

labor practices. (29 U.S.C. § 160.) The point of the NLRA was to ―restor[e]

equality of bargaining power between employers and employees‖ (29 U.S.C. §

151) by requiring an employer to bargain with ―representatives of [the workers‘]

own choosing‖ (ibid.) – and not to ―interfere with the normal exercise of the right

of the employer to select its employees or to discharge them.‖ (Jones & Laughlin,

supra, 301 U.S. at p. 45.)

Thus, the very foundation of the NLRA lies in a workplace composed of

individuals selected by the employer. The NLRA protects the rights of those

individuals whom the employer has chosen to hire, to associate with each other, to

organize themselves, and to designate representatives of their choosing to

negotiate the terms and conditions of their employment. (29 U.S.C. § 151.) If the

workers vote to select a union to represent them, the employer must negotiate with

the union in a good faith effort to reach agreement on wages, hours and other

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terms of employment. The NLRA does not mandate that the parties reach

agreement, only that they try to agree. If they cannot agree, the NLRA establishes

the rules of the battleground, protecting certain pressure tactics and prohibiting

others, to keep the process fair.

The NLRA specifies the single circumstance under which the NLRB may

interfere with the employer‘s selection of its workers: the employer cannot hire or

fire based on union membership. The NLRA specifies that an employer commits

an unfair labor practice ―by discrimination in regard to hire or tenure of

employment or any term or condition of employment to encourage or discourage

membership in any labor organization . . . .‖ (29 U.S.C. § 158 (a)(3).) Jones &

Laughlin, after stating that the NLRA does not interfere with the employer‘s right

to select or discharge its employees, tells us that ―[t]he employer may not, under

cover of that right, intimidate or coerce its employees with respect to their self-

organization and representation, and, on the other hand, the Board is not entitled to

make its authority a pretext for interference with the right of discharge when that

right is exercised for other reasons than such intimidation and coercion.‖ (Jones &

Laughlin, supra, 301 U.S. at pp. 45-46.) Twelve years after deciding Jones &

Laughlin, the high court announced the corollary principle that states may prohibit

discrimination in hiring and firing against non-union workers. (Lincoln Union v.

Northwestern Co. (1949) 335 U.S. 525, 537 [―Just as we have held that the due

process clause erects no obstacle to block legislative protection of union members,

we now hold that legislative protection can be afforded non-union workers.‖].)

The majority is mistaken in saying I have expressed here the view that the

NLRA was founded on an employer‘s absolute right to select its employees.

Plainly, the NLRA was not founded on an employer‘s liberty to discriminate

against either union or non-union members because they are such. In my view,

regulations prohibiting unlawful discrimination and imposing minimum

employment standards in no way undermine the foundation of the NLRA that each

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workplace may be composed of individuals selected by the employer for reasons

other than discrimination.

The NLRA does not transform the fundamentally individual nature of the

employment relationship. Its focus is on the right of individual workers to band

together, if they so choose, and to select representatives of their own choosing, to

bargain with the employer who has hired them. This is the base upon which the

NLRA is constructed and from which all of its provisions flow. Just as Jones &

Laughlin made it clear that Congress did not intend in the NLRA to change the

fundamental, individual nature of the employer-employee relationship, including

―the right of the employer to select its employees‖ (Jones & Laughlin, supra, 301

U.S. at p. 45), I conclude it necessarily follows that Congress did not intend to

allow any other governmental entity to do so either. To permit a city to mandate

that a new employer hire the predecessor‘s employees as a group violates the

fundamental structure of the NLRA and necessarily hands weapons of economic

power to a group the employer did not choose to hire. It is preempted under the

doctrine established in Machinists and its progeny, to which I now turn.

3.

Machinists preemption

Machinists examined the history of labor law preemption under the NLRA

and identified two lines of preemption analysis. The first is based on the primary

jurisdiction of the NLRB to regulate conduct that is a protected right under section

7 (29 U.S.C. § 157) or conduct that is an unfair labor practice in violation of

section 8 of the NLRA (29 U.S.C. § 158). State regulation of conduct that is

protected under section 7 or an unfair labor practice under section 8 is preempted

under what is now called Garmon preemption. (San Diego Unions v. Garmon

(1959) 359 U.S. 236, 244.) Because the City‘s ordinance does not ―‗regulate

activity that the NLRA protects, prohibits, or arguably protects or prohibits‘‖

(Chamber of Commerce of United States v. Brown (2008) 554 U.S. 60, 65

(Brown)) under sections 7 and 8, there is no Garmon preemption.

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But Machinists recognized ―a second line of pre-emption analysis . . .

developed in cases focusing upon the crucial inquiry whether Congress intended

that the conduct involved be unregulated because left ‗to be controlled by the free

play of economic forces.‘‖ (Machinists, supra, 427 U.S. at p. 140.) As Brown put

it, Machinists preemption forbids both the NLRB and states from regulating

conduct Congress intended be unregulated: ―Machinists pre-emption is based on

the premise that ‗―Congress struck a balance of protection, prohibition, and

laissez-faire in respect to union organization, collective bargaining, and labor

disputes.‖‘‖ (Brown, supra, 554 U.S. at p. 65; see id. p. 66 [holding statutes

preempted under Machinists ―because they regulate within ‗a zone protected and

reserved for market freedom‘‖].)

Under Machinists, ―congressional intent to shield a zone of activity from

regulation is usually found only ‗implicit[ly] in the structure of the Act,‘ [citation],

drawing on the notion that ‗―[w]hat Congress left unregulated is as important as

the regulations that it imposed,‖‘ [citation].‖ (Brown, supra, 554 U.S. at p. 68.)

This is just such a case. An employer‘s right to select the members of the work

force with whose representatives it will be required to bargain, if they so choose, is

the foundation on which the NLRA was built, unstated but implicit in its structure.

