Opinion ID: 18032
Heading Depth: 3
Heading Rank: 1

Heading: Proprietary action and Boston Harbor

Text: 10 The law has traditionally recognized a distinction between regulation and actions a state takes in a proprietary capacity--that is to say, actions taken to serve the government's own needs rather than those of society as a whole. This distinction is most readily apparent when the government purchases goods and services its operations require on the open market. Thus while the dormant commerce clause prevents state interference with interstate commerce, a state is allowed to favor its own citizens when it acts as a market participant and not a regulator of third parties. See, e.g., White v. Massachusetts Council of Construction Employers, Inc., 460 U.S. 204, 103 S.Ct. 1042, 1044-45, 75 L.Ed.2d 1 (1983) (municipality's requirement that fifty percent of workers on City-funded construction project be residents of the City did not automatically violate the dormant commerce clause). This distinction has been recognized in preemption cases. The Supreme Court has found that when a state or municipality acts as a participant in the market and does so in a narrow and focused manner consistent with the behavior of other market participants, such action does not constitute regulation subject to preemption. See Building and Construction Trades Council v. Associated Builders and Contractors of Massachusetts/Rhode Island, Inc., 507 U.S. 218, 113 S.Ct. 1190, 1196, 122 L.Ed.2d 565 (1993) (Boston Harbor ) (preemption not applicable). When, however, a state attempts to use its spending power in a manner tantamount to regulation, such behavior is still subject to preemption. See Wisconsin Department of Industry, Labor and Human Relations v. Gould, 475 U.S. 282, 106 S.Ct. 1057, 1062-63, 89 L.Ed.2d 223 (1986). 11 States have methods of influencing private conduct unrelated to the state's proprietary functions--and thus potentially disrupting a congressional plan--at their disposal that extend beyond traditional overt regulation. One such method is deployment of a state's spending power in a manner calculated to encourage or discourage such private behavior. In Gould, the Court announced that attempts to leverage the spending power to achieve regulatory goals could trigger preemption. The action challenged in Gould was a Wisconsin statute that barred the state from contracting with employers who had been repeatedly sanctioned by the NLRB. The state conceded that this requirement was instituted primarily to deter labor law violations generally, and the statute allowed for the bar to be triggered solely by misconduct that occurred on contracts performed outside the state on behalf of parties other than the state itself. Moreover, the provision applied to all of the state's future contracting decisions, not just a particular job where labor peace was at a premium. See Gould, 106 S.Ct. at 1061-62. It was thus not difficult to conclude that the state's actions were tantamount to regulation and thus subject to preemption under the NLRA. As the Court later noted in Boston Harbor, the state's actions in Gould could only be understood as an attempt to compel conformity with the NLRA that was unrelated to the employer's performance of contractual obligations to the State. Boston Harbor, 113 S.Ct. at 1197. 12 Following the logic of Gould, courts have found preemption when government entities seek to advance general societal goals rather than narrow proprietary interests through the use of their contracting power. Thus attempts by government entities to punish labor and benefits practices they disfavor by withholding contract work have been found preempted by the NLRA and ERISA. See Chamber of Commerce of United States v. Reich, 74 F.3d 1322, 1339 (D.C.Cir.1996) (executive order that barred federal government from contracting with companies that permanently replaced striking workers was preempted by the NLRA); Air Transport Association of America v. City and County of San Francisco, 992 F.Supp. 1149, 1179 (N.D.Ca.1998) (city ordinance barring contracts with employers that did not offer domestic partner benefits to its entire workforce was preempted by ERISA--city admitted that combating discrimination was ordinance's primary goal and its terms reached well beyond interaction with the city); Van-Go Transport Co., Inc. v. New York City Board of Education, 53 F.Supp.2d 278, 288 (E.D.N.Y.) (policy of refusing to conditionally certify replacement workers that was applied to all of department's student transport contracts was preempted under NLRA). See also Keystone Chapter Associated Builders and Contractors, Inc. v. Foley, 37 F.3d 945, 955 n. 15 (3d Cir.1994) (noting in dicta that proprietary exception could not save minimum wage rule for state contracts since private parties would not ordinarily embrace a policy that increased the cost of contracting without regard to particular circumstances). 13 Most government contracting decisions do not constitute concealed attempts to regulate, however. In order to function, government entities must have some dealings with the market. While the leverage a state can exert through its spending power and the absence of a true profit motive to restrain government action may create a temptation to take advantage of these interactions to pursue policy goals, the presence of the state in the market cannot automatically be assumed to be motivated by a regulatory impulse. Given the volume of, and obvious need for, interaction between the government and the private sector, the application of preemption in a manner that hobbles state and local governments' purchasing efforts threatens severe disruption. 14 Boston Harbor recognized this reality. In Boston Harbor, the Court confronted a situation in which a state agency was under a judicial order to complete a project within a set time frame. To prevent time-consuming work stoppages, the agency agreed to employ a union workforce in exchange for a no-strike guarantee. The Court distinguished Gould and found that such proprietary action was not subject to preemption by the NLRB. It found that the agency had focused on the government's own interests--uninterrupted completion to assure compliance with the court order--and had done so by striking the type of labor bargain a private company might have sought in similar circumstances. In contrast to the state's admitted desire to encourage labor compliance as a general matter in Gould, the agency was only attempting to ensure an efficient project that would be completed as quickly and effectively as possible at the lowest cost. Boston Harbor, 113 S.Ct. at 1198. Significantly, the state's action was limited to a particular job, and did not penalize bidders for practices on different projects for other clients. See id. at 1197 (noting Gould addressed employer conduct unrelated to the employer's performance of contractual obligations to the State). Under these circumstances, the Court found that the agency's actions were not tantamount to regulation and thus not subject to preemption under the NLRA. 15 Courts have similarly shielded contract specifications from preemption when they applied to a single discreet contract and were designed to insure efficient performance rather than advance abstract policy goals. See Associated General Contractors of America v. Metropolitan Water District of Southern California, 159 F.3d 1178, 1183 (9th Cir.1998) (requirement that contractors on project adhere to a particular collective bargaining agreement that included benefit package was not preempted by ERISA); Colfax v. Illinois State Toll Highway Authority, 79 F.3d 631, 634-35 (7th Cir.1996) (requirement that contractor adhere to area collective bargaining agreement was not preempted by NLRA); Minnesota Chapter of Associated Builders and Contractors, Inc. v. County of St. Louis, 825 F.Supp. 238, 243-44 (D.Minn.1993) (county's requirement that bidders for jail construction contract agree to labor agreement that set benefit levels but also contained nonstrike clause not preempted by ERISA).