A U.S. appellate court ruling last month is forcing a lower court to review its earlier support of Jersey City, N.J.’s project labor agreement (PLA) requirements. On privately developed projects of $25 million or more receiving city tax abatements, the city had required contractors to hire union labor and meet 20% of apprenticeship hours using local residents under project labor agreements (PLAs). In determining the mandate’s legality, the issue is whether the city is acting as a market participant or as a regulator.

In a Sept. 12 opinion, the Philadelphia appeals court said the Newark, N.J., district court erred when it deemed the city a market participant, allowed to require the PLA, and when it dismissed the suit by nonunion firms. The Philadelphia court ordered the lower court to reassess the case for any conflict with U.S. law.

Five nonunion contractors and the New Jersey chapter of the Associated Builders and Contractors had challenged the PLA rules in a 2014 suit against the city, charging that “merit shop” firms were deterred from bidding on projects because they had never worked under agreements and had no established relationships with unions. The city granted the tax abatement since 2007 to spur development.

Specifically, the city ordinance requires contractors on projects receiving the abatements to abide by collective bargaining agreements to cover all employees for the duration of the project, even if the contractor does not traditionally use union labor. The PLA does not allow strikes or lockouts, and contractors must agree to a process to resolve disputes. 

The case will determine whether tax abatements were enough to give Jersey City a proprietary interest in the projects, says Russell McEwan, a Littler Mendelson attorney who represented ABC. The city “actually was just doing away with conventional taxes. They haven’t put their hand in their pockets,” he claims. The appeals court agreed, ruling that since Jersey City does not own or manage the projects, it has no proprietary interest. The decision further rejected the city’s claim that because abatements increase future revenue streams, they constitute a proprietary interest. “We expect it will be preempted,” says McEwan. The PLA requirement will not end until the district court’s reassessment is complete, but Jersey City Mayor Steven Fulop told local media he would challenge the appellate ruling.

“Nothing courts do surprises me, but the decision is wrong,” says professor Alan Hyde, a labor law expert at Rutgers University, New Brunswick, N.J., citing precedents set by other appellate courts and the U.S. Supreme Court.