Court Opinion

ID: 1041156
Source: CourtListenerOpinion
Date Created: 2013-09-18 17:22:45.329956+00
Date Added: 2024-06-11T09:19:35.339657
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

INDEPENDENT TRAINING AND                  No. 11-17763
APPRENTICESHIP PROGRAM, a
California corporation; BRANDIN              D.C. No.
MOYER; HAROLD E. NUTTER, INC., a          2:11-cv-01047-
California corporation,                     GEB-DAD
                Plaintiffs-Appellants,

                  v.                        OPINION

CALIFORNIA DEPARTMENT OF
INDUSTRIAL RELATIONS, an agency
of the State of California; CHRISTINE
BAKER, in her official capacity as
Acting Director of the California
Department of Industrial Relations;
DIVISION OF APPRENTICESHIP
STANDARDS; GLEN FORMAN, in his
official capacity as Acting Chief,
Division of Labor Standards
Enforcement; JULIE SU, in her
official capacity as Labor
Commissioner,
                Defendants-Appellees.

      Appeal from the United States District Court
          for the Eastern District of California
   Garland E. Burrell, Senior District Judge, Presiding
2    INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

                  Argued and Submitted
        December 3, 2012—San Francisco, California

                    Filed September 18, 2013

    Before: Michael Daly Hawkins, A. Wallace Tashima,
           and Mary H. Murguia, Circuit Judges.

                  Opinion by Judge Tashima;
                 Concurrence by Judge Murguia

                           SUMMARY*

                            Labor Law

    The panel affirmed the district court’s judgment in favor
of the defendants in a suit seeking declaratory and injunctive
relief on the ground that the California Department of
Industrial Relations’ actions were inconsistent with federal
Fitzgerald Act regulations governing the employment of
apprentices on public works projects qualifying as “Federal
purposes.”

    The CDIR threatened to impose fines on two contractors
that used apprentices enrolled in an apprenticeship program
that was registered with the United States Department of
Labor as an approved program for “Federal purposes” but
that was not recognized by California as a state-approved
apprenticeship program.

  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
    INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS            3

    The panel held that, regardless of whether the Fitzgerald
Act confers a private right of action, there was subject matter
jurisdiction because the plaintiffs sought injunctive relief
from state regulation on the ground that it was preempted by
a federal statute.

    The panel declined to afford controlling deference to the
Secretary of Labor’s new interpretation, in an amicus brief,
of the meaning of “Federal purposes” under 29 C.F.R. § 29.2
because that interpretation was inconsistent with a prior
interpretation, and there was a significant potential for unfair
surprise. The panel nevertheless adopted the Secretary’s new
interpretation as the most persuasive construction of the
regulation and held that a project qualifies as a “Federal
purpose” under § 29.2 when conformity with federal
apprenticeship standards is a condition of eligibility for
federal assistance. The panel held that the CDIR’s actions
were not in contravention of the federal apprenticeship
regulations because the construction projects at issue did not
qualify as “Federal purposes.” Accordingly, the plaintiffs’
preemption claim failed.

    The panel also affirmed the district court’s judgment on
claims under the dormant Commerce Clause and the Due
Process and Equal Protection Clauses of the Fourteenth
Amendment.

    Judge Murguia concurred in the opinion. She wrote
separately to highlight that allowing the Department of Labor
to retroactively withdraw a conclusive interpretation of its
own ambiguous regulation exposed the parties to the same
risk of unfair surprise as would deferring to the agency’s new
interpretation.
4   INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

                        COUNSEL

Charles L. Post (argued), Zachary Smith, and Brendan J.
Begley, Weintraub Genshlea Chediak Tobin & Tobin,
Sacramento, California, for Plaintiffs-Appellants.

Fred Lonsdale (argued), Counsel; Katherine Zalewski, Chief
Counsel; Steven McGinty, Assistant Chief Counsel; Gary
O’Mara, Counsel, Department of Industrial Relations, State
of California, Oakland, California, for Defendants-Appellees.

M. Patricia Smith, Solicitor of Labor; Steven J. Mandel,
Deputy Solicitor for National Operations; Edward D. Sieger,
Senior Attorney, United States Department of Labor,
Washington, D.C.; Stuart F. Delery, Principal Deputy
Assistant Attorney General; Michael Jay Singer and Abby C.
Wright, Appellate Staff, United States Department of Justice,
Civil Division, Washington, D.C., for the Acting Secretary of
Labor, as amicus curiae.

                         OPINION

TASHIMA, Circuit Judge:

    Pursuant to the National Apprenticeship Act of 1937 (also
known as the “Fitzgerald Act”), federal regulations govern
the employment of apprentices on public works projects
qualifying as “Federal purposes,” a term that is defined under
the regulations.      Plaintiff Independent Training and
Apprenticeship Program (“I-TAP”) is registered with the
Department of Labor (“DOL”) as an approved apprenticeship
program for such Federal purposes. I-TAP is not, however,
recognized by California as a state-approved apprenticeship
    INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS           5

program. Consequently, I-TAP enrollees may not be
employed as bona fide apprentices on public works projects
in California that do not fall within the scope of Federal
purposes. In 2010, the California Department of Industrial
Relations (“CDIR”) sent letters to two contractors asserting
that they were not in compliance with California law and
threatening to impose fines because the contractors were
using I-TAP enrollees on public works projects that the CDIR
asserted were not for Federal purposes. Plaintiffs filed suit
seeking declaratory and injunctive relief, principally on the
ground that the CDIR’s actions were inconsistent with the
federal regulations and hence preempted. The district court
denied Plaintiffs’ motion for injunctive relief.

