Petition for Writ of Certiorari — Keystone Chapter Associated Builders & Contractors, Inc. v. Pennsylvania Secretary of Labor & Industry
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FILED.
No. 941283 7 JAN 17 1995
Supreme Court ofthe United States
October Term, 1994
KEYSTONE CHAPTER, ASSOCIATED BUILDERS AND
CONTRACTORS, INC., IN REPRESENTATION OF ITS
MEMBERS,
Petitioner,
vs.
SECRETARY OF LABOR & INDUSTRY FOR THE
COMMONWEALTH OF PENNSYLVANIA,
Respondent.
Petition for a Writ of Certiorari to the United States Court of
Appeals for the Third Circuit
PETITION FOR A WRIT OF CERTIORARI
HARRY R. HARMON
Counsel of Record
THOMAS R. DAVIES
HARMON & DAVIES, P.C.
Attorneys for Petitioner
2306 Columbia Avenue
Lancaster, Pennsylvania 17603
(717) 291-2236
6194
"igs (800) 3 APPEAL + (800) 5 APPEAL + (800) BRIEF 21 /
ervices, inc. ¥ t
7a
QUESTION PRESENTED
Does the Pennsylvania Prevailing Wage Act, 43 P.S. § 165,
et seq., relate to employee benefit plans in more than “tenuous,
remote, and peripheral manner” and is it, therefore, preempted
by Section 514(a) of ERISA, 29 U.S.C. § 1144(a)?
TABLE OF CONTENTS
Page
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CRUG GT on cateveskdaenses sess 2
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Statutory Provisions Involved ...................08. -
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A. The Prevailing Wage Act, the Regulations, and the
SOUND oa cc vnccdeanessuandeneess 3
B. Proceedings Below. .....cccccsecccceseses Paci 5
Reasons for Granting Ge WH ooo cc ccsccccecewsuanes 7
WOMENS oo ccccictivndeedesvaebeseeaneeees 7
I. The Court of Appeals’ interpretation of Section
514(a) of ERISA is contrary to the decisions of this
COMME. ok ons ccnneeneenn see ee eee 8
II. The Court of Appeals’ analysis of ERISA
preemption in the context of a state Prevailing
Wage Act conflicts with the Second Circuit’s
analysis as well as that of various District Courts.
conccescebesueneeeees tea ps senna 13
ili
Contents
Page
TABLE OF CITATIONS
Cases Cited:
Associated Builders & Contractors v. BACA, 769 F. Supp.
ED ks 5 cin v5 0's ae eee bene 0d es 2 5, 18,19
Associated Builders & Contractors, Saginaw Valley Area v.
Perry, No. 93-CV-10016-BC, 2 WH Cases 2d (BNA)
I, SED 5 > 5. baw 5:04 eae vee eee cee san 10, 19
Boise Cascade Corp. v. Peterson, 939 F.2d 632 (8th Cir.
EE IE ETS 19
District of Columbia v. Greater Washington Board of
Trade, 506 U.S. __, 121 L. Ed. 2d 513, 113 S. Ct. 580
SE ee re 7,8,9, 10, 12
Electrical Joint Apprenticeship Committee v. MacDonald,
Pe PCG, BPP E) ccc es ccccccscccccecce 19
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1(1987) ... 8
Franchise Tax Bd. v. Construction Laborers Trust, 463
Ee ee ee 8
General Electric Co. v. New York State Department of
Labor, 891 F.2d 25 (2nd Cir. 1989), cert. denied, 496
EE ee 5,7, 14, 15, 16, 17, 18, 19
iv
Contents
Page
Hydrostorage, Inc. v. Northern Cal. Boilermakers Local
Joint Apprenticeship Committee, 891 F.2d 719 (9th Cir.
1989), cert. denied, 111 S. Ct. 72, 112 L. Ed. 2d 46
COE 40 5 5650-6 k SRLS E OR es 19
National Elevator Indust. Inc. v. Calhoon, 957 F.2d 1555
CE EE ccd ow k'a sane aae aaa ees 19
New York State Conference of Blue Cross and Blue Shield
Plans v. Travelers Insurance Co., 14 F.3d 708 (2nd Cir.
1994), cert. granted, 63 L.W.3291 ............004- 7
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987) ....... 8
Shaw v. Delta Airlines, Inc., 463 U.S. 85 (1983) ........ 8,9
United Wire v. Moorestown Memorial Hospital, 995 F.2d
1179 (3rd Cir. 1993), cert. denied, _ _U.S.__, 1148S. Ct.
pm mh, SEPP OTTER PTE TTC TTS 7
WSB Electric, Inc. v. Curry, No. 90-00771 CW, 1994 WL
446039, 18 EBC 2030(N.D. Cal. 1994) ............ 18
Statutes Cited:
Te OD 5 va xed nds Cink apeaane 2
ie EE, 045 ads 0h 66S Rien bee eee 3
Section 514(a) of ERISA, 29 U.S.C. § 1144(a) ...... i,2,3,5,8,9
PERE 05045 046 cau cause cee 12
Vv
Contents
Page
eR Pad 3 | re Perr ry. 11
Pennsylvania Code, Title 34, § 9.101, etseq. ..........- 2
tk Fs erreerr rrr errrres re rere. cr 4
Lk: reer rrr rr rrr rr Tere rr TT Te 4
BOD nc den6en 460044000400 054 08 05d 4
Pennsylvania Prevailing Wage Act, 43 P.S.§ 165,etseq. . i,2,3
Poo eh) Sree rr rrrrrraT cee ces Le 4
Filo SES: SPP Creer Cee ere ree. 4,11, 13
APPENDIX
Appendix A— Order of the United States Court of Appeals
for the Third Circuit Dated October 19, 1994 ........ la
Appendix B — Order of the United States Court of Appeals
for the Third Circuit Dated October 19, 1994 ........ 3a
Appendix C — Opinion of the United States Court of
Appeals for the Third Circuit Filed September 22, 1994
SOP eeere TT Tre ee eee rene i ee Lk 4a
Appendix D — Memorandum Opinion and Order of the
United States District Court for the Middle District of
Pennsylvania Filed July 30,1993 ...........+++++- 46a
No.
Inthe
Supreme Court of the United States
~~
October Term, 1994
KEYSTONE CHAPTER, ASSOCIATED BUILDERS AND
CONTRACTORS, INC., IN REPRESENTATION OF ITS
MEMBERS,
Petitioner,
vs.
SECRETARY OF LABOR & INDUSTRY FOR THE
COMMONWEALTH OF PENNSYLVANIA,
Respondent.
Petition for a Writ of Certiorari to the United States Court of
Appeals for the Third Circuit
PETITION FORA WRIT OF CERTIORARI
Keystone Chapter, Associated Builders and Contractors,
Inc. respectfully petitions for a Writ of Certiorari to review the
judgment of the United States Court of Appeals for the Third
Circuit in this case.
2
OPINIONS BELOW
The opinion of the Court of Appeals (App. infra, 4a-45a) is
reported at 37 F.3d 945. The opinion of the District Court (App.
infra, 46a-58a) is reported at 837 F. Supp. 654.
STATEMENT OF JURISDICTION
The Court of Appeals entered its original judgment on
September 22, 1994. On October 19, 1994, the Court of Appeals
denied a timely Petition For Rehearing (App. infra at 1a-2a) and
amended its opinion. The jurisdiction of this Court is invoked
under 28 U.S.C. § 1254(1).
STATUTORY PROVISIONS INVOLVED
Section 514(a) of ERISA, 29 U.S.C. § 1144(a) provides:
Except as provided in subsection (b) of this
section, the provisions of this title and title IV
shall supersede any and all State laws insofar
as they may now or hereafter relate to any
employee benefit plan described in section
4(a) [29 USCS § 1003(a)] and not exempt
under section 4(b) [29 USCS § 1003(b)].
Relevant sections of the Pennsylvania Prevailing Wage Act,
43 P.S. § 165-1, et seqg., and the accompanying regulations,
Pennsylvania Code, Title 34 § 9.101, et seq., are discussed below.
STATEMENT OF THE CASE
Petitioner, Keystone Chapter, Associated Builders and
Contractors, Inc. (“Keystone, ABC”), filed a Complaint in the
United States District Court for the Middle District of
3
Pennsylvania seeking injunctive relief against the Secretary of
Labor and Industry for the Commonwealth of Pennsylvania on
the basis that the Pennsylvania Prevailing Wage Act, 43 P.S.
§ 165-1, et seq., was preempted by ERISA, 29 U.S.C. § 1144(a).
The District Court had jurisdiction of this ERISA preemption
claim under 28 U.S.C. § 1331.
A complaint filed by Bell Telephone Company of
Pennsylvania and Communications Workers of America, AFL-
CIO, District 13, raised similar issues and was considered
together with the Keystone case by both the District Court and the
Court of Appeals.’
A. The Prevailing Wage Act, the Regulations, and the
Declaratory Order
The Pennsylvania Prevailing Wage Act, like similar statutes
of many other states, provides that “Not less than the prevailing
minimum wages as determined hereunder shall be paid to all
1. The other parties in the action before the District Court were the
members of the Prevailing Wage Appeals Board and the Pennsylvania State
Building and Construction Trades Council, AFL-CIO participated as an
amicus in support of the Secretary’s position. The amici, in support of
Keystone ABC’s position at the Circuit Court, were the United States Chamber
of Commerce, ABC (National) and its Lehigh Valley (Pa.), Southeast
Pennsylvania, and Western Pennsylvania Chapters, the Pennsylvania Builders
Association, the Pennsylvania School Boards Association, and the
Pennsylvania Utility Contractors Association. Amici in support of the
Secretary’s position were the Roofing Contractors Association, the
Mechanical Contractors Association of Eastern Pennsylvania, Western
Pennsylvania, and Laurel, the Plumbing & Heating Contractors Association
of Philadelphia, the Penn-Jer-Del Chapter of National Electrical Contractors
Association, the Sheetmetal Contractors Association of Pennsylvania, Central
Pennsylvania, Philadelphia, Western Pennsylvania, the National Electrical
Contractors Association of Western Pennsylvania, the Painting and Decorating
Contractors Harrisburg Chapter, and the Masonry Contractors Association of
Central Pennsylvania.
4
workmen on public work.” 43 P.S. § 165-5, and sets forth general
rules for determining prevailing minimum wages. Before public
contracts are put out to bid, the Secretary of Labor and Industry,
in consultation with an Advisory Board, determines the
prevailing minimum wage for each locality and for each “craft or
classification” of worker to be employed. 43 P.S. § 165-7. The
Statute further provides that in making this determination,
“employer and employee contributions for employee benefits
pursuant to a bona fide collective bargaining agreement shall be
considered an integral part of the wage rate.” Jd.
The Pennsylvania Code, Title 34, §§ 9.101-9.113, provides
additional rules for calculating and enforcing the prevailing
minimum wage in public works contracts. These regulations
define “contributions for employee benefits” to mean “all ‘fringe
benefits’ paid of to be paid, including but not limited to, payment
made whether directly or indirectly, to the workman for sick,
disability, death, (other than workmen’s compensation), medical,
surgical, hospital, vacation, travel expense, retirement, and
pension benefits.” Jd. § 9.102(1). The regulations further provide
that, “Employers not parties to a contract requiring contributions
for employee benefits which the Secretary his determined to be
included in the general prevailing minimum wage rate shall pay
the monetary equivalent thereof directly to the workmen.” /d.
§ 9.106(b).
From at least 1988 until April 13, 1992, the Secretary used a
strict line-item approach in determining compliance with a
prevailing wage’s benefits component. The Secretary made a
predetermination of the prevailing wage for each category of
worker in a given locality, specifying the “prevailing” levels of
benefits in a number of categories, such as “health and welfare,”
“pension,” and “apprenticeship and training.” If an employer did
not meet the prevailing level of benefit in each category, it was
required to pay the difference in cash to the employee. To the
extent that an employer contributed more to a fringe benefit than
-
the amount set forth in a particular category, it could not use such
excess contribution to offset any shortfall in any other category.
On April 13, 1992, in response to a complaint from
Keystone, ABC and others that the Secretary’s treatment of fringe
benefits under the Prevailing Wage Act was preempted by
ERISA, the Prevailing Wage Appeals Board issued a Declaratory
Order which provided that a contribution for fringe benefits
would be considered bona fide if that contribution, “(a) is made to
an ‘employee benefit plan’ or fund or program subject to the
Employee Retirement Income Security Act of 1974; (b) has been
determined to be bona fide by the [Prevailing Wage] Division;
and (c) is not required by federal, state, or local law; .. .” (This
section of the Declaratory Order is found in the record before the
Circuit Court at App. 73-74.)
B. Proceedings Below
On July 30, 1993, the District Court declared that the
Prevailing Wage Act, its accompanying Regulations, and the
Declaratory Order were preempted by Section 514(a) of ERISA,
29 U.S.C. § 1144(a). The court found that the Declaratory Order
specifically referred to ERISA plans, that the Prevailing Wage
Act could affect the level of benefits paid to employees by
discouraging benefits in excess of the prevailing rate, and that the
Act imposed administrative burdens on ERISA plans by
requiring employers to keep records of wages and benefits. In
reaching this conclusion, the District Court noted that, “We are in
accordance with other Courts who have examined ERISA
preemption with respect to similar prevailing wage laws. See,
e.g., General Electric Co. v. New York State Department of Labor,
891 F.2d 25 (2nd Cir. 1989); Associated Builders & Contractors
v. BACA, 769 F. Supp. 1537 (N.D. Cal. 1991).” (App. at 53a).
The District Court declined the Secretary’s request to sever the
portion of the Act covering fringe benefits and leave standing a
requirement that government contractors simply meet the
6
prevailing cash wage because it believed such a system would be
contrary to legislative intent.
The Secretary filed an appeal from the District Court’s
decision and argued that the Prevailing Wage Act, the
Regulations, and the Declaratory Order were not preempted.
Alternatively, the Secretary urged that the portion of the
Prevailing Wage Act relating to fringe benefits be severed and
that the Act be allowed to stand to the extent it regulates cash
wages.
The Court of Appeals agreed with the District Court that the
Declaratory Order was preempted by ERISA, but found that the
Prevailing Wage Act and the Regulations do not relate to
employee benefit plans in more than a “tenuous, remote, and
peripheral manner” and reversed the District Court’s judgment to
the extent it held that they were preempted. In the initial part of its
opinion, the Court of Appeals stated, “we find the Act and its
Regulations are not preempted because they confer broad
authority that may be implemented in a manner consistent with
ERISA.” (App. at 12a). In Part IJ, Section C, the court stated:
Although the Declaratory Order
implemented the Prevailing Wage Act in a
manner preempted by ERISA, we hold that
neither the Prevailing Wage Act nor its
accompanying Regulations are preempted.
