Yesterday, Governor Tom Wolf signed into law House Bill 566 which make major changes to Pennsylvania’s Contractor and Subcontractor Payment Act.  Owners and General Contractors that fail to take head of the changes could face significant financial consequences.

The Pennsylvania Contractor and Subcontractor Payment Act, known as CAPSA or simply the Payment Act, was passed into law in 1994.  The intent was “to cure abuses within the building industry involving payments due from owners to contractors, contractors to subcontractors, and subcontractors to other subcontractors.”  Zimmerman v. Harrisburg Fudd I, L.P., 984 A.2d 497, 500 (Pa. Super. Ct. 2009).  In reality, abuses still occurred.  While the Payment Act purportedly dictated a statutory right to payment within a certain amount of time and imposes stiff penalties for failure make payment, including 1% interest per month, 1% penalty per month, and reasonable attorneys fees, the language of the Payment Act left recalcitrant contractors with wiggle room.  Particularly, the Payment Act allowed owners and higher tier subcontractors to withhold payment “deficiency items according to the terms of the construction contract” provided it notified the contractor “of the deficiency item within seven calendar days of the date that the invoice is received.”  73 P.S. Section 506.  The problem was that the Payment Act did not expressly state where the notice must be in written, what it must say, and what happened if notice was not given.

The changes to the Payment Act close this and other loopholes.  Here are a summary of the changes:

  1. Contractual waivers.  Parties cannot waive the applicability of the act through contract.  Therefore, any clause in a contract purporting to waive the Payment Act’s applicability is void.
  2. Suspension of work.  Unpaid contractors and subcontractors have always enjoyed a common law right to suspend performance until payment was made.  Now, they also have a statutory right to do so.  Section 5 of the Payment Act ads a subpart (e) which states that an unpaid contractor or subcontractor can suspend performance without penalty if it is not paid.
  3. Written notice of deficiency items.  Owners or contractors seeking to withhold payment must now do so in writing and with a written explanation of its good faith reason for non-payment within 14 days of receiving an invoice that it intends not to pay in whole or in part.
  4. Waiver of defense to payment.  Perhaps the most critical change to the Payment Act is the part that says failure to provide written notice explaining non-payment within 14 days shall constitute a waiver of the basis and necessitate payment in full for the invoice.  As it stands, if notice is not timely and properly provided a contractor or subcontractor could file a complaint, get an admission that written notice was not provided, and move for judgment on the pleading or summary judgment.  In essence, failure to provide the required notice makes an owner or contractor strictly liable.
  5. Retainage.  If retainage is to be withheld beyond 30 days after final acceptance of the work, then an owner or contractor, as the case may be, must provide written notice as required for deficiency items.

The changes take effect on November 12, 2018.  Email me with any questions.

 

Like many areas of federal labor law, there are different rules for construction industry employers.  One major difference is in how employers become unionized.  Typically, under Section 9(a) of the National Labor Relations Act, a union becomes a collective bargaining agent of employees only after a majority of employees show support for union representation.  In other words, the employees chose whether to be represented by a particular union.  However, under Section 8(f) of the NLRA, construction industry employers can chose to become union without any showing of majority support by employees. In fact, construction industry employers don’t need to have any employees at all to sign a “8(f) agreement.”  Thus, these agreements have become known as pre-hire agreements.

Section 8(f) is said to have arisen to address the unique nature of the construction industry where the size of an employer’s workforce can fluctuate from project to project, where projects can be short term in nature, and where employees migrate to different construction industry employers frequently.

The formation of an 8(f) agreement is but one difference between it and a 9(a) agreement.  Another concerns the duty imposed on the employer at the conclusion of the agreement.  Under a 9(a) agreement, that is one where the employees have indicated majority support for the union, after the bargaining agreement expires, an employer has a duty to continue to bargain with the union in good faith for a new agreement.  However, under a 8(f) bargaining agreement, once the agreement expires the employer has no such duty and is free to become merit shop (non-union) or to enter into an agreement with a different union.

Being able to walk away from an 8(f) agreement at its expiration bestows obvious major benefits on an employer and works to the detriment of the union.  Therefore, many Section 8(f) agreements will contain language that attempts to convert them to Section 9(a) agreements by stating that the employer agrees that a majority of its employees support the union.

Last week in Colorado Fire Sprinkler, Inc. v. NLRB, the DC Circuit set forth the parameters of how a Section 8(f) agreement can be converted into a Section 9(a) agreement.  In that case the contractor signed a collective bargaining agreement with a local union.  The Court noted that the agreement was a standard multi-employer agreement negotiated between the local and a multi-employer association, the National Fire Sprinkler Association, which the Court referred to as “cookie cutter.”  As such, the employer did not negotiate any specific terms with the union.  The agreement contained language that stated “the Company acknowledged the Union’s status as the exclusive bargaining representative of its employees pursuant to Section 9(a) of the National Labor Relations Act.”  The contractor renewed the agreement on several occasions until 2010 when the employer did not renew the agreement.  The union then filed unfair labor practice charges against the employer claiming that it had unilaterally changed the terms and conditions of employment and refused to continue contributing to the union’s health and welfare benefit fund.