     On appeal, we are called upon to determine the meaning
of “Federal purposes” under 29 C.F.R. § 29.2. Because this
is a question of first impression, following oral argument, we
invited the Secretary of Labor (the “Secretary”) to express her
views as to the appropriate understanding of the term in the
context of this case. In her amicus brief, the Secretary
informed us that the DOL recently had withdrawn its two
previous opinion letters that had interpreted the term, and she
advanced a new interpretation that does not encompass the
public works projects at issue here. For the reasons set forth
below, we decline to afford controlling deference to the
DOL’s new interpretation under Auer v. Robbins, 519 U.S.
452 (1997), but we nevertheless adopt that interpretation as
the most persuasive construction of the regulation at issue.
Accordingly, we affirm.
6       INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

                                   I.

                                   A.

    The Fitzgerald Act does not delineate substantive
standards for the regulation of apprenticeship programs.
Rather, it authorizes and directs the Secretary:

          to formulate and promote the furtherance of
          labor standards necessary to safeguard the
          welfare of apprentices, to extend the
          application of such standards by encouraging
          the inclusion thereof in contracts of
          apprenticeship, to bring together employers
          and labor for the formulation of programs of
          apprenticeship, to cooperate with State
          agencies engaged in the formulation and
          promotion of standards of apprenticeship, and
          to cooperate with the Secretary of Education
          in accordance with section 17 of Title 20.

29 U.S.C. § 50.

    The DOL promulgated implementing regulations for the
Fitzgerald Act in 1977.1 See 42 Fed. Reg. 10138 (Feb. 18,
1977) (to be codified at 29 C.F.R. pt. 29). These regulations

    1
     The name of the subdivision within the DOL that administers the
Fitzgerald Act has changed several times. When the implementing
regulations were first promulgated, that agency was known as the Bureau
of Apprenticeship and Training. For the majority of the period relevant
to this suit, the agency was known as the Office of Apprenticeship
Training, Employment and Labor Services (“OATELS”). Today, it is
known as the Office of Apprenticeship. For ease of reference, we refer to
all of these agencies as the DOL.
      INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS                    7

prescribe the policies and procedures for the registration of
apprenticeship programs for “certain Federal purposes.”
29 C.F.R. § 29.1(b). In turn, “Federal purposes” is defined
as:

         any Federal contract, grant, agreement or
         arrangement dealing with apprenticeship; and
         any Federal financial or other assistance,
         benefit, privilege, contribution, allowance,
         exemption, preference or right pertaining to
         apprenticeship.

29 C.F.R. § 29.2.

    The DOL may approve an apprenticeship program for
Federal purposes if the program meets certain minimum
standards established under the regulations. See id.
§§ 29.3(a)–(b). The DOL may also “recognize” a State
Apprenticeship Agency (“SAA”), providing the SAA with
concurrent authority to approve apprenticeship programs for
Federal purposes.2 See id. § 29.13. The DOL will only
recognize a SAA if the state’s apprenticeship laws are
deemed consistent with federal policies and requirements, and
the DOL can “derecognize” an SAA if the SAA fails to
operate in conformity with the federal regulations. Id.
§§ 29.13, 29.14.

  2
    The conferral of authority to SAAs is non-exclusive, meaning that in
a state with a recognized SAA, an apprenticeship program can seek
registration through either the DOL or the SAA. See 29 C.F.R.
§§ 29.13(a), (i). An apprenticeship program seeking registration through
an SAA, however, must also meet the requirements of that state’s
apprenticeship laws, which, as evidenced by this case, may be more
stringent than the standards set forth in the federal regulations. See id.
§ 29.13(j)(1).
8   INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

    In California, apprenticeship training is administered by
the Division of Apprenticeship Standards, a component of the
CDIR. See S. Cal. Chap. of Associated Builders &
Contractors, Inc. v. Cal. Apprenticeship Council, 841 P.2d
1011, 1016 (Cal. 1992). The California Apprenticeship
Council (“CAC”) is a 17-member body within the Division of
Apprenticeship Standards that issues rules and regulations
pertaining to apprenticeship and hears appeals of
apprenticeship registration disputes. See id.; see also Cal.
Labor Code § 3070.

    California provides public works contractors with an
economic incentive to hire apprentices enrolled in state-
approved programs. Specifically, Labor Code § 1777.5
permits contractors to pay registered apprentices a wage rate
that is lower than the “journeyman” rate otherwise required
under California’s prevailing wage law. See Cal. Labor Code
§§ 1777.5(b)–(c). Public works contractors are also able to
deduct from the fringe training contributions that must be
made to the CAC any payments made to an approved
apprenticeship program. See id. § 1777.5(m)(1).

    In 1978, the DOL recognized the CDIR and the CAC as
the collective SAA for California for purposes of the
Fitzgerald Act. That recognition continued unfettered until
1999, when California enacted a controversial amendment to
its apprenticeship laws that imposed stringent criteria,
referred to as the “needs test,” for the approval of new
apprenticeship programs in the building and construction
trades. Under the needs test, a new apprenticeship program
in these trades may only be approved if: (1)”There is no
existing apprenticeship program . . . serving the same craft or
trade and geographic area”; (2) “Existing apprenticeship
programs . . . that serve the same craft or trade and
       INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS                9

geographic area do not have the capacity, or neglect or refuse,
to dispatch sufficient apprentices to qualified employers at a
public works site who are willing to abide by the applicable
apprenticeship standards”; or (3) “Existing apprenticeship
programs . . . that serve the same trade and geographic area
have been identified by the [CAC] as deficient in meeting
their obligations.” Id. § 3075(b).

