In the Pacific Northwest, most public works construction is performed by union contractors. Often times the contract will include a Project Labor Agreement (“PLA”) mandating that all workers on the site are subject to the terms of the union agreement. Labor relations in the U.S. are generally subject to federal regulation, particularly if the project is federally funded. Most large public works projects have some amount of federal money in them, and therefore, are subject to federal law. The National Labor Relations Act (“NLRA”) is a federal law which protects an employee’s right to engage in “concerted activities for mutual aid and protection.” The most common of these “concerted activities” is collective bargaining.
PLAs are pre-hire agreements establishing terms and conditions of employment for the project, which are negotiated between an owner and unions, and are common form of collective bargaining agreement in the construction industry. A PLA requires all contractors, whether they are unionized or not, to subject themselves and their employees to the terms of the collective bargaining agreement (the union contract) as a condition of performing work on a construction project. Union wages, no-strike clauses, grievance procedures, and mandatory arbitration of disputes are among the terms often included in PLAs.
On July 19, 2011, Michigan enacted the Michigan Fair and Open Competition in Governmental Construction Act (the “Act”) aimed at limiting the use of PLAs in Michigan public construction contracts. Section 5 of the Act states:
A governmental unit shall not enter into or expend funds under a contract for the construction, repair, remodeling, or demolition of a facility if the contract or subcontract under the contract contains any of the following:
(a) A term that requires, prohibits, encourages, or discourages bidders, contractors, or subcontractors from entering into or adhering to agreements with a collective bargaining organization relating to the construction project or other related construction projects.
(b) A term that discriminates against bidders, contractors, or subcontractors based on the status as a party or nonparty to, or the willingness or refusal to enter into, an agreement with a collective bargaining organization relating to the construction project or other related construction projects.
M.C.L. § 408.875. Additionally, Section 9 of the Act prohibits the government or any construction entity acting on behalf of the government from placing any terms described in Section 5 in bid specifications, project agreements, or other contract documents. M.C.L. § 408.879.
In Michigan Bldg. and Const. Trades Council, AFL-CIO v. Snyder,[i] several trade associations and organized labor groups (the “Unions”) filed suit claiming that Michigan’s Act was preempted by the NLRA. The Unions filed a motion for summary judgment, arguing the NLRA preempted the Act because it effectively banned PLAs on all government contracts, which is a form of concerted activity protected by the NLRA. Michigan argued that the Act was not regulatory, and thus not subject to NLRA preemption. The District Court agreed with the Unions and granted summary judgment holding the Act to be unenforceable because it was preempted by the NLRA, and that the “market participant” exception to NLRA preemption did not apply.
The NLRA Preempts Michigan’s Act
Although the NLRA does not expressly preempt state law, the Supreme Court of the United States has articulated two distinct NLRA preemption principles – state and local governments are prohibited from regulating: (1) activities that are protected by Section 7 (which protects an employee’s right to negotiate and secure a PLA) or constitute an unfair labor practice under the NLRA,[ii] and (2) areas that Congress intended to be left unregulated.[iii]
In this case, the District Court found that the Act violated both preemption principles. First, the Act regulated employees’ ability to negotiate and secure a PLA – activities protected by Section 7 of the NLRA. Specifically, Section 5 of the Act prevented governmental entities from entering into PLAs, and Section 9 prohibited the state from “expending funds” if a contract or subcontract contained a PLA. Based on these facts, the District Court held that the Act created an impermissible obstacle to employees’ right to bargain on government construction projects, and therefore, the Act was preempted by the NLRA because the two laws could not “move freely within the orbits of their respective purposes without impinging upon one another.”[iv]
Similarly, under the second preemption principle, the District Court found that the Act regulated areas that Congress intended to be left unregulated by the states because Congress had specifically authorized certain behaviors in the construction industry under Sections 8(e) and (f) of the NLRA. The District Court held that Congress intended to balance the power for bargaining in the construction industry when it enacted Section 8(e), which exempts the construction industry from the general prohibition of “hot cargo” agreements (agreements between a union and employer which require the employer to boycott goods or services of another person), and Section 8(f), which authorizes pre-hire agreements that set terms and conditions of employment. The District Court found that Congress, in enacting Section 8(e) and (f) of the NLRA, intended PLAs to be permissible in the construction industry. Thus, the NLRA preempted the Act because it impermissibly prohibited PLAs on all government construction projects, which Congress had expressly allowed.
The Market Participant Exception Does Not Apply
Michigan argued that even if the NLRA preempted the Act, the Act was exempt because the state was acting as a “market participant” (i.e., acting in a proprietary/private function, rather than a regulatory/governmental function). The NLRA does not preempt state laws when a state acts as a “market participant” furthering its proprietary interests, as opposed to its regulatory interests. For example, when a state owns and manages property, it must interact with private entities (i.e., the state is a “market participant”) and is not subject to preemption by the NLRA because it is acting in a proprietary function, as a private business would act.
In this case, however, the District Court rejected Michigan’s argument that the Act was proprietary because it was not narrowly tailored to a specific project, but was an across the board ban on PLAs on all public works projects, and because the Act impermissibly affected private conduct unrelated to efficient procurement of goods or services (as in a private business relationship). The District Court found that the Act’s “rigid, unbending policy smacks of regulation” and, therefore, was preempted by the NLRA, and that the state was not a “market participant.”
Comment: Employers in the construction industry should proceed cautiously when dealing with PLAs. The NLRA forbids employers from interfering with, restraining, or coercing employees in the exercise of rights relating to organizing, or from working together to improve terms and conditions of employment. Employers may not threaten their employees with loss of jobs or benefits if they join or vote for a union advocating for PLAs, promise benefits to employees to discourage their union support, or otherwise punish employees because they participated in an investigation conducted by National Labor Relations Board.
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[i] 846 F. Supp. 2d 766 (E.D. Mich. 2012).
[ii] See San Diego Bldg. Trades Council, Millmen’s Union, Local 2020 v. Garmon, 359 U.S. 236, 79 S.Ct. 773 (1959).
[iii]See Lodge 76, Int’l Ass’n of Machinists and Aerospace Workers, AFL-CIO v. Wisconsin Empl. Relations Comm’n, 427 U.S. 132, 96 S.Ct. 2548 (1976).
[iv] 846 F. Supp. 2d at 783.