This is a paradigm of the principle that what Congress left unregulated is fully as

important as the regulations it imposed. In my view, this alone is reason enough

to conclude the City‘s ordinance, which stands in direct contradiction to one of the

building blocks of the NLRA, cannot stand.

Machinists arose from the collective bargaining process itself and the

pressure tactics employed by both sides during that process. In Machinists, the

court found the state could not enjoin a union and its members from refusing to

work overtime as part of a union effort to put economic pressure on the employer

during contract negotiations. (Machinists, supra, 427 U.S. at p. 133.) The court

observed that many of its past decisions concerning conduct ―left by Congress to

the free play of economic forces‖ (id. at p. 147) involved union and employee

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activities, but that ―self-help is of course also the prerogative of the employer

because he, too, may properly employ economic weapons Congress meant to be

unregulable.‖ (Ibid.) Thus, ―‗[r]esort to economic weapons‘‖ was the right of

both employer and employee, ―and the State may not prohibit the use of such

weapons or ‗add to an employer‘s federal legal obligations in collective

bargaining‘ any more than in the case of employees.‖ (Ibid.) So, ―[w]hether self-

help economic activities are employed by employer or union, the crucial inquiry

regarding pre-emption is the same: whether ‗the exercise of plenary state

authority to curtail or entirely prohibit self-help would frustrate effective

implementation of the Act‘s processes.‘‖ (Id. at pp. 147-148.) Congress meant

that these activities ―were not to be regulable by States any more than by the

NLRB‖ (id. at p. 149), and sanctioning state regulation of economic pressure

―deemed by the federal Act ‗desirabl[y] . . . left for the free play of contending

economic forces‘‖ amounts to ―‗denying one party to an economic contest a

weapon that Congress meant him to have available.‘‖ (Id. at p. 150.) Machinists

concluded that such regulation by the state was ―impermissible because it ‗―stands

as an obstacle to the accomplishment and execution of the full purposes and

objectives of Congress.‖‘‖ (Id. at p. 151.)

The majority concludes from Machinists and subsequent cases that the

areas Congress intended to leave free of local regulation are confined to those

relating to the process by which an agreement is reached on the terms of

employment and not on the substance of those terms. Certainly, it is true that the

NLRA is not concerned with the substance of the parties‘ agreement, and cases

since Machinists have made it clear that state or federal regulations establishing

minimum terms of employment that protect union and nonunion workers alike

―‗neither encourage[] nor discourage[] the collective-bargaining processes that are

the subject of the NLRA‘‖ and are not preempted. (Fort Halifax Packing Co. v.

Coyne (1987) 482 U.S. 1, 21 (Fort Halifax) [Me. statute requiring employers to

provide a one-time severance payment to employees in the event of a plant closing

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was not preempted; ―establishment of a minimum labor standard does not

impermissibly intrude upon the collective-bargaining process‖ (id. at p. 23)]; see

also Metropolitan Life Ins. Co. v. Massachusetts (1985) 471 U.S. 724, 757

(Metropolitan Life) [―[w]hen a state law establishes a minimal employment

standard not inconsistent with the general legislative goals of the NLRA, it

conflicts with none of the purposes of the Act‖; state law requiring that minimum

mental health benefits be provided under certain insurance policies was not

preempted (id. at p. 758)].)

But in my view, the ordinance profoundly interferes with the collective

bargaining process. We are not here concerned with local regulation ―establishing

minimum terms of employment.‖ (Metropolitan Life, supra, 471 U.S. at p. 754.)

Nor are we concerned with state regulations ―prescribing the minimum wages,

maximum hours, and standard conditions of employment . . . .‖ (Industrial

Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 698.) The ordinance does

not merely impose a term or condition of employment, in the sense of requiring

mental health insurance coverage as in Metropolitan Life, or a severance payment

in the event of a plant closing as in Fort Halifax, or minimum wages and

maximum hours as in Industrial Welfare Com.—benefits that apply across the

board to every individual employee among the employer‘s selected work force.

We are concerned with a local regulation that creates employment by

dictating which individuals the new grocery owner must hire, and then establishes

minimum standards for those workers. It is the initial requirement to hire, not the

minimum standards applied to those hired, that causes the ordinance to be

preempted under Machinists. The requirement to hire, of course, is not a part of

the collective bargaining process at all. But it necessarily subverts that process,

because it determines the members of the work force who will decide the matters

of ―self-organization and collective bargaining‖ (Metropolitan Life, supra, 471

U.S. at p. 751) that are concededly the exclusive province of the NLRA.

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As the majority points out, the ordinance does not, on its face, regulate

organizing or bargaining. But the ordinance does indeed regulate the economic

contest, in at least two basic ways. (See Machinists, supra, 427 U.S. at p. 150

[state regulation of economic pressure, deemed by the NLRA to be left to the free

play of contending economic forces, is ―‗denying one party to an economic contest

a weapon that Congress meant him to have available‘‖].)

First, the fact that the employer‘s choice of employees who will comprise

its work force necessarily precedes any ―‗―union organization, collective

bargaining, and labor disputes‖‘‖ (Brown, supra, 554 U.S. at p. 65) does not

reduce the significance of that choice to the regulatory scheme Congress fashioned

in the NLRA, which was created to provide ―a framework for self-organization

and collective bargaining.‖ (Metropolitan Life, supra, 471 U.S. at p. 751.) The

people who comprise the work force are an integral part of that framework, and

the employer‘s right to select its employees, one by one, was left undisturbed in

the NLRA, as Jones & Laughlin explicitly tells us. So, I cannot accept the notion

that states are left free to do what the NLRA does not do simply because the

conduct in question – hiring the employees who will launch the new employer‘s

grand opening – precedes the collective bargaining process.

