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Why is Tesla fighting a rule that would force electric-car manufacturers to treat their workers well?

Why is Tesla fighting a rule that would force electric-car manufacturers to treat their workers well?
Tesla unveiled its Model 3 sedan, for which many buyers would be eligible for a $2,500 state rebate, in 2016. (Justin Pritchard / AP)

A new California rule saying that state rebates for electric cars can go only to manufacturers certified as being “fair and responsible” in their treatment of workers has put Tesla, the state’s only major EV maker, in a tough position.

On the one hand, Tesla says, “we strive to be a fair and just company,” that it complies with all California and federal labor regulations, and holds worker safety to be “a core value” of the company. On the other hand, Tesla contends that it’s unfairly targeted by the state law and implies that the rule could drive it out of the state and keep other companies away.

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Tesla first raised these issues last September, after the law was passed by the Legislature and signed by Gov. Jerry Brown as part of a budget measure dictating how income from the state’s cap-and-trade program would be spent. (The rebates are funded from that income.)

This is not a ‘gotcha’ exercise. We’re simply saying, there’s a high road that we hope the economy takes as we move to a cleaner economy.


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But matters are coming to a head now. On May 23, the California Air Resources Board and state Labor and Workforce Development Agency issued a joint “concept paper” detailing how they intend to put the rule into action. The public and interested parties were given until June 4, a little more than a week, to comment.

Tesla says in its 16-page brief against the concept paper that the proposed rule threatens to “compromise” the rebate program, “confuse consumers” and interfere with Brown’s stated goal of placing 5 million EVs on California roads by 2030.

Tesla’s brief wasn’t the only filing that was critical of the rule, but it’s probably safe to say that it was the most negative. Even bitterly so. That’s because the company is convinced that the rule is part of a plot by labor unions to win a ferocious organizing battle at Tesla’s auto factory in Fremont. The company is irked that the state would place its thumb on the union-organizing scale, given that it’s the only major automaker in California and one of its larger manufacturing enterprises, with 20,000 workers on the payroll.

As it happens, allegations by the United Auto Workers that Tesla has violated labor laws in the fight were aired in a hearing during the last few days before a National Labor Relations Board administrative law judge in Oakland. (The hearing will continue in September.)

In an opening statement, Tesla attorney Mark Ross derided the hearing “as an infomercial … to paint Mr. Musk and the company in a negative light.” But the issues are real, counters Mark Sanchez, 39, a Tesla employee and union organizer who is one of the named complainants in the NLRB case. Among other allegations, he says he was threatened with losing his job for passing out informational leaflets at the plant, a legally protected organizing act. No unionization vote has yet been scheduled. “We’re still trying to educate everybody,” he told me.

Labor representatives say the issues addressed by the “fair and responsible” mandate are far broader than Tesla’s union battle. They involve whether rank-and-file workers will share in the gains from the technological revolution taking place in the auto industry and other industries.

Electric vehicle sales in California swamp those in every other state, accounting for nearly 50% of all sales nationwide.
Electric vehicle sales in California swamp those in every other state, accounting for nearly 50% of all sales nationwide. (CleanTechnica)

“This is not a ‘gotcha’ exercise,” Angie Wei, chief of staff of the California Labor Federation, told me. “It’s not the labor movement’s goal to ding a car out of the subsidy program. We’re simply saying, there’s a high road that we hope the economy takes as we move to a cleaner economy. This standard feeds into that.”

As set forth in the concept paper, the rule is vague to a fault and the mandate imposed on automakers hardly onerous.

“Fair and responsible” treatment isn’t defined in the law and was made no clearer in the paper. For the first two fiscal years after the certification process goes into effect — the goal is for it to be launched in the coming fiscal year — manufacturers merely would have to self-certify that they’re in compliance with local, state and federal rules in their factories’ locations; provide five years of data on injury rates; and disclose policies on worker complaints and accusations, citations and decisions by government regulators or prosecutors.

