"Job targeting," sometimes called "market recovery," is a program many construction labor unions use to overcome their uncompetitive cost structure. Mandatory deductions are taken directly from union members’ paychecks to subsidize union contractors and lower their bids below their true cost under the union agreement in order to win a project.
Although job targeting reduces union bid "prices" below true costs to thwart competition, the practice has escaped legal sanction for decades under labor law, state tort law or antitrust law. (Meanwhile, Standard Oil was adjudged guilty and broken up a century ago for the same offense.)
The success of these job targeting programs is partly due to previous court decisions that appeared to exempt targeting from anti-trust liability or from labor law violations. In theory, job targeting activities were protected from any state court challenge by federal labor law preemption. The secretive nature of the job targeting programs and the complicity of many union contractors also were factors.
These legal exemptions, however, recently have been undermined by some open shop successes.
Through employee wage deductions of roughly 3 percent to 5 percent under individual union collective bargaining agreements, unions amassed huge sums of money in their job targeting programs from 1990 to the present. These agreements do not differentiate between payments earned by employees on privately funded construction projects versus federal Davis-Bacon and state prevailing wage projects. One scholar estimates labor unions nationwide have accumulated more than $1 billion in market recovery money from 2000 to 2007. In Minnesota alone, more than $88 million in targeting funds have been accumulated, and more than 350 local unions have used job targeting against open shop contractors in at least 46 states from 2000 to 2007.
Two decisions by the U.S. Department of Labor (DOL) Wage and Appeals Board in 1991 determined that:
- workers are entitled to receive prevailing wages on federal projects;
- public funds should not be used to subsidize private sector construction projects; and
- because there was no basis to believe that a direct and traceable vested benefit would accrue to each individual employee from a job targeting fund deduction, deductions from employees’ wages for the benefit of a market recovery fund are impermissible under the Davis-Bacon Act.
During the Clinton administration, the National Labor Relations Board (NLRB) held that a union’s creation and funding of job targeting programs was protected activity under the National Labor Relations Act. But, in light of the earlier DOL decisions, the unions were not permitted to collect market recovery dues from employees on Davis-Bacon Act projects.
Despite the DOL and NLRB decisions, the DOL and the U.S. Department of Justice have not sought to stop the use of targeting money collected on federal construction projects. Instead, the DOL (during the Clinton administration) promised the AFL-CIO Building and Construction Trades Department that it would not enforce the Davis-Bacon Act to prevent job targeting programs under most circumstances.
During a recession, the use of targeting money is particularly destructive due to the reduced volume of work and limited bidding opportunities for open shop competitors. Two recent cases suggest that help may be at hand.
Recent Case Law: Minnesota
In the recent Minnesota state court case of Midwest Pipe Insulation, Inc. v. Minneapolis Pipefitters Union, Local 539, a state tortious interference with contract claim was brought against Local 539. The union was alleged to have caused the prime contractor to breach its pipe insulation subcontract with Midwest Pipe Insulation (MPI) by threatening to withdraw job targeting monies promised to the prime contractor on a school district construction project unless it replaced MPI with a union insulation subcontractor. State contract interference claims in Minnesota and many other states provide for the award of contract damages and attorneys’ fees and costs against the party inducing the breach—even if the actual breaching party is not sued—if the breach was brought about by a “wrongful act.”
MPI claimed the wrongful act was the use of tainted job targeting money from a fund that indiscriminately received employee wage deductions from both Davis-Bacon (or parallel state prevailing wage) and non-Davis-Bacon construction projects.
At various stages of the case, the union made contradictory claims that the use of the job targeting fund in this situation was protected by labor law preemption, so no state court tort claim could proceed, or that it was not protected by federal labor law, so that MPI should have proceeded with a secondary boycott unfair labor practice charge against the union under the NLRB’s primary jurisdiction.
The Minnesota Court of Appeals overturned a trial court decision dismissing MPI’s case and would have allowed the contract interference claim to proceed, but the Minnesota Supreme Court reversed the decision in 2009 and concluded that there was a secondary boycott remedy under the National Labor Relations Act. Therefore, the state court tortious interference claim was disallowed.
MPI has petitioned the U.S. Supreme Court for review of the labor law preemption issue. Such review could serve to confirm that there is a secondary boycott labor law remedy against unions using job targeting funds under facts similar to the MPI case (contract breaches and/or use of “tainted” targeting money under other circumstances). Or, it would confirm that interference with contract or other state tort claims against such use of targeting funds are not preempted by federal labor law and can be used. Either of these results would be helpful to open shop contractors.
Recent Case Law: Boston
American Steel Erectors, Inc. v. Iron Workers Local 7 involves secondary boycott claims against targeting fund-based misconduct, as well as showcases the revived anti-trust recovery that may apply to such misconduct.
During the "Big Dig" Harbor Tunnel construction project in Boston, Iron Workers Local 7 diverted $1.85 per hour from employee wages into its market recovery program. As the tunnel project began to wind down, it directed tens of millions of dollars to construction projects of all types to undercut open shop steel erectors’ pricing. Not only were projects targeted with a subsidy to union steel erectors before bid dates, but even after a bid date, the union threatened steel fabricators, general contractors and owners to break open shop contracts, force agreement on a new price with a union steel erector (sometimes higher than the open shop bid), or face delays, property destruction, picketing and boycotts.
In 2004, five open shop steel erectors in Massachusetts, Maine, New Hampshire and Rhode Island banded together to sue Local 7 under the Sherman Antitrust Act and federal labor law. The theory of the case differed from the earlier unsuccessful antitrust cases because those did not allege that the market recovery program operated as part of a larger scheme of threats and restraints against competition. Here, the market recovery program was shown to be an illegal inducement or "bribe" to promote the union’s unlawful objective to eliminate competition. The steel erectors pled antitrust claims permitting recovery of triple damages, attorneys’ fees and costs from the union.
The American Steel Erectors case was initially dismissed by the district court in Boston, but in 2008, the U.S. Court of Appeals for the 1st Circuit reversed it and ruled the plaintiffs could proceed with their antitrust allegations and labor law claims.
The district court decided to try the labor law claim first by splitting it out from the antitrust claim. It believed that resolution of the labor law claim would prevent jury confusion that could arise from a simultaneous trial of the labor law claims and the antitrust counts. It also believed that resolution of the labor law count would have a preclusive effect on parts of the union’s antitrust defense.
On Sept. 1, 2009, a federal jury in Boston found the union indeed used job targeting money, threats and restraints to enter into illegal agreements with fabricators to cease doing business with the American Steel Erectors plaintiffs. Damages were awarded; trial of the antitrust counts is pending.
The American Steel Erectors case illustrates that secondary boycott claims against job targeting fund misconduct, as well as possible antitrust claims, may be available to protect open shop contractors from misuse of market recovery money by labor unions. The MPI case indicates that either federal labor law secondary boycott remedies or state court interference with contract claims are available against job targeting initiatives.
Efforts such as these must be made by open shop contractors to ensure they are not shut out of the market by anti-competitive union practices based on targeting funds.
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Wednesday, February 8, 2012