Can a Contractor be Forced to Pay Twice for a Subcontractor's Employee Benefits?

In the first case of its Winter 2014 term, the Washington State Supreme Court is considering whether an employee benefits trust may use the Washington public works bond and retention statutes to pursue claims for unpaid worker benefits against a third party (i.e. one other than the worker’s employer).  Read more, here.  Specifically, the court in W.G. Clark Construction Co. v. Carpenters Health & Security Trust of Western Washington, et al. is being asked to decide whether the federal law governing employee benefits, ERISA, preempts the state’s bond and retention statutes, RCW 39.08 and 60.28, and therefore prevents a trust from collecting a subcontractor’s delinquent employee benefit payments from a general contractor’s bond or retention fund.

The case arises out of general contractor W.G. Clark’s construction of two dormitories at the University of Washington.  W.G. Clark completed the project successfully and paid its subcontractors in full.  One of the subcontractors, Paramount Scaffold, Inc., paid its workers’ base wages, but did not make required payments to the Trusts for various employee benefits.  Paramount fell approximately 1½ years behind on its payments to the Trusts before ultimately becoming insolvent.  Unable to collect from Paramount, the Trusts are seeking to recover Paramount’s delinquent payments from W.G. Clark through its public works bond and retention.

On January 14, 2014, the parties argued before the Washington Supreme Court’s nine justices.  Ahlers & Cressman’s John P. Ahlers represented the contractor.  The contractor’s position was further supported by briefing and argument by amici curiae (“friends of the court”) including the Associated General Counsel, joined by the Associated Builders & Contractors, Inc. and the National Utility Contractors Association.

The court last addressed a similar question fourteen years ago in the 2000 case of International Brotherhood of Electrical Workers, Local Union No. 46 v. Trig Electric Construction Co. (“Trig“).  At that time, the court concluded the state statutes were preempted and the delinquent payments could not be pursued against an upstream contractor’s bond and retention.

In the present case, the Trusts assert that federal and state courts across the country have reached the opposite conclusion in the years since the Trig case was published, including most notably the 9th Circuit in the case of Southern California IBEW-NECA Trust Funds v. Standard Industrial Electric Company (“Standard Industrial“).  This has led to conflicting outcomes depending on whether a legal action to collect from the contractor’s bond/retention is commenced in the state court system, which adhere to the Trig rule in rejecting these claims, or the federal courts, which follow the Standard Industrial case and allow such collection.

The Trusts in the W.G. Clark case argue that Washington should change course and follow the 9th Circuit’s holding in Standard Industrial.  The contractor argues the court should maintain its earlier holding because the 9th Circuit, not Washington, is in conflict with the language of the ERISA statute and the U.S. Supreme Court’s interpretation of the statute’s preemption clause.

On this point, the contractor observed that the U.S. Supreme Court has indicated that any state law offering an “alternative enforcement mechanism” is preempted under ERISA.  That is because ERISA is a compromise that provides powerful but exclusive enforcement tools for workers, unions, and benefit plans, while promoting national uniformity, portability, and a balanced impact on commerce by preempting any state law that duplicates, supplements, or supplants the ERISA civil enforcement remedies.

The Supreme Court could take anywhere from a few months to well over a year to issue its opinion in the W.G. Clark case.  Depending on the result, either party may then ask the United States Supreme Court to review the case.  The nation’s high court has discretion to accept or deny such a request.

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