Legal Commentary

November/December 2007

Private-Owner PLAs Set Aside:
Lessons Learned from the NLRB Ruling

Owners or unions seeking project labor agreements must enlist the general contractor’s help rather than imposing that decision

Peter Spanos, Attorney At Law Peter Spanos is a partner in the law firm of Burr & Forman LLP, where he heads the firm’s Atlanta office labor and employment practice. While with another law firm, Spanos was counsel for the Associated General Contractors of America in the Glens Falls case. AGC filed an amicus brief in support of Indeck Energy Services because of the potential significance of the debate over the project labor agreement. E-mail:pspanos@burr.com

If you are a private owner or developer who has signed a project labor agreement dictating that only union members can work on the project, or if you are a contractor who was forced to work on a project with this requirement, you may never have to do so again.In fact, you may be violating the law if you do.

In particular, if an owner or the unions want a project labor agreement, they now must enlist the general contractor in the effort rather than imposing the requirement upon the general contractor.

That’s a big change, and it’s the result of a long-awaited National Labor Relations Board decision handed down in late July. The NLRB has clarified—in a somewhat surprising way—the legal rules that govern private owners’ agreements with building trade unions. Now, it’s clear that project owners cannot bargain for project labor agreements because they do not directly employ construction workers.

The board’s ruling alters some traditional ways of ensuring labor peace in the construction industry, and it leaves open other questions about the limits on union labor-only agreements.

Union-only project labor agreements are often used in private and public construction to head off labor disputes, to secure a supply of trained workers, to promote high wages and good benefits or to improve relations with organized labor.

Until now, such agreements were often bargained by unions with both private owners and construction contractors. While they can be beneficial, project labor agreements can also stifle competition and significantly raise the cost of construction. But there were no clear-cut limits on who can be involved in negotiating and signing them.

Project labor agreements are possible—that is, legal—only because there are special exceptions in the federal labor laws for the construction industry. Under these special exceptions, labor agreements can be signed without an employee vote. Additionally, companies that are “employers in the construction industry” can legally refuse to do business with other, nonunion companies to accommodate organized labor's interests.

Facts of the Case

Indeck Energy Services, Buffalo Grove, Ill., develops electric and steam cogeneration plants but it does not employ any construction craft workers on its projects. Indeck faced union and environmental opposition to a proposed cogeneration plant in New York State. To overcome the opposition, the owner agreed to require all contractors and subcontractors on the project to sign a project labor agreement with the Glens Falls Building and Construction Trades Council.

The project labor agreement specified that only members of the Glens Falls BCTC construction unions would work on the project. After terminating the first construction manager in a contract dispute, Indeck decided to hire a nonunion prime contractor for the powerplant portion of the facility. Indeck completed the project using both union and nonunion construction labor.

When the terms of the union-only pact were not enforced, the Glens Falls BCTC sued in state court to enforce its agreement with Indeck. Seeking to block the state lawsuit, Indeck petitioned the NLRB to have the project labor agreement declared invalid.

Key Questions

The key question addressed by the NLRB was whether Indeck, as a project owner but not a contractor, qualified as an “employer in the construction industry.” On one hand, Indeck ultimately controlled the entire project. On the other, Indeck itself did not employ construction workers on this or any project. The NLRB has now answered this question although the process took seven years. The agreement between Indeck and the Glens Falls BCTC was illegal because Indeck neither employed nor had the intent to employ workers represented by the Glens Falls building trade unions. The NLRB panel emphasized that the purposes of the agreement—in this case, to eliminate environmental opposition to the project and give the union a monopoly on the work force—did not make the project labor agreement lawful.

Lessons and Questions

The Glens Falls decision changes the legal landscape applicable to construction project labor agreements. First, an owner who does not have any jobsite construction employees cannot sign a union-only project labor agreement. What’s more, environmental or other non-labor issues, such as the project owner’s need for labor or the union’s desire for a “monopoly” at the project, will not justify union-only pacts.

Second, the ruling drives the issue of project labor agreements down one or more levels to the general contractor that employs at least some construction workers. In other words, when the owner or the unions want a project labor agreement, the general contractor or prime contractor must agree.

Most importantly, the contractor must be the party who negotiates all union labor agreements for the project.

There are key project labor agreement issues that remain undecided. These include:

• Can a general contractor or construction manager that does not employ construction workers on the particular job, but which may do so on other jobs, lawfully negotiate a project labor agreement?
• Can a public (state) owner of a project that is not receiving any federal funds sign a project labor agreement?
• Many union pension funds are involved in providing financing for projects.Can they require project labor agreements as a condition of financing a project?

The NLRB’s decision drew on the analysis of U.S. Supreme Court cases involving private-owner projects. Accordingly, the ruling in Indeck’s case doesn’t govern public construction projects.