California's Prop 226: A Shot In The Foot?

As written, it could hurt business as well as labor

Conservative Republican Grover G. Norquist and his Washington (D.C.) group, Americans for Tax Reform, seem to have a great political victory within their grasp. Polls show that 66% of California voters--not to mention a majority of union members--support Norquist's June ballot initiative, which would require unions to get annual written authorization from members before making political contributions.

But Norquist's victory could backfire. As lawyers study the fine print of Proposition 226, a growing number are concluding that it might affect virtually any payroll deduction--not just union dues. How so? To avoid the appearance of union bashing, the bill's authors included employers as well as unions in the language. The result: Some legal experts now believe that any company with employees in California that takes deductions on their behalf may be subject to the proposed law. That would mean employers would be required to get annual permission from each worker if, for example, their health-care provider spends any money on politics. And the employers would also have to query managed-care providers, insurance companies, or mutual funds about their political contributions.

PAYROLL PERIL. "If this passes, it would be a tremendous burden on employers," says Ray Wheeler, a Palo Alto (Calif.) lawyer who represents Silicon Valley companies such as Intel Corp. He plans to advise his clients of the dangers. And in an analysis released on Apr. 15, the independent California Senate Office of Research agreed: "This measure's provisions could apply to a wide range of commonly made payroll deductions."

The problem for Prop 226 stems from the key sentence in the chapter that limits the use of payroll money by employers and unions. It requires employers to get approval if any part of the paycheck deduction "will be used in whole or in part as a [political] contribution or expenditure." "The authors can argue that this wasn't their intent, but that's what their words say," says David Rosenfeld, an Oakland labor lawyer who first raised the criticism. A federal bill backed by Norquist and House Speaker Newt Gingrich (R-Ga.) excludes employers and avoids the problem.

Marc Bucher, the Orange County businessman who co-authored the California proposal, derides the criticism as labor scaremongering. He and other Prop 226 backers say that payroll deductions for such benefits as health care are arm's-length commercial transactions. "The courts will draw the line at who owns the money," asserts David L. Thompson, a Washington lawyer who advises Norquist's group on similar referenda pending in 25 states.

One irony: Until now, business groups had stayed on the sidelines in this battle. Now, labor hopes they will be frightened into joining the opposition.

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