Second, while the City‘s ordinance is not expressly aimed at the collective

bargaining process, I think it is fair to say that the ordinance itself is an economic

weapon—not a weapon wielded by either of the parties to a labor dispute, but one

superimposed by the City that necessarily ―‗upset[s] the balance that Congress has

struck between labor and management in the collective-bargaining relationship.‘‖

(Metropolitan Life, supra, 471 U.S. at p. 751.) An ordinance that dictates whom a

new employer must hire denies that new employer the ability to choose the

employees it deems most suited to ensuring the success of its enterprise, and does

so during the critical first 90 days of its operation. This is a matter of considerable

moment to new owners with their own management styles, the implementation of

which depends on selecting employees one by one.

10

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The trial testimony demonstrates this point, showing that the first 90 days

of a new grocery owner‘s operation are the most important to establish the new

owner‘s image and to ―deliver‖ to new customers. One witness said, ―The

supermarket business is a very competitive business, and if you don‘t deliver to

the customers in the first 90 days, you‘ve probably lost them.‖ Another witness

testified it was critical to his company, when acquiring a new store, to bring in

experienced personnel from the grocer‘s other stores who understand the

company‘s business philosophy. The company tries to hire from the community

(and if a predecessor‘s employee were the right fit for the company, it would hire

him or her to work in one of its other stores), but the company had significant

concerns about retaining a bloc of employees without the option ―to determine

whether they would fit, have the work ethic, the work history that would fit our

organizational style as a collective group‖; ―we would have more difficult[y]

running that store from day one in the style and fashion that we require . . . .‖ One

witness indicated his company‘s need to ―hire our own crew‖ because the

company wanted bilingual employees to fully serve the shoppers to which it

catered. In short, new owners of previously faltering grocery stores have sound

reasons for the ―normal exercise‖ of their right under federal law to select their

own work forces. (Jones & Laughlin, supra, 301 U.S. at p. 45.) The ordinance,

stripping away the new employer‘s choices in hiring during the critical first 90

days, operates as an economic weapon and directly affects the economic activities

of the employer. To say that it is not a form of economic pressure that alters the

collective bargaining relationship is, in my view, fundamentally erroneous.

The economic pressure is not imposed by the employees as union members

during collective bargaining, but it is government-imposed on their behalf during a

time when they are free to engage in the process of self-organization governed by

the NLRA. The ordinance mandates which individuals are to comprise the work

force that will decide how or whether to bargain with the employer. To deny that

an economic weapon is in play between contending economic forces as a result of

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the ordinance is to ignore the fundamental relationship between labor and

management upon which the NLRA is constructed. The requirement to hire a

specific bloc of employees, it seems to me, necessarily ―has altered the economic

balance between labor and management.‖ (New York Tel. Co. v. New York Labor

Dept. (1979) 440 U.S. 519, 532; see also Burns, supra, 406 U.S. at p. 288 [―The

congressional policy manifest in the Act is to enable the parties to negotiate for

any protection either deems appropriate, but to allow the balance of bargaining

advantage to be set by economic power realities.‖].) Work force selection is

perforce one of the most basic ―economic power realities.‖

The majority‘s view is that the ordinance is of a piece with other state and

local regulations broadly regulating hiring and firing, and that it does not regulate

bargaining or speak directly to the process of organizing; instead the ordinance

temporarily preserves the status quo, whatever that may be (whether the work

force is unionized or not). (Maj. opn. ante, at pp. 19-21.) But the flaw in the

City‘s ordinance lies in the mandated selection of an employer‘s work force in the

first instance, a sui generis form of regulation. And, in my view, the temporary

nature of the ordinance is entirely irrelevant; either Congress intended that the

employer‘s right to select its work force be unregulated, or it did not; I do not see

how there can be any middle ground on congressional intent. (See Metropolitan

Life, supra, 471 U.S. at p. 749 [the ―second [Machinists] pre-emption doctrine

protects against state interference with policies implicated by the structure of the

Act itself, by pre-empting state law . . . concerning conduct that Congress intended

to be unregulated‖; while ―[a]n appreciation of the State‘s interest in regulating a

certain kind of conduct may still be relevant in determining whether Congress in

fact intended the conduct to be unregulated‖ (id. at pp. 749-750, fn. 27), such

preemption ―does not involve in the first instance a balancing of state and federal

interests, . . . but an analysis of the structure of the federal labor law to determine

whether certain conduct was meant to be unregulated‖ (ibid., italics added)].)

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In the end, the majority frames the question as whether there is evidence

that Congress affirmatively intended to leave the subject of employee ―retention‖

during ownership transitions unregulated by states and municipalities, and finds

the NLRA ―resoundingly silent.‖ (Maj. opn. ante, at p. 18.) In my view, this

misstates the question, which is whether Congress intended to leave unregulated

the employer‘s initial selection – not the retention – of its work force. And the

NLRA is indeed silent on both questions; there is nothing in the text of the NLRA

about hiring or firing (except to prohibit doing either based on union affiliation).

But the silence is hardly surprising; the high court has told us that congressional

intent to shield a zone of activity from regulation in most cases is found ―only

‗implicit[ly] in the structure of the Act‘‖ (Brown, supra, 554 U.S. at p. 68), not in

its text. The NLRA was founded on, and everything in it assumes, the existence of

a freely formed employer-employee relationship. (Jones & Laughlin, supra, 301

U.S. at p. 45.) It would be anomalous to conclude that, despite this foundation,

Congress did not intend to prevent states and localities from doing the very thing

that it declined to do: interfere with an employer‘s selection of the people who

will conduct its business.

