9th Circuit Closes the Door on “Open Shop” Contractor

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At the height of the Great Depression nearly one-quarter of Americans were unemployed.  In response, Congress enacted a series of laws including the Smoot-Hawley Tariffs Act, which raised tariffs on foreign goods in an effort to spur domestic investment and to increase the number of jobs. Sound familiar?

Background

The Davis-Bacon Act

Among the new laws enacted by Congress was the Davis-Bacon Act which required contractors on federal works projects to pay their workers the wages prevailing in the area where a project was located, also known as “prevailing wages,” in an effort to stem the practice of employers bringing in lower-wage workers from outside the area. The same year that the Davis-Bacon Act was enacted, California enacted its own prevailing wage law modeled after the Davis-Bacon Act and applicable to state and local public works projects.

Prevailing wages, like state and federal minimum wages, set a minimum wage rate that employers must pay to workers. However, unlike minimum wages, prevailing wages do not apply to all employers, but only to employers who work on public works projects (or under certain federal contracts), and the amount of prevailing wage that must be paid by an employer depends on the classification or type of work performed by each worker.

California’s Prevailing Wage Law

California’s Prevailing Wage Law, codified at California Labor Code sections 1720 et seq., requires contractors performing work on state and local public works projects with a value of more than $1,000 to pay their workers not less than the general prevailing rate of per diem wages for work of a similar character in the locality in which the public work is performed as set by the California Department of Industrial Relations.

Prior to 2004, contractors could count toward the payment of prevailing wages, certain employer contributions including an employer’s contributions toward an employee’s health and welfare, pension, vacation,  travel, subsidence and apprenticeship or other training programs. In 2004, this list was expanded when union-backed legislation was signed into law that added an employer’s contributions to “industry advancement and administrative fees” paid under union collective bargaining agreements as well as for “other purposes similar to those specified.”

The “Other Purposes” Fight Between “Open Shop” Contractors and Unions

The “other purposes” category sparked controversy when “open shop,” or non-union contractors,  began relying on the “other purposes” category to justify employer contributions to third-party industry advancement funds not covered by union collective bargaining agreements, but nevertheless, arguably “similar” to such funds. In 2016, the unions closed this loophole sponsoring legislation, Senate Bill 954, which clarified that the “other purposes” category only applies if “payments are made to a collective bargaining agreement to which the employer is obligated.”

And, with that background, we discuss Interpipe Contracting, Inc. v. Becerra, Case Nos. 17-55248 and 17-55263 (July 30, 2018), a consolidated action decided by the 9th Circuit Court of Appeal.

Interpipe Contracting, Inc. v. Becerra

In Interpipe, “open shop” contractor Interpipe Contracting, Inc. and the anti-union advocacy group Associated Builders and Contractors of California Cooperation Committee, Inc. (ABC-CCC) challenged the enforceability of SB 954, arguing that SB 954 was preempted by the National Labor Relations Act (NLRA) and violated the First Amendment’s right to freedom of speech and 14th Amendment’s right to equal protection by limiting the ability of “open shop” contractors to compete with “closed shop” union contractors for state and local public works projects.

As to the preemption argument, both Interpipe and ABC-CCC argued that the federal National Labor Relations Act (which prohibits the regulation of non-coercive labor speech) preempts SB 954, which they characterize as favoring “pro-union” speech over “anti-union, pro-open shop speech.”

The 9th Circuit disagreed. Because the NLRA’s purpose is to remedy “[t]he inequality of bargaining power” between employees and employers, explained the Court, the NLRA “encourag[es] the practice and procedure of collective bargaining.” Understood in that way, explained the Court, the NLRA’s preemption of state regulation of non-coercive labor speech was intended to prevent state action that “interferes with the collective bargaining process” (emphasis in original) (i.e., preventing employees from unionizing) rather than  “state action that sets the stage for such bargaining” (i.e., establishing minimum labor standards). Moreover, held the Court, Interpipe and ABC-CCC’s preemption argument “conflates labor standards affecting [an] employer’s ability to fund their speech with unlawful regulation of their speech” (emphasis in original).

As to the First Amendment argument, ABC-CCC argued that by favoring unions and union contractors, SB 954 restricts its speech as an advocacy group for “open shop” contractors by favoring the speech of unions. Referring to the argument as “novel” (Note: this is never a good thing to hear from a court, followed closely, by “creative”), the 9th Circuit explained that “while the First Amendment protects the right of an individual to express herself through the medium of finance [e.g., campaign contributions], it does not establish a  free-floating right to receive the funds necessary to broadcast one’s speech.”

Finally, as to the 14th Amendment argument, ABC-CCC argued that “[b]y permitting some [industry advancement funds] to obtain prevailing wage payments, but not others, SB 954 discriminates against funds like ABCCCC.”  Again, the 9th Circuit disagreed. Explaining that SB 954 applies to employers (i.e., an employer’s ability to offset employer contributions for prevailing wage purposes), rather than to industry advancement funds, the Court held that “ABC-CCC cannot show that SB 954 causes an equal protection injury to itself” (emphasis in original).

Conclusion

The 9th Circuit’s decision may well be the death knell for challenges to SB 954. However, with the conservative shift in the U.S. Supreme Court, and likely further shift to the right with the announced retirement by Justice Anthony Kennedy, a possible writ of certiorari to the U.S. Supreme Court for review is undoubtedly being considered.

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