But There’s a Catch—California’s Wage-Credit Restrictions on IAFs Still Stand

*Thanks to Rebecca D. Takacs, a construction litigator, with Oles Morrison Rinker &Baker LLP in Oakland, California.  Rebecca is a member of the Division 1 Publication Committee.  Her contact information is below.  Enjoy the post!   


The California Legislature passed Senate Bill 954 in 2016 (http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160SB954) for the express purpose of prohibiting payments to industry advancement funds as wage credits on public works projects where such credits were not expressly required by collective bargaining agreements. Plaintiff-Appellants Interpipe Contracting, Inc. and Associated Builders and Contractors of California Cooperation Committee, Inc. (“ABC-CCC”) challenged the amendment to the labor code’s wage-credit limitation in Interpipe Contracting, Inc. v. Becerra (9th Cir., July 30, 2018, No. 17-55248) 2018 WL 3613378 (https://www.ca9.uscourts.gov/media/view_video.php?pk_vid=0000012920).

Interpipe Contracting, Inc., is a pro-open shop contractor that prior to SB 954 went in effect took wage credits for contributions to ABC-CCC. ABC-CCC is an industry advancement fund that opposes project labor agreements on public works projects in favor of open shop arrangements. The plaintiff-appellants challenged SB 954 after Interpipe stopped making payments to ABC-CCC due to the new restrictions on wage-credits.  

SB 954 was intended to have a large effect on the construction industry in California. The Bureau of Labor Statistics estimates that just under 15% of construction industry labor nationally is union labor or union represented. (https://www.bls.gov/news.release/union2.t03.htm) SB 954 was intended to prevent employers from funding industry advancement funds that might support efforts contrary to workers interests. At the time of SB 954’s passage, industry opponents considered the SB 954 to be an outright ban on contributions to industry advance funds that might advocate for open shop policies.  

The lower court action challenged the constitutionality of SB 954 and sought a preliminary injunction. The district court denied the request for injunctive relief and dismissed the case on the basis that SB 954 was not preempted by federal labor laws and did not violate ABC-CCC’s free speech or equal protection rights.  

The United States Court of Appeals for the Ninth Circuit was presented with two issues: (1) whether the National Labor Relations Act (“NLRA”) preempted SB 954, and (2) whether SB 954 violated the First Amendment and the Fourteenth Amendment’s Equal Protection Clause by limiting industry advancement funds’ speech in the form of fundraising. The Ninth Circuit affirmed the lower court. 

The Ninth Circuit outlined the current state of prevailing wage requirements in California. Prevailing wages are either all cash wages or a combination of cash wages and benefits including: (1) health and welfare, (2) pension, (3) vacation, (4) travel, (5) subsistence, (6) apprenticeship or other training, (7) worker protection and assistance programs or committees, (8) industry advancement and administrative fees, provided they are required within the locality, and (9) other similar purposes to the above categories.  Cal. Lab. Code § 1773.1(a). In 2004, credits expanded from the first six categories to include industry advancement fees. The restrictions on industry advancement fees arose in 2016 with the passage of SB 954. The thrust of plaintiff-appellants challenge relied on Machinists v. Wisconsin Employment Rel. Comm'n, 427 U.S. 132 (1976). The Machinists doctrine bars states from interfering with the collective bargaining process and regulating non-coercive labor speech by an employer, employee, or an employee’s union. State minimum labor standards are generally saved from preemption by the NLRA. The Ninth Circuit held SB 954 was a legitimate minimum labor standard that does not regulate labor speech. The distinction hinged on the fact that a restriction on funding an employer’s speech was not an unlawful regulation of the speech itself.  

ABC-CCC argued it had a First Amendment right to receive monetary contributions from wage-credits. The Ninth Circuit rejected ABC-CCC’s theory holding that the First Amendment does not establish a right to receive funds necessary for speech. The Ninth Circuit evaluated whether SB 954 was viewpoint discriminatory toward open shop advocates. Relying on the recent Supreme Court case of Janus v. American Federation of State, County, and Municipal Employees, Council 31, et al., 138 S.Ct. 2448 (2018) (https://www.supremecourt.gov/opinions/17pdf/16-1466_2b3j.pdf), the Ninth Circuit found SB 954 to be facially neutral and rejected ABC-CCC’s discrimination arguments. 

Finally, the Ninth Circuit rejected the equal protection claim by ABC-CCC because SB 954 did not regulate industry advancement funds and it was not an employer.  

Rebecca D. Takacs is a contributing writer to The Dispute Resolver. She practices construction litigation at Oles Morrison Rinker & Baker LLP in Oakland, California. She may be contacted at takacs@oles.com.