    The DOL contended that the needs test frustrated the
primary purposes of the Fitzgerald Act of expanding
apprenticeship opportunities and promoting the entry of
workers into skilled trades. Ultimately, the DOL
derecognized the California SAAs. This determination was
upheld in administrative review proceedings, and the CDIR
and CAC were officially derecognized as of March 2, 2007.
See 72 Fed. Reg. 9590 (Mar. 2, 2007). Thus, California no
longer has the authority to register or oversee apprenticeship
programs on public works projects in the State that qualify as
Federal purposes. See id.

                                  B.

    I-TAP is a California corporation that is registered with
the DOL as an approved apprenticeship program for Federal
purposes.3 Gray Electric Company (“Gray Electric”) is an
electrical contractor that employed I-TAP apprentices on two
construction projects relevant to this suit – a construction
project at the Chicago Park Elementary School (“Chicago

   3
     Unlike most apprenticeship programs in California, I-TAP is a
“unilateral” program that is sponsored by employers only, without union
involvement. See Cal. Labor Code § 3075(a). The vast majority of
apprenticeship programs in California are “joint” programs that are
collaboratively sponsored by unions and employers. See id.
10 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

Park Project”) and a construction project at Marysville High
School (“Marysville Project”). Plaintiff Harold E. Nutter,
Inc. (“Nutter Electric”) is an electrical contractor that also
employed I-TAP apprentices on various constructions
projects, including a project at the Joint-Use Gymnasium at
Williams Brotherhood Park/Merlos Institute in Stockton,
California (“Stockton Project”).

    The funding structure of these projects is central to the
instant dispute. The Marysville Project was funded through
the sale of traditional municipal bonds, the interest payments
on which are exempt from federal taxes. See 26 U.S.C.
§ 103(a) (exempting the receipt of interest payments on State
or local bonds from gross income for federal income tax
purposes). The Chicago Park Project and the Stockton
Project were each funded in part with “Build America
Bonds.” Build America Bonds are taxable bonds created in
2009 pursuant to the American Recovery and Reinvestment
Act, Pub. L. 111-5, div. B, § 1531, 123 Stat 115, 358 (2009),
and take one of two forms: (1) “Direct Payment” bonds, for
which the federal government provides a direct payment to
the issuing municipality on each date that the municipality
makes interest payments; and (2) “Tax Credit” bonds, for
which the federal government provides tax credits to
investors who purchase the bonds. See IRS Notice 2009-26,
Build America Bonds and Direct Payment Subsidy
Implementation (Apr. 20, 2009), available at
http://www.irs.gov/pub/irs-drop/n-09-26.pdf.4

 4
  The record does not disclose which form of Build America Bonds were
used in the Chicago Park Project and the Stockton Project, but, for reasons
explained below, the difference does not affect our determination of
whether these projects fall under the definition of Federal purposes.
    INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS 11

    In 2010, the CDIR asserted that Gray Electric and Nutter
Electric violated California’s prevailing wage law in their
employment of I-TAP apprentices on the above three
projects. The CDIR alleged that the companies were
impermissibly paying wages and making fringe training
contributions as if I-TAP were a recognized apprenticeship
program, even though it is not registered under the State’s
apprenticeship laws. In response, the contractors contended
that I-TAP was registered for purposes of the projects
because the projects met the definition of “Federal purposes,”
given the federal subsidies and tax exemptions associated
with them.

     When the CDIR threatened to take enforcement action
against the contractors, Gray Electric removed its apprentices
from I-TAP and placed them in a state-approved program.
Plaintiff Brandin Moyer is one of Gray Electric’s apprentices
who was enrolled in I-TAP and transferred to a different
program. Moyer asserts that he was not given credit upon the
transfer for his time spent in I-TAP, and as a result, his salary
was reduced to that of a first-year apprentice. Unlike Gray
Electric, Nutter Electric did not remove its apprentices from
I-TAP, and the CDIR imposed a Civil Wage and Penalty
Assessment of $20,059.25 on Nutter Electric.

                               C.

    On April 18, 2011, Plaintiffs filed this action for
declaratory and injunctive relief, alleging that Defendants had
violated the Supremacy Clause, the dormant Commerce
Clause, and the Due Process and Equal Protection Clauses of
the Fourteenth Amendment. On August 15, 2011, the district
court denied Plaintiffs’ motion for a preliminary injunction.
With respect to Plaintiffs’ preemption claim, the district court
12 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

held that the CDIR’s actions were not in contravention of the
federal apprenticeship regulations because the three projects
at issue do not qualify as “Federal purposes” under 29 C.F.R.
§ 29.2.

    Following the district court’s decision, the parties
stipulated to an order consolidating trial on the merits with
the court’s ruling on the preliminary injunction, pursuant to
Federal Rule of Civil Procedure 65(a)(2). The district court
entered final judgment on October 31, 2011, and Plaintiffs
timely appealed. We have jurisdiction under 28 U.S.C.
§ 1291.

                              II.

    When a district court consolidates its ruling on a
preliminary injunction with its decision on the merits under
Rule 65(a)(2), we review the district court’s factual findings
for clear error and its conclusions of law de novo. Associated
Builders & Contractors of S. Cal. v. Nunn, 356 F.3d 979, 984
(9th Cir. 2004). We review determinations concerning
federal subject-matter jurisdiction de novo. Sexton v. NDEX
West, LLC, 713 F.3d 533, 536 (9th Cir. 2013).

                              III.