For the foregoing reasons alone, I would find the City‘s ordinance

preempted. But there is more, because the ordinance does have a direct impact on

the collective bargaining process. The ordinance‘s requirement that the new

owner hire the predecessor‘s work force necessarily influences whether or not the

new employer will be considered a successor to the former employer, and thus

bound to bargain with the union selected by the predecessor‘s employees – a direct

intrusion on the collective bargaining process.

4.

The successorship doctrine

If a new employer is deemed a successor of the old employer and hires a

majority of its employees from the predecessor‘s work force, the new employer

has a duty to recognize and bargain with the union representing the predecessor‘s

employees. This ―successorship doctrine‖ developed through several high court

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cases. The first of these, John Wiley & Sons v. Livingston (1964) 376 U.S. 543

(John Wiley), involved the disappearance by merger of a corporate employer and

the wholesale transfer of its employees to the company into which the corporate

employer merged. The union representing the predecessor‘s employees asserted

that the new employer (Wiley) was obligated to recognize certain rights of the

employees under its collective bargaining agreement with Wiley‘s predecessor;

Wiley asserted the merger terminated the collective bargaining agreement for all

purposes; and the union sought to compel arbitration. (Id. at pp. 545-546.)

The high court first observed that ―[f]ederal law, fashioned ‗from the policy

of our national labor laws,‘ controls.‖ (John Wiley, supra, 376 U.S. at p. 548.) It

then held that the disappearance by merger of a corporate employer that had

entered into a collective bargaining agreement did not automatically terminate all

rights of the employees covered by the agreement, and that, ―in appropriate

circumstances, present here, the successor employer may be required to arbitrate

with the union under the agreement.‖ (Ibid.) The court elaborated: ―The

objectives of national labor policy, reflected in established principles of federal

law, require that the rightful prerogative of owners independently to rearrange

their businesses and even eliminate themselves as employers be balanced by some

protection to the employees from a sudden change in the employment relationship.

The transition from one corporate organization to another will in most cases be

eased and industrial strife avoided if employees‘ claims continue to be resolved by

arbitration rather than by ‗the relative strength . . . of the contending forces,‘

[citation].‖ (Id. at p. 549.)

The court found Wiley‘s obligation to arbitrate the dispute ―in the

[predecessor‘s] contract construed in the context of a national labor policy.‖ (John

Wiley, supra, 376 U.S. at pp. 550-551; see id. at p. 550 [―the impressive policy

considerations favoring arbitration are not wholly overborne by the fact that Wiley

did not sign the contract being construed‖].) But the court cautioned: ―We do not

hold that in every case in which the ownership or corporate structure of an

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enterprise is changed the duty to arbitrate survives. . . . . [T]here may be cases in

which the lack of any substantial continuity of identity in the business enterprise

before and after a change would make a duty to arbitrate something imposed from

without, not reasonably to be found in the particular bargaining agreement and the

acts of the parties involved.‖ (Id. at p. 551.) In John Wiley, the required

―similarity and continuity of operation across the change in ownership [was]

adequately evidenced by the wholesale transfer of [the predecessor‘s] employees

to the Wiley plant . . . . (Ibid.)

Next, the high court decided Burns, supra, 406 U.S. 272, holding that an

employer that hired a majority of its predecessor‘s employees had an obligation to

bargain with the union that represented those employees, but could not be required

to observe the terms of the union‘s collective bargaining agreement with the

predecessor. (Id. at pp. 278, 286-287.) In Burns there was no relationship

between the new employer and its predecessor. The new employer replaced the

predecessor when it bid for and obtained a service contract to provide plant

protection services. (Id. at pp. 274-275.) The new employer‘s obligation to

bargain with the union ―stemmed from its hiring of [the former employer‘s]

employees and from the recent election and Board certification.‖ (Id. at pp. 278-

279.) ―[I]t would be different if Burns had not hired employees already

represented by a union certified as a bargaining agent . . . .‖ (Id. at p. 280.)

The Burns court noted that the NLRB ―has never held that the National

Labor Relations Act itself requires that an employer who submits the winning bid

for a service contract or who purchases the assets of a business be obligated to hire

all of the employees of the predecessor though it is possible that such an obligation

might be assumed by the employer.‖ (Burns, supra, 406 U.S. at p. 280, fn. 5.)

But while the new employer had a duty to bargain, it could not be required to

honor the terms of the previous employer‘s collective bargaining agreement. ―The

source of its duty to bargain with the union is not the collective-bargaining

contract but the fact that it voluntarily took over a bargaining unit that was largely

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intact and that had been certified within the past year. Nothing in its actions,

however, indicated that Burns was assuming the obligations of the contract, and

‗allowing the Board to compel agreement when the parties themselves are unable

to agree would violate the fundamental premise on which the Act is based –

private bargaining under governmental supervision of the procedure alone, without

any official compulsion over the actual terms of the contract.‘‖ (Id. at p. 287.)

And, Burns said, a successor employer ―is ordinarily free to set initial terms on

which it will hire the employees of a predecessor . . . .‖ (Id. at p. 294.)

Then came Howard Johnson, supra, 417 U.S. 249, where the court held

that the new employer, who hired only a small fraction of the predecessors‘

employees, could not be compelled to arbitrate, under its predecessors‘ collective

bargaining agreements, the extent of its obligations under those agreements to the

predecessors‘ employees. (Id. at pp. 250, 264.) In Howard Johnson, the new

employer leased restaurant and motor lodge premises from the old employer, and

purchased all the personal property used in their operations. (Id. at p. 251.) The

seller notified its employees their employment would terminate when operations

were transferred. Upon the sale, the new employer began operations with 45

employees, only nine of whom had been employed by the seller, and the union

sued, seeking arbitration, which the trial court granted under John Wiley.

(Howard Johnson, at pp. 252-253.)

