The restrictions stripped most public workers of nearly all their collective bargaining rights. Two unions representing city of Madison and Dane County public workers filed a lawsuit in 2011 alleging the law violated their right to freely assembly and equal protection.
U.S. District Judge William Conley found the restrictions constitutional in September. A three-judge panel of the U.S. 7th Circuit Court of Appeals unanimously affirmed Conley's ruling Friday, saying the U.S. Constitution doesn't require the state to maintain policies that allow certain associations to thrive.
In its ruling, the appeals court said the law known as Act 10 does not infringe on the constitutional rights of government workers to freedom of speech and association and equal protection under the law.
The ruling said the law "does not proscribe any conduct by the unions themselves. It does not prohibit the unions from forming. It does not forbid them from meeting. Nor does it prevent the unions from advocating on behalf of their members in any way they see fit."
The law prohibits government officials from negotiating with most of their employees' unions on anything but wages. Any pay increases negotiated are limited to the rate of inflation, except where voters approve them by referendum. The law also dictates that unions cannot be recognized by the state or local governments unless 51 percent of all potential members - not just those voting - support the union in annual elections.
In a statement, Wisconsin Attorney General J.B. Van Hollen called the ruling "a victory for the law and for Wisconsin taxpayers."
"I appreciate the court's work. I look forward to a successful resolution of the few remaining challenges to this important law," Van Hollen said.
Bruce Ehlke, the attorney for the unions, told the Milwaukee Journal Sentinel he needed to review the decision and talk with his clients before deciding on whether to appeal to the U.S. Supreme Court.
In their lawsuit, the unions noted they could normally ask for no more than inflationary raises under Act 10, while individual employees could ask for increases of any size. The unions argued such differential treatment is unconstitutional, but in September Conley found it was allowed.
A 7th Circuit panel upheld the restrictions in a separate challenge from the state's largest teachers union in January.
Walker was targeted for recall in 2012 by those angered over the union law, which passed despite protests. Walker won the recall, becoming the only governor in U.S. history to survive a recall.
Walker and his supporters say Act 10, along with other budget cuts meant to address a $3.6 billion shortfall, turned the state around and put it in position to pass nearly $2 billion in tax cuts during Walker's term. Walker is seeking re-election as governor this year and is considering running for president in 2016.