Associated Builders & Contractors, Inc. v. City of Seward

966 F.2d 492, 1992 WL 118875

• Court: Court of Appeals for the Ninth Circuit
• Decided: June 5, 1992
• Docket: No. 91-35511
• Status: Published

Opinions

WILLIAM A. NORRIS, Circuit Judge:

The City of Seward (“Seward”) owns and operates its own electric utility. Seward has a Collective Bargaining Agreement (“CBA”) with the International Brotherhood of Electrical Workers (“IBEW”). In 1990, Seward received a grant from the Alaska legislature to replace an old high voltage electric transmission line. Although Seward has traditionally relied on its own employees to do the work on improvements in its electrical system, in this case it decided to contract out the transmission line renovation project to a private contractor. The primary reason for doing so was that Seward lacked the heavy construction equipment needed to do the job.

To protect the interests of the Seward employees represented by the IBEW, the union negotiated with Seward to add a work preservation clause to the CBA. The clause limits bidding on the renovation project to contractors who agree to enter into a labor agreement with the IBEW for purposes of this project.¹

Trade associations representing construction industry contractors (“Contractors”) filed this action seeking to enjoin the enforcement of the work preservation clause. The Contractors maintained the clause is preempted by the National Labor Relations Act (NLRA), that it violates the antitrust laws, and that it operates to deny the Contractors equal protection and due process of law.

Ruling on stipulated facts, the district court granted summary judgment to Seward and the IBEW. The Contractors appeal. We review a summary judgment de novo. See Harkins Amusement Enterprises, Inc. v. General Cinema Corp., 850 F.2d 477, 482 (9th Cir.1988), cert. denied, 488 U.S. 1019, 109 S.Ct. 817, 102 L.Ed.2d 806 (1989).

I

We first address the Contractors’ preemption argument that the NLRA prohibits Seward from enforcing the work preservation clause in its CBA with the IBEW.

In Golden State Transit Corp. v. City of Los Angeles, 475 U.S. 608, 106 S.Ct. 1395, 89 L.Ed.2d 616 (1986), the Supreme Court summarized its NLRA preemption case law. The Court said:

Last Term, in Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 [105 S.Ct. 2380, 85 L.Ed.2d 728] (1985), we again noted: “The Court has articulated two distinct NLRA preemption principles.” The first, the so-called [San Diego Building Trades Council v.] Garmon [359 U.S. 236, 79 S.Ct. 773, 3 L.Ed.2d 775 (1959) ] preemption prohibits States from regulating “activity that the NLRA protects, prohibits, or arguably protects or prohibits.” The Garmon rule is intended to preclude state interference with the National Labor Relation Board’s interpretation and active enforcement of the “integrated scheme of regulation” established by the NLRA.

[T]he second, ... the so-called Machinists [v. Wisconsin Employment Relations Comm’n, 427 U.S. 132, 96 S.Ct. 2548, 49 L.Ed.2d 396 (1976)] preemption ... precludes state and municipal regulation “concerning conduct that Congress intended to be unregulated.” Although the labor-management relationship is structured by the NLRA, certain areas intentionally have been left “ ‘to be controlled by the free play of economic forces.’ ” The Court recognized in Machinists that ... Congress’ decision to prohibit certain forms of economic pressure while leaving others unregulated represents an intentional balance “ ‘between the uncontrolled power of management and labor to further their respective interests.’ ”

Id. at 613-14, 106 S.Ct. at 1398-99 (citations omitted).

Citing Golden State, the Contractors argue that the work preservation clause in Seward’s CBA triggers the so-called Machinists preemption principle which the Court found applicable in Golden State. In Golden State, the employees of a privately-owned taxi cab company were on strike when their employer’s cab franchise came up for renewal by the City of Los Angeles. The city council refused to renew the franchise unless the cab company settled the strike by a certain date. The strike was not settled and the franchise expired. The cab company sued the city on the ground that the city’s conditioning the renewal of the franchise on the settlement of the strike constituted an impermissible attempt to regulate conduct that Congress intended to be unregulated.

