Rondout Electric, Inc. v. Nys Dept. Of LaborRondout Electric, Inc. v. Nys Dept. Of Labor
Seth Kupferberg, Assistant Attorney General, State of New York (Eliot Spitzer, Attorney General; Marion Buchbinder, Assistant Solicitor General; M. Patricia Smith, Assistant Attorney General, on the brief), New York, New York, N.Y. for Defendants-Appellants.
Before: JACOBS, POOLER, Circuit Judges, and HALL, District Judge.*
HALL, District Judge.
Defendants, New York Department of Labor (“DOL“); its Commissioner, Linda Angello; the Director of its Bureau of Public Work, Christopher Alund; and the New York State Attorney General, Eliot Spitzer, appeal from the judgment of the United States District Court for the Southern District of New York (Brieant, J.) granting summary judgment to plaintiff, Rondout Electric Inc. (“Rondout“). The district court held that a DOL annualization regulation,
Rondout is a New York corporation with its principal place of business in Poughkeepsie, New York. Rondout performs electrical contract work for projects in both the public and private sector. It employs approximately 75 non-union electricians. Approximately 50 percent of Rondout‘s electrical work is on public work projects, and 50 percent is on private projects.
The annualization regulation implements
As originally enacted,
The hourly value of supplements is calculated by DOL according to the annualization regulation, which provides:
To determine the hourly cash equivalent of any applicable supplement provided to or on behalf of laborers, workers and mechanics employed upon public work projects in accordance with subdivision (a) of this section, the Commissioner of Labor will: (1) divide the actual contribution or cost for providing such supplement by the total annual hours worked on both public and private work, where such proof is provided to the Commission of Labor by the employer ....
If it determines that wages or supplements are due, DOL requires that the public entity owing payment to the contractor withhold such payment in an amount sufficient to satisfy the wages and supplements, including interest and any civil penalty that may be assessed pending a final determination.
Rondout‘s contribution for the benefit of an individual employee is solely for the benefit of that employee. Each eligible employee has a self-directed, individual account within the Plan, which vests immediately. None of the contributions that Rondout makes to an employee‘s account within the Plan are used to obtain benefits for individuals other than the eligible employee on whose behalf the payments were made.
On December 19, 2000, DOL issued four separate “Notice of Labor Law Inspection Findings” to Rondout, alleging that Rondout had underpaid prevailing wages and supplements to its employees on public work projects. DOL also issued notices to each public agency with which Rondout had a contract to withhold money from its payment pending the outcome of an administrative hearing on the underpayment claims. After DOL scheduled an administrative hearing with respect to its investigations, Rondout filed this action, alleging that the benefits annualization regulation violates federal law. Rondout argues that the formula set forth in the annualization regulation is preempted by the NLRA,
DISCUSSION
A grant of summary judgment is reviewed de novo. Mandell v. County of Suffolk, 316 F.3d 368, 376 (2d Cir.2003). “Summary judgment is appropriate only if it can be established `that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.\‘” Sheppard v. Beerman, 317 F.3d 351, 354-55 (2d Cir.2003) (internal citations omitted). The material facts in this action are not in dispute.
The issue on appeal is whether the annualization regulation is preempted by the NLRA. Pursuant to this regulation, DOL determines the hourly cash equivalent of any applicable supplement paid to workers covered by the law by dividing the annual contribution, or the cost of providing such a supplement, by the total number of hours worked by employees on both public and private work.
A. NLRA Preemption
The Supremacy Clause of the United States Constitution provides that “[t]his Constitution, and the Laws of the United States which shall be made in Pursuance thereof ... shall be the supreme Law of the Land.”