The high court held that Burns principles applied. The court acknowledged

some inconsistencies in reasoning between John Wiley and Burns, but found it

unnecessary to decide whether an irreconcilable conflict existed, because the facts

in John Wiley were entirely different from those before the court in Howard

Johnson. (Howard Johnson, supra, 417 U.S. at pp. 255-256.) In addition to the

fact (among others) that the seller remained a viable entity after the asset sale,

―[e]ven more important, in Wiley the surviving corporation hired all of the

employees of the disappearing corporation,‖ making no substantial changes in the

operation of the business. (Howard Johnson, at p. 258.) ―It was on this basis that

16

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the Court in Wiley found that there was the ‗substantial continuity of identity in the

business enterprise,‘ [citation], which it held necessary before the successor

employer could be compelled to arbitrate.‖ (Howard Johnson, at p. 259.)

By contrast, the new employer in Howard Johnson ―decided to select and

hire its own independent work force . . . .‖ (Howard Johnson, supra, 417 U.S. at

p. 259.) The union‘s position was that the new employer was bound by the

seller‘s collective bargaining agreement to hire all of the seller‘s former

employees. (Id. at p. 260.) This position, the high court said, was ―completely at

odds with the basic principles this Court elaborated in Burns.‖ (Id. at p. 261.) The

court said: ―Clearly, Burns establishes that Howard Johnson had the right not to

hire any of the former [employer‘s] employees, if it so desired.‖ (Id. at p. 262.)

The continuity of identity in the business enterprise that John Wiley required

―necessarily includes, we think, a substantial continuity in the identity of the work

force across the change in ownership.‖ (Howard Johnson, at p. 263.)

Moreover: ―This interpretation of Wiley is consistent also with the Court‘s

concern with affording protection to those employees who are in fact retained in

‗[t]he transition from one corporate organization to another‘ from sudden changes

in the terms and conditions of their employment . . . . At the same time, it

recognizes that the employees of the terminating employer have no legal right to

continued employment with the new employer . . . . This holding is compelled, in

our view, if the protection afforded employee interests in a change of ownership

by Wiley is to be reconciled with the new employer‘s right to operate the

enterprise with his own independent labor force.‖ (Howard Johnson, supra, 417

U.S. at p. 264, italics added.)

Finally, there was Fall River Dyeing, where the court held that a

successor‘s obligation to bargain was not limited to a situation where (as in Burns)

the union had recently been certified; instead, where a union has a rebuttable

presumption of majority status, that status continues through a change in

employers if ―the new employer is in fact a successor of the old employer and the

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majority of its employees were employed by its predecessor.‖ (Fall River Dyeing,

supra, 482 U.S. at p. 41, italics added.) Fall River Dyeing repeated the principles

established in Burns: ―We further explained that the successor is under no

obligation to hire the employees of its predecessor . . . . If the new employer

makes a conscious decision to maintain generally the same business and to hire a

majority of its employees from the predecessor, then the bargaining obligation of §

8(a)(5) is activated. This makes sense when one considers that the employer

intends to take advantage of the trained work force of its predecessor.‖ (Fall River

Dyeing, at pp. 40-41, citations omitted.) Thus ―[t]he ‗triggering‘ fact for the

bargaining obligation was this composition of the successor‘s work force.‖ (Id. at

p. 46; see id. at p. 47 [adopting NLRB rule that the determination of the

composition of the successor‘s work force is to be made when a transitioning

successor has employed a ―‗substantial and representative complement‘‖ of its

work force; ―[i]f, at this particular moment, a majority of the successor‘s

employees had been employed by its predecessor, then the successor has an

obligation to bargain with the union that represented these employees‖].)

The majority sees nothing in these successorship cases (which presented no

preemption issue) to suggest that Congress intended in the NLRA to prevent states

and localities from interfering with the employer‘s right to choose its employees. I

cannot agree. From John Wiley to Fall River Dyeing, these cases show that the

employer‘s free selection of employees has always been a fundamental part of

national labor policy. John Wiley and Howard Johnson could hardly have been

more clear: John Wiley tells us that the ―objectives of national labor policy,

reflected in established principles of federal law, require that the rightful

prerogative of owners independently to rearrange their businesses‖ be balanced

―by some protection to the employees from a sudden change in the employment

relationship‖ (John Wiley, supra, 376 U.S. at p. 549, italics added), and Howard

Johnson tells us that the high court in John Wiley was ―concern[ed] with affording

protection to those employees who are in fact retained in ‗[t]he transition from one

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corporate organization to another‘ from sudden changes in the terms and

conditions of their employment . . . .‖ (Howard Johnson, supra, 417 U.S. at p.

264, italics added.)

In short, it seems to me incontrovertible that the ―objectives of national

labor policy,‖ as stated by the high court, have always included the employer‘s

prerogative to select its work force (subject to the prohibition on discrimination on

the basis of union membership). As Howard Johnson put it, ―the employees of the

terminating employer have no legal right to continued employment with the new

employer . . . .‖ (Howard Johnson, supra, 417 U.S. at p. 264.) Consequently,

states or cities are not free to regulate to the contrary. (See John Wiley, supra, 376

U.S. at p. 548 [―Federal law, fashioned ‗from the policy of our national labor

laws,‘ controls.‖]; cf. Howard Johnson, supra, 417 U.S. at p. 255 [observing that

federal common law regarding enforcement of collective-bargaining agreements

―must be ‗fashion[ed] from the policy of our national labor laws‘‖].)