Under at least one reasonable interpretation
of the Act and Regulations, an interpretation
the agency is free to adopt, the Act and
Regulations merely require that the Secretary
set a prevailing wage that consists of a cash
component and may include a benefits
component.
(App. at 27a).
——————————— eee
7
The Court of Appeals utilized the same analytical framework
which they set forth in United Wire v. Moorestown Memorial
Hospital, 995 F.2d 1179 (3rd Cir. 1993), cert. denied, __U.S.__,
114S. Ct. 382, 383, 126 L. Ed. 2d 332 (1993).
REASONS FOR GRANTING THE WRIT
SUMMARY
Pennsylvania is one of approximately 35 states that have a
Prevailing Wage Act that provides a wage rate applicable to
employees who work on public works projects within the state.
Many of these laws, like Pennsylvania’s, provide that fringe
benefits are an important element of the total wage package. The
tension between these state prevailing wage laws and ERISA
have resulted in an explosion of litigation across the country. The
decision of the Third Circuit conflicts with that of the Second
Circuit in General Electric Co. v. New York State Department of
Labor, 891 F.2d 25 (2nd Cir. 1989), cert. denied, 496 U.S. 912,
and utilizes an analysis that has been specifically prohibited by
this Court’s decision in the District of Columbia v. Greater
Washington Board of Trade, 506 U.S. __, 121 L. Ed. 2d 513, 1 13
S. Ct. 580 (1992). Several District Courts in other Circuits have
agreed with the Second Circuit’s approach in G.E., while others
have aligned themselves with the dissent in G.E. and analyzed the
issue in a manner similar to that of the Third Circuit herein.
As noted above, the Third Circuit’s decision is based upon its
previous analysis of ERISA preemption issues in United Wire v.
Moorestown Memorial Hospital, supra. On October 7, 1994, this
Court granted a Petition for Certiorari in New York State
Conference of Blue Cross and Blue Shield Plans v. Travelers
Insurance Co., 14 F.3d 708 (2nd Cir. 1994), cert. granted, 63
L.W. 3291, in which one of the questions presented dealt with the
conflict between the Second Circuit and the Third Circuit’s
decision in United Wire.
8
I.
THE COURT OF APPEALS’ INTERPRETATION OF
SECTION 514(a) OF ERISA IS CONTRARY TO THE
DECISIONS OF THIS COURT.
ERISA contains one of the broadest preemption clauses
ever enacted by Congress. See Franchise Tax Bd. v. Construction
Laborers Trust, 463 U.S. 1,24n. 26 (1983). ERISA’s preemption
provision expressly preempts “any and all state laws insofar as
they may now or hereafter relate to any employee benefit plan.”
29 U.S.C. § 1144(a). This Court has determined that a law
“relates to” an employee benefit plan within the meaning of the
statute “in the normal sense of the phrase, if it has a connection
with or reference to such a plan.” Shaw v. Delta Airline, Inc., 463
U.S. 85, 97 (1983). “Any connection may trigger preemption, and
preemption is not limited to laws relating to the specific subjects
covered by ERISA.” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41,
47-48 (1987). ERISA preemption provides a mechanism to
insure that variances in the regulation of these benefits do not
arise and employers are not discouraged from adopting benefits
not already in existence, or, on the other hand, they will refrain
from reducing benefits already in place. See Fort Halifax
Packing Co. v. Coyne, 482 U.S. 1 (1987).
In District of Columbia v. Greater Washington Board of
Trade, supra, this Court analyzed the issue of ERISA preemption
in the context of a provision of the District’s worker’s
compensation law that required an employer to continue to
provide health insurance coverage equivalent to the existing
health insurance coverage of the employee while the employee
receives, or is eligible to receive, worker’s compensation
benefits. The Court found that the worker’s compensation law
“related to” a covered employee benefit plan because the
employer’s requirement was “measured by reference to” a
9
covered employee benefit plan which is not exempt under
Section 514(b) of ERISA.
It is respectfully suggested that the Third Circuit failed to
understand the important distinctions between this Court’s
holding in Greater Washington Board of Trade and its earlier
decision in Shaw v. Delta Airlines, Inc., 463 U.S. 85, 103 S. Ct.
2890 (1983). The Court in Shaw had before it, in pertinent part, a
disability law which mandated a certain number of weeks of
benefits. Under Section 4(b) of ERISA, disability benefit plans
are exempted from ERISA. Therefore, the plan the law created
was also an exempt plan. Shaw at 106. Because the exempt plan’s
benefit levels were not measured by a covered ERISA plan, the
disability law in Shaw did not relate to a covered ERISA plan.
Thus, the holding in Shaw was straightforward; the disability law
was not preempted because it did not relate to a covered ERISA
plan. The Court further held that if the state law required that the
exempt plan be a part of the covered ERISA plan, the required
combination of the plans would “relate toll the covered plan, and
thus restlting in ERISA preemption. However, if the state law
merely gave the employer the option (but not the requirement) to
combine the two plans, the law would not preempted. Jd. at 108.
In Greater Washington Board of Trade, this court stated:
Petitioners nevertheless point to
Metropolitan Life Insurance Co. ¥.
Massachusetts, 471 U.S. 724, 85 L.Ed.2d
728, 105 S. Ct. 2380 (1985), in which we -
described Shaw as holding that “the New
York Human Rights Law and that state’s
disability benefits law “relate[d] to” welfare
plans governed by ERISA.
Id. at 739, 85 L. Ed. 2d 728, 105 S. Ct. 2380.
10
Relying on this dictum and their reading of
Shaw, Petitioners argue that Section 514(a)
should be construed to require a two-step
analysis:
If the state law “relate[s}] to” an ERISA-
covered plan, it may still survive pre-emption
if employers could comply with the law
through separately administered plans
exempt under Section 4(b).... As we have
explained, the disability benefits law uphold
in Shaw — though mandating the creation of
a “welfare plan” as defined in ERISA — did
not relate to a welfare plan subject to ERISA
regulation. Section 2(c)(2) does, and that is
the end of the matter. We cannoi engraft a
two-step analysis onto a one-step statute.
Id. at 522.
It is respectfully suggested that the Third Circuit, contrary to
the teachings of this Court, has engrafted a two-step analysis ona
one-step statute. In Associated Builders and Contractors,
Saginaw Valley Area Chapter v. Perry, No. 93-CV-10016 -BC, 2
WH Cases 2d (BNA) 754 (E.D. Mich. 1994) (Cleland, J.), the
court analyzed the Third Circuit’s decision in the context of an
ERISA challenge to the Michigan Prevailing Wage Act which is
very similar to that of Pennsylvania’s. The court found that the
Third Circuit was guilty of engrafting a “two-step analysis onto a
one-step statute, first finding that the benefits component of the
Prevailing Wage Act had ‘some connection’ to (i.e., was related
to) employee benefit plans, then finding no preemption because
employers could comply with the law by not paying any benefits
if they paid a sufficiently high cash wage. This Court rejects the
Keystone Court’s two-step analysis. ” Jd. at 758.
" ee ~~
11
In its analysis of the Prevailing Wage Act and the
Regulations, the Third Circuit quoted from Section 165-7 of the
Act which states:
The Secretary shall, after consultation with
the Advisory Board, determine the general
prevailing minimum wage rate in the locality
in which the public work is to be performed
for each craft or classification of workmen
needed to perform public work contracts
during the anticipated term thereof:
Provided, however, that employer and
employee contributions for employee
benefits pursuant to a bond fide collective
bargaining agreement shall be considered an
integral part of the wage rate for the purpose
of determining the minimum wage rate under
this Act.
43 P.S. § 165-7. The Third Circuit’s conclusion that this language
does not “relate to any employee benefit plan” covered by ERISA
is patently incorrect. The language quoted above is mandatory.
It requires the Secretary to treat benefit contributions as an
integral part of the wage rate. Such benefit contributions made
pursuant to collective bargaining agreements are, by definition,
employee benefit plans which are defined by the statute as
follows:
The term “employee benefit plan” or “plan”
means an employee welfare benefit plan or an
employee pension benefit plan or a plan
which is both an employee welfare benefit
plan and an employee pension benefit plan.
29 U.S.C. § 1002(3).
12
The term “employee welfare benefit plan” is further defined
as follows by the ERISA statute:
The term “employee welfare benefit plan”
and “welfare plan” mean any plan, fund, or
program which was heretofore or is hereafter
established or maintained by an employer or
by an employer organization, or by both, to
the extent that such plan, fund, or program
was established or is maintained for the
purpose of providing for its participants or
their beneficiaries, through the purchase of
insurance or otherwise, (A) medical, surgical,
or hospital care or benefits, or benefits in the
event of sickness, accident, disability, death,
or unemployment, or vacation benefits,
apprenticeship or other training programs, or
daycare centers, scholarship funds, or prepaid
legal services, or (B) any benefit described in
Section 302(c) of the Labor Management
Relations Act, 1947 [29 U.S.C. § 186(c)]
(other than pensions on retirement or death,
and insurance to provide such pensions).
29 U.S.C. § 1002(1).
In Greater Washington Board of Trade, Id. at 520, this Court
stated, “ ‘Under Section 514(a), ERISA preempts any state law
that refers to or has a connection with covered benefit plans (and
it does not fall within a section 514(b) exception) even if the law
is not specifically designed to effect such plans, or the effect is
only indirect,’ Ingersoll-Rand, supra, at 139, 112 L. Ed. 2d 474,
111 S. Ct. 478, and even if the law is ‘consistent with ERISA’S
substantive requirements,’ Metropolitan Life, supra, at 739, 85 L.
Ed. 2d 728, 105 S. Ct. 2380.”
13
This Court then went on to state, “Section 2 (c) (2) of the
District’s Equity Amendment Act specifically refers to welfare
benefit plans regulated by ERISA, and on that basis alone is
preempted.” Similarly, Section 165-7 of the Prevailing Wage Act
quoted above specifically refers to welfare benefit plans and,
therefore, should be preempted. The state law mandates that the
Secretary shall consider certain collectively bargained employee
benefit plans as an “integral part” of the wage rate to be
determined, which, in turn, is used to impose state law
obligations on all public works contractors. The law clearly,
therefore, references employee benefit plans in fulfilling the
purpose of the Act. This leads to the inescapable conclusion that
the Pennsylvania Prevailing Wage Act “relates to” employee
benefit plans within the meaning given that term by this Court.
The Petition should be granted to further clarify the proper
scope of ERISA preemption, particularly in the context of a state
prevailing wage law.
II.
~ THE COURT OF APPEALS’ ANALYSIS OF ERISA
PREEMPTION IN THE CONTEXT OF A STATE
PREVAILING WAGE ACT CONFLICTS WITH THE
SECOND CIRCUIT’S ANALYSIS AS WELL AS THAT OF
VARIOUS DISTRICT COURTS.
As noted above, the District Court declared that its finding of
preemption was in accord with other courts to examine similar
issues. The District Court specifically stated:
We believe that the Pennsylvania Prevailing
Wage Act, its Regulations, and the
Declaratory Order are clearly preempted by
ERISA because this state law necessarily
14
relates to ERISA plans. In so finding, we are
in accordance with other courts who have
examined ERISA preemption with respect to
similar prevailing wage laws. See, e.g.,
General Electric Co. v. New York State
Department of Labor, 891 F.2d 25 (2nd Cir.
1989); Associated Builders and Contractors
v. BACA, 769 F. Supp. 1537 (N.D. Cal. 1991).
(App. at 53a). In G.E., the contractor was signatory to a collective
bargaining agreement with IBEW Local 3. This contract
provided for a number of nationally-administered ERISA plans
covering such things as pensions, disability, medical assistance,
and job and income security, and the contract was designed to be
applicable to G.E. employees regardless of the state or locality in
which the employees might be working. The following language
of the Second Circuit sets forth the dilemma which faced G.E:
The District Court found that the supplements
provided by G.E. were “different from and in
some cases less than those which the State
claims are due under Section 220.” In each
instance, where the cost of a supplement
provided for in the G.E. — Local 3 contract
did not correspond with the cost of a similar
prevailing local benefit, Section 220 required
G.E. either to bring the cost of its prescribed
benefit into equivalence with the cost of the
local prevailing one or to pay the additional
cost directly to the employee-beneficiaries.
G.E. was not permitted to substitute one form
of supplement for another. In the words of the |
Appellate Division for the Department, “the |
statute indicates that the legislature intended |
that the Commissioner of Labor, not the 2
15
contractor, determined the supplements to be
provided and that the employee receive either
the listed benefits or equivalent cash. (or a
combination of both).” As the District Court
found, “G.E. received no credits under the
statute for its cost for providing benefits
which were not deemed to be ‘prevailing
benefits by the Commissioner.’ ” [citations
omitted]
891 F.2d at 27.
In reaching its conclusion that the relevant provisions of the
New York law were preempted by ERISA, the Second Circuit
stated:
A state law “relates to” employee benefit
plans when it has “connection with or
reference to” such a plan, Gilbert v.
Burlington Industries, Inc., Supra, 765 F.2d at
327 (quoting Shaw v. Delta Airlines, Supra,
463 U.S. at 97), “whenever it ‘purports to
regulate, directly or indirectly, the terms and
conditions of employee benefit plans.’ 29
U.S.C. § 1144(c)(2) (1976).” Stone &
Webster Engineering Corp. v. Ilsley, 690 F.2d
323, 329 (2nd Cir. 1982), Aff’d sub. nom.
Arcudi v. Stone and Webster Engineering
Corp., 463 U.S. 1220 (1983). Such
connection exists where a state statute
prescribes either the type and amount of an
employer’s contributions to a plan, Local
Union No. 598 v. J. A. Jones Constr. Co.,
supra, 846 F.2d at 1219; Stone & Webster
Engineering Corp., supra, 690 F.2d at 329,
16
the rules and regulations under which the plan
operates, Hewlett-Packard Co. v. Barnes, 425
F.Supp. 1294, 1297-1300 (N.D. Cal. 1977),
Aff’d, 571 F.2d 502 (9th Cir.) (per curiam),
cert. denied, 439 U.S. 831 (1978); or the
nature and amount of the benefits provided
thereunder, Standard Oil Co. v. Agsalud, 442
F.Supp. 695, 706-07 (N.D. Cal. 1977) aff’d,
633 F.2d 760 (9th Cir. 1980), Aff’d, 454 U.S.
801 (1981). Section 220 intrudes into all three
of these preempted areas. Ex-locality
employers such as G.E. are required either to
bring their pension and welfare plans into
conformity with those prevailing in the
locality (as the prevailing plans are
determined to exist by a state fiscal officer on
the basis of job classifications made by the
Department of Labor) or to make up the
difference through cash payments to their
employees. The employer is required to keep,
and on request to file with the state, sworn
schedules of supplements in wages and to
make its books and records pertaining to
wages, supplements and hours of labor
available for inspection by a state fiscal
officer. In the event the employer fails to
bring a plan into conformity with a similar
plan prevailing in the locality, the employee
may be required to accept cash payments
based on what the employer’s cost would
have been to accomplish conformity, Action
Electrical Contractors Co. v. Goldin, Supra,
64 N.Y.2d at 218, 222, payments that may be
of lesser value to the employee than the
unpaid benefits would have been. In sum, we
17
conclude that the above-described provisions
of Section 220 clearly relate to the ERISA
plans of ex-locality employers and are
preempted by the federal statute.