    Defendants contend that subject-matter jurisdiction is
lacking because the Fitzgerald Act does not confer a private
right of action upon Plaintiffs. However, we need not decide
whether such a statutory right of action exists. In Shaw v.
Delta Air Lines, Inc., 463 U.S. 85 (1983), the Supreme Court
established that “[a] plaintiff who seeks injunctive relief from
state regulation, on the ground that such regulation is
pre-empted by a federal statute[,]. . . presents a federal
     INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS 13

question which the federal courts have jurisdiction under
28 U.S.C. § 1331 to resolve.” Id. at 96 n.14; see also Verizon
Md. Inc. v. Public Serv. Comm’n of Md, 535 U.S. 635,
642–43 (2002). We have applied this principle on numerous
occasions, upholding jurisdiction over preemption claims
seeking prospective relief. See, e.g., Indep. Living Ctr. of S.
Cal., Inc. v. Shewry, 543 F.3d 1050, 1055–62 (9th Cir. 2008);
Bud Antle, Inc. v. Barbosa, 45 F.3d 1261, 1269 (9th Cir.
1995); Hydrostorage, Inc. v. N. Cal. Boilermakers Local
Joint Apprenticeship Comm., 891 F.2d 719, 724–25 (9th Cir.
1989), abrogated on other grounds as stated in Engine Mfrs.
Ass’n v. S. Coast Air Quality Mgmt. Dist., 498 F.3d 1031,
1044 (9th Cir. 2007).

    Here, Plaintiffs pursue a preemption claim for declaratory
and injunctive relief, and there is no suggestion that the claim
is “frivolous” or “made solely for the purpose of obtaining
jurisdiction.” Verizon Md., 535 U.S. at 643 (internal
quotation marks omitted). Accordingly, we conclude that
federal subject-matter jurisdiction exists.5

                                 IV.

    In entering final judgment pursuant to Rule 65(a)(2), the
district court denied Plaintiffs’ request for permanent
injunctive relief. See Marsh v. Or. Natural Res. Council,
490 U.S. 360, 369 (1989); Rodriguez ex rel. Rodriguez v.
DeBuono, 175 F.3d 227, 235 n.9 (2d Cir. 1999). To be

 5
   In Douglas v. Independent Living Center of Southern California, Inc.,
132 S. Ct. 1204 (2012), a divided Supreme Court declined to address the
question of whether a plaintiff may maintain a cause of action under the
Supremacy Clause. Thus, we remain bound by the above-cited
precedents.
14 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

entitled to a permanent injunction, a plaintiff must
demonstrate: (1) actual success on the merits; (2) that it has
suffered an irreparable injury; (3) that remedies available at
law are inadequate; (3) that the balance of hardships justify a
remedy in equity; and (4) that the public interest would not be
disserved by a permanent injunction. See eBay Inc. v.
MercExch., LLC, 547 U.S. 388, 391 (2006); see also Amoco
Prod. Co. v. Village of Gambell, 480 U.S. 531, 546 n.12
(1987) (“The standard for a preliminary injunction is
essentially the same as for a permanent injunction with the
exception that the plaintiff must show a likelihood of success
on the merits rather than actual success.”). The focus of our
inquiry is the merits of Plaintiffs’ constitutional claims,
particularly Plaintiffs’ preemption challenge.

                              A.

    Plaintiffs’ preemption claim turns on whether the three
construction projects at issue constitute “Federal purposes”
under 29 C.F.R. § 29.2. If so, the CDIR’s refusal to allow the
contractors to treat I-TAP enrollees as recognized apprentices
– for instance, by paying a lower apprentice wage rate –
would be in conflict with federal law, because I-TAP is a
registered program for Federal purposes. In other words, the
CDIR would be precluded from enforcing state
apprenticeship criteria, including the needs test, with respect
to the projects.

   As previously noted, “Federal purposes” is defined as:

       [A]ny Federal contract, grant, agreement or
       arrangement dealing with apprenticeship; and
       any Federal financial or other assistance,
       benefit, privilege, contribution, allowance,
    INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS 15

       exemption, preference or right pertaining to
       apprenticeship.

29 C.F.R. § 29.2. The meaning of this highly ambiguous
definition is a matter of first impression across the federal
courts. Yet, we are not entirely without guidance; the DOL
has interpreted the term on several occasions, including as
amicus curiae, at the court’s invitation, in the present action.

                              1.

    In 2004, DOL officials authored two opinion letters
intended to clarify the scope of Federal purposes. First, on
July 16, 2004, Emily Stover DeRocco, the Assistant Secretary
of Labor for Employment and Training Administration, sent
a letter to John M. Rea, the Acting Director of the CDIR.
DeRocco wrote, in pertinent part:

       DOL’s position is that all [SAAs], including
       California’s, are to accept programs and
       apprentices registered by [DOL], for Federal
       purposes, on all federally funded or supported
       public works projects, regardless of how
       much Federal funding or support is provided.
       Accordingly, the Department expects the
       [SAAs] to accept [DOL] registration for an
       entire public works project, even if the project
       is funded in part by the state or local
       government.

In the second opinion letter, dated October 4, 2004, Anthony
Swoope, the Administrator of OATELS (then the DOL
agency that administered the Fitzgerald Act), provided a
similar interpretation to Rea:
16 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

       [DOL’s] registered apprentices must be
       recognized as registered apprentices for the
       purposes of all public works funded in whole
       or part with Federal funds. This is based, in
       part, on 29 CFR 29.2[], which defines
       “Federal purposes” to include “any Federal
       contract, grant, agreement or arrangement
       dealing with apprenticeship; and any Federal
       financial or other assistance, benefit, privilege
       contribution, allowance, exemption,
       preference or right pertaining to
       apprenticeship.” (emphasis added).