Both the administrative law Judge and the National Labor Relations Board found that the agreement had been converted into a Section 9(a) agreement.  However, on appeal, the DC Circuit reversed.  In addition to clarifying the test for when an 8(f) agreement is converted to a 9(a) agreement, the Court also took a very pro-worker view of the National Labor Relations Act.

The Court started its opinion by noted that the NLRA is designed to empower the “employees to freely choose their own labor representatives.”  (Its hard for me to write this as I lost a case on appeal in the Third Circuit concerning an 8(f) agreement where I strongly emphasized this point.)  The Court noted that Section 8(f) does not change this simply because it permits the employer to chose whether its employees are unionized or not.  Accordingly, the Court recognized that an 8(f) agreement is to presumed to be an 8(f) agreement – freely terminable by the employer at its expiration – unless there is clear evidence that the employees have independently chosen to convert it into a Section 9(a) agreement.

The Court then held that “‘contract language’and the ‘intent’ of the union and company alone generally cannot overcome the Section 8(f) presumption, and certainly not when ‘the record contains strong indications that the parties had only a section 8(f) relationship.'”  Instead, the record must indicate clear acts by the employees to indicate the desire to convert an agreement, such as signing authorization cards, signing a petition, or informally voting to confirm the union’s majority status.

The Court was clear that the union must present evidence of affirmative employee acts indicating majority support.  In doing so, the Court invalidated the Board’s test that required only that the union offer to show evidence of support.  In sum, the Court held “while an employer and a union can get together to create a Section 8(f) pre-hire agreement, only the employees, through majority choice, can confer Section 9(a) status on a union. So to rebut the presumption of Section 8(f) status, actual evidence that a majority of employees have thrown their support to the union must exist and, in Board proceedings, that evidence must be reflected in the administrative record.”

Takeaways

  • Never sign a Section 8(f) agreement that contains language purporting to claim a majority of employees support the union.
  • At the conclusion of an 8(f) agreement, do not merely accept a claim by a union that they have majority support.
  • While 8(f) agreement can be terminated by an employer at the expiration of the term, most collective bargaining agreements have some mechanism stating how that must be done.  Otherwise, the agreement automatically renews.

 

 

Any merit shop contractor or project owner with a project where merit shop or mixed merit shop / union shop crews are working will eventually deal with some form of union “picketing.”  The term picketing is placed in quotes because its legal definition differs from its colloquial understanding in the industry.  The colloquial term picketing includes a variety of union conduct, such as hand billing, displaying the infamous union rat (or rats), banners, and placards.  What you can and should do in response to union “picketing” depends on the circumstances.

What can the union do?

Generally, peaceful “picketing,” by itself, is not illegal.  Peaceful conduct includes union members handing out flyers (handbilling) to passers by that inform the public of the union’s dispute and displaying a banner or sign “shaming” an owner.  Does this mean that a union is always acting legally when engaging in this type of activity? No, the analysis is fact sensitive but a union’s “peaceful activity” can become illegal if it acts with a secondary intent.

What the union cannot do?

Unions cannot block access to your project, engage in violence, engage in a “mass” demonstration, picket a reserved gate, threaten neutral parties, signal picket, or engage in organizational picket for more than a 30 days (or sometime less).

What should you do?

If the union activity is relatively peaceful (albeit a nuisance) the best approach is to try to ignore it.  You should however keep a record of the activity in case the circumstances become un-peaceful.

What you can do?

If the union’s conduct simply cannot be ignored, then you have a few options.

    A. Set Up Dual Gate

Union’s can protest a labor dispute with the employer who has the ability to hire its members.  Therefore, the carpenters union can protest a labor dispute with a carpentry contractor but cannot protest a dispute with a plumbing contractor.  Picketing aimed a a neutral or secondary party is illegal under the National Labor Relations Act.  On a construction site, there are may different employers working.  The National Labor Relations Board has set up rules to deal with so called common situs picketing.

Under these rules, an project owner can establish a dual gate system.  If the system is established, the union must limit its protest to the gate (entrance) used by the contractor with whom the union maintains a dispute and at the times when the employer is on site.  At a minimum, this is a way to control the location of the picketing.

To establish a valid reserved or dual gate system, owners or contractors must notify the union, post notice of which gate are to be used to the primary contractor and which gate is to be used by the neutral contractors, and, importantly, the gates must be, in fact, used by those parties.  The gates cannot be “tainted.”  In this regard, it is a good idea to keep a record of all those coming and going through each gate.

If the union does not limit its dispute to the location of the primary gate, then it has committed an unfair labor practice and a charge can be filed against it with the National Labor Relations Board.

  B.  Injunctive Relief

Sometimes union activity becomes so unruly that only an order from a Judge can stop it.  (And, sometimes that is not even enough.)  The availability of injunctive relief against a labor union varies from state to state.  However, generally, injunctive relief is limited to situations where the union is engaging in violence, property destruction, mass picketing, or blocking access to a project.  Even in those situations, owners and contractors need to be prepared before they seek emergency relief from the court.  Before requesting injunctive relief, you should:

1.  Gather witnesses to the conduct for the purpose of providing affidavits and potentially testimony in court.

2.  Notify and keep of record of contacting the police to maintain order.  Some states, like Pennsylvania, require that law enforcement be unable to quell the union’s behavior before they will issue an injunction.  In other cases, the police will request that you obtain an injunction before they do anything.