The Supreme Court has recognized that, in enacting the NLRA, Congress manifested an unambiguous intent to supplant some aspects of state law that affect labor relations. Bethlehem Steel Co. v. N.Y. State Labor Relations Bd., 330 U.S. 767, 771-76, 67 S.Ct. 1026, 91 L.Ed. 1234 (1947). “The doctrine of labor law pre-emption concerns the extent to which Congress has placed implicit limits on `the permissible scope of state regulation of activity touching upon labor-management relations.\‘” N.Y. Tel. Co. v. N.Y. State Dep‘t of Labor, 440 U.S. 519, 527, 99 S.Ct. 1328, 59 L.Ed.2d 553 (1979) (plurality opinion) (quoting Sears, Roebuck & Co. v. San Diego County Dist. Council of Carpenters, 436 U.S. 180, 187, 98 S.Ct. 1745, 56 L.Ed.2d 209 (1978)). However, because the NLRA “leaves much to the states [and] Congress has refrained from [indicating] how much, [courts] must spell out from conflicting indications of congressional will the area in which state action is still permissible.” Garner v. Teamsters, Chauffeurs & Helpers Local Union, No. 776, 346 U.S. 485, 488, 74 S.Ct. 161, 98 L.Ed. 228 (1953). “Cases that have held state authority to be pre-empted by federal law tend to fall into one of two categories: (1) those that reflect the concern that `one forum would enjoin, as illegal, conduct which the other forum would find legal\’ and (2) those that reflect the concern `that the [application of state law by] state courts would restrict the exercise of rights guaranteed by the Federal Acts.\‘” Machinists, 427 U.S. at 138, 96 S.Ct. 2548 (alteration in original) (quoting UAW v. Russell, 356 U.S. 634, 644, 78 S.Ct. 932, 2 L.Ed.2d 1030 (1958)).
At issue in this appeal is the second category of preemption,1 known as Machinists preemption, which focuses on “whether Congress intended that the conduct involved be unregulated because [such conduct was] left `to be controlled by the free play of economic forces.\‘” Id. at 140, 96 S.Ct. 2548 (quoting NLRB v. Nash-Finch Co., 404 U.S. 138, 144, 92 S.Ct. 373, 30 L.Ed.2d 328 (1971)). States may not “deny[] one party to an economic contest a weapon that Congress meant him to have available.” Id. at 150, 96 S.Ct. 2548 (internal quotation omitted). Under Machinists, “States are.... prohibited from imposing additional restrictions on economic weapons of self-help, such as strikes and lockouts, unless such restrictions presumably were contemplated by Congress.” Golden State Transit Corp. v. City of Los Angeles, 475 U.S. 608, 614-15, 106 S.Ct. 1395, 89 L.Ed.2d 616 (1986) (citation omitted). Thus, state action is only preempted if it regulates the use of economic weapons that are recognized and protected under the NLRA such that the state or local government has entered “`into the substantive aspects of the bargaining process to an extent Congress has not countenanced.\‘” Machinists, 427 U.S. at 149, 96 S.Ct. 2548 (quoting N.L.R.B. v. Ins. Agents’ Int‘l Union, AFL-CIO, 361 U.S. 477, 498, 80 S.Ct. 419, 4 L.Ed.2d 454 (1960)); see also N.Y. Tel., 440 U.S. at 533, 99 S.Ct. 1328 (plurality opinion). There are two general exceptions to the Machinists doctrine: first, if the state regulation works to establish minimum substantive labor standards that are consistent with the legislative goals of the NLRA, Metropolitan Life Insurance Co. v. Mass., 471 U.S. 724, 757, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985), and second, if the state is a market participant or proprietor, Bldg. & Const. Trades Council of the Metro. Dist. v. Associated Builders & Contractors of Mass./R.I., Inc., 507 U.S. 218, 227, 113 S.Ct. 1190, 122 L.Ed.2d 565 (1993).
As the Supreme Court made clear in Metropolitan Life, “[t]he framework established in the NLRA was merely a means to allow the parties to reach ... agreement fairly.” 471 U.S. at 754, 105 S.Ct. 2380. “The NLRA is concerned primarily with establishing an equitable process for determining terms and conditions of employment, and not with particular substantive terms of the bargain that is struck when the parties are negotiating from relatively equal positions.” Id. at 753, 105 S.Ct. 2380. In Metropolitan Life, the Supreme Court held that “[m]inimum state labor standards affect union and nonunion employees equally, and neither encourage nor discourage the collective-bargaining processes that are the subject of the NLRA.” Id. at 755, 105 S.Ct. 2380. The Court found that such minimum labor standards have only “the most indirect effect on the right of self-organization established in the Act.” Id. “Unlike the NLRA, mandated-benefit laws are not laws designed to encourage or discourage employees in the promotion of their interests collectively; rather, they are in part `designed to give specific minimum protections to individual workers and to ensure that each employee covered by the Act would receive\’ the mandated [benefit].” Id. (emphasis original, internal citations omitted). The Court found that these laws do not even “inadvertently affect the interests implicated in the NLRA.” Id.
