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New York Telephone Co. v. New York State Department of Labor

decided: November 9, 1977.


Appeal from a judgment and order of the United States District Court for the Southern District of New York, Richard Owen, Judge, declaring New York's Unemployment Insurance Law, to the extent that it provides for the payment of unemployment compensation to striking employees, to be unconstitutional, enjoining its enforcement and awarding monetary relief.

Meskill, Circuit Judge, Frederick van Pelt Bryan*fn* and Charles E. Stewart,*fn** District Judges.

Author: Meskill

MESKILL, Circuit Judge:

New York's Unemployment Insurance Law permits employees who are involved in a "strike, lockout, or other industrial controversy" to collect unemployment compensation after a waiting period of eight weeks. N.Y. Lab. Law §§ 590.9, 592.1 (McKinney 1977). The district court held this statute invalid under the supremacy clause, U.S. Const. art. VI, cl. 2, finding that it alters the balance in the collective bargaining relationship and therefore conflicts with the federal labor policy favoring the free play of economic forces in the collective bargaining process. 434 F. Supp. 810 (S.D.N.Y. 1977). We reverse.

Approximately seventy percent of the Bell System's*fn1 nonmanagement employees are represented by the Communications Workers of America, AFL-CIO ("CWA"). Prior to 1971, the longstanding collective bargaining format between members of the Bell System and the CWA was one of pattern-settlement. Under this format, the parties would select two Bell System companies with early contract expiration dates as pattern-setters. When an agreement was reached with the pattern-setters, it became the standard for settlement on national issues in the rest of the Bell System.

On April 30, 1971, the contracts of the chosen pattern-setters were due to expire. No agreement was reached, however, and those contracts, along with all other Bell System contracts that were due to expire, were mutually extended on a day-to-day basis. In June, the CWA International recommended a nationwide strike, which began on July 14. On July 18, an agreement in principle, subject to ratification by mail, was reached, and the CWA ordered all employees back to work on July 21. Despite the International's directive, roughly 38,000 CWA members employed by the New York Telephone Company ("Telco") remained on strike in New York. Western Electric Company ("Weco") employees and American Telephone & Telegraph Company, Long Lines Department ("Long Lines") employees also stayed off the job.

On August 14, 1971, the employees of all Bell System companies except Telco and Empire City Subway Company (Limited) ("Empire") ratified the contract. The strike continued in New York for seven months, until February, 1972. Weco and Long Lines employees respected the picket lines of the striking Telco and Empire employees. During the strike, $43,000,000 in unemployment insurance benefits was paid, at an average rate of $75 per week, to 29,000 Telco employees and charged to Telco's account; $5,000,000 in benefits was paid to 4,150 Weco employees; $500,000 in benefits was paid to 350 Long Lines employees; and $100,000 in benefits was paid to 125 Empire employees. Had the strike not been settled, these payments would have continued until July of 1972. New York's unemployment insurance system is financed entirely by employer contributions, so the cost of making these payments was borne by the struck employers.

In a preemption case such as this one, "the crucial inquiry [is] whether Congress intended [this field to] be unregulated because [it was] left 'to be controlled by the free play of economic forces.'" Lodge 76, International Association of Machinists v. Wisconsin Employment Relations Commission, 427 U.S. 132, 140, 49 L. Ed. 2d 396, 96 S. Ct. 2548 (1976), quoting NLRB v. Nash-Finch Co., 404 U.S. 138, 144, 30 L. Ed. 2d 328, 92 S. Ct. 373 (1971). Accordingly, we must examine congressional intent.*fn2 Those courts that have considered Congress' intent with respect to the payment of unemployment benefits to strikers have found it "ambiguous." Grinnell Corp. v. Hackett, 475 F.2d 449, 454-57 (1st Cir.), cert. denied, 414 U.S. 858, 38 L. Ed. 2d 108, 94 S. Ct. 164 (1973); Hawaiian Telephone Co. v. Hawaii Department of Labor & Industrial Relations, 405 F. Supp. 275, 286 (D. Hawaii 1976). We do not agree. Here, as in most preemption cases, a positive expression of congressional intent is lacking, and the Court must resort to the drawing of inferences. In the instant case, the evidence upon which those inferences must be based is not "ambiguous" but is relatively onesided.

The question whether striking workers should be entitled to benefit from various forms of social welfare legislation has been a significant political issue since the early 1930s. In Grinnell, the First Circuit considered congressional awareness of the issue prior to the enactment of the National Labor Relations Act and the Social Security Act:

In July 1933, the Federal Emergency Relief Administration (FERA) ruled that it would not "attempt to judge the merits of labor disputes" but would treat unemployed strikers like all other unemployed persons for purposes of relief. Brown, Public Relief 1929-39, 270 (1940). This policy became a bone of contention during the textile strike of September 1934. Bernstein, The Turbulent Years: a History of the American Worker 1933-41 (1971). Congress could hardly have been unaware of this policy when in 1935 it passed in close succession both the National Labor Relations Act . . . and the Social Security Act . . . .

475 F.2d at 454. The National Labor Relations Act, Pub. L. No. 74-198, 49 Stat. 449 (July 5, 1935), as amended, 29 U.S.C. § 151 et seq. ("NLRA"), makes no mention of unemployment compensation. On the other hand, Title IX of the Social Security Act, Pub. L. No. 74-271, §§ 901-910, 49 Stat. 639-45 (Aug. 14, 1935), which is now the Federal Unemployment Tax Act, 26 U.S.C. §§ 3301-09, was part of a legislative program "to stimulate the creation of and payment to State unemployment compensation funds." United States v. Spencer, 65 F. Supp. 763, 764 (D. Mass. 1946) (Wyzanski, J.), aff'd in part, rev'd in part sub nom. Massachusetts v. United States, 160 F.2d 614 (1st Cir. 1947), aff'd, 333 U.S. 611, 92 L. Ed. 968, 68 S. Ct. 747 (1948). It was designed to deal with the urgent national problem of unemployment. See Steward Machine Co. v. Davis, 301 U.S. 548, 586-88, 81 L. Ed. 1279, 57 S. Ct. 883 (1937). This was done by imposing a federal excise tax on employers, while giving a tax credit to those who made contributions to qualified State plans. In order for a State plan to qualify, the State's law had to meet certain requirements, including three designed "to insure the compatibility of state unemployment compensation laws with the then brand-new labor statute." Grinnell, supra, 475 F.2d at 454-55.Under the statute, a State law could not deny benefits to individuals who refused to accept new work for any of the following reasons:

(A) If the position offered is vacant due directly to a strike, lockout, or other labor dispute;

(B) if the wages, hours, or other conditions of the work offered are substantially less favorable to the individual than those prevailing for similar work in the locality;

(C) if as a condition of being employed the individual would be required to join a company union or to resign from or refrain from joining any ...

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