891 F.2d at 29-30.
The Second Circuit’s decision makes it clear that it is both
the obligation to bring their existing benefits into conformity
with those prevailing in the locality (or to make up the difference
through cash payments to their employees), as well as the record
keeping requirements that results in the finding of preemption.
The District Court below found that:
Contractors are required, at a minimum, to
determine the cash equivalent of the benefits
provided to workers on public projects. The
Act therefore imposes on-going administrative
burdens that fall within the parameters of
ERISA plans. See, Fort Halifax, 482 U.S. at
14, n.9, (“The ongoing, predictable nature of.
this obligation therefore creates the need for
an administrative scheme to process claims
and pay out benefits”).
(App. at 54a). Such a scheme is preempted by ERISA. The Third
Circuit’s rejection of this finding of the District Court places it
squarely in conflict with the Second Circuit.
The District Court further concluded that an even more
important reason for finding preemption was the affect that the
Prevailing Wage Act could have on the level of benefits paid to
employees. The court stated:
Because an employer gets no credit for the
18
amount of hourly benefits paid in excess of
the prevailing rate, employers are
discouraged from paying benefits at higher
than the prevailing rate on public works
projects. The effect of the Act is to “dictate or
restrict the choices of ERISA plans with
regard to their benefits.” United Wire, slip op.
at 28. Employers who also work on non-
public projects may be forced, to provide
different levels of benefits, depending on the
type of project to be completed. Such a
“patchwork scheme of regulation would
introduce considerable inefficiency in benefit
program operation.” Fort Halifax, 482 U.S. at
11, 1078S. Ct. at 2217.
(App. at 54a).
This aspect of the court’s decision was in accord with the
decision of the United States District Court for the Northern
District of Californiain ABC v. BACA, supra. It must be noted that
there is not even agreement on this point within the Northern
District of California, however. In WSB Electric, Inc. v. Curry,
No. 90-00771 CW, 1994 WL 446039, 18 EBC 2036 (N.D. Cal.
1994), the court rejected the argument that the California
prevailing wage statute discriminates against ERISA plans which
pay higher than prevailing benefit levels. The court further
indicated that it found itself in agreement with the dissent in G.E.
rather than the majority.
As previously mentioned, the United States District Court
for the Eastern District of Michigan recently held that the
Michigan Prevailing Wage Act was preempted by ERISA. The
Michigan Court found itself squarely in agreement with the G.E.
Court, the BACA court, and the District Court below in finding
19
that the disincentive created by the Prevailing Wage Act from
paying benefits at higher than the prevailing rate necessarily
meant that the prevailing wage law related to and regulated
ERISA plans. The Michigan court further concluded that,
“Employers who fall within the Michigan Prevailing Wage Act
are required to calculate the wages and benefits paid on another
than hourly basis toward the prevailing fringe benefit obligation.
The effect of this requirement is also to dictate the reporting and
administration of ERISA plans. Such a requirement ‘relates to’
an ERISA plan and is therefore preempted by ERISA.” Saginaw
Valley ABC, supra, at 760.
The Third Circuit’s decision is in conflict with a decision of
the Tenth Circuit as to whether or not a prevailing wage law
represented an example of the state’s traditional exercise of its
police powers. In National Elevator Indust. Inc. v. Calhoon, 957
F.2d 1555 (10th Cir. 1992), the court recognized and rejected the
State’s traditional police powers argument within the context of a
prevailing wage act. In rejecting this argument, the court
analyzed numerous federal decisions which have found
preemption of similar state laws, despite any traditional “police
powers” argument. The Court’s attention is called to the Tenth
Circuit’s analysis of Hydrostorage, Inc. v. Northern Cal.
Boilermakers Local Joint Apprenticeship Committee, 891 F.2d
719 (9th Cir. 1989), cert. denied, 111 S. Ct. 72, 112 L. Ed. 2d 46
(1990); Electrical Joint Apprenticeship Committee v.
MacDonald, 949 F.2d 270 (9th Cir. 1991); Boise Cascade Corp.
v. Peterson, 939 F.2d 632 (8th Cir. 1991); G.E., supra; and BACA,
supra. The Third Circuit, however, characterized the
Pennsylvania Prevailing Wage Act as a “wage law” and as such
was among the “many forms of state regulation under the police
power, which resulted in increases in the cost of doing business.”
It is apparent that there exists a sharp division of opinion
regarding the proper analysis of ERISA preemption principles in
20
the context of a challenge to a state’s prevailing wage law. This
Court should grant this Petition to resolve this conflict among the
lower federal courts.
CONCLUSION
The Petition for a Writ of Certiorari should be granted.
Respectfully submitted,
HARRY R. HARMON
Counsel of Record
THOMAS R. DAVIES
HARMON & DAVIES, P.C.
Attorneys for Petitioner
2306 Columbia Avenue
Lancaster, Pennsylvania 17603
(717) 291-2236
la
APPENDIX A — ORDER OF THE UNITED STATES
COURT OF APPEALS FOR THE THIRD CIRCUIT
DATED OCTOBER 19, 1994
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 93-7547 & 93-7573
KEYSTONE CHAPTER ASSOCIATED BUILDERS AND
CONTRACTORS, INC., in representation of its members
Vv.
THOMAS P. FOLEY, in his official capacity as the Secretary of
Labor and Industry for the Commonwealth of Pennsylvania
PENNSYLVANIA STATE BUILDING AND
CONSTRUCTION TRADES COUNCIL
(Amicus in District Court)
Thomas P. Foley,
Appellant in No. 93-7547
Keystone Chapter, Associated Builders
and Contractors, Inc., in representation
of its members,
Appellant in No. 93-7573
(D.C. Civ. No. 92-00459)
SUR PETITION FOR REHEARING
Present: SLOVITER, Chief Judge,
BECKER, STAPLETON, MANSMANN, HUTCHINSON,
2a
Appendix A
SCIRICA, COWEN, NYGAARD, ALITO, LEWIS
and McKEE, Circuit Judges.
The petition for rehearing filed by appellee/cross-appellant
Keystone Chapter, Associated Builders and Contractors, Inc., in
representation of its members, in the above-entitled case having
been submitted to the judges who participated in the decision of
this Court and to all the other available circuit judges of the
circuit in regular active service, and no judge who concurred in
the decision having asked for rehearing, and a majority of the
circuit judges of the circuit in regular service not having voted for
rehearing, the petition for rehearing by the panel and the Court in
banc, is denied.
BY THE COURT,
s/ Scirica
Circuit Judge
Dated: OCT 19 1994
3a
APPENDIX B — ORDER OF THE UNITED STATES
COURT OF APPEALS FOR THE THIRD CIRCUIT
DATED OCTOBER 19, 1994
[Same Caption]
On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. Civil Action Nos. 92-00459 & 92-01105)
Argued April 13, 1994
Before: BECKER, MANSMANN and SCIRICA, Circuit Judges
ORDER AMENDING SLIP OPINION
IT IS HEREBY ORDERED that the slip opinion in the
above case, filed September 22, 1994, be amended as follows:
1. By signaling footnote 11 after the word “contributions.”
on page 15, line 8, and inserting the following footnote:
11. Keystone also cross-appealed to preserve
Counts II, III and IV of its Complaint in 92-
0459 which had been effectively dismissed
by the district court in light of the nature of the
relief it granted on Count I (ERISA
preemption).
2. Renumber all subsequent footnotes.
BY THE COURT,
s/ Scirica
Circuit Judge
DATED: OCT 19 1994
4a
APPENDIX C — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE THIRD CIRCUIT FILED
SEPTEMBER 22, 1994
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 93-7547 & 93-7573
KEYSTONE CHAPTER, ASSOCIATED BUILDERS AND
CONTRACTORS, INC., in representation of its members
Vv.
THOMAS P. FOLEY, in his official capacity as the Secretary of
Labor and Industry for the Commonwealth of Pennsylvania
PENNSYLVANIA STATE BUILDING AND
CONSTRUCTION TRADES COUNCIL
(Amicus in District Court)
Thomas P. Foley,
Appellant in No. 93-7547
Keystone Chapter, Associated
Builders and Contractors,
Inc., in representation of its
members,
Appellant in No. 93-7573
No. 93-7548
BELL TELEPHONE COMPANY OF PENNSYLVANIA;
COMMUNICATIONS WORKERS OF AMERICA, AFL-CIO,
DISTRICT 13
Sa
Appendix C
V.
THOMAS P. FOLEY; in his official capacity as Secretary of
Labor and Industry for the Commonwealth of Pennsylvania;
JAMES R. DAVIS; FRAYDA KAMBER; RICHARD W.
MARTZ; JOHN H. MICKENS
PENNSYLVANIA STATE BUILDING AND
CONSTRUCTION TRADES COUNCIL, AFL-CIO
(Amicus in District Court)
Thomas P. Foley;
James R. Davis;
Frayda Kamber;
Richard W. Martz;
John H. Mickens,
Appellants
On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. Civil Action Nos. 92-00459 & 92-01105)
Argued April 13, 1994
Before: BECKER, MANSMANN and SCIRICA,
Circuit Judges
(Filed September 22, 1994)
SUSAN J. FORNEY, ESQUIRE .
(Argued)
Office of Attorney General of
Pennsylvania
6a
Appendix C
Department of Justice
Strawberry Square, 15th Floor
Harrisburg, Pennsylvania 17120
Attorney for Appellant/
Cross-Appellee, Thomas P. Foley,
and Appellants, Thomas P. Foley,
James R. Davis, Frayda Kamber,
Richard W. Martz and
John H. Mickens
THOMAS R. DAVIES, ESQUIRE
(Argued)
Harmon & Davies
2306 Columbia Avenue
Lancaster, Pennsylvania 17603
Attorney for Appellee/
Cross-Appellant,
Keystone Chapter,
Associated Builders and
Contractors, Inc., in
representation of its
members, and
Amicus Curiae Appellee/
Cross-Appellant,
Pennsylvania Utility Contractors
Association °
MARY M. McKENZIE, ESQUIRE
(Argued)
Bell Atlantic Network Services, Inc.
1717 Arch Street
Philadelphia, Pennsylvania 19103
Ta
Appendix C
MARIE L. MARTINO, ESQUIRE
Dechert, Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103
Attorneys for Appellee,
The Bell Telephone Company
of Pennsylvania
RICHARD H. MARKOWITZ,
ESQUIRE
Markowitz & Richman
121 South Broad Street, Suite 1100
Philadelphia, Pennsylvania 19107
Attorney for Appellee,
Communications Workers of
America, AFL-CIO, District 13
IRWIN W. ARONSON, ESQUIRE
(Argued)
Handler, Gerber, Johnston &
Aronson
150 Corporate Center Drive,
Suite 100
P.O. Box 98
Camp Hill, Pennsylvania 17001-0098
Attorney for Amicus Curiae
Appellant/Cross-Appellee,
Pennsylvania State Building and
Construction Trades Council
8a
Appendix C
JOHN H. WIDMAN, ESQUIRE
McAleese, McGoldrick & Susanin
Suite 240 — Executive Terrace
455 South Gulph Road
King of Prussia, Pennsylvania 19406
Attorney for Amicus
Curiae Appellants,
The Roofing Contractors
Association Industry Fund,
Contractors Association of
Eastern Pennsylvania,
Mechanical Contractors
Association of Eastern
Pennsylvania,
Mechanical Contractors of
Western Pennsylvania,
Laurel Mechanical
Contractors, Inc.,
Plumbing & Heating Contractors
Association of Philadelphia &
Vicinity, Inc.,
Pen-Jer-Del Chapter of the
National Electrical Contractors
Association,
Delaware Valley Insulation and
Abatement Contractors
Association, Inc.
THOMAS A. BECKLEY, ESQUIRE
Beckley & Madden
212 North Third Street
P.O. Box 11998
Harrisburg, Pennsylvania 17108
9a
Appendix C
Attorney for Amicus
Curiae Appellants,
SMACNA of Pennsylvania,
Sheet Metal Contractors
Association
of Central Pennsylvania,
Sheet Metal Contractors
Association
of Philadelphia and Vicinity,
SMACNA of Western Pennsylvania
National Electrical Contractors
Association, Inc., Western
Pennsylvania Chapter,
Laurel Mechanical Contractors
Association, Inc.,
Mechanical Contractors of
Northwest
Pennsylvania,
Painting and Decorating
Contractors
of America, Harrisburg Chapter
Masonry Contractors Association
of Central Pennsylvania
RICHARD B. SIGMOND, ESQUIRE
RICHARD C. McNEILL, JR..,
ESQUIRE
Sagot, Jennings & Sigmond
1172 Public Ledger Building
Independence Square West
Philadelphia, Pennsylvania 19106
Attorneys for Amicus
Curiae Appellant,
10a
Appendix C
Steamfitters Local Union No. 420,
United Association of Journeymen
and Apprentices of the Plumbing
and Pipefitting Industry
DEBORAH J. NATHAN, ESQUIRE
Cleckner & Fearen
Willow Grove Plaza, Suite 2000
102 York Road
Willow Grove, Pennsylvania 19090
Attorney for Amicus Curiae
Appellee/Cross-Appellant,
Pennsylvania School Boards
Association, Inc.
MAURICE BASKIN, ESQUIRE
Venale, Baetjer, Howard & Civiletti
1201 New York Avenue, N.W.,
Suite 1000
Washington, D.C. 20005
Attorney for Amicus Curiae
Appellee/Cross-Appellant, Central
Pennsylvania Chapter, Lehigh
Valley Chapter, Southeast
Pennsylvania Chapter, and
Western Pennsylvania Chapter of
Associated Builders and
Contractors, Inc. and Associated
Builders and Contractors, Inc.
