Pennsylvania Commonwealth Court Holds that Nearly All Project Labor Agreements are Illegal

In what is nothing short of a monumental decision, on January 11, 2019, the Pennsylvania Commonwealth Court in Allan Myers L.P. v. Department of Transportation ruled that nearly all project labor agreements in Pennsylvania are illegal under the Commonwealth’s procurement code.

What are Project Labor Agreements?

In short, Project Labor Agreements (PLAs) are pre-hire agreements that set the working conditions for all employees of contractors working on a construction project. Typically, a PLA is entered into between an public or private construction project owner and certain local building trade unions.  PLAs require the use of union labor that is to be hired exclusively through the hiring halls of the unions who are parties to the PLA. PLAs are controversial because, among other reasons, while not expressly excluding non-union contractors from performing work on the project, they require non-union firms to use union members instead of their regular employees.

Legality of Project Labor Agreements

Generally, whether a PLA is legal mostly depends on the law of the state where the project is being located.  (However, there are several compelling arguments that PLAs are invalid under current U.S. Supreme Court precedent.) Seven states, including New Jersey, have statutes that expressly permit PLAs.  Twenty-four other states have statutes that expressly prohibit PLAs from being utilized.  The remainder, including Pennsylvania, have no statute expressly addressing the legality of PLAs.

Allen Myers LP v. Dept of Transportation

The case involved a PLA that PennDOT had negotiated with the Philadelphia Building and Construction Trades Council (the “Unions”) for a project in Montgomery County known as the Markley Street Project.  The PLA obligated bidding contractors to hire craft labor personnel through the Unions and to be bound by the Unions’ collective bargaining agreements.  Allan Myers, a non-union contractor, filed a bid protest challenging the legality of the PLA. Allan Myers raised several arguments against the PLA including that the PLA was discriminatory because it unduly favored union contractors over non-union contractors.

PennDOT responded to the challenge arguing that case law authorized the use of a PLA in bids for public construction projects and that because the PLA provided that “any qualified contractors may bid or perform work on this Project” regardless of their union affiliation or lack thereof.  Therefore, PennDOT contended that Allan Myers could bid on the Markley Street Project.

However, the Court ruled in Allan Myers’ favor and held that PLAs are contrary to Pennsylvania’s competitive bidding requirements. The Court held that it was well settled that under the Commonwealth Procurement Code contracts are to be awarded by competitive sealed bidding to “the lowest responsible bidder.”  The Court then recited the purpose of competitive bidding which is to guard against “favoritism, improvidence, extravagance, fraud, and corruption in the awarding of contracts,” and to place contractors on “equal footing” so as to promote open and fair competition.  The Court then noted that “where there is no common standard on which bids are based, “[t]he integrity of the competitive bidding process is violated and the purpose of competitive bidding is frustrated.”

The Court then applied these principals to the PLA and found that the PLA does not place nonunion contractors “on an equal footing” with union contractors because a nonunion contractor that bid on the Markley Street Project could not use its own experienced workforce. Rather, it was required to hire its employees on the Project through the Unions’ hiring halls. Therefore, Allan Myers would essentially be required to bid on a project with an unknown workforce.

What’s next?

For the moment, any Commonwealth project with a project labor agreement attached to it is ripe for a challenge.  Thus, any non-union contractor interested in bidding on a project subject to a PLA in Pennsylvania should consider a challenge.  However, the question remains as to how long this holding lasts.  One would suspect that PennDOT would appeal this decision to the Pennsylvania Supreme Court.  There, given the Courts current make up, the legality of PLA’s may be viewed more favorably.  As such, the Myers decision may have the unintended effect of cementing the legality of PLAs in Pennsylvania until the legislature acts.

Negotiating Project Labor Agreements: Key Terms for Managing Costs, Limiting Risks

I am pleased to announce that I will be speaking in an upcoming Strafford live webinar, “Negotiating Project Labor Agreements: Key Terms for Managing Costs, Limiting Risks” scheduled for Thursday, November 29, 1:00pm-2:30pm EST. Because of your affiliation with my firm, you are eligible to attend this program at half off. As long as you use the links in this email, the offer will be reflected automatically in your cart.

Our panel will provide construction practitioners with practical insight into drafting PLAs. The panel will discuss key contract provisions for owners, contractors and labor providers and best practices for avoiding pitfalls in their use in public and private construction projects, including what a municipality and a union can legally do through a PLA and what is not legal under a PLA.

After our presentations, we will engage in a live question and answer session with participants so we can answer your questions about these important issues directly.

I hope you’ll join us.

For more information or to register >

Or call 1-800-926-7926
Ask for Negotiating Project Labor Agreements on 11/29/2018
Mention code: ZDFCA

How to Challenge a Project Labor Agreement

 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.

