NLRA Preempts Idaho Ban on Construction Union Programs

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By Kevin McGowan

Sept. 16 — The National Labor Relations Act preempts an Idaho law that sought to prohibit construction union programs that use funds from union members' wages to subsidize contractors' winning bids on building projects, the U.S. Court of Appeals for the Ninth Circuit ruled Sept. 16.

Ruling in favor of Idaho construction unions, the Ninth Circuit said the state's Fairness in Contracting Act is “facially invalid” because it interferes with the National Labor Relations Board's interpretation and enforcement of the NLRA, which the board has interpreted to permit union “job targeting” and “market recovery” programs the state law would prohibit.

The decision is a victory for construction unions that use job targeting or market recovery programs to protect or enhance union contractors' market share in a competitive market.

The court rejected arguments pressed by a construction industry group and the National Right to Work Legal Defense Foundation that the state law survives federal preemption either because of NLRA Section 14(b), which preserves states' authority to enact right-to-work laws, or because it simply regulates the “monies and substantive benefits that may be exchanged” between employers and employees.

The Idaho attorney general argued the state law passes muster because the Davis-Bacon Act prohibits job targeting programs funded by wages earned on Davis-Bacon projects and the state law would enforce that ban with criminal sanctions.

But the Davis-Bacon Act itself “most likely” preempts that application of the state law, the Ninth Circuit said. “[I]n any event, the NLRA's precedents regarding job targeting programs and Davis-Bacon establish that the conduct at issue is at least arguably protected by the NLRA,” Judge Marsha S. Berzon wrote.

Under job targeting programs, the court explained, the unions collect funds from their members, usually assessed on the workers' wages, and use the money to subsidize contractors' bids on building projects. Bolstered by the union subsidy, the contractor can successfully bid on projects that might otherwise go to nonunion contractors, union members have access to those jobs, and workers are paid the union scale, rather than the lower wage on which the contractor based its bid.

State Laws Enacted in 2011

In 2011, the Republican-dominated Idaho Legislature passed a pair of bills to ban unions' job targeting programs as well as project labor agreements in which state and local governments agree to use union labor on public projects.

The Fairness in Contracting Act (Idaho Code § 44-2012) places misdemeanor penalties on unions, contractors or subcontractors that pay or receive market recovery or job targeting subsidies, funds that help unionized contractors win bids and pay union-scale wages on construction projects. Repeat violators of the Fairness in Contracting Act would face fines of up to $100,000 per offense.

Two Idaho building trades councils sued to challenge both the Fairness in Contracting Act and the Open Access to Work Act (Idaho Code § 44-2013), which prohibits state and local governments from entering into project labor agreements.

A federal district court granted the unions a preliminary injunction that prevented either state law from taking effect.

The district court subsequently ruled the NLRA preempts both Idaho state laws.

The Idaho attorney general appealed to the Ninth Circuit, which also allowed the Inland Pacific Chapter of Associated Builders and Contractors Inc. and the National Right to Work Legal Defense Foundation to participate as amici supporting the Idaho laws.

In a separate, unpublished memorandum, the Ninth Circuit panel Sept. 16 vacated the district court's opinion regarding the Open Access to Work Act, finding the union councils lacked standing to sue because they failed to allege they ever sought a project labor agreement with an Idaho state or local jurisdiction (Idaho Bldg. & Constr. Trades Council v. Wasden, 2015 BL 299236, 9th Cir., No. 11-35985, 9/16/15).

Garmon Preemption Found

But the Ninth Circuit affirmed the NLRA preempts the Fairness in Contracting Act, under the principles originally set out in San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236, 43 LRRM 2838 (1959).

The U.S. Supreme Court in Garmon and subsequent cases has ruled states are preempted from regulating activity that the NLRA “protects, prohibits, or arguably protects or prohibits,” the Ninth Circuit said. The preemption doctrine prevents interference with the NLRB's exclusive jurisdiction to interpret and enforce the NLRA, the court said.

It's clear the Idaho law is preempted regarding the use of union job targeting funds from members' wages earned on projects that don't involve federal funds and therefore aren't covered by the Davis-Bacon Act, the court said.