ES
lla
Appendix C
LOUDON L. CAMPBELL, ESQUIRE
Calkins & Campbell
223 North Front Street
P.O. Box 1188
Harrisburg, Pennsylvania 17108
Attorney for Amicus
Curiae Appellee,
Pennsylvania Builders Association
ROBIN S. CONRAD, ESQUIRE
National Chamber Litigation
Center, Inc.
1615 H Street, N.W.
Washington, D.C. 20062
Attorney for Amicus Curiae
Appellee,
Chamber of Commerce of
the United States of America
OPINION OF THE COURT
SCIRICA, Circuit Judge.
In this appeal, we must decide whether the Employee
Retirement Income Security Act of 1974 (ERISA)' preempts a
Pennsylvania minimum wage law applying to public works
projects. We hold that such a law may not refer to ERISA plans or
accord them special treatment, but may set minimum wages and
give employers the option of satisfying a portion of the wage
through contributions for employee benefits.
1. Pub. L. No. 93-406, 88 Stat. 829 (codified as amended in scattered sections
of 5, 18, 26, 29, 31, & 42U.S.C.).
12a
Appendix C
An employer, an employers’ association, and a labor union?
sued Pennsylvania’s Secretary of Labor and Industry and the
members of the state Prevailing Wage Appeals Board
(collectively, the Secretary) in federal district court, claiming
Pennsylvania’s Prevailing Wage Act (the Act),? its accompanying
regulations, and an administrative Declaratory Order interpreting
the Act are preempted by ERISA. The district court agreed and
overturned the Act, regulations, and order. The Secretary of
Labor and Industry appeals, and the employers’ association
cross-appeals.
We agree the Declaratory Order implements the Act in a
manner preempted by ERISA. But we find the Act and its
regulations are not preempted because they confer broad
authority that may be implemented in a manner consistent with
ERISA. Therefore we will affirm the judgment of the district
court striking the Declaratory Order, but reverse its judgment
striking the Act and accompanying regulations.
I.
A. The Prevailing Wage Act
The purpose of the Prevailing Wage Act “is to protect
workers employed on public projects from substandard wages by
insuring that they receive the prevailing minimum wage.”
Lycoming County Nursing Home v. Pennsylvania, 627 A.2d 238,
2. These were, respectively, the Bell Telephone Company of Pennsylvania,
Keystone Chapter, Associated Builders and Contractors, Inc., and the
Communications Workers of America, AFL-CIO, District 13.
3. P.L.987 (1961) (codified at 43 P.S.A. § 165).
13a
Appendix C
242 (Pa. Commw. Ct. 1993). The statute provides, “Not less than
the prevailing minimum wages as determined hereunder shall be
paid to all workmen on public work,” 43 P.S.A. § 165-5, and sets
forth general rules for determining prevailing minimum wages.
Before public contracts are put out to bid, the Secretary of Labor
and Industry, in consultation with an Advisory Board, determines
the prevailing minimum wage for each locality and for each
“craft or classification” of worker to be employed. 43 P.S.A.
§ 165-7. In making this determination, “employer and employe
contributions for employe benefits pursuant to a bona fide
collective bargaining agreement shall be considered an integral
part of the wage rate.” Jd. The statute does not define “prevailing
minimum wage rate,” nor specify how contributions for benefits
are to be integrated into the wage rate.‘
The seven-member Prevailing Wage Appeals Board hears
“any grievance or appeal arising out of the administration of this
act” “[p]Jromulgate[s] rules and regulations necessary to carry out
[its] duties.” 43 PS.A. § 165-2.2(e). Contractors and
subcontractors must “keep an accurate record showing the name,
craft and the actual hourly rate of wage paid to each workman
employed by him in connection with public work” for two years
following payment, subject to inspection by the Secretary and the
public body awarding the contract. Id. § 165-6.
4. Pennsylvania’s Commonwealth Court has held that despite the lack of
definition the terms “prevailing minimum wage rate” and “craft or classification”
are “adequate primary standards to guide the Secretary in the exercise of his duties
under [§ 165-7],” so that the statute does not assign the Secretary “unacceptably
excessive discretion.” Pennsylvania v. Alternose Construction Co., 368 A.2d 875,
881 (Commw. Ct. Pa. 1977).
l4a
Appendix C
B. The Accompanying Regulations
The Pennsylvania Code, Title 34 §§ 9.101-9.112, provides
additional rules for calculating and enforcing the prevailing
minimum wage in public works contracts. The regulations make
clear that a prevailing minimum wage will state a cash wage and a
level of benefits contributions as separate components.
Contractors and subcontractors must pay “[nJot less than the
general prevailing minimum wage rates determined by the
Secretary.” If a contract does not provide for employee benefits
contributions “which the Secretary has determined to be included
in the general prevailing minimum wage rate,” the employer may
pay “the monetary equivalent thereof.” Jd. § 9.-106.
Contributions for employee benefits are defined as
“ *[f]ringe benefits’ paid or to be paid, including payment made
whether directly or indirectly, to the workmen for sick, disability,
death, other than Workmen’s Compensation, medical, surgical,
hospital, vacation, travel expense, retirement and pension
benefits.” Id. § 9.102. Contractors may pay their workers above
the prevailing rate. Jd.
To determine the prevailing minimum wages and benefits in
a locality, the Secretary considers local collective bargaining
agreements between established bargaining representatives and
employers and other information. Jd. § 9.105. The regulations
specify additional records and reporting requirements for
employers. Id. §§ 9.109, 9.110. The Secretary may investigate
and hold hearings on allegations of underpayment, and may bar
public contracts with a violating firm and request the Attorney
General to recover penalties. Jd. § 9.111.
15a
Appendix C
C. The April 13, 1992 Declaratory Order
Although the Act and regulations specify the prevailing
minimum wage will have separate cash and benefits components,
they do not state whether the benefits component should merely
state the total level of benefits contributions an employer must
make (through benefits contributions or their cash equivalent), or
whether it should specify which types and levels of benefits must
be given. That issue has been resolved by the Secretary and Board
in different ways at different times.
For several years prior to April 13, 1992, the Secretary used a
“line-item” approach in determining compliance with a
prevailing wage’s benefits component.’ The Secretary made a
“predetermination” of the prevailing wage for each category of
worker in a given locality, specifying the prevailing levels of
benefits in a number of categories, such as “health-and-welfare,”
“pension,” and “apprenticeship-and-training”. An employer had
to meet the prevailing level of each category of benefit, or pay the
shortfall in cash to the worker. An employer was not given credit
toward the benefits component for benefits provided in a given
category in excess of that required in the predetermination, nor
for any benefits paid in a category not included in the
predetermination. Thus, in addition to paying the prevailing cash
wage, an employer was required either to make benefits
contributions in the specified categories and amounts or to pay
5. The Department apparently officially adopted the line-item approach in
1988. In its brief to the Prevailing Wage Appeals Board, the Prevailing Wage
Division of the Department of Labor and Industry cites as its earliest authority for
the line-item approach a 1988 decision of the Secretary. In re: Francesco Scrivofilo,
/d/b/a Franco Elec. Co., Determination of the Secretary (Dec. 1, 1988). Bell and
the Communications Workers of America claim their wage and benefits packages
were not reviewed for line-item compliance for a number of years, presumably prior
to 1988.
16a
Appendix C
cash to the extent its benefits contributions fell short in any
specified category.®
On November 28, 1990, counsel for Keystone Chapter,
Associated Builders and Contractors, Inc., a construction
industry employers’ association wrote to the Secretary,
complaining about the line item approach. The complaint was
referred to the Prevailing Wage Appeals Board, which treated it
as a “Petition for Declaratory Order” and heard oral argument.
Bell Telephone Co., an employer that performs public work, also
participated in the proceeding. The petitioners argued that the
line-item approach was not the best interpretation of the
Prevailing Wage Act, that it was unfair to non-union and non-
local contractors, and that it was preempted by ERISA. The
Prevailing Wage Division of the Department of Labor and
Industry (the Division) conceded that the Prevailing Wage Act
did not require line-item specification of fringe benefits, but
stated that as remedial legislation it should be interpreted broadly
in favor of the protected class.’
6. For example, a prevailing minimum wage predetermination for a
particular classification of worker on a public works project might be $7 cash, $2
pension, and $1 health-and-welfare, per hour. An employer could pay as specified
in the predetermination — $7 per hour cash, $2 pension, and $1 health-and-welfare
— or substitute cash for some or all of the prevailing benefits — for example, $8
cash, $1 pension, and $1 health-and-welfare, or $10cash and no benefits. However,
an employer paying $7 cash, $2 pension, and $1 for apprenticeship-and-training
would not satisfy the minimum, because it had neither contributed $1 for health-
and-welfare nor replaced it with $1 cash. Similarly, anemployer paying $7 cash and
$3 pension would not be in compliance — notwithstanding the extra dollar in the
pension category; it too would be required either to pay $1 health-and-welfare or
replace that contribution with $1 cash.
7. John T. Kupchinsky, attorney for the Division, stated, “If you're going to
(Cont'd)
17a
Appendix C
On April 13, 1992, apparently in response to the petitioners’
ERISA preemption arguments, the Prevailing Wage Appeals
Board issued a Declaratory Order modifying the implementation
of the Prevailing Wage Act. The Board stated it “should interpret
state law so that it comports with constitutional and federal law,”
Keystone App. at 71, and established a special bona fide status for
contributions for ERISA benefits. It ordered:
2. That the [Prevailing Wage] Division
must determine, in the first instance, whether
or not a contribution for employee benefits
isbona fide;
3. That a contribution is bona fide if that
contribution: (a) is made to an “employee
benefit plan” or fund or program subject to
the [ERISA]; (b) has been determined to be
bona fide by the Division; and (c) is not
required by federal, state or local law;
Keystone App. at 73-74.
The next part of the order, paragraph 4, appears to abolish the
line-item system, although it is not clear if this applies only to the
ERISA benefit contributions discussed in paragraph 3, or to all
benefits. It provides:
(Cont'd)
fudge things, you fudge things to get more people covered by the act ....”
Transcript of Oral Argument before Prevailing Wage Appeals Board, Nov. 12,
1991 at35, Keystone App. at 180.
18a
Appendix C
4. That credit for contributions for
employee benefits, up to the maximum
established by the predetermination, shall be
given as follows:
c) Credit shall be given for contributions in
each predetermined category up to the
predetermined rate for each category;
d) Contributions which exceed _ the
predetermined rate in any employee benefit
category shall be credited in any other
predetermined benefit category (or
categories) for which the predetermined rate
has not been satisfied;
e) Credit shall be given for contributions for
employee benefits not included in the
predetermined benefit categories;
f) The maximum credit for contributions for
employee benefits shail not exceed the total
amount of contributions for employee
benefits established by predetermination;
Keystone App. at 74-75.
As interpreted by the Prevailing Wage Division, the
Declaratory Order establishes that any contribution to an ERISA
19a
Appendix C
plan is per se bona fide, while other benefits contributions must
be certified by the Division as such. Furthermore, ERISA
benefits contributions are counted toward the benefits minimum
no matter what category they fall in, while the line-item approach
is maintained for non-ERISA benefits contributions. Letter from
Susan J. Forney, Senior Deputy Attorney General, to the Court,
(April 18, 1994).* We accept this reading of the Declaratory Order
as a reasonable interpretation.’
D. Litigation
Keystone filed a complaint in United States District Court
for the Middle District of Pennsylvania seeking injunctive relief
against the Secretary. Keystone claimed the Prevailing Wage Act
8. A May 29, 1992 memo from Field Inspection Supervisor A. Robert
Risaliti to the Field Inspectors, who enforce the Prevailing Wage Act, confirms that
the Declaratory Order has been thus implemented. It states that neither the Division
nor the inspector is authorized to object to the presumed bona fide status of ERISA
contributions, whether or not the contributions match the categories in the
predetermination. The memo also indicates the line-item approach is still applied to
non-ERISA benefits.
Ms. Forney’s letter came as a correction to the Secretary’s position at oral
argument, that pursuant to the April 13 Order the line-item approach was abandoned
for all benefits, and that any non-ERISA benefit contributions are credited against
the benefit contribution rate if they were judged by the Division to be bona fide. See
Brief for Appellants at 10-11.
9. The Appellees differ in their interpretation of the order. Keystone
essentially agrees with the Secretary’s interpretation. Bell and the CWA contend
that only contributions to ERISA benefit plans now count towards the fringe benefit
component; other benefits, they say, will not be credited at all. Although the order is
somewhat unclear, we find it implausible that the Board would disqualify all non-
ERISA benefits contributions from counting toward the prevailing minimum, as
this would be a major departure from past practice without grounding in the Act.
20a
Appendix C
was preempted by ERISA because it prevented employers from
setting the terms of their benefits plans. Bell Telephone and its
employees’ union, the Communications Workers of America
(CWA), brought a suit against the Secretary and the members of
the Prevailing Wage Appeals Board seeking a declaratory
judgment that the Prevailing Wage Act was preempted by ERISA
or by the NLRA.”° They claimed their participation in public
works projects was impeded because their collective bargaining
agreements, which include centrally administered benefits plans
for workers in several states, would not qualify as meeting the
prevailing wage. Some of these contracts included non-ERISA
benefit contributions that they believed would not be credited
toward the benefits component, and some contracts gave benefits
in excess of the prevailing benefits minimum that would not be
credited against the cash wage component. Keystone, Bell, the
CWA, and the defendants moved for summary judgment.
On July 30, 1993, the district court declared the Prevailing
wage Act, its accompanying regulations, and the Declaratory
Order preempted by § 514(a) of ERISA, 29 U.S.C. § 1144(a)
(1988), which preempts state law relating to ERISA plans. The
court found (1) the Declaratory Order specifically referred to
ERISA plans, (2) the Prevailing Wage Act could affect the level
of benefits paid to employees by discouraging benefits in excess
of the prevailing rate, and (3) the Act imposed administrative
burdens on ERISA plans by requiring employers to keep records
of wages and benefits. The court declined the Secretary’s request
to sever the portion of the Act covering fringe benefits and leave
standing a requirement that government contractors simply meet
the prevailing cash wage because it believed such a system would
be contrary to legislative intent.
10. The latter claim was dismissed and is not raised on appeal.
21a
Appendix C
On appeal, the Secretary argues the district court erred in
finding the Prevailing Wage Act, its regulations, and the
Declaratory Order preempted. Alternatively, he requests that if
the Act’s integration of benefits into the prevailing wage violates
ERISA, we sever that portion and allow the Act to stand to the
extent it regulates cash wages. Keystone and Bell ask us to affirm
the district court. Keystone also cross-appeals, requesting that if
we do not affirm the district court, we enjoin the Secretary from
specifying line-item requirements for ERISA benefit
contributions. The CWA requests that only the Declaratory Order
be invalidated, claiming the law itself can be interpreted in a
manner that is not preempted.