Invoking the Machinists preemption doctrine, the Supreme Court agreed. The Court said that the NLRA “leaves the bargaining process largely to the parties,” id. at 616, 106 S.Ct. at 1400, and that “[t]he parties’ resort to economic pressure [in this case] was a legitimate part of their collective-bargaining process.” Id. at 615, 106 S.Ct. at 1399. The Court went on to observe that “the bargaining process was thwarted when the city in effect imposed a positive durational limit on the exercise of economic self-help.” Id. Because “[p]ro-tecting the free use of economic weapons during the course of negotiations was the rationale for [the] finding[] of preemption in Machinists,” the Court held the city’s action was preempted by the NLRA. Id. at 617, .106 S.Ct. at 1400.

Here, the Contractors argue that, just like the City of Los Angeles in Golden State, the City of Seward impermissibly regulated private sector collective bargaining when it enforced the terms of the work preservation clause against private contractors. In response, Seward and the IBEW argue that the Contractors overlook the critical fact that this case, unlike Golden State, involves action taken by a city in its capacity as' a public employer to enforce the terms of a valid work preservation clause in a collective bargaining agreement that covers its own electrical employees. Relying in part on Congress’ exemption of public sector collective bargaining from the coverage of the NLRA, see 29 U.S.C. § 152(2), Seward and the IBEW contend that the NLRA does not preempt the action Seward took in its capacity as a public employer.

A

Golden State is clear authority for the proposition that a city may not regulate the collective bargaining activities of private employers merely because they do business in the city. In Golden State, the Supreme Court held that the NLRA barred the City of Los Angeles from using its power to franchise taxi cab companies to influence the bargaining process between a cab company and its employees. In that sense, the Contractors are correct that the City of Seward cannot use its regulatory power to influence private sector collective bargaining. In this case, however, Seward was not' exercising its regulatory power, but rather was exercising its power as a market participant. Seward did not require all contractors doing business in the city to have a collective bargaining agreement with the IBEW; rather it only required the successful bidder on the city’s power line renovation project to have such a contract. This is an important distinction for the purpose of applying the NLRA preemption doctrine. As the Supreme Court has explained in the Commerce Clause context, “[w]hen the State acts solely as a market participant, no conflict between state regulation and federal regulatory authority can arise.” United Building and Construction Trades Council of Camden County v. City of Camden, 465 U.S. 208, 220, 104 S.Ct. 1020, 1028, 79 L.Ed.2d 249 (1984) (emphasis in original).

The fact that Seward was acting as a market participant, however, does not end the preemption inquiry. In Wisconsin Department of Industry, Labor and Human Relations v. Gould, Inc., 475 U.S. 282, 106 S.Ct. 1057, 89 L.Ed.2d 223 (1986), the Court recognized that in some circumstances state action as a market participant could run afoul of the NLRA.

In Gould, the Court considered whether the NLRA preempted a Wisconsin statute prohibiting state procurement agents from purchasing any products manufactured or sold by a company that repeatedly violated the NLRA. Id. at 283-84, 106 S.Ct. at 1059-60. In the course of its analysis, the Court rejected Wisconsin’s argument that its procurement statute was not subject to preemption analysis because it constituted “an exercise of the State’s spending power rather than its regulatory power.” Id. at 287, 106 S.Ct. at 1061. The Court reasoned, “That seems to us a distinction without a difference, at least in this case, because on its face the debarment statute serves plainly as a means of enforcing the NLRA.” Id.

Gould thus stands as authority for the idea that action taken by a state as a market participant is not automatically immune from NLRA preemption. In deciding that the Wisconsin procurement policy constituted an impermissible effort to use the state’s purchasing power to regulate private sector labor relations, the Court in Gould looked to the state’s purpose in adopting the policy. The Court specifically relied both on the state’s concession “that the point of the statute is to deter labor law violations and to reward ‘fidelity to the law,’ ” id., and on its own observation that “[n]o other purpose could credibly be ascribed [to the statute.]” Id. Because the Wisconsin policy served the sole purpose of enforcing the NLRA, the Court determined that "for all practical purposes, Wisconsin’s debarment scheme is tantamount to regulation,” id. at 289, 106 S.Ct. at 1062, and hence subject to NLRA preemption analysis.