For the second phase, which would start after the Legislature scrutinizes any proposed rules, state labor officials would set actual criteria for annual certifications, related to the companies’ compliance with wage, safety and anti-discrimination laws and codes of conduct such as California’s Sweatfree Code. The code applies to the garment industry and prohibits slave labor, discrimination and unsafe or unhealthy working conditions.

That doesn’t sound like too much to ask, given the value of the EV auto rebates. Since the program began in 2010, the state has cranked out nearly $536 million in rebates on more than 241,000 vehicles. Tesla, whose buyers have collected more than $99 million — including $8.4 million so far this year — is the second-largest beneficiary of the program after Chevrolet, which accounts for $103 million.

The rebates start at $1,500 per vehicle for plug-in hybrid cars, rise to $2,500 for battery-driven models such as Tesla’s, and top out at $5,000 for hydrogen fuel-cell vehicles. Since 2016, high-income buyers (singles earning more than $150,000 or joint filers earning more than $300,000) have been excluded and low-income buyers have been eligible for an extra $2,000. The subsidies are payable directly to the car buyers, but obviously are a factor in the marketability of a car company’s products. Tesla cars also are eligible for a $7,500 federal tax credit—useful only by people who owe at least that much federal income tax.

It’s obvious that California has the clout to make EV manufacturers nationwide dance to its own tune. California is the biggest market in the country for these vehicles, by an immense margin: From 2011 through 2016, California swamped all others in EV sales with nearly 258,000 sales, more than 10 times the runner-up, Georgia. (Though sales in Georgia cratered after the repeal of its $5,000 EV rebate last year.) The size of the California market also is what allows it to impose vehicle emissions standards, which can be tougher than the federal standards, on automakers.

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Tesla’s complaint about the state agencies’ plan focuses partially on the requirement that carmakers comply with state and local laws at their factory locations. Since California’s labor laws are stricter than those of many other states, Tesla argues that automatically puts it at a disadvantage. An automaker in some other state could meet its ostensibly looser rules on pay, overtime or rest periods and pass California’s scrutiny, while Tesla could fall just a teensy bit short on California’s rules and get a black mark.

That treats “companies who choose to operate in California the worst even though they are the companies who are subject to the strongest labor standards,” Tesla said in its comment. It says identical standards, not local standards, should be imposed on all manufacturers.

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Tesla also asserts that California’s apparent intention to tie certification at least partially to a company’s record before the NLRB is illegal. While that shows Tesla may be nervous about its NLRB case, it may be correct. By law, states can’t use National Labor Relations Board decisions or sanctions as grounds for their own sanctions. The boundary line is known as federal preemption; it means that matters the federal government reserves for itself are taken out of the states’ hands.

Tesla’s argument is that state agencies come very close to stepping over that line by demanding information from EV makers on “citations, charges, final orders, decisions, or awards issued by the NLRB” and asking for information about manufacturers’ compliance with laws guaranteeing workers “rights to association and assembly.”

Those rights tend to fall within the NLRB’s jurisdiction, which means that they’re off-limits to the states, according to a string of Supreme Court rulings dating back to 1959. Preemption applies even when a state is deciding how to spend its own funds, say through a consumer rebate program.

“Tesla’s reaction may well be on the money,” says William B. Gould IV, an emeritus law professor at Stanford who spent four years as NLRB chairman during the Clinton administration.

But that doesn’t mean that all federal workplace rules are outside California’s reach. Plenty of workplace issues governed by federal law and overseen by federal agencies aren’t subject to preemption, Gould points out. These include wage and hour compliance, overtime, workplace safety and the classification of workers as employees or independent contractors.

Federal law specifically allows for state-level enforcement of most such issues, Gould says. The NLRB protects the rights of workers to air grievances about those issues or to organize around them without the fear of employer retaliation, but that’s the gist of its jurisdiction.

The solution to the issues Tesla raises is implicit in its own brief: Don’t make California’s rules contingent on those of other states, localities or even the federal government. Require that EV companies desiring to exploit California’s rebates meet our standards for wages and work conditions. Since Tesla and its CEO, Elon Musk, say they already comply with California standards, that should make them happy. Tesla is correct to say California’s standards should be consistent: consistently high.

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