The district court had jurisdiction of these ERISA
preemption claims under 28 U.S.C. § 1331 (1988). “A plaintiff
who seeks injunctive relief from state regulation, on the ground
that such regulation is pre-empted by a federal statute which, by
virtue of the Supremacy Clause of the Constitution, must prevail,
thus presents a federal question which the federal courts have
jurisdiction under 28 U.S.C. § 1331 to resolve.” Shaw v. Delta Air
Lines, Inc., 463 U.S. 85,96 n.14."
11. Steamfitters Local Union No. 420, in its amicus brief, argues that New
Jersey State AFL-CIO v. New Jersey, 747 F.2d 891 (3d Cir. 1984), bars federal
question jurisdiction. While we held there that a district court lacked jurisdiction of
a labor union’s action for declaratory judgment that ERISA preempted four New
Jersey statutes, our holding simply rejected the union’s attempt to sue under
ERISA’ s jurisdictional provision, 29 U.S.C. § 1132(a)(1)(B) & (e)(1), which grants
federal jurisdiction of civil actions only by participants and beneficiaries. New
Jersey State AFL-CIO, 747 F.2d at 892-93. As we explained in Northeast Dept.
ILGWU Health & Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund,
764 F.2d 147, 153 n.3 (3d Cir. 1985), “[t}he matter of federal question jurisdiction
was not raised by the parties in AFL-C/O, nor was it considered by the panel.” Shaw,
as quoted above, makes clear that there is federal question jurisdiction where a party
claims it will be subject to state regulation preempted by ERISA.
22a
Appendix C
We have appellate jurisdiction under 28 U.S.C. § 1291, and
our review of a summary judgment is plenary, Public Interest
Research v. Powell Duffryn Terminals, Inc., 913 F.2d 64 (3d Cir.
1990), cert. denied, 498 U.S. 1109 (1991). “[T]he appellate court
is required to apply the same test the district court should have
utilized initially. Inferences to be drawn from the underlying facts
contained in the evidential sources submitted to the trial court
must be viewed in the light most favorable to the party opposing
the motion.” Goodman v. Mead Johnson & Co., 534 F.2d 566, 573
(3d Cir. 1976), cert. denied, 429 U.S. 1038 (1977). The district
court’s conclusions of law are subject to plenary review. Gregoire
v. Centennial Sch. Dist., 907 F.2d 1366, 1370 (3d Cir.), cert.
denied, 498 U.S. 899 (1990).
Il.
A. ERISA
ERISA provides uniform federal regulation of employee
benefit plans. It is a comprehensive statute that protects the
interests of employees and their beneficiaries in employee
benefit plans, and promotes administrative efficiency through
exclusive federal regulation of such plans. ERISA subjects
employee benefit plans to participation, funding, and vesting
requirements, and to uniform standards on matters like reporting,
disclosure, and fiduciary responsibility. Shaw, 463 U.S. at 90-91.
Section 514(a) of ERISA promotes uniform regulation of
employee benefits plans, by preempting, with limited exceptions
not applicable here, “any and all State law insofar as they may
now or hereafter relate to any employee benefit plan” covered by
ERISA. 29 U.S.C. § 1144(a). ERISA covers pension benefit plans
and plans for welfare benefits such as medical benefits, training
23a
Appendix C
programs, and daycare centers.'* 29 U.S.C. § 1002(3) (1988).
Typically, these plans create a need for “an ongoing
administrative program for processing claims and paying
benefits.” Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12
(1987).
In determining the scope of § 514(a), “as in any preemption
analysis, ‘[t]he purpose of Congress is the ultimate touchstone.’ ”
Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747
(1985) (quoting Malone v. White Motor Corp., 435 U.S. 497, 504
(1978)) (alteration in original) (internal quotation marks and
citation omitted). Recognizing the complex administrative task
faced by employers maintaining employee benefit plans,
Congress enacted § 514(a) to ensure that plan administration is
subject to a single set of regulations rather than a “patchwork
scheme.” Fort Halifax, 482 U.S. at 11.
We summarized the standards for ERISA preemption in
12. The statute defines “employee benefit plan” as an “employee welfare
benefit plan or an employee pension benefit plan ora plan which is both.” 29 U.S.C.
§ 1002(3). An employee welfare benefit plan is any “plan, fund, or program. . .
established or maintained by an employer or by an employee organization, or by
both” to provide “(A) medical, surgical, or hospital care or benefits in the event of
sickness, accident, disability, death or unemployment, or vacation benefits,
apprenticeship or other training programs, or day care centers, scholarship funds, or
prepaid legal services, or (B) any benefit described in section 186(c) of this title
(other than pensions on retirement or death, and insurance to provide such
pensions).” Jd. § 1002(1). 29 U.S.C. § 186(c) involves union welfare funds for
benefits such as vacation benefits, scholarships, and housing assistance. An
employee pension benefit plan is “any plan, fund, or program . . . established or
maintained by an employer or by an employee organization, or by both. . . [that] (i)
provides retirement income to employees, or (ii) results in a deferral of income by
employees for periods extending to the termination of covered employment or
beyond. . . .” Id. § 1002(2)(a).
24a
Appendix C
United Wire v. Morristown Memorial Hosp., 995 F.2d 1179 (3d
Cir.), cert. denied, 114S. Ct. 382, 383 (1993):
The preemption clause of ERISA is notable
for its breadth, and manifests Congress’s
intention to establish pension plan regulation
as an exclusively federal concern. Alessi v.
Raybestos-Manhattan, Inc., 451 U.S. 504,
101 S.Ct. 1895, 68 L.Ed.2d 402 (1981). The
Supreme Court has noted that a state law
“relates to” an ERISA governed plan, within
the meaning of § 514(a)’s preemptive reach,
“if it has a connection with or reference to
such a plan.” Shaw v. Delta Air Lines, 463
U.S. 85, 97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d
490 (1983). The Court in Shaw noted,
however, that “[s]ome state actions may
affect employee benefit plans in too tenuous,
remote, or peripheral a manner to warrant a
finding that the law ‘relates to’ the plan.” 463
U.S. at 100, n. 21, 103 S.Ct. at 2901 n.21.
Id. at 1191. We then set out guidelines for determining if a law
related, directly or indirectly, to ERISA plans:
A rule of law relates to an ERISA plan if it
is specifically designed to affect employee
benefit plans, if it singles out such plans for
special treatment, or if the rights or
restrictions it creates are predicated on the
existence of sucha plan....
This does not end our inquiry, however. A
state rule of law may be preempted even
25a
Appendix C
though it has no such direct nexus with
ERISA plans if its effect is to dictate or
restrict the choices of ERISA plans with
regard to their benefits, structure, reporting
and administration, or if allowing states to
have such rules would impair the ability of a
plan to function simultaneously in a number
of states.
Id. at 1192-93 (footnotes omitted). We will apply this analytic
framework to the Declaratory Order, the Prevailing Wage Act,
and its accompanying regulations.
B. The Declaratory Order
The District Court correctly held that ERISA preempts the
Declaratory Order, because it “singles out [ERISA] plans for
special treatment.”!? United Wire, 995 F.2d at 1192. Under the
Order, the Prevailing Wage Division treats contributions for
ERISA benefits as per se bona fide, but must approve other
contributions. Further, any ERISA benefits contributions count
toward the benefits minimum, while non-ERISA benefits only
count if they are in one of the benefit categories listed in the
predetermination.
Such special treatment for ERISA plans is grounds for
preemption. In Mackey v. Lanier Collection Agency & Serv., 486
13. The Declaratory Order is “State law” subject to ERISA preemption under
§ 514, for “State law” includes not only statutes, but “all laws, decisions, rules,
regulations, or other State action having the effect of law, of any State.” 29 U.S.C.
§ 1144(c)(1). See National Elevator Indus., Inc. v. Calhoon, 957 F.2d 1555 (10th
Cir.) (invalidating ruling of Commissioner of Oklahoma Department of labor under
state’s prevailing wage act as preempted by ERISA), cert. denied, 113 S. Ct. 406
(1992).
26a
Appendix C
U.S. 825 (1988), the Supreme Court struck down a provision of a
Georgia statute that barred garnishment of ERISA plan funds.
Because the provision expressly referred to ERISA benefit plans
and accorded them special treatment, the Court found it “related
to” such plans within the meaning of § 514(a). Jd. at 829-30.
Though the law might have been enacted to further ERISA’s
purposes, the Court said, “[l]Jegislative ‘good intentions’ do not
save a State law within the broad pre-emptive scope of § 541(a).”
Id. at 830. See also McCoy v. Massachusetts Inst. of Tech., 950
F.2d 13, 19-20 (1st Cir. 1991) (§ 514(a) preempts mechanics’ lien
law expressly inuring lien to advantage of various types of
ERISA plans), cert. denied, 112 S. Ct. 1939 (1992).
Here, too, there may have been “good intentions’ behind the
special treatment given to ERISA plans. The Prevailing Wage
Appeals Board was responding to a claim that the Prevailing
Wage Act was preempted by ERISA, and stated its intention to
“interpret state law so that it comports with constitutional and
federal law.” Declaratory Order at 2. Despite this effort, the
Board interpreted the Prevailing Wage Act in a way that is
preempted by ERISA.”*
14. Amicus Curiae, the Roofing Contractors Association, argues that
preemption should not apply to state actions where the state is acting as a proprietor.
Because we find the Prevailing Wage Act and its accompanying regulations not
preempted on other grounds, this argument could only affect our decision regarding
the Declaratory Order. The Association relies on Building & Constr. Trades
Council v. Associated Bldrs. and Contractors, 113 S.Ct. 1190(1993), in which the
Supreme Court held a bid specification by a Massachusetts state authority,
requiring bidders to abide by a particular labor agreement, was not preempted by the
National Labor Relati.ns Act, despite the argument that the bid specification was a
state intrusion into labor-management relations, a regulatory realm preempted by
the federal government under the NLRA.
The Supreme Court rejected the preemption claim because the state was
(Cont’d)
27a
Appendix C
C. The Act and its accompanying regulations
Although the Declaratory Order implemented the Prevailing
Wage Act in a manner preempted by ERISA, we hold that neither
the Prevailing Wage Act nor its accompanying regulations are
preempted. Under at least one reasonable interpretation of the Act
and regulations, an interpretation the Agency is free to adopt, the
Act and regulations merely require that the Secretary set a
prevailing wage that consists of a cash component and may
include a benefits component. Employers must pay the cash
component of the wage in cash, but they may pay the benefits
component either in benefits or cash. Any benefits they provide,
regardless of type, would count toward the benefits component."°
(Cont'd)
acting “as a market participant with no interest in setting policy,” rather than in “a
role that is characteristically governmental.” Jd. at 1197. The Court explained that
when a state acts in the market place as an owner and manager of property, it “is not
subject to pre-emption by the NLRA, because pre-emption doctrines apply only to
State regulation.” Jd. at 1196.
Were we toreach the merits of this novel argument, we would have to begin by
considering the differences between preemption under the NLRA, which has no
explicit preemption provision, and preemption under ERISA, whose preemption
clause is expansive. We need not pursue the inquiry, however, because the theory
could not apply here in any event. In applying the Prevailing Wage Act,
Pennsylvania is clearly acting with an “interest in setting policy,” not as a
proprietor. Id. at 1197. The Prevailing Wage Act aims to ensure that workers receive
adequate wages, a governmental objective. Throughout its brief, the state justifies
its action in terms of its “right to establish labor standards,” which it calls a
“traditional police power.” Brief for the Appellants at 14-15. It would be difficult
for the state to claim it is acting as a private market participant when it is making
rules that raise the cost of its contracts.
15. We read the Prevailing Wage Act as a statute that may properly be
implemented in a number of ways, so that in overturning the Declaratory Order we
(Cont’d)
EE TE a ee Ae a ta ae
28a
Appendix C
Under this interpretation, the Prevailing Wage Act and the
regulations do not control benefits, but rather require certain
wages to be paid.
The Act and regulations thus fall into the field of state
regulation of wages, which is one of those “areas of traditional
state regulation” that we “must presume that Congress did not
intend to pre-empt.” Metropolitan Life Ins. Co. v. Massachusetts,
471 U.S. 724, 740 (1985). That presumption is rebuttable,
however, for “to avoid being preempted, a state law in addition to
being an exercise of traditional police powers must also affect the
plan ‘in too tenuous, remote or peripheral a manner to warrant a
finding that the law “relates to” the plan.’ ” Gilbert v. Burlington
Indus., Inc., 765 F.2d 320, 327 (2d Cir. 1985) (quoting Shaw, 463
U.S. at 100 n.21), aff’d, 477 U.S. 901 (1986). Nevertheless, the
state law at issue here avoids preemption because it does not
impede the goals of ERISA and has only incidental and
insignificant relations to ERISA plans.
1. Direct relation
The Prevailing Wage Act and regulations lack any of the
(Cont'd)
need not invalidate the Prevailing Wage Actitself or its regulations. We see nothing
in the Act or the regulations requiring that the benefits component specify particular
types of benefits and the amounts to be contributed in each. The variety of official
interpretations given the Prevailing Wage Act at different times shows that the
Secretary and the Prevailing Wage Appeals Board also believe line-item
specification of benefits is but one of the approaches at their disposal under the Act.
See supra, note 5.
There may be other interpretations of the statute that are not preempted.
Because there is one such reasonable interpretation, the Act and regulations
themselves are not preempted.
a
29a
Appendix C
three types of direct relations to ERISA plans described in United
Wire. See supra at 14. The Act and regulations are not
“specifically designed to affect employee benefit plans.” United
Wire, 995 F.2d at 1192. The Act aims to protect workers on public
projects from substandard pay by requiring a minimum cash
wage that may be supplemented by either prevailing benefits or
their cash equivalent. Neither the Act nor its regulations require
that certain benefits plans be established, that certain benefits be
given, or that ERISA plans be administered in a certain way.
The Act and regulations do not “single[] out [ERISA] plans
for special treatment,” or even refer to such plans. United Wire,
995 F.2d at 1192. Rather, they merely refer to employee benefits,
with no distinction between ERISA and non-ERISA benefits.
The Supreme Court has rejected the argument “that ERISA
forecloses virtually all, state legislation regarding employee
benefits,” and instead directs us to inquire whether the state law
“relates to” ERISA benefit plans. Fort Halifax, 482 U.S. at 7.