3.  Photograph and record offending conduct.  However, you should not videotape or photograph peaceful conduct.  The National Labor Relations Act prevents you from conducting surveillance of peaceful union activity.  You can record conduct that is violent, blocking entrances, or creating a safety hazard.

4.  Write a letter to the union demanding that they cease and desist the conduct.  Although not technically required for an injunction to issue, because of the extraordinary nature of the remedy, Court will often want you to show that you exhausted all means before seeking relief from the Courts.

 

 Building and Construction Trades Council of Metropolitan District v. Associated Builders and Contractors of Massachusetts Rhode Island, Inc Massachusetts Water Resources Authority v. Associated Builders and Contractors of Massachusetts Rhode Island, Inc, 507 U.S. 218, 113 S.Ct. 1190, 122 L.Ed.2d 565 (1993) , affectionately knows as Boston Harbor, is the seminal Supreme Court decision that held that the National Labor Relations Act (“NLRA”) does not preempt government mandated project labor agreements (“PLAs”) if the government entity is acting as a market participant rather than a market regulator.  Boston Harbor has led to many believing that virtually all PLAs are legal when the government agency is a project owner or if the PLA involves a private project.  However, does Boston Harbor really cut that far?

In short, no.  The primary issue in Boston Harbor was one of preemption.  The Supreme Court addressed whether the NLRA preempted state and local laws and ordinances mandating PLAs.  On that narrow issue, the Supreme Court said there is no preemption if the government is acting as a market participant.   What the Court did not address is whether other federal statutes invalidate PLAs.  Specifically, whether PLA’s can run afoul of Section 8(e), the so called “hot cargo” provisions, of the NLRA.

Under Section 8(e) “”[i]t shall be an unfair labor practice for any labor organization and any employer to enter into any contract or agreement, express or implied, whereby such employer ceases or refrains or agrees to cease or refrain from handling, using, selling, transporting or otherwise dealing in any of the products of any other employer, or cease doing business with any other person.”  Virtually all PLAs require any contractor or subcontractor working on the project to sign a letter of assent or that prohibit subcontracting work to any contractor that refuses to sign the letter of assent.  The Courts and the Board have held that such clauses violate Section 8(e) unless the clauses fall within the so called construction industry proviso.

The construction industry proviso states “[p]rovided, [t]hat nothing in this subsection shall apply to an agreement between a labor organization and an employer in the construction industry relating to the contracting or subcontracting of work to be done at the site of the construction, alteration, painting, or repair of a building, structure, or other work.”  Therefore, for the statutory exception to apply there must be two things (a) the counter party to the agreement must be a “construction industry employer” and (b) the restriction must be limited to the site of the work.

But there is a third non-statutory prong that must be met.  Under the Supreme Court’s decision in Connell Construction Company, Inc v. Plumbers and Steamfitters Local Union No 100 8212 1256, 421 U.S. 616, 95 S.Ct. 1830, 44 L.Ed.2d 418 (1975) even if the counter party is a “construction industry employer” they still must have a bargaining relationship with the union.  In that case the Court held that the an agreement between a general contractor and a group of building trade unions violated Section 8(e) because, although Connell was a construction industry employer, the unions did not seek to represent any of the general contractors employees.  Similarly, most, if not all, private project labor agreements that I have reviewed contain an express disclaimer that the agreement does not apply to any employees of the private developer.

On this framework, in 2006, in the Labor Board held that a private project labor agreement between the Glen Falls Building & Construction Trades Council and a private developer of a co-generation electric power plant violated Section 8(e).
Glens Falls Bldg. & Constr. Trades Council & Int’l Union of Bricklayers & Allied Craftsmen, Local Union No. 6 & Int’l Bhd. of Carpenters & Joiners of N. Am., Local Union No. 229 & Int’l Ass’n of Heat & Frost Insulators & Asbestos Workers, Local Union No. 40 & Int’l Ass’n of Bridge, Structural & Ornamental Ironworkers, Local Union No. 12 & Laborers, 350 NLRB 417 (2007).  There, the Board held that because the Building Trades did not seek to represent any of the owner’s employees, the PLA violated Section 8(e) and was not saved by the construction industry proviso.

Finally, may PLAs state they apply to non-construction industry employers, like construction material, ready-mix concrete, and hot mix asphalt suppliers.  These are always invalid because the Board has ruled that Section 8(e) prevent application of the union subcontracting provisions in a PLA to these firms namely because this is work that is not being performed at the “site of construction” and that these firms are not “construction industry employers.”

The Takeaway

If you are a merit shop contractor faced with a private project labor agreement you should consider filing an unfair labor practice charge with the Nation Labor Relations Board, especially with a current Republican majority at the Board.

 

A recent NLRB decision underscores the dangers of improperly operating a double breasted construction firm.  In Rdm Concrete & Masonry, LLC, Collective Concrete, Inc., & Remco Concrete, LLC, Alter Egos & A Single Employer & New Jersey Bldg. Laborers Dist. Council, 366 NLRB No. 34 (Mar. 13, 2018), the Board held that the three respondents, RDM, Collective, and Remco were alter egos of each other and were collectively bound by the terms of the collective bargaining agreement with the Laborers Union.