Why a Challenge to Philadelphia’s Project Labor Agreement Would Be Successful

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.

Two Blows Dealt to Project Labor Agreements

Opponents of project labor agreements are no doubt cheering two recent developments concerning wasteful PLA’s.

In New York, a state court has ordered the NYDOT to cancel an interchange project because NYDOT violated New York competitive bidding laws by requiring a PLA on the project.  According to ENR, at issue was a $72.4 million Orange County interchange project.  NYDOT awarded the project to A.Servidone/B. Anthony Construction Corp., a joint venture.  The JV’s bid complied with the PLA but was higher than the low bid, which did not comply.

However, NYDOT originally advertised the bid without the PLA.  However, after receiving a “proposal” from a “union group,” NYDOT changed its mind and 11 days prior to the date, revised the bid specification to include the PLA.

The objecting low bidder, Lancaster Development, bid the project without the PLA.  Although its bid was lowest, NYDOT rejected the bid because it did not comply with the bid specification requiring compliance with the PLA.

However, the Court overturned NYDOT rejection of Lancaster’s bid and ordered NYDOT to rebid the job.  No word on whether the rebid job will include a PLA from the outset.

In Washington, ENR reports that Metropolitan Washington Airports Authority has canceled a PLA for the extension to the Metrorail system to Dulles airport.  The article states that the design build team that will be selected for Phase II of the project can “voluntarily” sign the PLA, which will now only apply to the prime contractor.  The article does not elaborate to what impact the elimination of the PLA to all but the prime contractor will have on the overall participation of merit shop contractors on the project.  If the design-build team anticipates entering into a single contractor with the prime contractor for all of the work, presumably the PLA would have the same effect overall.

Philadelphia PLA’s: Another Setback for the 99%

Yesterday CBS Philly reported that Mayor Nutter signed Executive Order 15-11 once again making project labor agreements a reality on City owned public works projects in excess of $5 million, which would require all contractors bidding on City projects to hire workers out of a local union hiring hall and abide by onerous, restrictive, and expensive union work rules.  The article states that Mayor and Organized Labor believe the new PLA agreement is a win-win for everyone.  If by everyone, you mean everyone but Philadelphia taxpayers and men and women working in the construction industry.

Why is this a lose-lose for everyone but the Philadelphia Building and Construction Trades Council?

First, the Pennsylvania Bureau of Labor Statistics states that over 80% of Pennsylvanians working in the construction industry elect NOT to join a union.  Therefore, an overwhelming majority of Pennsylvania’s will be excluded from gainful employment in an industry that has an unemployment rate 10% higher than the national average (about 17% of construction workers are unemployed).

Second, studies indicate that union construction costs 10-20% more than the non-union equivalent.   Moreover, there is no evidence that the work union labor will perform is somehow superior to non-union labor and, therefore, deserving of the cost premium.  At a time when Philadelphia is at best cash strapped and at worse teetering on bankruptcy, is selecting the unnecessarily more expensive option fiscally sane and in the best interest of the already tapped out taxpayer?

Third, Mayor Nutter states that the PLA’s will insure diversity.  For years, Mayor Nutter has criticized the local building trades and their lilly white membership.  How exactly have they become more diverse in the last few years?  In many minority communities in Philadelphia, unemployment is a staggering 30%.  Philadelphia’s new PLA order will do nothing to dent that number.

Philadelphia’s new PLA ordinance is another set back for Philadelphia’s long forgotten taxpayer.  The only ones that should be cheering this order are Philadelphia Building and Construction Trades Council.

City of Allentown’s PLA Ordinance Challenged

As reported by Peter Hall in  the Allentown Morning call, the Associated Builders and Contractors of Eastern PA has sued the City of Allentown over the City’s controversial ordinance bidders on City projects in excess of $250,000 to abide by a project labor agreement.  The Call reports that F.H. Rohrbach of Allentown, A.J. Trunzo of Bath, and Engelman Construction of Macungie joined ABC in the lawsuit.  A copy of the Complaint can be downloaded here.  ABC v. City of Allentown.

According to the complaint filed in the Federal Court for the Eastern District of Pennsylvania, federal law preempts Allentown Ordinance 14865, which mandates that successful bidders on City projects recieving State or Federal funding to enter into collective bargaining agreements with various labor unions.  The Complaint asks the Court for a declaratory judgment that the Ordinance is invalid and an injunction prohibiting its enforcement.

The Complaint was just filed on October 24 and therefore an answer from the City of Allentown is at least twenty days away.  However, I will surely be blogging about this case in the future.