While some of the benefits the Secretary is permitted to count in
calculating the prevailing wage will come from ERISA plans,"®
we do not believe ERISA requires a state to ignore the existence
of ERISA benefits when considering overall remuneration to
16. Indeed, one regulation gives examples of employee benefits that include
benefits which would come from ERISA plans, such as “retirement and pension
benefits.” 34 Pa. Code § 9.102. While the Supreme Court has held a statute’s
reference to ERISA plans grounds for preemption, District of Columbia v. Greater
Washington Bd. of Trade, 113 S. Ct. 580 (1992), as discussed below, that statute
referred only to the ERISA plan as the basis for the rights it accorded. But the listing
of an ERISA plan benefit as an example of the factors to be calculated into a broader
determination, such as a provailing wage, is in and of itself inconsequential. We
have held that “[wJhere, as here areference to an ERISA plan can be excised without
altering the legal effect of a statute in any way, we believe the reference should be
regarded as without legal consequence for § 514(a) purposes.” United Wire, 995
F.2d at 1192n.6.
30a
Appendix C
workers. The Court has allowed the inclusion or implication of
ERISA plans in generally valid state legislation. See, e.g.,
Mackey, 486 U.S. at 830-841 (approving garnishment law that
would apply to ERISA plan benefits as well as other assets of
debtors); Shaw, 463 U.S. at 106-08 (approving disability benefits
requirements that could be satisfied through ERISA plans).
Indeed, Mackey suggests that a law would be preempted if it
counted all remuneration to workers except benefits from ERISA
plans, for this would be special treatment.
Finally, although ERISA plans are within the scope of the
regulator’s consideration under the Prevailing Wage Act, the Act
does not create a legislative scheme in which an ERISA plan is so
central that “the rights or restriction [the law] creates are
predicated on the existence of such a plan.” United Wire, 995 F.2d
at 1192. An example of a law predicated on ERISA plans was the
statute in Greater Washington Bd. of Trade, 113 S. Ct. at 584,
which required health coverage for injured employees on
workers’ compensation to be equivalent to regular employees’
“existing health insurance coverage.” Such coverage was, in turn,
“a welfare benefit plan under ERISA,” so that injured employees’
rights were premised on the existence of ERISA plans. /d.
Similarly, in Ingersoll-Rand Co. v. McClendon, 498 U.S. 133,
139-140 (1990), the Court held ERISA preempted a state cause of
action in favor of an employee who alleged his employer
terminated him to avoid contributing to his pension plan, where
“the existence of a pension plan [was] a critical factor in
establishing liability.”
In United Wire we set out a test to distinguish between laws
predicated on ERISA plans and laws that implicated such plans in
a nonessential manner. A New Jersey statute set hospital rates for
all payors, and included a surcharge to compensate hospitals for
3la
Appendix C
their losses in providing care to Medicare patients. While the
dissent argued that New Jersey’s system for funding
underreimbursed care would not be viable without the
participation of ERISA plans, United Wire, 995 F.2d at 1199-
1200 (Nygaard, J., dissenting), we stated:
[I]t is of no legal consequence if removing
ERISA plans from the scene would diminish
the likelihood that the statute would meet its
social goals. Rather, the test for preemption in
this regard is whether the existence of ERISA
plans is necessary for the statute to be
meaningfully applied.
Id. at 1192 n.6. Because the New Jersey law set standard rates and
surcharges for all payors, we held it could be meaningfully
applied in the absence of ERISA plans. Jd.
In the absence of ERISA plans, the Prevailing Wage Act
could be meaningfully applied. The Act requires the Secretary to
measure prevailing benefits contributions in a locality for a given
class of worker. The Secretary would do so even if all of these
were non-ERISA benefits — that is, benefits “payable on a
regular basis from the general assets of the employer,”
Massachusetts v. Morash, 490 U.S. 107, 116 (1989), and that
“create[ ] no need for an ongoing administrative program for
processing claims and paying benefits,” Fort Halifax, 482 U.S. at
12. Similarly, the statute would be “meaningfully applied” in the
absence of ERISA plans if a public works contractor satisfied the
benefits component of a given prevailing wage by making
contributions for non-ERISA benefits, or by paying the
equivalent in cash. Thus, no element of the Prevailing Wage Act
is premised on the existence of an ERISA plan.
32a
Appendix C
2. Indirect relation
We next determine whether there is an indirect relation to
ERISA plans requiring preemption. “ERISA pre-empts any state
law that refers to or has a connection with covered benefit plans
(and that does not fall within a § 514(b) exemption) ‘even if the
law is not specifically designed to affect such plans, or the effect
is only indirect,’ and even if the law is ‘consistent with ERISA’s
substantive requirements.’ ” Greater Washington Bd. of Trade,
113 S. Ct. at 583 (citations omitted). ERISA preempts laws that
“dictate or restrict the choices of ERISA plans with regard to their
benefits, structure, reporting and administration,” or “impair the
ability of a plan to function simultaneously in a number of states.”
United Wire, 995 F.2d at 1193. Here, however, the only
connections between ERISA plans and the Act are “too tenuous,
remote, or peripheral . . . to warrant a finding that the law ‘relates
to’ the plan.” Shaw, 463 U.S. at 100, n.21.
State laws are preempted because they dictate or restrict
ERISA plans when, for example, they eliminate a method of
calculating benefits in ERISA plans that is permitted by federal
law, FMC Corp. v. Holiday, 498 U.S. 52 (1990) (state law
prohibiting ERISA plans from requiring reimbursement of
benefits from beneficiaries who recover in tort for the same
expenses preempted by ERISA); Alessi v. Raybestos-Manhattan,
Inc., 451 U.S. 504 (1981) (state law prohibiting offset of workers’
compensation awards against retirement benefits preempted by
ERISA). A state cannot require an employer to contribute to
certain ERISA plans, Local Union 598 v. J.A. Jones Constr. Co.,
846 F.2d 1213 (9th Cir.) (state prevailing wage statute requiring
contributions to apprenticeship program, an ERISA plan,
preempted), aff’d 488 U.S. 881 (1988), or to provide certain
benefits through an ERISA plan. Standard Oil Co. v. Agsalud,
33a
Appendix C
633 F.2d 760 (9th Cir. 1980) (Hawaii law requiring
comprehensive health benefits for all workers preempted), aff’d,
454 U.S. 801 (1981). One court has held that favoring one ERISA
plan over another through financial incentives is barred. National
Elevator Industry, Inc., 957 F.2d at 1559 (Oklahoma prevailing
wage law allowing reduced trainee wages only for participants in
certain ERISA training programs preempted).
a. Cash component
The primary restriction imposed by the Prevailing Wage Act
is that employers on public contracts pay the predetermined
prevailing minimum wage which, as we have described, has a
cash component and a benefits component. We will consider each
component in turn. The cash component fixes a minimum cash
wage that must be paid, regardless of benefits contributions. This
does not dictate or restrict the choices of ERISA plans, directly or
indirectly. Employers must pay the cash minimum, regardless of
what benefits they provide.
Appellees argue that the Prevailing Wage Act restricts their
choice of plan benefits and structure because employers are not
given credit for benefits contributions beyond the prevailing
benefits minimum. This, they say, makes it difficult for a single
plan “to function simultaneously in a number of states.” United
Wire, 995 F.2d at 1193. Bell explains that it negotiates uniform
contracts with its workers in several states that may award lower
wages and higher benefits than those called for in the prevailing
minimum wage for a particular public works project. In this case,
Bell says it would be forced to continue the benefits contributions
it had agreed to in its national contract, but also raise its wages on
the public works project.
Ironically, the Appellees here are objecting to an aspect of
34a
Appendix C
the Prevailing Wage Act that does not relate enough to employee
benefits and benefit plans for their taste. They would like the
level of cash wages required to be tied to the level of benefits paid
by an employer, but the state has chosen to fix the cash wage
component independent of benefits contributions. A state law
does not dictate or restrict the choices of ERISA plans by having
nothing to do with employee benefits.
The flaw in Appellees’ objection is that it could be raised
even against a prevailing hourly cash wage law with no benefits
component. Such a law would create the same “disincentive”
against awarding benefits, because employers would have to pay
~ the wage no matter what level of benefits they provided. We do
not believe ERISA preempts such basic state wage regulation.
“The States have traditionally regulated the payment of wages,”
and the Supreme Court has not found “any indication that
Congress intended such far-reaching consequences” as the
preemption of this sphere of state authority. Massachusetts v.
Morash, 490 U.S. at 119. See also 29 C.F.R. § 2510.3-1(b) (1993)
(“employee welfare benefit plan” does not include “[p]ayment by
an employer of compensation on account of work performed by
an employee.”). ERISA does not preempt cash wage
requirements unrelated to employee benefits, nor does it require
the state to encourage benefits contributions by reducing the
minimum cash wage where an employer makes large benefits
contributions.””
Plainly, a minimum cash wage requirement will impose an
17. Through the benefits component, the state has in fact extended
employers the option of paying part of the minimum wage through cash or benefits.
As discussed below, we find this permissible under Shaw, 463 U.S. 85. See infra at
II(C)(2)(b). The state is, however, under no obligation to offer employers this
choice, and may require all or, as here, part of a minimum wage to be paid in cash.
35a
Appendix C
additional cost on a Pensylvania public works contractor which
would otherwise pay less than the minimum, and this cost, like
any other imposed on an employer, could influence its choices
regarding ERISA benefits contributions. But this could be said of
any wage regulation. For example, the Supreme Court upheld a
Massachusetts statute that required employers to pay employees
for all unused vacation time upon discharge, because the law was
an instance of wage regulation and did not relate to employee
benefit plans. Morash, 490 U.S. 107. And the Maine statute
upheld in Fort Halifax required employers to give a severance
payment of one week’s salary for every year an employee had
worked in the event of a plant closing. 482 U.S. at 3-4. The
severance payment represented “a one-time obligation ...
creat[ing] no need for an ongoing administrative program for
processing claims and paying benefits,” and hence did not relate
to an ERISA plan. Jd. at 12. Both laws constrained employers’
choices regarding wages and non-ERISA benefits, and could
indirectly affect their decisions as to what ERISA benefits to
offer employees. However, wage laws are among the “many
forms of state regulation under the police power which result in
increases in the cost of doing business.” United Wire, 995 F.2d at
1196, and this incidental effect does not create a preemptible
relation to ERISA plans."* ERISA’s preemption clause aims “to
ensure benefit plans will be governed by only a single set of
18. While state regulations may affect the cost of doing business in a state,
they may not, consistent with ERISA, place administrative burdens and costs on
ERISA plans that make it impractical for an employer to provide a nationwide plan.
Thus, the Fort Halifax court stated. “Faced with the difficulty or impossibility of
structuring administrative practices according to a set of uniform guidelines, an
employer may decide to reduce benefits or simply not to pay them at all.”). 482 U.S.
at 13. Similarly, the Holliday Court stated, “Torequire plan providers to design their
programs in an environment of differing state regulations would complicate the
administration of nationwide plans, producing inefficiencies that employers might
offset with decreased benefits.” 498 U.S. at 60. (Cont'd)
36a
Appendix C
regulations,” FMC Corp. v. Holliday, 498 U.S. 52, 60 (1990), not
to bestow on employers a uniform regulatory and economic
environment for all their activities across the country. Because
states enact their own wage and non-ERISA benefits regulations,
Morash, 490 U.S. 107; Fort Halifax, 482 U.S. 1; Shaw 463 U.S.
85 collections law, Mackey, 386 U.S. 825, and controls on
hospital charges, United Wire, 995 F.2d 1179, employers must
adjust their operations according to locale. This administrative |
and financial burden arises from the “patchwork scheme” of our
(Cont’d)
State regulation may also be preempted for imposing costs directly on core
functions of ERISA plans. Forexample, in E-Systems, inc. v. Pogue, 929 F.2d 1100
(Sth Cir. 1991), certdenied, 112S. Ct. 585 (1991), the courtheld ERISA preempted
a state tax on fees for services to ERISA plans and benefits paid by ERISA plans.
The Second Circuit went farther in Travelers Ins. Co. v. Cuomo, 14F.3d708 (2d Cir.
1993) (criticizing Rebaldo v. Cuomo, 749 F.2d 133 (2d Cir. 1984), cert. denied, 472
U.S. 1008 (1985)), where it overturned a New York law that added various
surcharges to hospital bills of patients covered by commercial insurance carriers
and health maintenance organizations. Because the surcharges imposed “a
significant economic burden on commercial insurers and HMOs,” the court found
they had “an impermissible impact on ERISA plan structure and administration.”
Id. at 721.
It is not clear whether Travelers Ins. directly conflicts with United Wire. See
Travelers Ins., 14F.3dat721 n.3 (arguing United Wire interprets preemption clause
too narowly). Unlike the statute in Travelers Ins., the New Jersey law in United Wire
imposed a surcharge on all payors, not just commercial insurers and HMOs, and
gave discounts only for “quantifiable economic benefits rendered to the institution
or to the health care delivery system taken as a whole.” United Wire, 995 F.2d at
1189 (citation omitted). Thus, the law might more legitimately be regarded as one of
general application rather than one specifically affecting ERISA plans; it may also
have had a less significant economic effect on such plans. As we stated in United
Wire, general legislation under a state’s police power may raise the cost of doing
business for ERISA plans without triggering preemption. But in any event, the
Prevailing Wage Act has a far less direct economic impact on ERISA plans than
either of the hospital rate laws; because in essence the Act imposes only a wage
requirement, it changes employers’ wage costs, not ERISA plan costs.
37a
Appendix C
federal system, a system whose “separate spheres of
governmental authority,” Alessi, 451 U.S. at 522, were not
preempted by ERISA.
b. Benefits component
Unlike the cash component, the benefits component of the
prevailing minimum wage plainly has some connection to
employee benefits, and thus to benefits plans, but we find no
grounds for preemption here, either. Contracts for public works
must either provide benefits contributions at the level determined
in the prevailing wage or the monetary equivalent thereof. 34 Pa.
Code § 9.106. Appellees suggest this provision creates a
preemptible relation to ERISA plans merely by providing the
option of complying with part of the minimum wage through
benefits contributions. We disagree. The provision does not
require or encourage an employer to provide certain benefits, to
alter the manner in which it provides benefits, or even to provide
any benefits at all. The benefits component only relates to ERISA
plans when an employer decides to satisfy it through
contributions to ERISA plans instead of cash payments or
contributions to non-ERISA benefits. Where a legal requirement
may be easily satisfied through means unconnected to ERISA
plans, and only relates to ERISA plans at the election of an
employer, it “affect[s] employee benefit plans in too tenuous,
remote, or peripheral a manner to warrant a finding that the law
‘relates to’ the plan.” Shaw, 463 U.S. at 100n.21.