In Gould, the Court went on to limit the reach of its holding that the Wisconsin procurement policy was an impermissible attempt to regulate private sector labor relations: “We do not say that state purchasing decisions may never be influenced by labor considerations, any more than the NLRA prevents state regulatory power from ever touching on matters of industrial relations.” Id. at 291,106 S.Ct. at 1063. It added, “We are not faced here with a statute' that can even plausibly be defended as a legitimate response to state procurement constraints or to local economic needs, or with a law that pursues a task Congress intended to leave to the States.” Id. .

B

In this case, the City of Seward acted as a market participant when it required the winning bidder on its power line renovation project to comply with the terms of the work preservation clause in the city’s collective bargaining contract with the IBEW. In deciding whether Seward’s action constituted an impermissible effort to use its market power to regulate private sector labor relations, we focus our inquiry on the question whether the work preservation clause had the sole purpose of regulating conduct that Congress intended to be unregulated or whether “[anjother purpose could credibly be ascribed [to the union signatory requirement.]” Gould, 475 U.S. at 287, 106 S.Ct. at 1061-62.

In our view, there is no reason to believe that the work preservation clause was motivated by labor regulatory goals. Seward’s purpose in agreeing to the work preservation clause was not to regulate the labor relations of its contractors. As far as the record indicates, Seward’s sole purpose was to ensure harmonious industrial relations with its own electrical workers, who had traditionally performed the renovation work, since in this instance the city had to contract out the work because it did not have the necessary equipment to do the job. To be sure, the work preservation clause obligated the city to require the successful bidder to have a collective bargaining agreement with the IBEW covering this project. But the terms of the work preservation clause in the City’s CBA with the IBEW were hammered out in the collective bargaining process. Like any work preservation clause, it was designed to provide a measure of economic protection for the employees of the City’s electrical utility-

On the face of it, the City of Seward, unlike the State of Wisconsin in Gould or the City of Los Angeles in Golden State, was not driven by regulatory concerns, but by legitimate management concerns that may lead any employer, public or private, to agree to a work preservation clause: striking a bargain with a union that represents its employees, maintaining harmonious relations with that union and its members, and avoiding industrial unrest in conducting its business affairs. Indeed, work preservation clauses such as the one at issue here are common in private sector collective bargaining agreements. See, e.g., CCH, Union Contract Clauses § 51,-806.42, at 747.²

We now turn to the question whether Congress intended to prohibit a public employer from requiring one of its contractors to have an agreement with the union that represents the public employers’ employees who have traditionally performed the work being contracted out. We believe this question poses no difficulty because Congress has expressly placed public sector labor relations beyond the reach of the NLRA, and “Congressional purpose is of course ‘the ultimate touchstone’ of preemption analysis.” Gould, 475 U.S. at 290, 106 (citations omitted). Congressional purpose vis-a-vis public employers is expressed in section 2(2) of the NLRA. That section exempts public employers from the definition of “employer” and consequently from the coverage of the Act. See 29 U.S.C. § 152(2) (“When used in this subchapter ... [t]he term ‘employer’ ... shall not include ... any state or political subdivision thereof.”) (“section 2(2)”); see also Abood v. Detroit Board of Education, 431 U.S. 209, 223, 97 S.Ct. 1782, 1793, 52 L.Ed.2d 261 (1977) (“The National Labor Relations Act leaves regulation of the labor relations of state and local governments to the States.”). In light of section 2(2), we fail to see how Congress could have intended to prohibit a public employee from agreeing to a work preservation clause to which a private employer is free to agree.

The Contractors rely heavily on Associated Builders and Contractors of Massachusetts/Rhode Island, Inc. v. Massachusetts Water Resources Authority, 935 F.2d 345 (1st Cir.1991) (en banc), cert. granted, - U.S. -, 112 S.Ct. 293, 116 L.Ed.2d 238 (1992) [hereinafter “Boston Harbor”]. In Boston Harbor, the First Circuit held that the NLRA preempted an attempt by the Massachusetts Water Resources Authority (“MWRA”) to limit the bidding on the multi-billion dollar Boston Harbor clean-up project to contractors who agreed to sign a master collective bargaining agreement (drafted on behalf of the MWRA) with the Construction Trades Council and affiliated labor organizations. The Contractors argue that deciding this case in favor of Seward would conflict with Boston Harbor.