A. Background

The three charged entities were all owned by members of the same family.  Collective Concrete was owned by Ryan Ciullo.  In 1999, Ryan started Collective.  Collective listed his parents residence as it official place of business.  Ryan’s father Mark owned a separate company, D&M Mansonry.  When Ryan started Collective, Mark was winding down D&M and would assist Ryan with operating collective.  In 2001, Collective signed a Section 8(f) agreement with the Laborers Union.  Thereafter, Collective signed three successor 8(f) agreements with the Laborers.  As suspected, the agreement covered the terms and conditions of Collective employees performing Laborers Union claimed work.

While covered by those agreements, the Laborers Union filed grievances against Collective.  Mark, Ryan’s father, represented Collective at those grievance hearings.  In one matter, an action was initiated in federal court to overturn an arbitration award and Mark signed an affidavit in that case.

In 2007, Mark formed RDM a concrete and masonry firm with no union affiliation.  When he formed RDM, Mark stopped working for Collective.  However, RDM performed the same type of work as Collective and Collective transferred some equipment to RDM.  Ryan does not hold an ownership interest in RDM but was employed by RDM.  Moreover, RDM and Collective shared back office employees, who happened to be Ryan’s wife and mother.  At a certain point, Collective and RDM shared office space.  When Collective ran into financial trouble, RDM transferred $1.6 million dollars to it.

Then in 2014, RDM signed an agreement with the Union.  Circumstances arose that led to a consent judgment being entered in favor of the Union and against RDM and Collective, jointly and severally.

Soon, RDM’s work slowed down.  And, in 2015 Ryan started a new company called Remco, which also performed masonry and concrete work.  Ryan testified that he formed Remco to obtain non-union work.  In 2016, the Union demanded that Remco recognize it as the bargaining agent for its employees under the collective bargaining agreements with RDM and Collective.

B.  The Outcome and Damages.

As expected, the Board found that Collective and RDM were a single employer and Remco was an alter-ego or “disguised continuance” of RDM.  The Board applied its long standing rule that the collective-bargaining agreement of an employer applies to its alter ego, as of the date of the alter ego’s first use of bargaining unit employees. E. G. Sprinkler Corp., 268 NLRB 1241, 1241 fn. 1 (1984).  The Board further ordered that the entities make the employees whole for any loss of earnings or benefits, plus interest compounded daily. That means that Collective, RDM, and Remco could owe huge sums of money.

C.  The Take Aways

  1. Forming a double breasted operation carries huge risks for those that are not prepared to properly organize and operate the two firms.
  2. Forming a non-union entity for the purpose of avoiding bargaining obligations will almost always fail.
  3. Improperly forming a double breasted entities carries with it the potential for huge penalties.

I don’t know much about the Ultimate Fighting Championship (“UFC”).  I don’t follow the sport.  However, I do follow the NLRB dockets and the matter Zubba, LLC d/b/a Ultimate Fighting Championship caught my attention.  After some diligent research (a/k/a googling it), I learned that this case was apparently causing some scuttlebutt in the UFC world.  However, employers in all industries where unionization efforts are prevalent can learn something from the complaint.

The complainant in the case is Leslie Smith.  Ms. Smith is a female mixed martial artist (“MMA”).  She apparently is good enough to have obtained a world wide ranking of #9.  She has fought on the UFC circuit for several years.  In her spare time, Ms. Smith also leads an organization called “Project Spearhead.”  Project Spearhead isan effort to unionize UCF’s fighters.  Among other things, Ms. Smith launched a website www.projectspearhed.com to draw attention to her cause.  Ms. Smith had promoted the website and her unionization efforts through social media, traditional media, and planned on wearing a mouth piece in an upcoming fight to promoted her pro-union webpage.

On April 21, 2018, Ms. Smith was schedule to fight, but her opponent apparently did make weight.  (Louden Swain she was not.)  That fight would have been Ms. Smith’s last fight under her contract with UFC.  Ms. Smith requested that the UCF extend her contract for two more fights in exchange for her fighting a heavier weighing opponent.  UFC declined.  Moreover, UFC notified Ms. Smith that her contract would not be renewed.

The success of Ms. Smith’s case hinges on whether she is an employee or independent contractor.  The National Labor Relations Act protects employees but not independent contractors.  Ms. Smith claims she has been mis-classified as an independent contractor.  The employee v. independent contractor has been a hot issue of late.  The NLRB will apply a eleven (11) factor test known as the right to control test to determine whether Ms. Smith is an employee or independent contractor.  As the Board and Courts have held no one factor is controlling.  But, following the decision in FedEx Home Delivery v. Nat’l Labor Relations Bd., 849 F.3d 1123 (D.C. Cir., 2017), 849 F.3d 1123, 1126 (D.C. Cir. 2017)  whether the “putative independent contractors have significant entrepreneurial opportunity for gain or loss” has become a critical factor.  Smith is vulnerable on this issue.

If I were representing UCF, on cross examination, I would ask Ms. Smith a series of questions concerning this factor, such as, whether she considers herself a brand, whether she hopes to win her fights, whether she hopes that he ranking will improve, and whether she hopes her success will lead to opportunities to derive income from sources other than actual fights (i.e sponsorship and licensing deals).

The Takeaways.

I see two takeaways for employers in industries that are the frequent target of unionization efforts.