“No NLRB case has held collective action by employees to subsidize wages on non-Davis-Bacon jobs by distributing funds to the workers or employers on those jobs is not protected concerted activity under § 7 because of the source of those funds,” the court said.

As for union distribution of funds derived from Davis-Bacon wages, “the NLRB, far from holding that the use of funds collected from Davis-Bacon wages is unprotected under § 7 of NLRA, once held that use protected in some circumstances, and, more recently, has specifically reserved the question,” the court said.

In asserting Garmon preemption, the unions have the burden to show the issue regarding the distribution to contractors of funds derived from Davis-Bacon wages is one the NLRB legally could decide in their favor, the Ninth Circuit said.

That's “not a demanding standard,” the court said. The unions need not show the NLRB “will or is even likely to ultimately agree with their position,” the court said. Rather, they need only advance an interpretation that isn't “plainly contrary” to the NLRA's language and hasn't been “authoritatively rejected” by the courts or the NLRB, the court said.

The union councils “have met this burden,” the court said. The NLRB's past relevant decisions “convince us that the trade councils' interpretation of § 7, as protecting the distribution of funds contributed to job targeting programs when some of the contributions are traceable to wages [employees] earned on Davis-Bacon covered projects, is, at the very least, arguable,” the court said.

No Exceptions Apply

The Idaho attorney general and the ABC chapter argued that even if the use of funds derived from Davis-Bacon wages is arguably protected by the NLRA, preemption of the state law is nevertheless inappropriate. “Their arguments are meritless,” the Ninth Circuit said.

ABC argued the Idaho law escapes preemption because of “the deeply rooted state interest” in barring the collection and use of employee monies “to undermine free and fair competition,” as evidenced by Idaho's expansive right-to-work legislation.

But the court said an exception to Garmon preemption when the regulated conduct “touches interests deeply rooted in local feeling and responsibility” doesn't extend to “local interests in labor policy, except to the extent permitted by § 14(b)” of the NLRA.

To the contrary, the NLRA “replaced” local labor policy with “an unequivocal national declaration of policy” establishing the legitimacy of unions and encouraging collective bargaining, the court said, citing Sears Roebuck & Co. v. San Diego Cnty. Dist. Council of Carpenters, 436 U.S. 180, 98 LRRM 2282 (1978).

“No matter how deeply rooted in local feeling Idaho's views on labor relations may be, they do not for that reason escape preemption,” the court said.

The Idaho attorney general argued that since the unions' argument for NLRA Section 7 protection is weak for job targeting programs that include funds collected from Davis-Bacon wages, federal preemption isn't warranted under an exception discussed in Sears.

In Sears, the Supreme Court said “the acceptability of ‘arguable protection' [under the NLRA] as a justification for preemption” partly depends on “the strength of the argument that § 7 does in fact protect the disputed conduct.”

But the construction unions' argument for Section 7 protection for job targeting programs using Davis-Bacon funds “has substance” and therefore doesn't trigger the Sears exception, the Ninth Circuit said.

The Idaho attorney general “relies only on his assessment of the strength of the § 7 argument,” the court added. The situation in Sears also was “quite different,” as it involved a “generally applicable trespass law,” a strong state interest and little risk of interference with the NLRB's jurisdiction, the court said.

“All of the conduct prohibited by the [Idaho] Act is either actually or arguably prohibited under § 7 [of the NLRA], and no exception to preemption applies,” the court said. “The Act is therefore facially preempted under Garmon.”

In a separate concurring opinion, Berzon said, in her view, cases holding that unions' collection of Davis-Bacon wages for job targeting programs violates the Davis-Bacon Act are “wrongly decided.”

Judges Stephen Reinhardt and Andrew D. Hurwitz joined in the decision.

Herzfeld & Piotrowski LLP and Sherman Dunn Cohen Leifer & Yellig PC represented the union councils. The Idaho Office of the Attorney General represented the state.

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

Text of the opinion is available at http://www.bloomberglaw.com/public/document/IDAHO_BUILDING_AND_CONSTRUCTION_TRADES_COUNCIL_AFL_CIO_SOUTHWEST_.