Boston Harbor does indeed share certain similarities with this case. In Boston Harbor, just as here, the state entity had a preexisting collective bargaining agreement with a union which required that all work done on a public project be awarded to contractors and subcontractors who agreed to sign a collective bargaining agreement with that union. The Contractors, however, overlook a crucial distinction between Boston Harbor and this case. The MWRA in Boston Harbor did not act out of its concerns as a public employer; unlike the City of Seward, it did not employ workers who had traditionally performed the work that would be contracted out.³ Thus, the purpose of the union signatory requirement in Boston Harbor was not to preserve work traditionally performed by city employees. Here, by contrast, Seward is a public employer-that has a collective bargaining agreement with the union representing its utility’s electrical employees and the CBA defines the relevant bargaining unit broadly enough to cover the power line renovation work.⁴ The union signatory requirement has been imposed to preserve work traditionally performed by members of the bargaining unit.

As we have already noted, the fact that Seward acted in this case in its capacity as a public employer is crucial to the preemption analysis. Indeed, Boston Harbor itself makes clear that NLRA preemption principles do not apply to an action by state or local government acting out of concerns it may have as a public employer. Id. at 354 (“Of course, if the MWRA were the actual employer of the Project laborers, the NLRA would be totally inapplicable as States are excluded from the definition of ‘employer.’ ”). The fact that Seward will not be the actual employer of the workers on the line renovation project is irrelevant, so long as Seward acted in its capacity as a public employer in enforcing the terms of a valid work preservation clause in its CBA with the IBEW..

Were we to interpret the NLRA as prohibiting a municipality from fulfilling its obligations as a public employer under an otherwise valid work preservation clause in a public sector collective bargaining agreement, we would be paradoxically attributing to Congress the intent to impose more stringent labor regulations on public employers than on private employers. Such an interpretation of the NLRA would be at odds with Congress’ command in section 2(2) that public sector labor relations be left unregulated by the federal government. It would indeed transform the preemption case law into a round-about way of redacting, at least partially, section 2(2) of the NLRA.

In sum, we see no basis for attributing to Congress an intent to prohibit a public employer from using a work preservation clause as a bargaining chip in the collective bargaining process while allowing a private employer to do just that. Because Congress exempted public sector collective bargaining from the scope of the NLRA, we believe the decision whether to agree to and enforce a work preservation clause is “a task Congress intended to leave to the States.” Gould, 475 U.S. at 291, 106 S.Ct. at 1064. Accordingly, we hold that the NLRA does not preempt the City of Seward’s actions requiring the successful bidder to have an agreement with the IBEW because the requirement was imposed pursuant to a valid work preservation clause in a collective bargaining agreement covering the city’s electrical employees.

II

The Contractors’ second claim is that Seward’s CBÁ with the IBEW violates the Sherman Antitrust Act, which broadly proscribes “every contract, combination in the form of trust or otherwise, in restraint of trade or commerce.” 15 U.S.C. § 1. The Contractors rely on cases which prohibit agreements between unions and non-labor organizations designed to reduce competition. See, e.g., Connell Construction Co. v. Plumbers & Steamfitters Local Union No. 100, 421 U.S. 616, 622, 95 S.Ct. 1830, 1835, 44 L.Ed.2d 418 (1975). The Contractors’ reliance on these cases is misplaced because the Supreme Court has recognized a non-statutory exemption from antitrust liability for collective bargaining agreements. Id. .

Relying on Sun-Land Nurseries v. Southern California District Council of Laborers, 793 F.2d 1110 (9th Cir.1986) (en banc), cert. denied, 479 U.S. 1090, 107 S.Ct. 1299, 94 L.Ed.2d 155 (1987), Seward and the IBEW argue that a work preservation clause comes within the ambit of the non-statutory exemption to antitrust liability. In Sun-Land, we considered the applicability of the non-statutory exemption to construction industry collective bargaining agreements requiring subcontractors to be parties to a collective bargaining agreement with the union. Noting that Section 8(e) of the NLRA permits “hot cargo” agreements in the construction industry, we held that “a valid subcontracting clause contained in a collective bargaining agreement cannot serve as the basis for an antitrust claim” because “Congress would not have exempted the construction industry from the prohibition against ‘hot cargo’ clauses only to have such provisions create liability under antitrust laws.” Id. at 1117. We recognize that, since the City of Seward is not an employer under section 2(2), neither the general prohibition against hot cargo agreements nor the exemption in section 8(e) applies to it. Nonetheless, we find the reasoning in Sun-Land, persuasive. Just as the employer and the union in Sun-Land, the City of Seward and the IBEW entered into an agreement permitted by law. It would be inconsistent to approve such an agreement under labor law, but strike it down under antitrust law. Accordingly, we hold that the Seward work preservation clause is immune from antitrust liability.⁵