       We are not suggesting that [DOL’s] registered
       apprentices working on state funded public
       projects (i.e., those projects involving no
       Federal financial assistance) would be entitled
       to be paid at the wage rate set under 8 CCR
       § 208(b). We recognize that California has
       the authority to determine who is a registered
       apprentice for the purposes of public works
       projects funded solely with non-Federal funds.

Thus, under these two 2004 opinion letters, the DOL
interpreted Federal purposes to encompass “all federally
funded or supported public works projects,” which excluded
only “those projects involving no Federal financial
assistance.”

    In their initial briefs on appeal, the parties treated the
2004 opinion letters as operative and debated the import of
the letters in the context of this case. Following oral
argument, we invited the Secretary to express her views as to
the appropriate interpretation of “Federal purposes,” and
     INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS 17

specifically whether the term encompasses public works
projects funded in the manner of the three projects at issue
here. In response, the Secretary filed a brief as amicus
curiae. In that brief, the Secretary informed us that, on May
14, 2012, the DOL had formally withdrawn the 2004 opinion
letters. This occurred via a letter sent by Jane Oates, the
Assistant Secretary of Employment and Training
Administration, to Christine Baker, the Director of the
CDIR.6 In the letter, Oates provided a limited explanation for
the DOL’s decision, stating only that “[t]he Department of
Labor has determined that the language used in those letters
was overbroad in the discussion of ‘Federal purposes.’”
Oates did not offer a new interpretation, but she did convey
that the DOL “may issue further guidance, as it deems
appropriate.”

    In its amicus brief, the DOL now offers its new
interpretation. Under this interpretation, “‘Federal purposes’
refers to federal laws or actions that in some way address
apprenticeship. Put differently, the matters included within
this definition of ‘Federal purposes’ make conformity with
federal apprenticeship standards a condition of eligibility for
the federal assistance at issue.” The DOL amicus brief
elaborates, “[A] federal contract, funding, or benefit must be
‘conditioned’ on conformity to the Department’s
apprenticeship standards for it to be for a ‘Federal purpose’
under the part 29 regulations.”

 6
  For reasons that remain unexplained, Defendants had not informed the
court of the existence of the May 14, 2012, letter even though it was sent,
and presumably received, prior to the filing of Defendants’ principal brief
on appeal.
18 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

    Although the DOL’s new interpretation is nearly as
difficult to decipher as the underlying regulation that it seeks
to interpret, the parties agree7 that the practical effect of the
interpretation is that Federal purposes would refer to federal
contracts, funding, or other forms of financial assistance that
require compliance with some federal law, where, in turn, that
law requires adherence to federal apprenticeship standards.
The most common example would be projects subject to the
requirements of the Davis-Bacon Act.8 Pursuant to federal
regulations, only apprentices from federally-registered
programs, i.e., programs registered with the DOL or a
recognized SAA, may be used on such projects. See
29 C.F.R. § 5.5(a)(4)(i). Thus, when federal financial
assistance is conditioned on compliance with the Davis-
Bacon Act, that assistance is implicitly conditioned on
compliance with federal apprenticeship standards.

     The DOL contends that controlling deference is owed to
its new interpretation, pursuant to the principle laid down in
Auer, 519 U.S. 452. Defendants concur and urge adoption of
the DOL’s interpretation. Plaintiffs contend that no deference

  7
   The parties filed supplemental briefs in response to the Secretary’s
amicus brief.
  8
   The Davis-Bacon Act covers “every contract in excess of $2,000, to
which the Federal Government or the District of Columbia is a party, for
construction, alteration, or repair, including painting and decorating, of
public buildings and public works of the Government or the District of
Columbia that are located in a State or the District of Columbia.”
40 U.S.C. § 3142(a). However, Congress has also required compliance
with the Davis-Bacon Act’s labor standards in numerous other laws. See
29 C.F.R. § 5.1(a). The Davis-Bacon Act requirements can therefore
apply to projects that are financed, in whole or in part, by the Federal
Government, even though the Federal Government is not a contracting
party.
    INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS 19

should be afforded to the new interpretation given the
inconsistency in the DOL’s position. Instead, Plaintiffs argue
that the proper interpretation is that put forward in the now-
withdrawn 2004 opinion letters, under which Federal
purposes would encompass all public works projects
receiving any degree of federal financial support.

                               2.

    Under Auer, a court will defer to an agency’s
interpretation of an ambiguous regulation unless that
interpretation is “plainly erroneous or inconsistent with the
regulation, or there is reason to suspect that the interpretation
does not reflect the agency’s fair and considered judgment on
the matter in question.” W. Radio Servs. Co. v. Qwest Corp.,
678 F.3d 970, 984–85 (9th Cir. 2012) (internal citation
omitted) (emphasis added). With respect to the latter inquiry,
“[i]ndicia of inadequate consideration include conflicts
between the agency’s current and previous interpretations;
signs that the agency’s interpretation amounts to no more
than a convenient litigating position; or an appearance that
the agency’s interpretation is no more than a post hoc
rationalization advanced by an agency seeking to defend past
agency action against attack.” Price v. Stevedoring Servs. of
Am., Inc., 697 F.3d 820, 830 n.4 (9th Cir. 2012) (en banc)
(internal quotation marks and citations omitted).

    The Supreme Court has also declined to afford Auer
deference when to do so “would seriously undermine the
principle that agencies should provide regulated parties fair
warning of the conduct a regulation prohibits or requires.”
Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156,
2167 (2012) (internal quotation marks and alteration
omitted). That is, the Court has deemed Auer deference
20 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

unsuitable when such deference would result in “unfair
surprise” to one of the litigants. See id.