Investing in Unready Projects

In an earlier post, I outlined what a common seanse infrastructure bill should look like.  As the Wall Street Journal reported yesterday, President Obama is apparently not an avid reader of Supplemental Conditions because he is getting ready to market a new “investment” in infrastructure spending program that misses the mark entirely.  I understand that many underemployed construction firms see a new infrastructure spending program as a silver lining to the dark cloud that hangs over the industry right now.  Indeed, the AGC is all but begging to for this bill to be passed.  But, as the Journal alludes to, any new infrastructure spending program is likely to have little impact on the economic realities the industry faces.  First, many of the so called shovel ready projects are at least 3 years from the first shovel being put into the ground.  Additionally, President Obama’s plan will undoubtedly require the use of project labor agreements thereby funneling the spending to union only construction firms and leaving an overwhelming majority of construction firms out in the cold. 

What we need is not targeted spending, but pro-growth policies that will benefit the entire market place.  Public spending directed at 11% (the percentage of the construction industry that is unionized) is simply not going to do it.  Yes, infrastructure spending is nice – and necessary – but it is also useless without vibrant private sector projects.  Unfortunately, no amount of President Obama’s “investment” can get those projects going.

Update: Cement Workers Ordered Back to Work

Crain’s New York Business is reporting that an arbitrator has ordered striking concrete workers back to work on four sites covered by project labor agreements (“PLA’s”).  In my previous post, I discussed how these workers were violating the terms of the PLA’s No Strike/Work Stoppages Clause.

Despite the Cement Union’s decision to ignore the clear terms of the PLA and go on strike, the Real Estate Board of New York still finds value in them:

“When we got the [project labor agreement], the main thing we got out of it was the no-strike clause,” said Mr. Spinola said. “The fact that we had the PLA and enforced it, and they’re back working today demonstrates there was a value to the PLA.”

Moreover, although it is reported that workers have honored the arbitrator’s ruling and returned to work on some sites, the Union plans to appeal the decision.  According to Crain’s:

“A source close to the building trades said the Cement and Concrete Workers District Council would appeal the ruling. The source said the union’s counsel was not properly notified about Tuesday’s hearing and therefore did not know about it in time to show up. Had officials known about the hearing, they would have argued that the no-strike provision was no longer in effect because the workers’ contract expired at the end of June.”

I will continue to monitor this interesting story.

PLA Fails to Prevent NYC Strike

The Concrete Union strike in New York and subsequent walk off on the World Trade Center Memorial and Madison Square Garden projects  made minor fanfare this week.    What many do not realize is that the Concrete Union was the signatory to a project labor agreement (“PLA”) covering these project which is supposed to prevent strikes, walkouts, and labor stoppages.  As Crain’s New York Business reported:

“Workers are not supposed to strike at sites where developers and unions inked project labor agreements, but an industry source said concrete workers did not show up Monday for their jobs at the new Weill Cornell Medical Center research building on East 69th Street, a project that does have such an agreement. The source said a request for an arbitration hearing was made to the Building and Construction Trades Council.”

Unions sell PLA’s to private developers and government bodies as a way to prevent strikes and walkouts and to assure overall labor “peace.”  However, the situation in New York draws into question whether Unions can continue to make this selling point.

The strikes in New York also unmask the true intentions of Unions when promoting  the use of PLA’s.  While Unions claim PLA’s prevent strikes and walkouts, clearly this is not the case.  The ABC has a great post about repeated violations of the No Work Stoppage/No Strike clauses in PLA’s by unions throughout the country. Apparently, Labor does not deny that these No Strike Clauses are being repeatedly violated.  Moreover, the collective bargaining agreement between a local union and a signatory contractor likely already prevents strikes and walkouts.  Thus, what the Unions are really saying when they pitch PLA’s as a way to guarantee labor “peace” is that the job will be free from unlawful secondary picketing, threats of violence, and other shenanigans Unions pull to get their way.  In other words, PLA’s are a veiled form of extortion.  And, on government funding projects, what do the taxpayers get in return for extracted labor “peace?”  Typically, projects that cost more and take longer to complete.

What is even troubling about Union violations of a PLA is that owners are apparently powerless to stop the violation.  The Norris–La Guardia Act Anti-Injunction Act, which, as those that followed the NFL lockout will recall, prohibits a court from issuing an injunction that interferes with a labor strike and, thus, ordering workers striking in violation of a PLA back to work.  Moreover, even if the Act did not apply, it is doubtful – indeed the standard is very high – that a Court would issue an injunction forcing someone to return to work.

Conversely,  if a contractor violates a PLA by not hiring employees through the hall the consequences are severe.  Potentially, a contractor could be required to pay contributions to the local union’s benefit funds for the non-union employees that worked on the job, whether those employees were actually union members or not.  Because those contributions are based on the  the number of hours each employee worked on the job, the financial liability can quickly add up to significant amounts.  Furthermore, the officers of the offending firm face personal liability to the Union Funds for these contributions.

Hopefully, this recent dust up over PLA’s will continue to erode public support for them.  If Unions do not honor PLA’s what is their purpose?