Metro Milwaukee v. Milwaukee County

In the
United States Court of Appeals
For the Seventh Circuit
____________

No. 05-1531
METROPOLITAN MILWAUKEE ASSOCIATION OF COMMERCE,
Plaintiff-Appellant,
v.

MILWAUKEE COUNTY,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 01-C-0149—Lynn Adelman, Judge.
____________
ARGUED SEPTEMBER 12, 2005—DECIDED DECEMBER 5, 2005
____________

Before POSNER, ROVNER, and WILLIAMS, Circuit Judges.
POSNER, Circuit Judge. This is a suit to enjoin enforcement
of Chapter 31 of the General Ordinances of Milwaukee
County, primarily on the ground that the chapter is pre-
empted by the National Labor Relations Act, 29 U.S.C.
§§ 151 et seq. (We will not have to discuss the plaintiff’s
other grounds.) Chapter 31 requires firms that have con-
tracts with the County for the provision of transportation
and other services for elderly and disabled County residents
to negotiate “labor peace agreements” with any union that
wants to organize employees who work on County con-
2 No. 05-1531

tracts. Few of the contractors were unionized when the
ordinance was adopted in 2000. The plaintiff, a business
association that includes contractors affected by Chapter 31,
appeals from the dismissal of the suit on the County’s
motion for summary judgment.
The ordinance requires the mandatory labor-peace
agreement to contain a variety of provisions, such as
“language and procedures prohibiting the employer or the
labor organization from coercing or intimidating employees,
explicitly or implicitly, in selecting or not select-
ing a bargaining representative.” General Ordinances,
§ 31.02(f)(7). If the parties cannot agree on the terms of their
labor-peace agreement, an arbitrator will specify them.
§ 31.03(b). An employer who fails to correct a violation of
the labor-peace agreement can be terminated as a County
contractor. § 31.05(a). Although Chapter 31 is supported
by and tilted in favor of unions (among the other mandatory
provisions of a labor-peace agreement, the employer must
furnish the union with “a complete and accurate list of the
names, addresses and phone numbers” of those of his
employees who provide services to the County,
§ 31.02(f)(3)), the ordinance does forbid the union and its
members to engage in any “economic action” against the
employer so long as he complies with the agreement.
§ 31.02(f)(6). But no sanction is specified for a union that
violates this provision other than to excuse the employer
from further compliance with Chapter 31 in regard to
that union. § 31.04(a).
There is no doubt that if the County weren’t a party to
contracts with the employers who are affected by Chapter
31, the ordinance would be preempted by the National
Labor Relations Act. States and their subdivisions are not
permitted to regulate activities that are either expressly
No. 05-1531 3

permitted or forbidden by the Act or that are “reserved [by
the Act] for market freedom.” Building & Construction Trades
Council v. Associated Builders & Contractors of Massachu-
setts/Rhode Island, Inc., 507 U.S. 218, 226-27 (1993) (Boston
Harbor). But if the state is intervening in the labor rela-
tions just of firms from which it buys services, and it is
doing so in order to reduce the cost or increase the quality
of those services rather than to displace the authority of the
National Labor Relations Act and the National Labor Re-
lations Board, there is no preemption. That is the holding of
the Boston Harbor case; see also Colfax Corp. v. Illinois State
Toll Highway Authority, 79 F.3d 631, 633-35 (7th Cir. 1996);
Hotel Employees & Restaurant Employees Union, Local 57 v.
Sage Hospitality Resources, L.L.C., 390 F.3d 206, 216 (3d Cir.
2004); Building & Construction Trades Dept., AFL-CIO v.
Allbaugh, 295 F.3d 28, 34-35 (D.C. Cir. 2002). The state has
the same interest as any other purchaser in imposing
conditions in contracts with its sellers that will benefit the
state in its capacity as a buyer, as distinct from enforcing
or modifying the NLRA. Boston Harbor, supra, 507 U.S. at
231-33; Wisconsin Dept. of Industry, Labor & Human Relations
v. Gould, Inc., 475 U.S. 282, 290-91 (1986); Colfax Corp. v.
Illinois State Toll Highway Authority, supra, 79 F.3d at 635.
It is implicit in this distinction that the state may not
invoke its spending power and argue that because the
greater power includes the lesser and a state doesn’t have to
hire a particular contractor, it can condition payment to him
on his agreeing to submit to a scheme of labor relations that
the state considers an improvement over the National Labor
Relations Act. And thus in Wisconsin Dept. of Industry, Labor
& Human Relations v. Gould, Inc., supra, 475 U.S. at 287-89
(1986), the Supreme Court struck down a Wisconsin statute
that forbade state procurement agents to hire any contractor
that had been found by judicially enforced orders of the
4 No. 05-1531