    Here, two of these concerns are present – the DOL’s
interpretation is inconsistent with its prior interpretation, and
there is a significant potential for unfair surprise. There is no
doubt that the DOL’s position has changed. The DOL’s
previous interpretation essentially encompassed any project
with any degree of federal involvement or financial
assistance, but its present interpretation covers only a limited
subset of such projects.

    More troubling, though, is the risk of unfair surprise
resulting from this change in position. The DOL left the 2004
opinion letters in place for roughly eight years, spanning
across rulemaking in 2008 that updated the part 29
regulations. See 73 Fed. Reg. 64402-01 (Oct. 9, 2008).
“[W]here . . . an agency’s announcement of its interpretation
is preceded by a very lengthy period of conspicuous inaction,
the potential for unfair surprise is acute.” See Christopher,
132 S. Ct. at 2168. Plaintiffs surely relied on the prior
interpretation in guiding their conduct at the time the instant
controversy arose, only to have the DOL change the
interpretation several months after the district court issued its
order and while appellate briefing was underway. Cf. Chase
Bank USA, N.A. v. McCoy, 131 S. Ct. 871, 881 (2011)
(“[T]here is no reason to suspect that the position . . . reflects
anything other than the agency’s fair and considered
judgment as to what the regulation required at the time this
dispute arose.” (emphasis added)). We decline to afford
controlling deference where an agency pulls the rug out from
under litigants that have relied on a long-established, prior
interpretation of a regulation, especially where, as here, that
     INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS 21

regulation is highly ambiguous in nature.9 To proceed
otherwise would validate the criticism that Auer enables
agencies to “promulgate vague and open-ended regulations
that they can later interpret as they see fit, thereby frustrating
the notice and predictability purposes of rulemaking.”
Christopher, 132 S. Ct. at 2168 (internal quotation marks and
alteration omitted). As made evident below, our decision not
to afford Auer deference does not dictate that we turn a blind
eye to the DOL’s new interpretation; it means only that the
deferential Auer standard does not control.

                                      3.

    In Christopher, the Supreme Court clarified that when
Auer deference is not warranted, an agency’s interpretation of
an ambiguous regulation should be evaluated under the
principle laid down in Skidmore v. Swift & Co., 323 U.S. 134
(1944). See Christopher, 132 S. Ct. at 2168–69; see also
Biediger v. Quinnipiac Univ., 691 F.3d 85, 97 (2d Cir. 2012)
(noting that even if the agency’s interpretation were not
entitled to Auer deference, the court would still afford it
substantial deference under Skidmore). This approach is
particularly well-suited to the circumstances of the present
case, where we deny Auer deference for reasons unrelated to
the persuasiveness of the agency’s reasoning. Under

   9
     We recognize that a claim of unfair surprise holds particular force
when the agency’s new interpretation would result in liability for a party’s
past conduct. See Christopher, 132 S. Ct. at 2167 (noting that one of the
parties would be subject to “massive liability . . . for conduct that occurred
well before [the] interpretation was announced”). In the instant case,
although Plaintiffs seek declaratory and injunctive relief, retroactive
liability is still implicated given that Nutter Electric was assessed a penalty
of $20,059.25 for conduct preceding the DOL’s new interpretation, and
Plaintiffs seek injunctive relief that would rescind this penalty.
22 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

Skidmore, we accord an agency’s interpretation “a measure
of deference proportional to the ‘thoroughness evident in its
consideration, the validity of its reasoning, its consistency
with earlier and later pronouncements, and all those factors
which give it power to persuade.’” Christopher, 132 S. Ct. at
2169 (quoting United States v. Mead Corp., 533 U.S. 218,
228 (2001)).

    We conclude that the DOL’s new interpretation is the
most persuasive construction of the regulation. As a textual
matter, the interpretation is superior to that advanced by
Plaintiffs because it gives effect to the phrases “dealing with
apprenticeship” and “pertaining to apprenticeship.” Under
the DOL’s interpretation, a federal contract “deal[s] with
apprenticeship,” or federal financial assistance “pertain[s] to
apprenticeship,” if the federal contract or assistance is
conditioned on compliance with federal apprenticeship
standards. In contrast, Plaintiffs’ reading of Federal purposes
would render these phrases mere surplusage. That is, under
Plaintiffs’ interpretation, the scope of Federal purposes would
remain unchanged if “dealing with apprenticeship” and
“pertaining to apprenticeship” were removed from the
definition, because Plaintiffs’ interpretation already
encompasses any federal contract and any project receiving
federal financial assistance.

    The DOL’s interpretation also derives support from the
history of the Fitzgerald Act’s implementing regulations. In
the preamble to the 1977 regulations, the DOL acknowledged
that there had been confusion over the definition of Federal
purposes, and it explained that “[e]xamples of such Federal
purposes are the Davis-Bacon Act and the Service Contract
Act.” 42 Fed. Reg. 10138, 10138 (Feb. 18, 1977). Like the
Davis-Bacon Act, the regulations implementing the Service
       INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS 23

Contract Act restrict the use of apprentices to those from
federally-registered programs.10 See 29 C.F.R. § 4.6(p). The
reference to both of these laws is therefore consistent with the
DOL’s current interpretation, because a contract (or other
federal assistance) that requires compliance with the Davis-
Bacon Act or Service Contract Act is also conditioned on
compliance with federal apprenticeship standards.