  1.  Ignore the Gut Reaction to Rid Yourself of the Problem.

Ms. Smith is claiming she was effectively terminated because of her union activities.  Simply put, under the National Labor Relations Act you cannot retailate against an employee who voices support for unions or unionization.  The complaint underscores the need to treat anyone engaged in a unionization effort careful before terminating them or simply changing their employment conditions.  Even if this was not a motivating factor in UFC’s decision to not renew her contract, the decision could have been a strategic error.

The complaint does not mention whether her Project Spearhead was gaining any traction with other MMA fighters.  Apparently there are 350 UCF MMA fighters.  So, for Ms. Smith’s efforts to go anywhere she would have to obtain signatures from 30% of those fighters or 105.  If Ms. Smith was able to obtain that level of support, then the Board would determine whether the critical issue of whether the fighters are employees, entitled to a union election, or independent contractors, who are not.  Now, as Ms. Smith seems to boast in he complaint, that threshold issue can be decided without her having to first obtain the 105 signatures.

UCF strategic mistake is that they could have effectively dealt with Ms. Smith unionization efforts by keeping her in the fold through carefully crafted PR campaign and other efforts to dissuade fighters from forming a union.  Meanwhile, they could preserve the issue of independent contractor status for a later date and even begin the process of creating a record specifically tailored to address that issue, if and when, the date arrived when it needed to be argued.  If Ms. Smith’s complaint is successful, a future UCF unionization effort becomes much easier.

2.  Call her bluff.

If you are concerned about your company becoming unionized, then you need to look hard at how your are treating your employees and how your are educating them on what it means to be union.  If your are treating your employees well then they are not going to be receptive to the union message. How well you are treating your employees needs to be viewed objectively.  Also, you need to constantly educate your employees why employee free choice is superior to unionization.  The union message is seductive, in part, because the union organizer is a highly trained salesperson and knows what to say to get in the door with your workforce.  However, a properly educated workforce will see the message for what it is, cheap sales talk that the union cannot often back up.

 

A friend came to me with a question regarding a case he was working: “can a public owner require that bidders use a specific brand name product?”  “Of course not,” I said “proprietary specifications are illegal.”  Or, at least that’s what I assumed.  To my surprise, the law in the Commonwealth of Pennsylvania is not as clear as it is in other jurisdictions.

What is a proprietary specification?

A proprietary specification lists a product by brand name, make, model and/model that a contractor must (shall) utilize in construction.  A basic example of a proprietary specification would state:

“Air Handlers shall be “Turbo Max” as manufactured by Chiller Corp.”

There are two problems with a proprietary specification (other than potentially being illegal): (a) they limit competition, and (b) invite steered contract awards.  They limit competition because it limits the type of material that can be used on the project.  In the example above, there could be equivalent air handlers available at a better price but the contractor could not use that lower priced product in its bid.  Thus, the taxpayers end up paying more for tile.  Also, contractors may not be able to secure a certain brand name product because of exclusive distribution agreements.  Again using the example above, contractor A’s competitor may have the exclusive distribution agreement with Chiller Corp.

Besides being more costly, this situation invites favoritism and fraud, which public bid laws are designed to prevent.  If the design professional that is drafting the specification knows that a certain favored contractor has the exclusive right to distribute a product, the design professional can draft the specification in a way that steers the bid to that favored contractor.

Federal Law

Most federal agencies prohibit proprietary specifications.  For example, with limited exceptions, FHWA regulations prohibit contracting state transportation agencies receiving federal funds from requiring the use of a patented or proprietary material, specification, or process.   Likewise, under FAR’s “Material and Workmanship Clause,”  “[r]eferences in the specifications to equipment, material, articles, or patented processes by trade name, make, or catalog number, shall be regarded as establishing a standard of quality and shall not be construed as limiting competition. The Contractor may, at its option, use any equipment, material, article, or process that, in the judgment of the Contracting Officer, is equal to that named in the specifications, unless otherwise specifically provided in this contract.”

New Jersey Law

Many states have also banned proprietary specifications.  In New Jersey (where I frequently practice), the Local Public Contracts Law bans local government agencies from using proprietary specifications.  However, on NJDOT projects that do not receive federal funding, proprietary specifications are not per se prohibited.  But, a contractor can request substitution of the specific product.

Pennsylvania State Projects

In contrast, Pennsylvania does not expressly address proprietary specification by statute.  However, under Department of General Services’ guidelines, which apply to state projects including PennDOT, proprietary specifications are strictly limited.  Section 205.1 of DGS’s Project Procedure Manual states:

“Specifications for DGS projects are “or equal” specifications, and products available from a single manufacturer, or a limited number of manufacturers, are not to be used in project designs. DGS requires at least three (3) manufacturers of an available product to be specified, but bidders may use equal products/manufacturers as approved by the Professional, as per the General Conditions to the Construction Contract.”

Pennsylvania Local Projects

Pennsylvania Municipal and County projects are not subject to DGS’s guidelines.  Instead, a patch work of statutes applying to Pennsylvania’s Byzantine system of Cities/Township of the First/Second/Third class, govern procurement at this level.  All of those statutes require that bids be awarded to the lowest responsive and responsible bidder.  However, none specifically restrict the use of proprietary specifications.

Therefore, bidders facing a proprietary specification at this level must rely upon the Pennsylvania common law public policy of assuring the best price possible for the taxpayers and guarding against favoritism, extravagance, fraud, and corruption in the awarding of municipal contracts.

