NLRB Strikes Down Private Owner’s PLA Requirement, Leaving Key Questions Unanswered
The National Labor Relations Board has issued a long-awaited (seven years) decision in a case with potentially far-reaching impact on the use of project labor agreements (PLAs).
In Glens Falls Building & Construction Trades Council, 350 NLRB No. 42 (July 31, 2007), the Board found unlawful an agreement between a union and an owner, as well as an agreement between a union and a construction manager (CM), requiring all contractors on the project to abide by a PLA, where the union did not have a collective bargaining relationship with either the owner or the CM.
Indeck Energy Services (Indeck) is a developer, owner, and operator of cogeneration plants, or cogens, which produce steam and electricity. In 1991, the Glens Falls Building Trades Council (BTC) informed Indeck that it would oppose the company’s applications for environmental permits for several cogens that it planned to build in New York unless Indeck agreed to build them with union labor. Indeck eventually agreed by letter in February 1992 to use BTC members on a cogen project in Corinth, New York, and to instruct its contractor to execute a PLA for the project.
Indeck later hired CRS Sirrine (Sirrine) to serve as the project’s CM. In July 1992, Sirrine and the unions negotiated a PLA and entered into an agreement providing that all contractors and subcontractors on the project would be signatory to that PLA. Neither Indeck nor Sirrine intended to employ construction craft workers on the project, and neither was a signatory to the PLA. A dispute later arose between Indeck and Sirrine, leading Indeck to replace Sirrine with CNF Constructors, an open shop contractor. Indeck did not require CNF to enter into a PLA, and CNF did not enter into one.
The unions filed a lawsuit against Indeck in state court, alleging that Indeck breached both the February 1992 letter agreement and, through its alleged agent Sirrine, the July 1992 agreement. Indeck responded by filing an unfair labor practice charge against the unions with the Board. The charge alleged that, by filing their lawsuit, the unions reaffirmed agreements in violation of §8(e) of the National Labor Relations Act. AGC of America filed an amicus brief in support of Indeck.
Decision and Analysis
Section 8(e) generally prohibits agreements between unions and employers by which the employer agrees not to handle or otherwise deal in the products of, or not to do business with, any other employer or person. However, it contains a special proviso that allows “an employer in the construction industry” to enter into union-only subcontracting agreements with a labor organization for work to be done at the site of the construction. The BTC in this case raised the affirmative defense that the two agreements in dispute were protected by this construction industry proviso. It based its defense on the claims that: “(1) Indeck is an employer in the construction industry within the scope of the proviso, and [either] (2) the agreements were negotiated within a collective bargaining context or (3) the agreements were specifically negotiated and executed to resolve the problems involved in permitting union and nonunion employees to work side by side at a common construction site.”
The administrative law judges who decided the case before it reached the Board concluded that Indeck qualified as “an employer in the construction industry” under the proviso. However, the Board expressly avoided addressing the issue. Instead, the Board rested its decision on findings that the BTC failed to prove either the second or third prongs of their defense, which relate to elements set forth by the Supreme Court in the 1975 case Connell Construction Co. v. Plumbers Local 100. In Connell, the Court held that the proviso extends only to agreements in the context of collective bargaining relationships and possibly to common-situs relationships on particular jobsites. The Court also held that subcontracting agreements between a union and an employer whose employees the union does not seek to represent do not enjoy exemption from antitrust scrutiny.
In concluding that the BTC failed to prove the second prong, the Board relied on evidence that the parties understood at all times that Indeck had no employees in the building and construction trades and that neither Indeck nor Sirrine would employ anyone in those trades on the Corinth jobsite, that neither agreement in dispute purported to relate to terms and conditions of employment for any Indeck or Sirrine employees, that the sole purpose of the agreements was to bind Indeck to select a contractor who would subcontract only to PLA-signatories, and that neither Indeck nor Sirrine was signatory to the PLA.
With regard to the third prong, the Board again chose not to decide a significant unsettled legal issue – whether the construction industry proviso protects restrictive subcontracting agreements made outside a collective bargaining relationship if they are directed at avoiding the friction that might arise when union and nonunion employees of different employers work side-by-side at the same jobsite. Instead, the Board concluded that, even if such protection exists, the BTC here failed to prove the necessary facts for coverage. That conclusion was based on findings that Indeck’s primary purpose in entering into the letter agreement was to end union opposition to the company’s efforts at obtaining regulatory approval of its construction plans and that its secondary purpose was to provide a steady source of labor for the project.