    A DOL circular issued in 1971 similarly supports the
DOL’s interpretation. Under 29 C.F.R. part 30, which
concerns equality of opportunity in apprenticeship programs
and was in place prior to the part 29 regulations, the DOL had
employed the term Federal purposes but had failed to define
it under the regulations. See 36 Fed. Reg. 6810 (Apr. 8,
1971) (amending 29 C.F.R. § 30.1). In a circular released on
July 1, 1971, the DOL offered a definition identical to that
later adopted in 29 C.F.R. § 29.2. U.S. Dep’t of Labor,
Bureau of Apprenticeship & Training Circular 72-1 (July 1,
1971). The circular then offered examples of federal
regulations that would fall under this definition. All of these
regulations contained accommodations for apprentices but
required that the apprenticeship programs in question meet
federally-prescribed standards. See 33 Fed. Reg. 9880, 9884
(July 10, 1968) (use of apprentices under Service Contract
Act); 32 Fed. Reg. 13,401, 13,405 (Sept. 23, 1967)
(apprenticeship program criteria for Veterans Administration
benefits); 29 Fed. Reg. 13,462, 13,464 (Sept. 30, 1964) (use
of apprentices under Davis-Bacon Act); 29 Fed. Reg. at
13,464–65 (tolerances for apprentices under Work Hours
Standards Act); 17 Fed. Reg. 5855, 5855–56 (July 1, 1952)

  10
     The Service Contract Act applies to federal contracts exceeding
$2,500 that have as their principal purpose the furnishing of services
through the use of service employees. See 41 U.S.C. § 6702(a).
24 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

(apprenticeship program criteria for Selective Service
deferments); 16 Fed. Reg. 8884, 8884 (Sept. 1, 1951) (use of
apprentices under Fair Labor Standards Act). From these
examples, one can infer that when the DOL subsequently
developed the part 29 regulations, the DOL’s intent was to
create a regulatory scheme that would govern instances where
the Federal Government’s involvement triggers a law or
regulation that contemplates federal apprenticeship standards.
This purpose is accomplished under the DOL’s new
interpretation.

    The examples provided in the regulatory history not only
support the DOL’s interpretation, but they also significantly
undermine Plaintiffs’ position. If Federal purposes were
intended to cover all federal contracts, the DOL could have
simply stated that outright in the preamble to the 1977
regulations, rather than invoking the Davis-Bacon Act and the
Service Contract Act, which each cover only a subset of
federal contracts. Moreover, if the DOL had intended for
Federal purposes to cover the enormous number of public
works projects financed with tax-exempt municipal bonds,
one would think that it would have mentioned this along with
the other examples cited in the historical documents. These
points tie into a broader critique of Plaintiffs’ interpretation,
which is that if the DOL had intended to define Federal
purposes in the all-encompassing manner that Plaintiffs
advance, it would have been relatively easy for the DOL to do
so. By instead employing an intricate definition and citing
specific examples of federal assistance that would be covered,
the DOL evidenced an intent for there to be a limit on the
scope of Federal purposes. The DOL’s current interpretation
provides the most persuasive account that has been put
forward as to the limitation that was intended.
       INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS 25

    We thus find the DOL’s new interpretation to be
compelling. While we reach this conclusion based on the
strength and persuasiveness of the DOL’s reasoning alone,
we note that additional deference is warranted under
Skidmore given the “thoroughness evident in [the agency’s]
consideration.” Mead, 533 U.S. at 228 (quoting Skidmore,
323 U.S. at 140). The Secretary’s amicus brief provides an
in depth treatment of the text and history of 29 C.F.R. § 29.2.
This stands in stark contrast to the 2004 opinion letters, which
were essentially devoid of analysis justifying the
interpretations put forward.

    For these reasons, we adopt the DOL’s new interpretation
of Federal purposes, which requires of agreements, contracts,
etc., that “conformity with federal apprenticeship standards
[be] a condition of eligibility for the federal assistance at
issue.”11

                                  4.

    Plaintiffs concede that the three projects implicated in this
case are not encompassed by this understanding of Federal
purposes; neither Build America Bonds nor tax-exempt
municipal bonds condition the federal assistance provided on
compliance with federal apprenticeship standards. Indeed,
the two projects funded with Build America Bonds illuminate
the basis for the DOL’s current position. In addition to Build
America Bonds, the Recovery Act created various bonds that
do require compliance with Davis-Bacon Act standards. See
Pub. L. No. 111-5, § 1601, 123 Stat. at 362 (subjecting new

  11
    Although the concurring opinion expresses some concern over “the
unfortunate situation that our law on retroactivity creates,” we do not
reach that issue because it was neither raised nor argued by Plaintiffs.
26 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

clean renewable bonds, qualified energy conservation bonds,
qualified zone academy bonds, qualified school construction
bonds, and recovery zone economic development bonds to
the requirements of the Davis-Bacon Act). Had the Chicago
Park Project and the Stockton Project been funded with these
bonds rather than Build America Bonds, the projects would
fall within the scope of Federal purposes. Hence, under the
DOL’s interpretation, Congress exercises its discretion as to
when public works projects will be subject to the federal
apprenticeship regulations.

    Because the three projects do not qualify as Federal
purposes, it was not impermissible for the CDIR to require
the contractors on the projects to comply with California’s
apprenticeship standards.         Accordingly, Plaintiffs’
preemption claim fails.

                               B.