What to do about it?

If you encountered a proprietary specification, whether on a Federal, New Jersey, or Pennsylvania contract, you need to act before the time of bidding or your claim may be barred by statute or waived.  When and how that objection is lodged depends on the project and contracting authority.  If the bids have been opened and a proprietary specification has resulted in you losing the award, the potential still exists to challenge the award but the burden could be higher.  Therefore, understanding how to spot a proprietary specification and what the law is in the area is the best chance at successfully challenging it.

Last week’s Boston Globe has a story about the recent dismissal of a criminal case against two Boston city officials for their involvement with an alleged union extortion scheme designed to pressure non-union businesses to give work to members of the local Teamsters Union.  (The reporters were kind enough to seek my comments for the article.)  The case in Boston is notable because its outcome diverges from similar cases brought in Philadelphia and New York, which resulted in convictions.

A.  Background on the Hobbs Act.

Federal indictments under the Hobbs Act, 18 U.S.C. Section 1951, for actions taken to “entice” non-union contractors and developers to hire union members is a subject matter that I have written about on this blog.  The reason for my interest is not only because I represent a number of merit shop contractors and developers (as well as union contractors) but because of several recent high profile cases indicting union officials for extorting contractors and developers into hiring union members.  Those in Philadelphia are aware of the indictments involving Ironworkers Local 401, which involved its use of “goon squads” and other tactics to obtain work for its members and signatory contractors.  That indictment ultimately lead to the conviction of several Ironworkers, including its President.  That case came on the heals of a similar case involving the Operating Engineers.

The Hobbs Act makes it a federal crime to extort or attempt to extort a business or individual engaged in interstate commerce.  However, the common understanding of extortion differs from the technical meaning of extortion found in the Hobbs Act.  Under the Hobbs Act “the term “extortion” means the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.”  (The reason for my highlighting of these terms will become clear in a minute.)

For years, because of a U.S. Supreme Court Case U.S. v. Enmons, the prevailing view was the unions and their officials were immune from liability under the Hobbs Act.  In Enmons, the Supreme Court explained that a Hobbs Act violation involves two things: (1) actual threatened force, violence, or fear (means) and (2) the obtainment of property of another (ends).  So, the means and the ends must be illegitimate before a Hobbs Act violation can occur.  The Court in Enmons reasoned that the property that was allegedly extorted was higher wages for union members and since the union had a legitimate claim to those wages it could not extorted “the property of another.”  The Court made clear that the union’s means “force, violence, and fear” could still be prosecuted under state law, but for a federal law to be broken the both elements would need to be met.

Subsequent decisions, including decisions in the Ironworkers and Operating Engineers cases, walked back the seemingly broad breadth of the holding in Enmons.  Several courts noted that Enmons should be limited to its facts.  Those being where a union was engaged in an active strike against an employer with whom it had an existing collective bargaining relationship.  Compared to a situation, such as with the Ironworkers and Operating Engineers, where there was no such relationship between the unions and the victims.

Now, as I discuss in the Boston Globe, the federal court’s decision to dismiss the indictments against the two Boston officials and the previous ruling by the 1st Circuit Federal Appeals Court could make it harder for federal prosecutors to indict union officials or it could just further clarify the contours of the Hobbs Act intersection with federal labor law.

B.  The Boston Teamsters Case: The Ends and the Means.

In United States v. Burhoe (1st Cir., 2017), the president of the local Teamsters union and an associate were indicted for extorting non-union businesses into employing Teamsters on projects.  After a six-week trial, the jury found them guilty, under the Hobbs Act and related federal charges.  The defendants appealed their convictions under the Hobbs Act and the 1st Circuit Court of Appeals overturned their convictions reasoning that their conduct in pressuring non-union firms to employ Teamsters did not rise to extortion under the Hobbs Act.

The Court reasoned that under the Hobbs Act both the ends and the means of the extortion must be unlawful.  Thus, as in Enmons, to be guilty under the Hobbs Act the defendant must have no legitimate claim to the property obtained and his means of obtaining it must also be wrongful.  The Court noted that threats of violence or physical harm are almost always a wrongful means under the Hobbs Act.  The Court also said threats of economic harm could be wrongful.  It becomes wrongful when the defendant has no legitimate right to the property sought.

The Court then examined the indictment as it related to the non-union firms.  The indictment alleged that the defendants extorted wages for imposed, superfluous, and unwanted labor through the threat of economic harm and physical harm to the company and others.  The Court then examined the underlying cases of extortion.  While in each case the union officials were aggressive and blunt and threatened a picket line, the Court noted that no bodily harm or property damage was threatened or occurred.

Defendants challenge to the conviction hinged on whether the trial court properly instructed the jury on extortion.  Defendants argued that the trial court should have instructed the jury that the labor was superfluous, unwanted, and fictitious.  In other words, the wages extorted (the ends) would have to be in return for no show jobs.  The Court reasoned that if the union members actually worked, there could be no Hobbs Act violation, at least when the pressure was limited to threats of picketing.  The Court held that picketing to pressure an employer to hire union members was protected under the National Labor Relations Act (this is not correct but it was not a central issue in the case).  Thus, the Court reasoned anytime a union set up a picket line to protest non-union work it could result in a Hobbs Act violation if the employer ultimately caved to the union’s demands.

