January 19, 2017

Local Hiring Programs – Recent Updates and Legislation

Erin Luke, Heather A. Bartzi, and Jack Clark

Local workforce hiring programs are oftentimes used by public entities on public works projects.  In general, these programs require contractors on public works projects to use local labor as part of the workforce.

Many local governments use these programs to encourage local employment on construction projects, which infuses public dollars back into the local workforce.  However, some jurisdictions have experienced backlash against these policies, which may sometimes be difficult to comply with and are alleged to stifle competition from contractors.  This article discusses some of these recent legal developments.

Contractors working on public projects should be aware of these new developments and confirm the status of the local hiring laws in their local jurisdictions before bidding on projects.  These developments will also interest procurement agents in public procurement departments (who may be faced with similar controversies over local hiring policies) and owners who receive funding from public entities for their capital development projects (who may also be subject to local hiring requirements).

Local Hiring on Public Projects

Many cities, counties and other public entities around the nation use goals, requirements and other incentives to encourage employment of local residents on public works projects. Local governments may also use similar programs to encourage use of local and small businesses or other minority, disadvantaged or underrepresented groups, such as female-owned businesses, on public works projects.  However, this article focuses primarily on local resident hiring programs, like those at issue in Ohio, Tennessee, and Louisiana.

There are various types of local workforce hiring policies. Local hiring laws can range from aspirational goals encouraged by use of bid preferences or other financial incentives, to strict requirements with penalties for failing to achieve set percentages of local workforce.  Public entities can establish local hiring programs by statute or ordinance, or the goals and requirements can be incorporated into contractual documents for a particular project, such as the contract for construction or a project labor agreement applicable to the project. 

Consequences vary for violating local hiring laws or failing to meet required thresholds.  Some jurisdictions do not automatically issue a sanction, instead looking at the compliance efforts made before rendering a judgment.  Other jurisdictions have more strictly imposed fines. 

Local Hiring Programs – Examples

Below are examples and broad overviews of some local hiring programs in various jurisdictions:

  • Boston:  The Boston Residents Construction Employment Standards, re-established in 1985 by Mayoral Executive Order, requires contractors and developers to use best faith efforts so that at least 50% of the total employee worker hours in each trade are completed by bona-fide Boston residents. Sanctions for non-compliance include, but are not limited to, suspension of payments, recovery by the city of 1% of the contract award, termination of the contract, and three-year debarment.
  • St. Louis:  St. Louis City Ordinance 68412, approved May 21, 2009, establishes a local resident project labor hour goal of 20% for public works contracts with an estimated value of $1 million or more.  The City of St. Louis Workforce Study, issued in June 2015, found that from 2010-2011 only 15.54% of workers on qualified projects were local residents.  From 2012-2013, the percentage dropped to 12.72%.  The Workforce Study ultimately proposed a local workforce goal of at least 23% percent of all contract labor hours in order to reflect the availability of workers who reside in the City.
  • San Francisco:  The San Francisco Local Hiring Policy for Construction, effective March 25, 2011, applies to public works or improvement projects with an estimated cost of $600,000 or more.  The policy requires a mandatory San Francisco resident participation level of 25% for all project work hours within each trade for projects beginning March 25, 2012, with the percentage increasing each year to a total of 50% by March 25, 2019.  The requirement is currently 30%. Contractors may be provided with financial and non-financial incentives or entitlements for achieving levels of local hires above the threshold amount. If a contractor fails to meet these requirements, the contractor is required to pay the city an amount equal to the journeyman or apprentice prevailing wage rate multiplied by the number of hours the contractor fell short.
  • New Orleans: Unanimously passed by New Orleans City Council in October 2015, the ordinance dubbed “Hire NOLA” requires contractors on city projects over $150,000 to make a good faith effort to ensure that 30% of the Louisiana work-hours go to Orleans Parish residents, 10% of which must qualify as “disadvantaged.”  Subject to periodic review, the percentages will increase by 5% each year toward a goal of 50% by 2020.  The law forbids the city to sign contracts with firms that refuse to commit to the goals.  The law provides first for a collaborative process to help noncomplying contractors get in compliance with the program. If this process fails and noncompliance continues, then the law provides that the failure constitutes breach of the applicable contract.
  • Baltimore:  The Local Hiring Law provides that 51% of all new hires used to complete a project must be residents of Baltimore City. The Mayor’s Office of Employment Development monitors compliance and may reduce the requirement for certain projects upon finding that one of a limited number of situations apply.  This law went into effect as of December 23, 2013, and affects all city contracts exceeding $300,000 and all vendors, contractors, subcontractors, and persons benefitting from an agreement involving more than $5 million in assistance for a city subsidized project. After notice and hearing, if a contractor is found to have intentionally failed to comply with requirements, the contractor will be debarred from participation in Baltimore contracts for one year.
  • Seattle:  The Priority Hire Ordinance, enacted January 29, 2015, applies to city construction projects in excess of $5 million.  Goals are set under the authority of this law for certain percentages of total hours worked to be completed by residents of economically disadvantaged neighborhoods, giving highest priority to workers from neighborhoods in Seattle, then King County, and lastly any other qualifying area. Project-specific goals are intended to be set at no less than 20% for 2016, a number Seattle will adjust annually and strive to increase to 40% by 2025.
  • Washington D.C.:  The First Source Employment Program, first enacted in 1984, provides that 51% of new jobs created with public funding go to District residents where the project is between $300,000 and $5 million.  This program has been in effect since 1984 and has been amended over the years to encompass a broader scope of projects.  Following the 2011 amendments, the program was challenged in District Court by numerous groups, but the program survived and still exists today.
  • Cleveland:  The City of Cleveland’s Fannie M. Lewis Cleveland Resident Employment Law, effective as of January 1, 2004, requires 20% local resident participation (and 4% of that 20% must be reserved for low-income Cleveland residents) on construction contracts over $100,000.  In addition, the ordinance contains a provision requiring contractors to pay the city .125% of the final total contract price for each percentage by which it fails to meet the local residency requirement.
  • Cincinnati:  The City of Cincinnati established local hiring ordinances (Chapter 318), effective as of May 25, 2012, which require contractors to hire 30–40% of their workforce from local residents, with no less than 20% of all hours performed by "disadvantaged workers." A contractor's failure to meet these requirements obligates a contractor to pay the city an amount equal to the journeyman or apprentice prevailing wage rate multiplied by the number of hours the contractor fell short.