    Plaintiffs pursue several additional constitutional claims.
First, Plaintiffs contend that California’s needs test interferes
with interstate commerce in violation of the dormant
Commerce Clause. Our precedents provide for two levels of
scrutiny for challenges to a state statute under the dormant
Commerce Clause. See Black Star Farms LLC v. Oliver,
600 F.3d 1225, 1230 (9th Cir. 2010). If the statute
discriminates against interstate commerce, it will be subject
to the “strictest scrutiny.” Id. (internal quotation marks
omitted). Discrimination in this context means “differential
treatment of in-state and out-of-state economic interests that
benefits the former and burdens the latter.” Id. (internal
quotation marks omitted). If the state statute does not
discriminate against interstate commerce, it will be upheld
unless the burden imposed on interstate commerce is “clearly
    INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS 27

excessive in relation to the putative local benefits.” Nat’l
Ass’n of Optometrists & Opticians v. Harris, 682 F.3d 1144,
1149 (9th Cir. 2012) (quoting Pike v. Bruce Church, Inc.,
397 U.S. 137, 142 (1970)).

    The needs test does not discriminate against interstate
commerce. All apprenticeship programs seeking recognition
must meet the test, regardless of where those programs, or the
sponsoring entities, are located. While this test may benefit
existing programs over new ones, it does not provide for
differential treatment of in-state and out-of-state economic
interests. Cf. Tri-M Grp., LLC v. Sharp, 638 F.3d 406,
427–29 (3d Cir. 2011) (finding Delaware’s apprenticeship
regulations to be in violation of the dormant Commerce
Clause where they required out-of-state contractors to
maintain a permanent office location within Delaware in
order to sponsor an apprenticeship program). Indeed, the lack
of discrimination is evidenced in this very case, as the
aggrieved apprenticeship program, I-TAP, is a California
corporation.

    Under the resulting standard of review, Plaintiffs have not
demonstrated that the needs test imposes a substantial burden
on interstate commerce, and they certainly have not
demonstrated that any burden imposed is “clearly excessive”
in relation to the putative local benefits. In this regard, we
note that even the Administrative Law Judge who upheld the
DOL’s decision to derecognize the California agencies
recognized that there were putative local benefits associated
with the needs test. These benefits include improving the
chances that a graduating apprentice will be able to obtain
employment in a specific trade within a particular geographic
area. Given these putative benefits and the lack of any
28 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

showing of a substantial burden on interstate commerce,
Plaintiffs’ dormant Commerce Clause challenge must fail.

    Plaintiffs’ equal protection and substantive due process
challenges fail for similar reasons. To survive an equal
protection challenge, economic legislation need only be
“rationally related to a legitimate state interest.” Johnson v.
Rancho Santiago Cmty. Coll. Dist., 623 F.3d 1011, 1031 (9th
Cir. 2010) (internal quotation marks omitted). Likewise, such
legislation will not be struck down on substantive due process
grounds so long as it “implements a rational means of
achieving a legitimate governmental end.” Meyer v. Portfolio
Recovery Assocs, LLC, 707 F.3d 1036, 1045 (9th Cir. 2012)
(internal quotation marks omitted). The putative benefits of
the needs test are more than sufficient to satisfy these
minimal rational basis tests.

                              V.

   Plaintiffs have not demonstrated success on the merits on
any of their claims. Accordingly, the judgment of the district
court is AFFIRMED. Each party shall bear his, her, or its
own costs on appeal.

MURGUIA, Circuit Judge, concurring:

    I concur in Judge Tashima’s opinion, but write separately
to highlight the unfortunate situation that our law on
retroactivity creates in this case. In 2004, the Department of
Labor (“DOL”) interpreted the phrase “Federal purposes”
broadly in two letters that should have been given controlling
deference under Auer v. Robbins, 519 U.S. 452, 461 (1997).
    INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS 29

Nutter Electric employed I-TAP apprentices on projects that
it thought were “Federal purposes” under DOL’s then-
controlling interpretation. We learned after oral argument,
however, that the DOL had changed its position while this
appeal was pending, withdrawing the 2004 interpretation and
replacing it with a much narrower one that means the projects
were not Federal purposes—thereby exposing Nutter to
liability under California’s wage law for employing I-TAP
apprentices.

    We do not defer to the new interpretation because the
DOL “pull[ed] the rug out from under litigants that [] relied
on a long-established, prior interpretation of [the] regulation.”
Maj. Op. at 20. As the Supreme Court instructs, deferring to
the agency in this situation would “frustrat[e] the notice and
predictability purposes of rulemaking.” Christopher v.
SmithKline Beecham Corp., 132 S. Ct. 2156, 2168 (2012).
But the solution—not deferring to the agency’s new
interpretation—does not solve the problem—the risk of an
unpredictable surprise to Nutter. In fact, in this case, not
deferring to the agency makes the problem worse: because we
do not defer to the agency, we must entertain the fiction that
we are merely proclaiming what the meaning of the
regulation has always been, and our interpretation therefore
applies to conduct that occurred in the past. See Morales-
Izquierdo v. DHS, 600 F.3d 1076, 1088–89 (9th Cir. 2010).
Rather than keeping the rug in place, we simply push aside
the Department of Labor, grab hold of the rug, give it a strong
pull, and watch Nutter tumble.

    This result, while perhaps the unintended consequence of
precedent from the Supreme Court and this court, does not
make sense. We should recognize that allowing an agency to
retroactively withdraw a conclusive interpretation of its own
30 INDEP. TRAINING V. CAL. DEP’T INDUS. RELATIONS

ambiguous regulation exposes regulated parties to the same
risk of unfair surprise that leads us to scrutinize the
retroactive application of new regulations and interpretations.
See Cort v. Crabtree, 113 F.3d 1081, 1086–87 (9th Cir. 1997)
(holding that a new interpretation of a Bureau of Prisons
regulation did not apply retroactively); see also Garfias-
Rodriguez v. Holder, 702 F.3d 504, 518 (9th Cir. 2012) (en
banc) (describing balancing test used to determine whether a
new administrative rule applies retroactively).