III

The Contractors further argue that Seward’s enforcement of the terms of the work preservation clause violates the Equal Protection Clause of the Fourteenth Amendment because it constitutes state action favoring union contractors over nonunion contractors. They then argue that the discrimination between these two groups is constitutionally infirm because it fails minimum rationality. We reject this argument. It is just as rational for a public employer to favor union contractors pursuant to a work preservation clause as it is for a private employer to do so. See, e.g., Image Carrier Corp. v. Beame, 567 F.2d 1197, 1203 (2nd Cir.1977) (holding that rational basis exists for city policy favoring union printers over non-union printers), cert. denied, 440 U.S. 979, 99 S.Ct. 1785, 60 L.Ed.2d 239 (1979).

IV

Finally, the Contractors argue that the City of Seward denied them due process of law when it agreed with the IBEW to add the work preservation clause to the CBA without giving the Contractors notice and an opportunity to be heard. This argument fails because as wishful bidders the Contractors have no constitutionally protected property interest in the city’s power line renovation project. See Eastway Construction Corp. v. City of New York, 762 F.2d 243, 250 (2nd Cir.1985) (the abstract need or desire to participate in public construction contracts does not constitute a property right protected by the Fourteenth Amendment).

The summary judgment in favor of ap-pellees is AFFIRMED.

1 . The work preservation clause reads as follows:

The City of Seward ("the Employer”) agrees that, to the extent permitted by law, (including 29 U.S.C. § 158(e)), it will not contract for or allow the subcontract for the construction of the 115 kv main electrical transmission intertie line between Lawing and Fort. Raymond [substations] for work traditionally performed by employees represented by the International Brotherhood of Electrical Workers, Local Union 1547 ("IBEW") except to a person, firm, or corporation that is a party to an appropriate current labor agreement with IBEW.

2 . The Contractors do not dispute that the clause pursuant to which Seward acted would be a valid work preservation agreement if entered into by a private employer.

3 . Glenwood Bridge, Inc. v. City of Minneapolis, 940 F.2d 367, 370 (8th Cir.1991), a case which followed Boston Harbor, is distinguishable for the same reason. The City of Minneapolis was not acting as a public employer since it did not own a public company and employ workers who traditionally performed the type of work at issue. Rather, Minneapolis, like the MWRA, was placed in charge of a project that required the hiring of workers, and in order to ensure smooth labor relations, it entered into a stability agreement with a specific union.

Because Boston Harbor and Glenwood Bridge are distinguishable, we need not take a position on the merits of those cases. Boston Harbor was decided by an en banc panel of the First Circuit that split 3-2; the Glenvjood Bridge panel split 2-1. A petition'for certiorari in Boston Harbor is currently pending before the Supreme Court.

4 . The work preservation clause did not extend beyond the bargaining unit. See Letter of Agreement Relating to Seward Inertie Project (“[Tjhis provision is designed and intended to preserve work traditionally performed by employees represented by IBEW whose wages, hours, and conditions of employment are prescribed by this Agreement.”). The stipulated facts show that Seward’s own employees who are represented by the IBEW have done the work on major improvements to Seward’s electrical system, including at least twenty different electrical transmission line projects in recent years. The stipulated facts also show that the renovation of the power line is directly related to the work done by Seward’s employees, that is, the maintenance of the power line. It is not disputed that if Seward had had the heavy equipment necessary to undertake the project, it would have used its own utility employees to do the work.

5 . In the alternative, the City and the IBEW argue that the summary judgment on the antitrust claim can be affirmed on the basis of the governmental action exception to the Sherman Act. We need not reach this argument.