Legal Challenges to Local Hiring Laws

Over the years there have been many legal challenges to local hiring laws. 

Privileges and Immunities Clause

Some groups have argued that local hiring laws are discriminatory against out-of-state construction workers and thus violate the Privileges and Immunities Clause of the U.S. Constitution.  See Merit Construction Alliance v. City of Quincy, Civil Action No. 12-10458-RWZ (D. Mass. Feb. 1, 2013).  The Privileges and Immunities Clause prohibits discrimination that impairs a protected privilege; a public entity must have a “substantial reason” for the difference in treatment.  Generally, in order to prove a “substantial reason” a public entity is required to perform a “disparity study” to gather evidence in support of favoring local workers.  This same argument is used to challenge laws that encourage use of minority and disadvantaged workers on public projects.

Commerce Clause

Others have argued that local hiring laws violate the Commerce Clause of the U.S. Constitution by unlawfully interfering with interstate commerce and preventing competition from out-of-state contractors.  Some courts have held that local hiring laws which require a certain percentage of local workers only from the pool of in-state workers on a project do not violate the Commerce Clause in this fashion.  See City of Cleveland v. State of Ohio, 508 F.3d 827 (6th Cir. 2007), where the court did not believe Cleveland’s local hiring law violated federal law.

Legislative Challenges and Updates

In addition to legal challenges, some jurisdictions have sought to pass laws prohibiting local hiring requirements. A few examples are discussed below.

Louisiana

In Louisiana, some have criticized New Orleans’ local hiring ordinance claiming that it requires them to lay off out-of-town workers in order to hire local labor to fulfill the requirements.  Others claimed that there are not enough skilled workers to hire.  The Louisiana State Senate introduced legislation in March of 2016 (SB 288) that would have prohibited political subdivisions from adopting local hiring ordinances like the New Orleans program.  But that legislation was rejected by committee in May 2016.

Tennessee

On August 6, 2015, Davidson County voters approved an amendment to the Charter of the Metropolitan Government of Nashville and Davidson County that would have required 40% of all construction work hours performed by Tennesseans on public projects exceeding $100,000 to go to Davidson County residents, with not less than 10% of those hours going to low-income Davidson County residents.  Dissenters argued that the charter amendment conflicted with the state’s Contractor’s Licensing Act, which prohibits municipalities and counties from discriminating against state-licensed contractors on the basis of the licensee’s nonresidency within the county or municipality.  (See State of Tennessee, Office of the Attorney General, Opinion No. 15-69, October 1, 2015).  In response, state lawmakers passed a law (SB 1621) expressly prohibiting the state or any local governments from requiring bidding or contracting companies to observe local hiring or income-based hiring standards for public construction projects.  The bill was signed into law by Tennessee Governor Bill Haslam on March 10, 2016.

Ohio

Ohio lawmakers also passed legislation (House Bill 180) to curtail the use of local hire programs. House Bill 180 bars public authorities from requiring contractors on public projects to hire a certain number or percentage of local residents from defined geographical areas.  The law also prohibits the use of bid award bonuses or preferences as incentives to meet such requirements.  Ohio Governor John Kasich signed the bill into law on May 31, 2016 with an effective date of August 31, 2016.   However, the City of Cleveland filed a lawsuit (City of Cleveland v. State of Ohio, No. CV-16-868008 (Cuyahoga C.P. 2016)) claiming that HB 180 violates the Ohio Constitution by undermining the City’s “home rule” right of self-governance to pass laws for the benefit of its constituents.  The State claims that HB 180 is permissible under Section 34 of the Ohio Constitution, which allows the state to pass generally applicable laws providing for the “health, safety and general welfare” of the people of Ohio, which laws preempt home rule ordinances.  The Court of Common Pleas issued a preliminary injunction preventing the enforcement of HB 180 pending trial on the permanent injunction.  The hearing is currently scheduled for November 7, 2016.

Be Aware of the Changing Landscape of Local Hiring Laws

The validity and requirements of local hiring law vary widely from jurisdiction to jurisdiction.  The recent updates mentioned above are only a few of the reported changes to local hiring programs and related legislation occurring across the nation.  Public contractors, owners receiving public funds, and local governments should be aware of the ever-changing landscape of local hiring laws, particularly the recent developments in Louisiana, Tennessee and Ohio.  Careful attention should be paid to these requirements before, during and after the bidding process, to ensure compliance is maintained and negative consequences are avoided.

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Erin Luke

Thompson Hine LLP, Cleveland, OH

Heather A. Bartzi

Thompson Hine LLP, Cleveland, OH

Jack Clark

Thompson Hine LLP, Cleveland, OH