C.  The Ironworkers and Operating Engineers Cases.

In contrast, the federal courts in the Dougherty and Larson cases reached different conclusions regarding the intersection of the Hobbs Act and the National Labor Relations Act.  These cases are also in contrast in two ways.  First, in both cases, the union’s means was threats of and actual violence and property damage (in the Doughtery case the Ironworkers were alleged to have burnt down a Quaker meeting house).  Second, neither court held that the wages extracted had to be for fictitious or no-show services for their to be a Hobbs Act violation.

The Larson case goes further and shows the divergence on the issue of a legitimate claim to property.  In Larson, members of the Operating Engineers were indicted under the Hobbs Act – and related federal criminal statutes, including RICO.  The indictment alleged that the union members sought to obtain wages and other property interests from non-union firms using the means of actual violence, sabotage of property, and threats.

The defendants moved to dismiss the indictment under Enmons arguing since the ends were legitimate the means were irrelevant.  The magistrate judge recommended dismissal of the indictment based on Enmons.  But, the district judge disagreed.

In contrast to the Burhoe ruling, in Larson the trial judge rejected the argument that flipping non-union jobs to union jobs was a legitimate union objective.  The trial judge succinctly framed the issue in labor union extortion cases stating:

 If the union acts in furtherance of a legitimate labor objective, the use of force or violence incident to the pursuit of that objective is not subject to Hobbs Act liability (although it might be subject to prosecution under other provisions). However, if a union’s objective is not legitimate, Enmons will not protect it from prosecution under the Hobbs Act.

As the Court explained, “[i]n a legitimate strike situation, the union has a lawful platform on which to seek higher wages and better terms for its members. However, when a union pursues agreements with new employers through primary tactics of violence, threats, and intimidation, it does not have a lawful platform on which to claim the property of the employer. The use of such tactics is therefore “wrongful” under the Hobbs Act.

D.  Do the means matter?

Burhoe’s ultimate conclusion that a union official does not commit extortion simply by threatening a picket line is not the problem.  In fact, that conclusion is probably correct.  The problem for prosecutors at least in the 1st Circuit is that it concluded that the wages extorted must be for fictitious work, at least in part. In Burhoe, the Court stated “It follows that the district court erred in instructing the jury that it could find extortion where the defendants sought to obtain “imposed, unwanted, superfluous or imposed, unwanted, and fictitious work” by using “fear of economic loss,” which encompasses picketing protected under the NLRA.”  The Court continued by explaining “the disjunctive construction impermissible relieved the government from having to prove that the work was “fictitious” and thus could have allowed the jury to find a violation merely because the union sought to turn around nonunion jobs to maintain the prevailing wage through such a threatened picket, and the employer did not want to use the union workers to perform the work.”

On one hand it could be said that under Burhoe is limited to its facts.  Thus, when the means are limited to threats of and actual “peaceful” picketing, then the government must show that the ends were for no-show work.  In other words, contrary to Enmons, the means do matter.  Larson may actually shed some light on this when it held that when a union is attempting to obtain work for its members it “may [not] use an unlimited array of coercive tactics to secure such an agreement with an employer.”

However, on the other hand, if Burhoe is limited to its facts, then the Court’s analysis does not make any sense because if the ends are legitimate property then, as Enmons holds, the means to obtain it, while potential violating other laws, does not violate the Hobbs Act.  So, it would not matter if the means were peaceful picketing or a threat to break the legs of an owner of a non-union firm.  Therefore, under Burhoe’s reasoning any conduct, including property damage or physical harm, that results in a non-union employer agreeing to hire union members is not punishable under the Hobbs Act.  As in Enmons, the violence to property and body may be punishable under state law, but the conduct does not violate the Hobbs Act.

Ultimately, this seemingly inherent contradiction in Enmons must be resolved by Congress or the Supreme Court.  Before then, case law suggest the means do matter.  Threatened an actual violence to person or property is going to be grounds to indict under the Hobbs Act, while aggressive behavior and threats of a picket line may prove more challenging.

Last summer, my pro bono representation of a group of University of Pennsylvania graduate students caused a bit of a brou-hah-hah among the SWJ‘s leading the unionization of Penn’s graduate schools.  (It also garnered me the most gracious complement ever from the American Federation for Teachers, who sent out a mass email calling me a “destructive force.”  I cannot thank the AFT enough for that comment it has been great for marketing.)

Late yesterday, it was learned that the AFT had withdrawn its petition to organize the graduate students at Penn.  News comes on the heals of similar actions at Boston College and Yale.  As much as I would like to think it was because of my “destructive force” abilities as a lawyer, alas, I had nothing to do with it.  The withdraws are a strategic attempt by the unions to prevent the National Labor Relations Board from overturning the Obama-era Columbia University decision that granted graduate students the right to organize.  By withdrawing the petitions, the unions hope to prevent an appeal which would offer the NLRB the opportunity to overturn Columbia University.  The unions appear to be content to play the long game and hope the current Republican majority make up of the Board changes in five years in which case they could continue unionization efforts of graduate students using the intact Columbia University precedent.  It is an interesting tactic and we will see how it plays out.  Of course, the NLRB can still its little used rule making authority to sua sponte overturn Columbia U.

