The National Labor Relations Board issued a long-awaited decision on whether it is lawful to secure labor agreements with owner/developers so that large construction projects would be built solely with union labor.

In its recent ruling with the Glens Falls (NY) Building and Construction Trades Council, the NLRB held that a labor union representing construction craft workers and the owner of an upcoming project cannot lawfully agree to require the owner's construction contractor to sign a project labor agreement.

The case grew out of an agreement between the unions representing the construction craft workers in an area of New York and a private company that designs, owns and operates power cogeneration facilities. The unions and the owner had entered into an agreement providing that the owner would require its construction contractor to sign a project labor agreement.

But after a dispute arose between the developer and the construction manager over delays in the start of construction of the project, the developer declared that the construction manager had defaulted and proceeded to secure bids from other (open shop) contractors. Although the project was eventually built predominantly with union workers, the Trades Council sued the developer for $12 million, claiming the new construction manager's failure to use only union subcontractors was a breach of contract.

According to Richard Reibstein, a partner in WolfBlock's Employment Services practice, which represented the owner/developer in this case, the developer filed an unfair labor practice charge against the Trades Council with the NLRB, “alleging that the lawsuit by the unions was illegal under the National Labor Relations Act.” (The Supreme Court of the United States had ruled in 1974 that unions could enter into valid agreements that construction projects could be built with all-union workers, but only if the agreement was negotiated in the context of the collective bargaining process.) Eventually, the NLRB agreed, and found that the Trades Council's lawsuit was an illegal attempt to enforce an invalid agreement.

National Implications

Stephen E. Sandherr, Chief Executive Officer of the Associated General Contractors of America, which filed a friend-of-the-court brief with the NLRB, said in a statement that the recent ruling was good news for both union and open shop contractors, and that the ruling will reduce the top-down pressure on open shop contractors to change their labor policy, without regard to either their rights or their employees' preferences. “It will also protect the collective bargaining process, and the union contractors committed to that process, making it far more difficult for labor unions to bypass the companies actually employing their members, and to negotiate, instead, with project owners,” he added.

"The case could have changed the law of Project Labor Agreements if the NLRB had allowed the unions to sue owner/developers to enforce agreements negotiated outside of the collective bargaining process," said Reibstein in a statement. "It would have represented the ultimate weapon in organized labor's effort to eliminate open shop construction projects in the private sector. A construction manager's use of even a single non-union subcontractor could have been used by unions as a ground to sue an owner/developer for millions of dollars," he added. It is anticipated that the Glens Falls Trades Council will appeal the decision, which could reach the U.S. Supreme Court once again.