The City conceded in oral argument that the ordinance would be preempted

by the NLRA if it expressly declared the new owner to be a successor within the

meaning of the successorship doctrine, but the City asserted the express 90-day

limitation avoids preemption. If the ordinance were unlimited in duration, I think

there would be little doubt, under the terms of the ordinance itself, that it would

dictate the successorship outcome. The new employer – defined in the ordinance

as the person ―that owns, controls, and/or operates the Grocery Establishment‖

(L.A. Mun. Code, § 181.01, subd. I) after the transfer of ―all or substantially all of

the assets or a controlling interest‖ (id., § 181.01, subd. B) of the old employer –

would necessarily be a successor, and would necessarily be bound to bargain with

the union representing the workers that the new employer has been required

(indefinitely under this scenario) to retain. This scenario would present an

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obvious intrusion into the collective bargaining process, requiring the employer to

bargain with a work force it did not choose.1

In my view, the ordinance seeks to do indirectly that which the City

acknowledges it cannot do directly, because the practical effect of the ordinance is

to visit upon the new owner all the obligations of a successor under the

successorship doctrine. The majority, however, concludes, based on existing

NLRB decisions by the agency‘s administrative law judges (ALJ‘s) and a federal

district court decision, that the new employer will be obligated to bargain ―only if

the successor employer retains its predecessor‘s employees beyond the mandatory

employment period . . . .‖ (Rhode Island Hospitality Assn. v. City of Providence

(D.R.I. Mar. 31, 2011, No. 09-527-ML) 2011 U.S. Dist. Lexis 34821, *39-*40

(Rhode Island Hospitality).)2 (Maj. opn. ante, at pp. 26-28) In other words,


1

In Wash. Serv. Contractors v. Dist. of Columbia (D.C. Cir. 1995) 54 F.3d

811, 816, the court, upholding a retention ordinance of unlimited duration against
a preemption claim, stated that this argument contains a ―logical flaw,‖ because
the NLRB may decide not to require the new employer to bargain with the union
in circumstances where a statute or ordinance requires the employer to retain its
predecessor‘s employees. According to the court, if the NLRB decides not to
require bargaining, then the problem disappears and there is no intrusion in the
bargaining process. And if the NLRB does require bargaining, that would mean
that in the NLRB‘s judgment, the ordinance is congruent with the aims of the
NLRA. (Wash. Serv. Contractors, at pp. 816-817.) In my view, both scenarios
miss the mark. The first (not requiring bargaining) would intrude on the
employees‘ rights to representatives of their own choosing, and the second
presumes that the NLRB‘s judgment would presage that of the high court, a
conclusion I find to be unwarranted. In either case, the ordinance has an impact
on, and ―‗upset[s] the balance that Congress has struck between labor and
management in the collective-bargaining relationship.‘‖ (Metropolitan Life,
supra, 471 U.S. at p. 751.)

2

In Rhode Island Hospitality, the federal district court upheld the

enforcement of a municipal ordinance similar to the one challenged here. The
ordinance required a new employer in the hospitality business to retain the
previous employer‘s workers for three months, subject to a ―good cause‖ right to


(footnote continued on next page)

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because the ordinance does not in so many words require the employer to maintain

the predecessor‘s work force after 90 days, the ordinance does not dictate the

outcome of the successorship inquiry (maj. opn. ante, at p. 28) (and therefore does

not intrude on the processes of organization, collective bargaining, or labor

disputes).

I cannot agree with this analysis.

First, it is entirely uncertain that the obligation to bargain will not arise

unless the new employer voluntarily retains the work force after the 90 days. As

the Rhode Island Hospitality court acknowledged, the two NLRB decisions on the

issue are not of a single mind (though both concluded the new employer under a

mandatory retention ordinance was a successor with an obligation to bargain).

One of them rejected the new employer‘s contention that it was forced to hire its

predecessor‘s employees (and therefore did not ―consciously decide[] to take

advantage of its predecessor‘s trained workforce‖); the ALJ observed that the

NLRB had ―never formally adopted a requirement that a successor employer must

consciously decide to avail itself of its predecessor‘s trained workforce in order to


(footnote continued from previous page)

discharge. (Rhode Island Hospitality, supra, 2011 U.S. Dist. Lexis 34821, at pp.
*11-*12.) The court acknowledged that the NLRB had ―not yet developed a
consistent position‖ on when the duty to bargain would accrue when there is a
mandatory retention ordinance (id. at pp. *39-*40), that ―[t]his is a close case‖ (id.
at p. *40), and that the ordinance could not be ―simply characterized as a
‗minimum labor standard.‘‖ (Id. at p. *41.) But, because the ordinance did not
preclude an employer from making its own hiring decisions after 90 days, did not
compel a successor employer to honor the terms of a collective bargaining
agreement negotiated by its predecessor, and allowed the new employer to set
employment terms (id. at pp. *41-*42), the district court concluded that the
ordinance was ―primarily designed to provide temporary job protection to both
unionized and nonunionized employees which does not constitute a significant
intrusion into the equitable collective bargaining process established by the
NLRA.‖ (Id. at p. *42.)


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be considered a Burns‘ successor employer . . . .‖ (United States Service

Industries, Inc. (NLRB Dec. 13, 1995, No. 5-CA-24575 (1995 NLRB Lexis 1151,

*11-*12)) (Service Industries).)3 In the other case, the ALJ found that

successorship obligations attach on the date the new employer makes offers of

permanent employment to the workers (or, if no offers are made, at a reasonable

time after the expiration of the 90-day period). (M&M Parkside Towers LLC

(NLRB Jan. 30, 2007, No. 29-CA-27720 (2007 NLRB Lexis 27, *15-*17)) (M&M

Parkside).) 4


3

In Service Industries, a union filed a charge with the NLRB and a

complaint was issued alleging the employer refused to recognize and bargain with
the union. The employer‘s predecessor provided janitorial services to buildings in
the District of Columbia and had recognized the union as the exclusive bargaining
representative of its janitorial employees. The predecessor lost its contract to
clean a particular building. The new employer contracted with the building‘s
management, and hired 24 janitorial employees, 15 of whom had been employed
by the predecessor. (Service Industries, supra, 1995 NLRB Lexis 1151, at pp. *8-
*9.) The union requested bargaining on the terms and conditions of employment,
but the new employer refused. (Id. at p. *10.) The ALJ found substantial
continuity in the employing enterprises, but the new employer contended that it
was forced to hire its predecessor‘s employees by the district‘s Displaced Workers
Protection Act. (Id. at p. *11.) The ALJ rejected the argument, and found the new
employer‘s refusal to recognize and bargain with the union was an unfair labor
practice. (Id. at p. *14.)