There is a common misconception that all Philadelphia Public Works projects must be performed pursuant to a project labor agreement with various members of the Building and Construction Trades Council.  This common misconception is even shared by the current Mayoral administration, who I saw in a recent court filing testified under oath that “project labor agreements are required for all construction projects in Philadelphia with a value of at least five million dollars.”  (As is discussed below this is flat out false.)

No one has yet to step forward to challenge Philadelphia’s project labor agreement scheme.  However, if someone did, I think the challenge would be successful for three reasons.  First, contrary to the Mayor’s representative’s statement, there is no requirement that all projects in excess of $5 million be subject to a project labor agreement.  Second, Philadelphia’s project labor agreement excludes signatories to collective bargaining agreements with the United Steel Workers (USW) from participating,which violates public bid laws. Third, the exclusion of the USW, also gives rise to a challenge that federal labor law preempts the project labor agreement.

A. Background on the Philadelphia PLA.

Under a project labor agreement (PLA), a contractor wishing to perform work on a project agrees to be bound by the terms and conditions of employment established by the public owner and certain construction unions.  Each PLA varies, but typically PLA’s will require a contractor’s employees to become members of a union – if they are already not members – in order to work on a project or will require a contractor to hire labor from a union hiring hall.  PLA’s are controversial because they exclude non-union contractors from performing work on a project subject to a PLA, unless of course that contractor agrees to become “union” for purposes of that project. For reasons beyond this blog post, a merit shop contractor would be crazy to do that.

The “Philadelphia PLA” that Mayor Kenney believes is required for all public projects over $5 million was instituted by Mayor Nutter through a 2011 Executive Order (Executive Order No. 15-11, Public Works Project Labor Agreements).

B. The Language of the Philadelphia PLA.

Few people, including the current Administration, have apparently actually read the Executive Order.  If they did, they would realize that not only does it not require PLA’s it expressly states that they are not required.  This subject is made clear in Section 3(c) of the Executive Order:

What it does require are certain prerequisites before a public project is subject to a PLA.  Prerequisites that the current Administration and the one before it have ignored.

According to the Executive Order before any project is subject to a PLA, it must be reviewed to determine if a PLA would be appropriate for that particular project.  The review must be performed by the City Agency procuring the contract and a written finding concerning the appropriateness of a PLA must be forwarded to the Mayor’s Office.

 

 

My understanding is that these City Agency evaluations backed by a written finding have never been done for any project in Philadelphia subject to a PLA.  (However, if anyone has seen such a finding, please forward it to me.)

Moreover, the written recommendation that the City Agency makes must go further than simply saying “we think a PLA is good.”  The Executive Order requires the Agency to “describe how it will benefit and enhance the interests of the City on the basis of costs, efficiency, quality, safety, and/or timeliness” and “shall specifically address” a number of other factors, including, safety, costs, dispute resolution, the need to skilled labor, and “the opportunity to provide significant employment opportunities for qualified City residents, including minority males and women, and for women – and minority owned businesses.”  Basically, the exact opposite of the demographics of the unions in Philadelphia.

Once an Agency makes this written determination, the Mayor’s Office is supposed to review it and consult with the Agency.  The City is also required establish a PLA “Advisory Committee” which is supposed “monitor and evaluate” PLA’s and “make periodic evaluations to the Mayor regarding the use of [PLA’s].”  To my knowledge this Advisory Committee does not exist.

C. Challenge Pursuant to Public Bid Laws.

Because Philadelphia is not following its own law before instituting PLA’s, any project that is advertised as being the subject of a PLA is susceptible to a challenge. If a provision in bidding specifications denies the public the benefit of a fair and just competitive process, a taxpayer may bring a challenge.

D.  The USW Issue.

The model PLA which is attached to the Executive Order states that the collective bargaining agreements of members of the Philadelphia Building and Construction Trades Council (BCTC) shall govern, notwithstanding the provisions of Local or International Agreements which may differ.  Not every union is a member of the BCTC.  Notably, the USW is not.  Despite the name, the USW does not only represent steelworkers.  In fact, they represent construction workers of varying trades.

A contractor signed with the USW wishing to bid on a Philadelphia Public Works project, finds itself in an irreconcilable predicament.  If it agrees to the PLA, it will be in violation of its collective bargaining agreement with the USW which already governs the terms and conditions of its employees’ employment.  Therefore, it cannot agree to be bound to another union’s agreement.  Thus, Philadelphia PLA has the effect of excluding contractors who have CBA’s with the USW.

Pennsylvania public bid laws state that a public agency cannot exclude bidders from bidding on a project by “imposing conditions on one prospective bidder, which are not imposed upon all.”  Requiring a a signatory to the USW to breach its CBA with the USW imposes such a condition.

Excluding the USW posses another issue.  Under the National Labor Relations Act, employees have the right to form or be represented by a union.  Under the Act, if the union is properly designated as the employees representative, an employer must deal exclusively with the union.  Therefore, the Philadelphia PLA is in conflict with federal labor law.  Why?  Because a USW member cannot work on a Philadelphia Public Works project and be represented by the union of its chose.  Also, a USW contractor would be forced to ignore the USW as the bargaining agent of its employees in order to work on a Philadelphia project.  If a state or local ordinance has this effect, the Supreme Court has held it is preempted by the National Labor Relations Act.  The Philadelphia PLA appears to have that effect.