NYC ‘Labor Peace’ Order May Clash With Federal Law

August 9, 2016Articles Law360

Robert C. Nagle authored the Law360 article, "NYC ‘Labor Peace’ Order May Clash With Federal Law." 

On July 14, 2016, New York Mayor Bill de Blasio issued Executive Order No. 19, titled “Labor Peace For Retail Establishments at City Development Projects,” which is designed to facilitate union organizing at retail and food service establishments within city development projects that receive financial assistance from the city of New York.

While the stated aim of the order is to ensure “labor peace” at development projects in which the city has a financial or propriety interest, the law undercuts the rights of covered employers and employees to make their own decisions regarding union representation.

Key Concepts/Mechanics of the Order

The order applies to (1) developers who receive certain kinds of financial assistance in connection with “city development projects” and (2) employers who operate retail or food service establishments within such projects that employ, or are anticipated to employ upon opening, 10 or more employees, and who occupy in excess of 15,000 square feet on the premises of the project (covered employers).

A “city development project” is a project subject to an agreement between the New York City Department of Housing Preservation and Development or a “city economic development entity,” on the one hand, and a developer that receives at least $1 million of financial assistance from the city, on the other hand, where the project is expected to be larger than 100,000 square feet, or, in the case of a residential project, larger than 100 units.

The order states that any developer within the ambit of the order must agree to a “labor peace clause,” binding it to require each covered employer operating on the premises of a city development project to enter into a “labor peace agreement” with a union seeking to represent “covered employees” working on such premises. Covered employees include all full-time and part-time employees of the covered employer, excluding supervisors and professional employees.

The labor peace agreement between the covered employer and union, must, at a minimum, require that the union and its members agree to refrain from picketing, work stoppages, boycotts and other economic interference, and that the covered employer maintain a “neutral posture” with respect to efforts by the union to represent covered employees. In other words, the labor peace agreement prevents covered employers from advocating against the unionization of their covered employees.

Policy Rationale/Impact Upon Covered Employers

As noted above, the asserted objective of the order is to prevent disruption at “city development projects” and protect the city’s proprietary interests in such projects. While this may be true, the requirement that covered employers adopt a “neutral posture” with regard to organizing efforts by a union seeking to represent their employees substantially increases the likelihood that such employees will unionize, at which point the employer will lose the ability to deal directly with its employees regarding wages, benefits, hours of work, and other terms and conditions of employment.

Unsurprisingly, organized labor strongly supports the mayor’s action. Representatives from the Retail, Warehouse and Department Stores Union (RWDSU), which is actively organizing workers at retail stores in the city, and which stands to benefit from the order’s neutrality requirements, have publicly praised the order.

Does the Order Conflict with Federal Law?

Elements of the law appear to conflict with the National Labor Relations Act, the federal labor law governing labor-management relations in the private sector. Among other things, the NLRA protects the right of employees to choose their own representatives for collective bargaining — or to eschew union representation altogether. The NLRA also grants employers the right to communicate with their employees regarding the “pros and cons” of unionization and collective bargaining.

By mandating that covered employers enter into a labor peace agreement with a union even before the employer has hired any employees, the law would seem to interfere with these rights. Under the principle of federal preemption, to the extent that the order is construed as a regulatory measure that conflicts with Congress’s integrated framework of regulation embodied in the NLRA, the order seemingly would be vulnerable to a court challenge.

However, the U.S. Supreme Court has ruled that a more permissive legal standard applies in cases where a local government is acting not in a regulatory capacity, but as a “market participant.” In Building & Construction Trades Council v. Associated Builders and & Contractors of Mass./R.I. Inc., 507 U.S. 218, (Boston Harbor), the Supreme Court ruled that a public entity acting in its capacity as a purchaser or “customer” was on the same footing as any private employer dealing with its subcontractors and their labor force, and therefore was permitted to require contractors to enter into a prehire agreement as a condition of participating in the public project.

Following Boston Harbor, courts evaluating whether a government’s condition of funding constitutes permissible “market participation” and not proscribed “regulation” apply a two-part test. First, does the challenged funding condition serve to advance or preserve the state’s proprietary interest in a project or transaction, as an investor, owner or financier. Second, is the scope of the funding condition “specifically tailored” to the proprietary interest?

Applying this test, one federal court of appeals has upheld a local law requiring developers to secure “labor peace” on projects receiving taxpayer incentive financing as a condition of receiving such financing.[1] Additionally, the state of New York has its own “labor peace” law covering hotels and convention centers in which a state agency asserts a proprietary interest.

However, not all “labor peace” requirements imposed by local governments have been upheld. In one such case, the Seventh Circuit found that Milwaukee County’s “labor peace” requirements upon certain business contracting with the county went far beyond its asserted interests in the efficient delivery of services covered by the contracts and amounted to impermissible regulation of private employers’ labor relations, and thus was preempted by the NLRA.[2]

Immediate Effect/Long-Term Ramifications

The order takes effect immediately, although it does not apply to projects authorized, or financial assistance provided, prior to July 14, 2016. Developers’ obligations under the labor peace clause shall remain in effect for a minimum of 10 years from the commencement of the project, or the term of financial assistance provided by the city, whichever is longer.

Barring a successful legal challenge to the order, which is by no means assured, retail and food service businesses planning on opening in new development projects should prepare for “labor peace” on the terms imposed by de Blasio. In particular, developers who accept city financing will be obligated to require food service and retail tenants to sign neutrality agreements with union(s) which will virtually ensure unionization of their employees, if the union elects to pursue this objective.

In turn, these businesses will have to weigh the potential costs associated with unionization against the benefits of having a presence in the particular project. Notably, covered employers will retain their NLRA rights to bargain over substantive terms and conditions of employment for their employees if a majority choose union representation, but as a general matter, they can expect higher labor costs than if they were operating nonunion.

Also, having a union relationship in one location may expose the employer’s other stores to unionization, insofar as the union may demand that the collective bargaining agreement include “additional stores” language or similar provisions designed to facilitate organizing at other locations operated by the employer. Lastly, it is not clear whether the restrictions imposed upon picketing, strikes and boycotts — the quid pro quo for the “neutrality” obligations imposed upon covered employers — would continue to apply during negotiations for a collective bargaining agreement. Collectively, these considerations may cause some prospective tenants to avoid projects within the ambit of the order.

In summary, while the mayor’s action may have been animated by a quest for “labor peace” in development projects in which the city has a financial and proprietary interest, it seems clear that unions representing employees in the retail and food service industries will be the primary beneficiaries. Developers and employers will need to undertake their own evaluation of the costs and benefits of compliance with the order, and some are likely to find that the price for labor peace is more than they are willing to bear.

[1] Hotel Employees & Restaurant Employees, Local 57 v. Sage Hospitality Resources LLC, 390 F.3d 219 (3d Cir. 2004)

[2] Metropolitan Milwaukee Association of Commerce v. Milwaukee County, 431 F.3d 277 (2005).

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