Rondout argues that the annualization regulation in effect injects the State improperly into the bargaining process by dictating the employee supplements that Rondout must pay on private construction projects. Rondout argues that the mere fact that the employer may opt to pay the prevailing supplement in cash instead of into a benefit plan does not alleviate the conflict between the annualization regulation and the Machinists doctrine. A non-union contractor can avoid annualization supplements by paying the public work employee in cash, but to do so, Rondout argues, requires the employer to incur additional social security taxes and higher insurance premiums on the added payroll.2 Additionally, Rondout argues that the employee must pay payroll taxes on the cash payments, which dilutes the real value of the supplements and deprives the employee of the long-term advantages of a tax-deferred benefit plan.3 DOL responds that while the cash option may increase the cost of Rondout doing business, the additional costs are insufficient to invoke NLRA preemption.4
While the annualization regulation may impose an additional cost on non-union employers through indirect taxes on the cash payment option, this increase does not affect the bargaining process that is the subject of the NLRA. As the Supreme Court has held, “the mere fact that a state statute pertains to matters over which the parties are free to bargain cannot support a claim of pre-emption, for `there is nothing in the NLRA.... which expressly forecloses all state regulatory power with respect to those issues ... that may be the subject of collective bargaining.\‘” Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 21, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987) (alteration in original) (quoting Malone v. White Motor Corp., 435 U.S. 497, 504-05, 98 S.Ct. 1185, 55 L.Ed.2d 443 (1978)). Machinists preemption prohibits state regulation of bargaining conduct that Congress intended to be left to the free play of economic forces. Machinists, 427 U.S. at 150-51, 96 S.Ct. 2548. Unlike the NLRA, the annualization regulation is not “designed to encourage or discourage employees in the promotion of their interests collectively.” Metro. Life, 471 U.S. at 755, 105 S.Ct. 2380. Without some connection between the prevailing wage supplement and labor/management bargaining, the annualization regulation fails to come within the sphere of Machinists preemption under the NLRA.
Even if Bragdon were controlling authority, Rondout fails to establish how the annualization regulation would affect the bargaining process itself. Although the tax implications may have an indirect economic impact on the bidding process,5 it does not bind an employer or employee to a particular choice or eliminate particular bargaining tools. Thus, it is not preempted under the Machinists doctrine. In New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 659, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995), the Supreme Court examined a similar, indirect economic impact in a case involving alleged preemption under ERISA. In that case, the Court stated that:
[a]n indirect economic influence, however, does not bind plan administrators to any particular choice and thus function as a regulation of an ERISA plan itself.... It simply bears on the costs of benefits and the relative costs of competing insurance to provide them. It is an influence that can affect a plan‘s shopping decisions, but it does not affect the fact that any plan will shop for the best deal it can get, surcharges or no surcharges.
Id. at 659-60, 115 S.Ct. 1671. Likewise, in this case, the additional taxes on the cash payment option may factor into the business decision of the non-union employer when taking a public job. However, employees remain free to negotiate contracts under which they never work on public work projects, or only do so on the condition that they receive their supplement in benefits, thus avoiding the additional payroll tax. Employers remain free to require employees to take the cash supplement, thereby avoiding the pooling disincentive. Nothing in the regulation imposes a specific choice on either the employer and employee. Thus, the annualization regulation does not fall within the scope of the NLRA and is not preempted by it.6
CONCLUSION
For the foregoing reasons, the decision of the district court is reversed. The case is remanded for entry of summary judgment in favor of the appellants.