A federal district court has struck down a state statute restricting the use of project labor agreements (PLAs) on the basis that the statute was preempted by the federal National Labor Relations Act (NLRA).
In July 2011, Michigan Governor Rick Snyder signed into law the Michigan Fair and Open Competition in Government Construction Act (“2011 Act”). Two building trades councils in Michigan challenged the legality of the statute in the U.S. District Court for the Eastern District of Michigan. In February 2012, the court permanently enjoined the 2011 Act. The court found that the law was regulatory and was preempted by the NLRA. The 2011 Act was deemed overbroad because it restrained not only government entities but also private contractors, effectively banning PLAs on all state government construction projects. The decision is currently on appeal.
Meanwhile, in June 2012, the state legislature and governor responded to the February 2012 court opinion by enacting a revised version of the statute (the “2012 Act”). The 2012 Act omits the restriction on the use of PLAs by private actors but still precludes government agencies form requiring or prohibiting their contractors and subcontractors to adhere to a labor agreement. It also contains other limitations on governmental units common in state and prior federal restrictions on government-mandated PLAs. The building trades councils sued again in the same court as before.
The court found that the revisions were insufficient and enjoined the 2012 Act as well. Section 8 of the NLRA allows for PLAs in the construction industry, and Section 7 makes an employee’s right to negotiate and secure a PLA protected concerted activity, noted the court. The effect of the 2012 Act “is to inhibit the right of construction industry workers to enter into effective PLAs with the State and its subdivisions despite Congress’ intent for PLAs to be permissible.” The 2012 Act “upsets the balance of power Congress established in the construction industry.” It conflicts with the NLRA and is preempted by it, said the court.
The court also found that revised statute continued to be tantamount to regulation. While a state’s regulatory activity is subject to preemption, its proprietary conduct is not. A state is engaging in proprietary conduct when “it seeks to serve its own needs by functioning as a market participant” (as in the purchase of construction services). To determine whether state action amounts to market participation, a court considers: (1) whether the action furthers a state’s interest in efficient procurement of goods or services, or addresses conduct unrelated to that interest; and (2) whether the action seeks to set a broad policy in the state, or is sufficiently narrow to foreclose that inference. Examining those considerations in the present case, the court found that the 2012 Act did not amount to market participation.
This case raises interesting issues that could impact other laws restricting PLAs and even those requiring PLAs. AGC will closely monitor any appeal and report on significant outcomes.
Mich. Bldg. & Constr. Trades Ccl v. Snyder, Case No. 12-13567 (E.D. Mich., 11/15/12).