We are guided by Shaw, where the Court held ERISA did not
preempt a New York law requiring employers to pay sick-leave
benefits to employees unable to work because of pregnancy.
Section 4(b)(3) of ERISA exempts from the statute any plan
“maintained solely for the purpose of complying with applicable
... disability insurance laws,” 29-U.S.C. § 1003(b)(3); such
38a
Appendix C
plans may therefore be regulated by the state. The Court held
§ 4(b)(3) only saved from preemption plans solely devoted to
disability benefits and did not exempt a plan that included
provisions for benefits subject to ERISA along with provisions
intended to comply with state disability laws. Jd. at 106-07.
However, the Court held that because § 4(b)(3) allowed New
York to require employers to provide certain benefits in a non-
ERISA plan — one solely devoted to disability benefits — it
could also offer them the option of providing those benefits along
with non-disability benefits in an ERISA plan. Thus,
while the State may not require an employer
to alter its ERISA plan, it may force the
employer to choose between providing
disability benefits in a _ separately
administered plan and including the state-
mandated benefits in its ERISA plan. If the
State is not satisfied that the ERISA plan
comports with the requirements of its
disability insurance law, it may compel the
employer to maintain a separate plan that
does comply.
Id. at 108. The benefits component of the prevailing minimum
wage extends to employers a similar choice. A state requirement
that an employer pay a minimum cash wage does not relate to
ERISA plans. The benefits component represents a sum of money
an employer may pay either through.cash wages or through
benefits contributions, some of which may be toward ERISA
plans. To paraphrase Shaw, if the state is not satisfied that the
amount of benefits contributions satisfies the total wage
requirement, it compels the employer to pay greater cash wages.
Thus, when Appellees complain the Prevailing Wage Act
39a
Appendix C
impermissibly subjects their ERISA plans to different
regulations in Pennsylvania than elsewhere, they are speaking of
a law requiring only that when their benefits contributions fall
short of the prevailing minimum, theymay make up the difference
with cash.'* Like the New York law in Shaw, the Prevailing Wage
Act is not preempted because an employer may comply without
making any adjustment in its ERISA plans. Unless the employer
chooses otherwise, the benefits component imposes a cash wage
requirement, and it is of no consequence that this requirement is
particular to Pennsylvania public works projects — as discussed
above, ERISA does not preempt a state’s power to set a minimum
cash wage. See supra at II(C)(2)(a).
Some of Appellees’ objections are levelled at the line-item
approach to the Prevailing Wage Act, which was in effect for all
benefits before the Declaratory Order was issued, and continued
for non-ERISA benefits thereafter. We acknowledge this would
be a differenct case if the Act required line-item specification in
the benefits component.” We believe a state can set a minimum
cash wage, and allow an employer the option of paying part of
that in benefits. We doubt, however, a state could also specify that
only particular benefits plans over others.’ Line-item
specification would effectively create a cash incentive to award
19. They also admit they could simply decline to participate in public works
contracts.
20. See supranote 15.
21. For example, a predetermination for Common Heavy & Highway
Laborers reproduced in the joint appendix gives hourly prevailing minimums for
health and welfare benefits, pension benefits, and education, but nothing for the
other eight categories, such as apprenticeship and training, vacation, or legal
services. Under the line-item approach, the contractor hiring a Common Highway
(Cont'd)
40a
Appendix C
the predetermined benefits and not others, and to award certain
amounts of those benefits and no more. As the Court of Appeals
for the Tenth Circuit said:
We accept, as a general proposition, the
State’s right to regulate wages. But a wage law
that provides an option favoring certain
ERISA plans and benefits ... over other
ERISA plans and benefits . . . is not a law of
“general application” and may be used to
effect change in the administration, structure
and benefits of an ERISA plan.
National Elevator Indus., 957 F.2d at 1561 (holding ERISA
preempted an Oklahoma law that reduced the minimum wage for
employees only in a specified apprenticeship program, which
was an ERISA plan). Pursuant to its power to set minimum level
of remuneration to workers, a state may allow part of a minimum
wage to be satisfied by benefits contributions. But the state
asserts an additional power, the power to determine what benefits
workers should receive, when it gives preferred status to some
benefits over others in a minimum wage scheme. This power is
not left to the states under ERISA.”
(Cont'd)
Laborer would get a wage offset by paying him up to $2.62 an hour in health
benefits, but no offset for health benefits beyond ~~ and no offset for payments for
apprenticeship and training.
22. Other courts have found states may not favor one benefits plan, or one
type of benefits plan, over another. In General Electric Co. v. New York State Dep't
of Labor, 891 F.2d 25 (2d Cir. 1989), cert. denied, 496 U.S. 912 (1990), the court
ruled ERISA preempted New York’s prevailing wage law, which required benefits
contributions in particular categories and amounts or their cash equivalents. The
(Cont'd)
4la
Appendix C
c. Administration
Finally, we must consider whether the Prevailing Wage Act
and the accompanying regulations “dictate or restrict the choices
of ERISA plans with regard to their ... reporting and
administration.” United Wire, 995 F.2d at 1193. Administrative
simplicity is one of the purposes of ERISA, and “Congress
intended pre-emption to afford employers the advantages of a
uniform set of administrative procedures governed by a single set
of regulations.” Fort Halifax, 482 U.S. at 11. But state laws are
not necessarily preempted because they impose some
administrative burden on ERISA plans. The Mackey Court was
not moved by petitioners’ argument that subjecting ERISA plans
to state law garnishment by creditors of plan participants would
also create “substantial administrative burdens and costs” when
“plan trustees are served with a garnishment summons, become
parties to a suit, and must respond and deposit the demanded
funds due the beneficiary-debtor.” Mackey, 486 U.S. at 831. We
think preemption is not required where a state law places
administrative requirements on ERISA plans so slight that the
law “creates no impediment to an employer’s adoption of a
uniform benefit administration scheme.” Fort Halifax, 482 U.S.
at 14. See also Aetna Life Ins. Co. v. Borges, 869 F.2d 142, 146-47
(2d Cir.) (“What triggers ERISA preemption is not just any
indirect effect on administrative procedures but rather an effect
(Cont’d)
court found the law objectionable for anumber of reasons, including the fact that the
law effectively prescribed “the type and amount of anemployer’s contributions toa
plan,” and “the nature and amount of benefits thereunder.” Id. 891 F.2d at 29. (The
General Electric court also objected to the administrative burden imposed on
employers by the New York law. /d. It is not clear whether the court would have
found the law acceptable if line-item compliance in the benefits package had not
been required.) See also Local Union 598 v. J.A. Jones Constr. Co., 846 F.2d 1213
(9th Cir.), aff'd 488 U.S. 881 (1988) (discussed supra at 20-22).
42a
Appendix C
on the primary administrative functions of benefit plans, such as
determining an employee’s eligibility for a benefit and the
amount of that benefit.”) cert. denied, 493 U.S. 811 (1989).
Here, the bulk of administrative burdens placed on
employers by the Prevailing Wage Act do not relate to ERISA
plans at all. The law requires that each contractor and
subcontractor “shall keep an accurate record showing the name,
craft and the actual hourly rate of wage paid to each workman
employed by him in connection with public work,” that the record
be preserved for two years from the date of payment, and that it be
open for inspection. 43 P.S.A. § 165-6. The regulations expand on
this, requiring recording of personal information regarding the
worker, specification of the hours worked each day, and the
preservation of time cards and indentures and approvals
regarding apprenticeships. 34 Pa. Code § 9.109. None of these
records relates to employee benefit plans; rather, they are general
employment data a state would require even if it were merely
regulating cash wages.
Two minor administrative requirements are placed on
ERISA plans. Under current implementation of the Act, the state
must certify benefits as bona fide for them to count against the
prevailing minimum benefits contribution. This apparently
requires simply that the contributions actually be made to fringe
benefit programs and be held for or attributed to the exclusive
benefit of employees. See Bitzel Declaration, Bell App. at 393.
The other requirement is that employers keep a record of their
benefits contributions, and certify weekly to the officer
disbursing public funds that they have paid wages in conformity
with the contract, or indicate what wages remain unpaid.” 34
23. Presumably, “wages in strict conformity with the contract,” 34 P.S.A.
§ 9.110(a), include contributions for benefits.
43a
Appendix C
P.S.A. §§ 9.109, 9.110. We do not agree with amicus Chamber of
Commerce of the United States that this entails complex, on-
going measurements for each employee. Brief for Chamber of
Commerce at 16-17. The memo from Field Inspection Supervisor
Risaliti indicates the Secretary approved a simple method for
estimating hourly benefits contributions where premiums are
paid monthly: the premium is divided by 160. Keystone App. at
80. We presume simple formulae are available for calculating the
hourly and weekly value of benefits paid in other ways as well.
These records and reporting requirements entail only a slight
burden. Calculating benefits paid out will not influence
“decisions regarding the internal design and structure of benefit
plans (e.g. who may collect, and how, and from whom),” United
Wire, 995 F.2d at 1194 n.8, so the ease and efficiency of
administering nationwide benefits plans will not be impeded. See
also Minnesota Chapter, Assoc’d Builders v. Minnesota Dep't of
Labor and Industry, Civ. No. 4-92-£64, slip op. at 7, (D. Minn.
April 27 1993) (Under Minnesota prevailing wage law, “[t]he
requirement of calculating [the cost of benefits] falls on the
employer itself, but does not place any administrative burden on
the plan. The requirement of calculating costs and keeping
records may somewhat increase the cost of the benefits plan, but
this incidental impact on the plan need not lead to preemption.”).
We see no potential that the ability of plans to operate in several
states will be impaired by the administrative requirements of the
Prevailing Wage Act.
d. Conclusion
We acknowledge that at some point, the quantity of a law’s
indirect effects on ERISA plans may require preemption. For
example, as we have explained, under a line-item approach the
44a
Appendix C
Prevailing Wage Act would create incentives favoring some types
of benefits over others, even though it would still allow
employers to substitute cash for benefits, and this would appear
to exceed the state’s authority under ERISA. A significant,
though indirect economic effect on ERISA plans could also be
grounds for preemption — for example, though a state may set a
minimum cash wage, if that minimum were so high that
employers could not practically provide any benefits, the law
might well be found to restrict the choices of ERISA plans. As we
interpret the Prevailing Wage Act, however, it neither encourages
nor constrains any particular kind of conduct towards ERISA
plans, nor does it cross the line from wage regulation to benefit
regulation — rather, while imposing a cost on employers, as any
wage regulation will, the Act leaves employers free to structure
benefit plans as they wish.
Furthermore, the Act and regulations represent reasonable
exercises of a state’s traditional power to regulate wages. ERISA,
and particularly the preemption clause, were designed to ensure
fairness and consistency in employee benefit plans. We see no
indication, however, that in enacting ERISA, Congress expected
it would require uniformity of wage regulation among the states
or that its preemption provision would eviscerate state power to
regulate wages.
Il.
The Prevailing Wage Act and its accompanying regulations
do not relate to employee benefit plans in more than a tenuous,
remote, and peripheral manner. They do not refer to ERISA plans.
Rather, they establish a system of wage regulation that neither
burdens nor influences the benefits or structure of employee
benefit plans, nor does it interfere with the uniform
45a
Appendix C
administration of such plans. “If a State creates no prospect of
conflict with a federal statute, there is no warrant for disabling it
from attempting to address uniquely local social and economic
problems.” Fort Halifax, 482 U.S. at 19.
For these reasons, we will reserve the district court’s
judgment to the extent it held the Prevailing Wage Act and
regulations preempted. Because the Declaratory Order singles
out ERISA plans for special treatment, however, we will affirm
the judgment of the district court that ERISA preempts the
Declaratory Order.
A True Copy
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
46a
APPENDIX D —MEMORANDUM OPINION AND
ORDER OF THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
FILED JULY 30, 1993
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
CIVIL NO. 92-0459
(Judge Kosik)
KEYSTONE CHAPTER, ASSOCIATED BUILDERS AND
CONTRACTORS, INC., IN REPRESENTATION OF ITS
MEMBERS
Plaintiff
v.
THOMAS P. FOLEY, in his official capacity as the SECRETARY
OF LABOR AND INDUSTRY FOR THE COMMONWEALTH
OF PENNSYLVANIA,
Defendant
CIVIL NO. 92-1105
(Judge Kosik)
THE BELL TELEPHONE COMPANY OF PENNSYLVANIA,
etal.,
laintiffs
v.
THOMAS P. FOLEY, et al.,
Defendants
47a
Appendix D
MEMORANDUM
Before the court in each of the above-captioned actions are
cross-motions for summary judgment. The issues to be decided in
these motions are identical, and therefore will be discussed in this
joint Memorandum.
I. Background
The Pennsylvania Prevailing Wage Act, 43 Pa. Stat. Ann.
§§ 165-1 et seq. [the “Act” or the “Prevailing Wage Act”], and its
accompanying regulations published at 34 Pa. Code 9.101 et seq.,
require contractors on public works projects to pay their
employees the prevailing wages for the locality where the project
is located. 43 Pa. Stat. Ann. §§ 165-4, 165-5, 165-6. The
Secretary of Labor and Industry is required to determine the
general prevailing minimum wage rate for the locality where the
project is located “for each craft or classification of all workmen
needed to perform public work contracts” for the duration of the
project. 43 Pa. Stat. Ann. § 165-7. In determining the prevailing
wage rate, contributions toward employee benefits made
pursuant to a bona fide collective bargaining agreement are to be
considered and integral part of the wage rate. Jd. The Act sets
minimum wage rates to be paid on public works projects. It does
not prevent contractors from paying wages in excess of those
rates. Id.
For several years prior to April 13, 1992, the Secretary
interpreted the Act as precluding a contractor from receiving any
credit towards a particular fringe benefit over the amount listed
for that fringe benefit in the wage determination issued for a
specific project. As a result, employers were required to
contribute fringe benefits precisely as mandated by the state for
48a
Appendix D
the particular locality, or pay a cash equivalent directly to
employees. On April 13, 1992, the Prevailing Wage Appeals
Board issued a Declaratory Order modifying this approach.'The
Order states that “a contribution is bona fide if that contribution:
(a) is made to an ‘employee benefit plan’ or a fund or program
subject to the Employee Retirement Income Security Act of
1974.” The Order requires contractors to separately examine and
meet the wage and fringe benefit components of the prevailing
wage determination. Thus, the maximum credit an employer may
take for employee benefits can not exceed the total amount of
contributions for the employee benefits established by the
predetermination. In that light, the Declaratory Order provides
that:
No credit for contributions for employee
benefits exceeding the maximum established
by the predetermination shall be given and no
payment in one or more employee benefit
categories shall be off-set against an
underpayment in wages.
