Getting “Real” About Labor Peace Agreements: Assembly Bill No. 1291 And Its Implications

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Earlier this month, Governor Newsom signed into law Assembly Bill No. 1291 (“A.B. 1291”), which amends Section 26051.5 of California’s Business & Professions Code to strengthen California’s pro-union requirements for cannabis companies.

Specifically, the new law, which will go into effect on January 1, 2020, rewrites the express union organizing commitments cannabis companies must make as part of their state license application. The new law provides:

An applicant for any type of state license issued pursuant to [California’s MAUCRSA] shall do all of the following . . .

(5)(A)(i) For an applicant with 20 or more employees, provide a notarized statement that the applicant will enter into, or demonstrate that it has already entered into and abide by the terms of a labor peace agreement.

(5)(A)(ii) For an applicant with less than 20 employees that has not yet entered into a labor peace agreement, provide a notarized statement as part of its application indicating that the applicant will enter into and abide by the terms of a labor peace agreement within 60 days of employing its 20th employee.

Subsection (i) is pretty much already found in Section 26051.5 of MAUCRSA, although current law does not require the statement to be notarized. Subsection (ii) is new.
Curiously, the new law does not fully address the largest loophole already found in the statute and it arguably creates a strange inequity. Smaller companies, those with fewer than 20 employees, must apparently agree to enter into a labor peace agreement within 60 days of hiring their 20th employee. Larger companies, those that already have 20 or more employees at the time they apply for a cannabis license, need to simply commit to entering into a labor peace agreement at some point in the future. Because regulators typically distrust inequities, we think it’s fair to assume the BCC and other regulators will now expect all cannabis operators to enter into a labor peace agreement within 60 days of hiring their 20th employee. This is unfortunate because, in our experience, it can take many months to negotiate an LPA, especially if the employer is unwilling to accept what are often rather aggressive provisions demanded from the union.

The notarization requirements of A.B. 1291 are also a little peculiar insofar as cannabis applicants already attest to the truth and accuracy of their representations to the State. Notarizations (i.e., having a document signed in front of a notary) simply confirm the identity of the person signing the document. Violating a notarized commitment is not perjury for example. Neither does it give rise to special damages. And notarizing a commitment does not make the commitment extra binding on the applicant. Therefore, our suspicion is that the notarization requirement is nothing more than an attempt to ensure that senior management is aware of MAUCRSA’s labor peace agreement requirements; and yet, A.B. 1291 does not specify who needs to sign the notarized statements. Our assumption, absent guidance from the regulators to the contrary, is that it will be the person identified to the agency as the operator’s primary contact who signs the state license application in its entirety. This person is often not the most senior person within the cannabis company.

A.B. 1291 adds one more subsection to the existing law concerning labor peace agreements, which provides:

Nothing in this paragraph shall be construed to limit the authority of the Bureau of Cannabis Control, the Department of Food and Agriculture, and the State Department of Public Health to revoke or suspend a license for a violation of this paragraph.

Cal. Bus. & Prof. Code § 26051.5(a)(1)(5)(iii).

This addition is also a bit curious because one would be hard pressed to read anything about Section 26051.5, much less Section 26051.5(a)(1)(5) concerning labor peace agreements, both as it now exists and as it will exist starting next year, as limiting the authority of any regulator. 

Bottom line: Our assumption is that the new law was designed to change very little of substance while elevating awareness of the labor peace agreement requirements already found in MAUCRSA. A.B. 1291 also creates a clear permission to regulators to either “revoke or suspend” cannabis licenses if labor peace agreements are not timely entered into (e.g., within 60 days) by cannabis companies with 20 or more employees.

Many cannabis companies have been managing hiring through creative corporate structures and the use of independent contractors in an effort to stay below the 20-employee trigger. But California law disfavors the classification of workers as contractors. See, e.g., Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal. 5th 903. And co-employment is easily shown when there is a shared business enterprise and shared control over workers. See, e.g., Kowalski v. Shell Oil Co. (1979) 23 Cal. 3d 168, 174 (“The possibility of dual employment is well recognized in the case law. ‘Where an employer sends an employee to do work for another person, and both have the right to exercise certain powers of control over the employee, that employee may be held to have two employers—his original or “general” employer and a second, the “special” employer.“)

So A.B. 1291 seems to make gaming of the labor peace agreement regulation requirements riskier.

Given the time it often takes to negotiate a labor peace agreement and the penalties that can come from misclassifying workers as contractors (or wrongfully characterizing them as employees of a closely related entity), we encourage cannabis operators in California to seek legal guidance as they hire up and well before reaching the 20-employee trigger.

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