4

M&M Parkside, decided 11 years after Service Industries, involved a New

York City ordinance requiring a purchaser of apartment buildings and commercial
property to retain all employees for 90 days (and to offer permanent employment
to employees who received a satisfactory written evaluation after 90 days).
(M&M Parkside, supra, 2007 NLRB Lexis 27, at pp. *3-*4.) After the 90-day
period ended, the purchaser in M&M Parkside, while claiming not to be a
successor, retained all the seller‘s employees, established new terms and
conditions of employment, and declined the union‘s request to negotiate and
execute a collective bargaining agreement. (Id. at pp. *8-*9.) In the ensuing
proceeding alleging unfair labor practices, the ALJ found the new employer‘s
business was unchanged and the predecessor‘s employees were the entirety of the
work force, so the new employer had a legal obligation to recognize and bargain


(footnote continued on next page)

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This uncertainty as to when the obligation to bargain attaches, it seems to

me, itself demonstrates that the ordinance impermissibly intrudes on the processes

of self-organization and collective bargaining that are the exclusive province of

the NLRA. The fact is that under the current state of the law, a ―[s]uccessor

[g]rocery [e]mployer‖ (defined in the ordinance) (L.A. Mun. Code, § 181.01,

subd. I) in a unionized workplace would not know whether it is obliged to bargain,

at the request of the union representing the employees it was forced to hire, during

that 90-day retention period. The new employer is, at a minimum, exposed to

charges of an unfair labor practice if it refuses to bargain.

An obvious illustration of this point would be the case of an employee who

files a grievance with the union because he was fired within the first 90 days. The

right to continue employment unless there is good cause for termination is a

significant benefit ordinarily conferred, if at all, only after the employer and union

have negotiated all other terms of employment, and the union has made

concessions to offset the employer‘s ―termination for cause only‖ agreement. The

ordinance bestows this benefit upon a unit of employees whom the successor has

not chosen to hire. The successor did not obtain concessions from the predecessor

in exchange for the promise to hire the predecessor‘s employees, nor did the

successor exercise its right to choose which employees to hire from among the

predecessor‘s work force. Yet if the successor were to fire any employee in the

first 90 days (or any time thereafter), it is likely the employee will file a grievance,

and if the successor refuses to go through grievance procedures under the


(footnote continued from previous page)

with the union. (Id. at pp. *10-*11.) The ALJ rejected the notion that the local
ordinance compelling the employer to retain the employees for 90 days should
mitigate against a successorship finding, viewing the argument as a nonsequitur,
since the issue was whether the employer had an obligation to bargain after it
chose, for whatever reason, to hire the predecessor‘s employees. (Id. at pp. *12-
*14.)


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predecessor‘s collective bargaining agreement, the successor risks being found

guilty of an unfair labor practice. If the successor were to implement new wages,

hours, and benefits without bargaining with the union, the employees might file

grievances, demand union negotiation and arbitration, and even walk out or call a

strike.

Of course no one can foresee what will occur in any particular case. But

the exposure to unfair labor practice charges caused by the ordinance illustrates its

intrusion into an area reserved for market freedom. Machinists tells us that, just as

the state may not prohibit the use of economic weapons such as strikes, lockouts

and other ―self-help economic activities,‖ the state ―may not . . . ‗add to an

employer‘s federal legal obligations in collective bargaining . . . .‘‖ (Machinists,

supra, 427 U.S. at p. 147.) It seems to me that the City‘s ordinance does just that,

effectively ―‗upset[ting] the balance that Congress has struck between labor and

management in the collective-bargaining relationship.‘‖ (Metropolitan Life,

supra, 471 U.S. at p. 751.)

The ordinance does not on its face prevent the new employer, after 90 days,

from terminating the workers it was forced to employ and hiring its own

independent work force. But, once an employment relationship is established, it is

not easy to terminate, certainly not without substantial risk. For one thing, it is

highly impractical to terminate an entire work force at once, and virtually

impossible to do so without business disruption and damage to the new employer‘s

reputation in the community. For another, it is easy to imagine the litigation

consequences that would ensue if the employees in a previously unionized

workplace are terminated en masse after working for the new employer for 90

days. The likelihood of unfair labor practice charges alleging union animus would

be high, as would the likelihood of wrongful termination claims. The majority

finds that similar consequences, at least in terms of unfair labor practice charges,

would ensue if there were no ordinance and the new employer were free to hire an

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entirely new work force at the time of acquisition. I disagree. We need not blind

ourselves to probable consequences that ordinary experience suggests will occur.

Moreover, it seems obvious that a new employer free to hire as it chooses

before going into business does not have to discharge anyone, much less terminate

en masse, in order to employ the people it wants to conduct its business, so its

exposure to claims necessarily will be significantly different. In effect, the City‘s

ordinance requires a new grocery employer to step into a morass of litigation – and

to function during the important initial period of its operations with a work force it

deems, for entirely legitimate reasons, unsuitable for its planned operations – if it

wishes to exercise its right, recognized under federal labor policy, to hire its own

independent work force. (Indeed, this impact was demonstrated at trial, at least in

part, by the evidence that, since the City‘s ordinance was enacted, three different

grocers have declined to buy stores in Los Angeles because of the importance to

them of choosing their work force.) This is not a result within the contemplation

of the NLRA.