An example of how the Prevailing Wage Act works is illustrative.
Under the Act, for a specific project, the Secretary may determine
the prevailing rate to be $20 an hour in wages and $5 an hour in
fringe benefits. If an employer, pursuant to a collective
bargaining agreement, pays employees $16 an hour in wages and
$10 an hour in fringe benefits, however, it receives no credit for
the higher payment in benefits. Under this example, the employer
would be obligated to provide an additional $4 per hour in wages
in order to be in compliance under the Act. Such a result may
1. Acopy of this Declaratory Order is attached as Exhibit “A” to Keystone
Chapter’s Statement of Undisputed Facts, Appended to Document 37 of 92-0459.
49a
Appendix D
cause employers to attempt to bargain for lower benefit payments
with the members of the collective bargaining group it seeks to
employ on this project.
II. Procedural History
The plaintiff in Civil Action Number 92-0459, Keystone
Chapter, Associated Builders and Contractors, Inc., in
representation of its members [“Keystone Chapter”], filed a
complaint on April 8, 1992, seeking injunctive relief against
defendant Thomas P. Foley, in his capacity as Secretary of Labor
and Industry for the Commonwealth of Pennsylvania [“Foley”].
The gravamen of Keystone Chapter’s complaint is that the
Prevailing Wage Act is preempted by the Employee Retirement
Income Security Act, 29 U.S.C. §§ 1001 et seq. [“ERISA”].
Plaintiffs in Civil Action Number 92-1105, Bell Telephone
Company of Pennsylvania [“Bell”] and Communication Workers
of America, AFL-CIO, District 13 [“Communication Workers”’},
filed their original complaint on August 13, 1992. An amended
complaint was filed on December 11, 1992. The defendants in the
amended complaint are Foley, and the individual members of the
Pennsylvania Prevailing Wage Appeals Board.? The amended
complaint, in each of two counts, sought a declaratory judgment
that the Prevailing Wage Act was preempted by federal law, either
by the National Labor Relations Act, 29 U.S.C. §§ 151 et seq. [the
“NLRA”], in Count I, or ERISA, in Count II. By Memorandum
2. The original complaint named the Pennsylvania Prevailing Wage Board
itself as a defendant. Because of possible Eleventh Amendment barriers to naming
the Board as a defendant, the plaintiffs sought, and were granted, leave to file the
amended complaint. Additionally, the amended complaint does not include Count
II of the original complaint, which the parties agreed would be dismissed.
50a
Appendix D
and Order dated March 16, 1993, we granted the defendants’
motion to dismiss Count I of the complaint, concerning
preemption under the NLRA.
On April 30, 1993, Bell and Communication Workers filed a
motion for summary judgment on Count II of their complaint,
claiming that ERISA preempts the Prevailing Wage Act, its
accompanying regulations and the Declaratory Order of the
Prevailing Wage Appeals Board dated April 13, 1992. The
defendants in that action filed a cross-motion for summary
judgment on the same date. Keystone Chapter filed a motion for
summary judgment on May 3, 1993, on precisely the same issue.
Foley filed a cross-motion in that action on April 30, 1993.
III. Discussion
All parties in these two actions agree that no question of
material fact exists that would prevent the entry of summary
judgment on the ERISA preemption issue. Thus, our task is to
determine, as a matter of law, whether the Prevailing Wage Act is
preempted by ERISA.
The law of ERISA preemption has recently been
summarized:
Congress enacted ERISA to subject
employee benefit plans to a uniform system
of federal laws governing disclosure,
reporting, standards of conduct, remedies,
sanctions, and access to federal courts. Since
uniformity cannot be achieved if ERISA
plans are subject to varying state regulations,
Congress preempted “any and all State laws
Sla
Appendix D
insofar as they ... relate to any employee
benefit plans.” ERISA § 514(a), 29 U.S.C.
§ 1144(a) (emphasis added).
Section 514(a) is deliberately expansive
and “conspicuous for its breadth.” FMC
Corp. v. Holliday, 498 U.S. 52, 111 S. Ct. 403,
407 (1990). It is “virtually unique” among
federal preemption statutes. Franchise Tax
Bd. v. Construction Laborers Vacation Trust,
463 U.S. 1, 24 n.26, 103 S. Ct. 2841, 2854
n.26, as it is “one of the broadest preemption
clauses ever enacted by Congress.” Evans v.
Safeco Life Ins. Co.,916 F.2d 1437, 1439 (9th
Cir. 1990).
The term “relate to” must be given a
“broad common-sense meaning.” Pilot Life
Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S. Ct.
1549, 1553 (1987). A state law relates to an
ERISA plan “in the normal sense of the
phrase, if it has a connection with or reference
to such a plan.” Shaw v. Delta Air Lines. Inc.,
463 U.S. 85, 103 S. Ct. 2890, 2900 (1983).
Any connection may trigger preemption, and
preemption is not limited to laws relating to
the specific subjects covered by ERISA. Pilot
Life, 481 U.S. at 47-48; Shaw, 103 S. Ct. at
2900. That a state law may be “consistent
with ERISA’s substantive requirements” or
was enacted to “effectuate ERISA’s
underlying purposes” does not save it from
preemption. Metropolitan Life Ins. Co. v.
52a
Appendix D
Massachusetts, 471 U.S. 724, 105 S. Ct.
2380, 2388-89 (1985); Mackey v. Lanier
Collection Agency & Serv., 486 U.S. 825, 108
S. Ct. 2182, 2185 (1988). A state law may
relate to a benefit plan even if it is not
specifically designed to affect such plans, or
its effect is only indirect. Pilot Life, 107 S. Ct.
at 1552-53; Shaw, 103 S. Ct. at 2900; Alessi v.
Raybestos-Manhattan, Inc., 451 U.S. 504,
101 S. Ct. 1895, 1907 (1981); Ingersoll-Rand
Co. v. McClendon, 498 U.S. 133, 111 S. Ct.
478, 483 (1990).
Since no law exists in a vacuum and
arguably many laws could be held to “relate
to” ERISA plans, without some limits Section
514(a) could become a legal blackhole with
an attractive force no state law could resist.
Hence, some laws are said to affect ERISA
plans in “too tenuous, remote, or peripheral a
manner to warrant a finding that [they] ‘relate
to’ the plan.” Shaw, 103 S. Ct. at 2901 n.21.
See, e.g., Mackey, 108 S. Ct. at 2191
(garnishment statute of general applicability
is not preempted). The task then is to
determine the precise relationship between
the Act and ERISA plans. ~— 108 S. Ct.
at 2186.
United Wire, Metal and Machine Health and Welfare Fund v.
Morristown Memorial Hosp., Nos. 92-5317/5319/5320/5241/
5343/5345/5352/5354/5255, slip op. at 36-37 (3d Cir. May 14,
1993) (Nygaard, J., dissenting). Additionally, “[a] state rule of
53a
Appendix D
law may be preempted even though it has no such direct nexus
with ERISA plans if its effect is to dictate or restrict the choices of
ERISA plans with regard to their benefits, structure, reporting
and administration, or if allowing states to have such rules would
impair the ability of a plan to function simultaneously in a
number of states.” Jd. slip op. at 28 (majority opinion). Congress
passed ERISA’s broad preemption provision with the recognition
that “[a] patch-work scheme of regulation would introduce
considerable inefficiencies in benefit program operation, which
might lead those employers with existing plans to reduce
benefits, and those without such plans to refrain from adopting
them.” Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987).
The Supreme Court has recently affirmed its broad interpretation
of ERISA preemption in District of Columbia v. Greater
Washington Bd. of Trade, 113 S. Ct. 580, 583 (1992).
We believe that the Pennsylvania Prevailing Wage Act, its
regulations and the Declaratory Order are clearly preempted by
ERISA because this state law necessarily relates to ERISA plans.
In so finding, we are in accordance with other courts who have
examined ERISA preemption with respect to similar prevailing
wage laws. See, e.g., General Electric Co. v. New York State Dept
of Labor, 891 F.2d 25 (2d Cir. 1989); Associated Builders &
Contractors v. Baca, 769 F. Supp. 1537 (N.D. Cal. 1991).
In order to comply with the Act, employers on public works
projects are forced to implement an administrative scheme to
calculate the wages and benefits paid to individual workers on
such projects, including benefits paid under ERISA plans. In fact,
the Declaratory Order makes specific references to ERISA plans
in noting that they are to be taken into account. See Shaw v. Delta
Air Lines, Inc., 463 U.S. at 97, 103 S. Ct. at 2900 (a state law
relates to an ERISA plan “if it has a connection with or reference
54a
Appendix D
to such a plan”). Contractors are required, at a minimum, to
determine the cash equivalent of the benefits provided to workers
on public projects. The Act therefore imposes on-going
administrative burdens that fall within the parameters of ERISA
plans. See Fort Halifax, 482 U.S. at 14 n.9 (“the ongoing,
predictable nature of this obligation therefore creates the need for
an administrative scheme to process claims and pay out
benefits”). Such a scheme is preempted by ERISA. See General
Electric, 891 F.2d at 29; Associated Builders, 769 F. Supp. at
1547.
More importantly, the Prevailing Wage Act could have an
effect on the level of benefits paid to employees. Because an
employer gets no credit for the amount of hourly benefits paid in
excess of the prevailing rate, employers are discouraged from
paying benefits at higher than the prevailing rate on public works
projects. The effect of the Act is “to dictate or restrict the choices
of ERISA plans with regard to their benefits.” United Wire, slip
op. at 28. Employers who also work on non-public projects may
be forced to provide different levels of benefits depending on the
type of project to be completed. Such a “patchwork scheme of
regulation would introduce considerable inefficiency in benefit
program operation.” Fort Halifax, 482 U.S. at 11, 107 S. Ct. at
2217. Because of these effects, we find that the Prevailing Wage
Act is precisely the type of state law meant to be preempted under
§ 514(a) of ERISA. See Associated Builders, 769 F. Supp. at
1548.
The defendants in both actions have requested that, if we
find that the Act is preempted by ERISA, which we have, we treat
the portion of the Act concerning fringe benefits as severable
from the rest of the section in which it is contained. While the
Prevailing Wage Act does not contain a separate severability
provision, Pennsylvania’s general severability statute, 1 Pa.
55a
Appendix D
Cons. Stat. Ann. § 1925, does encompass the Act. That statute
provides that:
If any provision of any statute ... is held
invalid, the remainder of the statute . . . shall
not be affected thereby, unless the court finds
that the valid provisions of the statute are so
essentially and inseparably connected with,
and so depend on, the void provision . . . that
it cannot be presumed that the General
Assembly would have enacted the remaining
valid provisions without the void one; or
unless the court finds that the remaining valid
provisions, standing alone, are incomplete
and are incapable of being executed in
accordance with the legislative intent.
From this statute it is evident “that there is a clearly
expressed legislative preference to retain the viability of the legal
portions of a statute, if reasonably possible.” Planned
Parenthood v. Casey, 978 F.2d 74, 77 (3d Cir. 1992). The
governing principles on severability were set out by the
Pennsylvania Supreme Court in Saulsbury v. Bethlehem Steel
Co., 413 Pa. 316, 196 A.2d 664 (1964):
[A] statute or ordinance may be partially
valid and partially invalid, and ... if the
provisions are distinct and not so interwoven
as to be inseparable . . . courts should sustain
the valid portions.
Id. at 666; see also Planned Parenthood, 978 F.2d at 77.
We do not believe that the portion of the Prevailing Wage Act
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that calls for the inclusion of benefits in the prevailing wage
determination is severable from the rest of the Act. Under the Act,
the prevailing rate is made up of an hourly wage rate and an
hourly benefit rate. The portion of the rate based on benefits is
interwoven into the Act. A prevailing rate without any allowance
for benefits would be much different from the present system. We
believe the legislature intended to include a benefit computation
in the prevailing rate, and to enforce the Act without such a
computation would be contrary to this legislative intent.
IV. Conclusion
Although we have no doubt that the Pennsylvania Prevailing
Wage Act was enacted by the state legislature for admirable
purposes, and has been implemented to achieve these purposes,
we cannot escape the conclusion that the Act, its accompanying
regulations and the Declaratory Order of the Prevailing Wage
Appeals Board dated April 13, 1992, are preempted by ERISA.
Therefore, we will grant the motions for summary judgment filed
by plaintiffs Keystone Chapter in Civil Number 92-0459 and Bell
and Communication Workers in 92-1105. The defendants’
motions in both actions will be denied. Accordingly, the
Pennsylvania Prevailing Wage Act, its accompanying
regulations, and the Declaratory Order of the Prevailing Wage
Appeals Board dated April 13, 1992 are hereby declared to be
invalid and unenforceable because they are preempted by the
Employee Retirement Income Security Act. Our grant of
summary judgment on Count II of the complaint filed in 92-1105
will effectively close that case. While summary judgment will
only be granted with respect to Count I in 92-0495, we believe
that Keystone Chapter can be afforded no further relief in the
remaining counts of its complaint. We will therefore direct that
that case also be closed. Appropriate Orders for each action are
attached.
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Appendix D
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
CIVIL NO. 92-0459
(Judge Kosik)
KEYSTONE CHAPTER, ASSOCIATED BUILDERS AND
CONTRACTORS, INC., IN REPRESENTATION OF ITS
MEMBERS
Plaintiff
Vv.
THOMAS P. FOLEY, in his official capacity as the SECRETARY
OF LABOR AND INDUSTRY FOR THE COMMONWEALTH
OF PENNSYLVANIA,
Defendant
ORDER
AND NOW, this 30th day of July, 1993, IT IS HEREBY
ORDERED THAT:
[1] the defendant’s motion for partial summary judgment
[Document 36] is denied;
[2] the plaintiff's motion for summary judgment
[Document 37] is granted;
[3] judgment is entered in favor of the plaintiff, Keystone
Chapter, Associated Builders and Comractors, Inc., and against
the defendant Thomas P. Foley, in his official capacity;
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Appendix D
[4] the Pennsylvania Prevailing Wage Act, 43 Pa. Stat. Ann.
§§ 165-1 et seq., its accompanying regulations published at 34
Pa. Code 9.101 et seqg., and the “Declaratory Order” of the
Prevailing Wage Appeals Board dated April 13, 1992 are hereby
declared to be invalid and unenforceable because they are
preempted by the Employee Retirement Income Security Act, 29
U.S.C. §§ 1001 et seq.; and
[5] the Clerk of Court is directed to close this case.
s/ Edwin M. Kosik
Edwin M. Kosik
United States District Judge
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