The Board held that the letter agreement signed by Indeck, the later agreement signed by Sirrine, and the BTC’s lawsuit seeking compliance with those agreements were not protected by the construction industry proviso and violated §8(e)’s general proscriptions.
This case could have a significant impact on whether a PLA requirement is imposed on a project and how PLAs are negotiated. While several key legal issues remain unsettled and several potential practical consequences remain to be seen, the Board’s decision provides some indication of what might occur in its wake.
At the very least, the decision here affirms that owners and CMs are prohibited from agreeing with a labor organization to require contractors on a project to abide by a PLA unless the owner or CM is “an employer in the construction industry” and will employ craft workers on the project or, possibly, if the objective is the avoiding the tension that can arise when union and nonunion workers work on the same jobsite. In other words, neither an owner nor a CM that qualifies as “an employer in the construction industry” but does not employ craft workers may agree with a union to impose a PLA on lower-tier contractors except possibly for the purpose of avoiding jobsite friction.
The decision also clarifies that neither eliminating opposition to permits nor securing a steady source of labor is a valid purpose for a subcontracting restriction outside a collective bargaining relationship.
In addition, the decision seems to place on the labor organization the burden of pleading and proving that the employer is “an employer in the construction industry” and that the PLA requirement arose in the context of a collective bargaining relationship and/or for the purpose of avoiding jobsite friction. Likewise, it appears that the unions must establish those elements before they may threaten action (such as picketing) to coerce an owner or contractor into adopting a PLA. This may make it easier for open shop contractors to file unfair labor practice charges challenging PLA requirements and coercive activities.
As discussed above, the decision expressly left open key questions about who is “an employer in the construction industry” entitled to the protections of §8(e)’s construction industry proviso and whether avoiding jobsite friction is a valid purpose for a proviso-protected subcontracting restriction outside the context of a collective bargaining relationship. The decision also leaves open questions concerning the extent of the collective bargaining relationship required, such as whether a contractor may lawfully agree to a subcontracting restriction covering a project on which it will not employ any craft workers if the contractor does employ craft workers under a collective bargaining agreement on other projects.
Since §8(e) prohibits agreements between an employer and a labor organization, the decision does not seem to prohibit an owner or a CM from unilaterally choosing to adopt a PLA requirement, particularly if the PLA itself is negotiated by contractors that will directly employ craft workers on the project. In such a situation, the labor organization would have no right to enforce the requirement, as the BTC attempted to do this case, but it would also have no obligation to negotiate or execute the owner- or CM-required PLA. An anticipated result is that self-performing contractors are likely to be brought into negotiations over a PLA at an early stage.
Furthermore, because government entities are generally exempt from the definition of “employer” under the NLRA, it appears that a labor organization may enter into an agreement with a public owner to require a PLA without violating §8(e) even if the owner does not meet the proviso requirements. The case for treating agreements with public owners differently, however, is based on a literal reading of the statute without regard to the purposes of §8(e). Further litigation over the lawfulness of agreements with public owners, both under the NLRA and antitrust laws, is therefore possible.
In addition, courts might now entertain the possibility that agreements between unions and public owners are preempted by the NLRA. In its landmark 1993 ruling in the Boston Harbor case, the Supreme Court explained that it would not read the NLRA to preempt “otherwise lawful” state action, and upheld the agreement before the Court on the assumption the that the same agreement would not run afoul of §8(e) if the unions had made the agreement with a private owner. Now that the NLRB has held, in effect, that the Court’s assumption was false, the case law on preemption could head in a new direction.
Moreover, many public owners are currently subject to Executive Orders 13202 and 13208, which generally prohibit government-mandated labor agreements on federal and federally-assisted projects.
In short, it remains unclear whether a public owner of a project not receiving any federal funds who does not have a collective bargaining relationship with the building trades may lawfully impose a PLA requirement. Such owners and labor organizations jointly seeking to impose a PLA are likely to try to shelter their agreement by expressly asserting the avoidance of jobsite friction as their objective. Whether this will be successful is also likely to be the subject of future litigation.
Yet another uncertainty is whether the Board’s decision affects PLA requirements set by Taft-Hartley funds as a condition of financing a project – a growing trend among multiemployer pension funds.
AGC will continue to monitor PLA cases and report on significant legal developments.
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