In short, the facially temporary nature of the ordinance‘s interference with

an employer‘s right to select its work force does nothing, in my view, to change

the core facts. It is simply unrealistic to believe the temporary nature of the

ordinance will not materially affect the successorship inquiry. In reality, whether

the obligation to recognize the union ripens on day one, or on day 91, or on some

later date, may depend on the various circumstances of each successor grocer‘s

workplace. But there is little room for doubt that, under the law as applied by the

NLRB in the decades since John Wiley and Burns, many successor grocers will be

deemed obligated to recognize and bargain with the union at some point, as a

direct consequence of complying with the ordinance.

Thus, under any of the scenarios that may occur under the ordinance, there

is an impact, to a greater or lesser degree, on collective bargaining: either the new

employer is a successor who must bargain with the union during the 90-day period

and/or shortly thereafter, or the employer must terminate employees en masse after

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the 90-day period, exposing it to business consequences and legal claims that

would otherwise not exist, if it wishes to choose its own work force. The

ordinance legislates in an area that federal labor law, clearly articulated by the

high court, left unregulated: ―the normal exercise of the right of the employer to

select its employees‖ (Jones & Laughlin, supra, 301 U.S. at p. 45), ―‗the rightful

prerogative of owners independently to rearrange their businesses‘‖ (Burns, supra,

406 U.S. at p. 301, quoting John Wiley, supra, 376 U.S. at p. 549), and a new

employer‘s ―right not to hire any of the former [employer‘s] employees, if it so

desire[s]‖ (Howard Johnson, supra, 417 U.S. at p. 262). To me, the ineluctable

conclusion is that the ordinance is preempted under Machinists because it

regulates ―within ‗a zone protected and reserved for market freedom.‘‖ (Brown,

supra, 554 U.S. at p. 66.)

5.

Summary and conclusion

The high court in Burns identified the freedom of contract as a fundamental

premise on which the NLRA is based—―‗private bargaining under governmental

supervision of the procedure alone, without any official compulsion over the

actual terms of the contract.‘‖ (Burns, supra, 406 U.S. at p. 287, quoting H.K.

Porter Co. v. NLRB (1970) 397 U.S. 99, 108.) In the nearly 40 years since Burns

was decided, the high court has continued to recognize the freedom of every

employer and union to reach agreement, or not, in their negotiation of the terms

and conditions of employment. This case presents a very different, far more

fundamental issue than the freedom of parties who choose to work together to

agree on the terms of employment.

The very different question presented here is whether the NLRA evinces an

intent to prohibit regulations that interfere with an employer‘s freedom to choose

whether to enter into any employment relationship at all with a particular

employee or bloc of employees. In my view, the absence of high court precedent

saying in so many words that the intent of the NLRA is to preserve the freedom of

choice for employees and employers alike to decide whether to form an

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employment relationship does not mean states and municipalities are free to enact

so-called worker ―retention‖ ordinances. Rather, the high court has not yet had

occasion to address this truly extraordinary intrusion upon the freedom of contract,

one that threatens to upend the very foundation of our national labor laws and

policies. Perhaps this case will offer the high court the occasion to address the

question now.





















GRIMES, J.




Associate Justice of the Court of Appeal, Second Appellate District,

Division Eight, assigned by the Chief Justice pursuant to article VI, section 6 of
the California Constitution.



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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion California Grocers Association v. City of Los Angeles
__________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 176 Cal.App.4th 51
Rehearing Granted

__________________________________________________________________________________

Opinion No. S176099
Date Filed: July 18, 2011
__________________________________________________________________________________

Court: Superior
County: Los Angeles
Judge: Ralph W. Dau

__________________________________________________________________________________

Counsel:

Rockard J. Delgadillo and Carmen A. Trutanich, City Attorneys, Laurie Rittenberg, Assistant City
Attorney, John A. Carvalho and Gerald Masahiro Sato, Deputy City Attorneys, for Defendant and
Appellant.

Schwartz, Steinsapir, Dohrmann & Sommers, Margo A. Feinberg and Henry M. Willis for Intervener and
Appellant.

Altshuler Berzon, Michael Rubin, Scott Kronland and Jennifer Sung for American Federation of Labor and
Congress of Industrial Organizations and Service Employees International Union as Amici Curiae on
behalf of Defendant and Appellant and Intervener and Appellant.

Jones Day, Richard S. Ruben, Craig E. Stewart and Nathaniel P. Garrett for Plaintiff and Respondent.

Deborah J. La Fetra and Timothy Sandefur for Pacific Legal Foundation as Amicus Curiae on behalf of
Plaintiff and Respondent.

Mitchell Silberberg & Knupp, Adam Levin, Tracy L. Cahill, Taylor S. Ball; National Chamber Litigation
Center, Inc., Robin S. Conrad and Shane B. Kawka for Employers Group and Chamber of Commerce of
the United States of America as Amici Curiae on behalf of Plaintiff and Respondent.

Davis, Cowell & Bowe, Richard G. McCracken and Andrew J. Kahn for East Bay Alliance for a
Sustainable Economy and Unite Here as Amici Curiae.

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Counsel who argued in Supreme Court (not intended for publication with opinion):

Gerald Masahiro Sato
Deputy City Attorney
916 City Hall East
200 North Main Street
Los Angeles, CA 90012-4129
(213) 473-6875

Henry M. Willis
Schwartz, Steinsapir, Dohrmann & Sommers
6300 Wilshire Boulevard, Suite 2000
Los Angeles, CA 90048-5202
(323) 655-4700

Craig E. Stewart
Jones Day
555 California Street, 26th Floor
San Francisco, CA 94104
(415) 626-3939

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