NLRB to have committed three or more violations of federal
labor law in the previous five years. The state had argued
that “the statutory scheme invoked against [the employer]
escapes pre-emption because it is an exercise of the State’s
spending power rather than its regulatory power.” The
Court called this “a distinction without a difference, at least
in this case, because on its face the debarment statute serves
plainly as a means of enforcing the NLRA.” Id. at 287. “That
Wisconsin has chosen to use its spending power rather than
its police power does not significantly lessen the inherent
potential for conflict when ‘two separate remedies are
brought to bear on the same activity.’ To uphold the
Wisconsin penalty simply because it operates through
state purchasing decisions therefore would make little
sense.” Id. at 289 (citation omitted).
Gould might appear to be inapplicable to our case on the
ground that there the state was penalizing contractors for
conduct outside the scope of the state’s contracts; the three
or more adjudicated violations of the National Labor
Relations Act might have occurred in labor disputes aris-
ing from work pursuant to contracts to which the state
was not a party. But the principle of that decision goes
deeper; it is that the spending power may not be used as a
pretext for regulating labor relations. As a practical matter,
moreover, the labor-peace agreements at issue in this case
are bound to affect the contractors’ labor relations even
when the contracts are with private hospitals and nursing
homes. It would hardly be feasible for the contractors to
segregate their workforces, with one part governed by
labor-peace agreements and the other not even though the
two groups of workers would be doing identical work,
just for different customers. Cf. Chamber of Commerce v.
Reich, 74 F.3d 1322, 1338 (D.C. Cir. 1996). There is nothing
distinctive about the work that the contractors do for the
No. 05-1531 5

County; doubtless all or most of their employees who
work on County contracts also work on private ones. This
means that disputes arising out of the private contracts,
though unrelated to any spending or procurement activ-
ity of the County, are in fact regulated by the labor-peace
agreements and therefore made subject to the County’s
philosophy of labor relations.
Any doubt that the agreements have a spillover effect on
labor disputes arising out of the contractors’ non-County
contracts is dispelled by the language of the ordinance.
Although the obligation to negotiate a labor-peace agree-
ment kicks in only when a union seeks to represent employ-
ees who do work on the employer’s contracts with the
County, § 31.03, most of the agreement itself applies to
the employer’s other employees—employees who may
never work on a County contract—as well as to the work
that is not County-related of the employees who do
work part of the time on the County contracts. In fact, all
but one of the terms that the agreement must contain
apply to “employees,” §§ 31.02(f)(1), (2), (4), (7), rather
than just to “employees of the employer [who are] work-
ing within the appropriate bargaining unit,” which is to
say a unit limited to “those employees whose work re-
sults from or has some tangible relationship to the provision
of contractual services purchased by Milwaukee County.”
§ 31.02(f)(3).
The sheer impracticability of a separation between County
and other work is illustrated by the requirement of the
ordinance that “no employee, individually or in a group,
shall be required to attend a meeting or event that is
intended to influence his or her decision in selecting or not
selecting a bargaining representative.” § 31.02(f)(7). Federal
labor law allows employers to require their employees to
6 No. 05-1531

attend meetings, on the employer’s premises and during
working time, in which the employer expresses his opposi-
tion to unionization. Beverly California Corp. v. NLRB, 227
F.3d 817, 846 (7th Cir. 2000); Livingston Shirt Corp., 107
N.L.R.B. 400, 406 (1953). An employee who spends only 10
percent of his time on County business is clearly covered by
the quoted provision of Chapter 31. Probably he is covered
if he spends zero percent of his time on County business,
for the provision, though it must be included in a labor-
peace agreement, is not limited to members of the County
bargaining unit. Even if he does some County work, to the
extent that he does private work as well the ordinance is
regulating labor relations arising from activities to which
the County is not a party. Imagine—and for all we know
this is the case—that all of a company’s employees spend
some fraction of their time on County contract work. Then
the employer could never require any of its employees to
attend a meeting at which it expressed opposition to
unionization. This would give the union a leg up to orga-
nize the company’s entire workforce even if the vast
majority of the employees’ time was devoted to the em-
ployer’s private contracts. That is the kind of favoritism that
the National Labor Relations Act anathematizes.
Although the County cannot use its spending power as a
handle for regulating the labor relations of recipients of
County money, it has, when it is buying services, the
same rights as other purchasers. We must therefore consider
whether the labor-peace agreements are a reasonable, good-
faith measure for enabling Milwaukee County to get a better
quality of service from its contractors. One reason to doubt
this is that, as we have just seen, the agreements are not
limited to the provision of services to the County. Another
reason is that they are not actually tailored to preventing
work stoppages, though such prevention is the only permis-
No. 05-1531 7

sible rationale that the County has offered for requiring its
contractors to negotiate such agreements. For while it is true
that union organizing campaigns can result in work stop-
pages that interrupt service, service interruptions are a risk
that any recipient of a continuing service faces. The usual
way of dealing with the problem is to include contract terms
that by adding sticks or carrots or both give the provider of
the service a compelling incentive to take effective measures
to avoid stoppages. The buyer can offer a premium for
timely performance and insist on the inclusion of a stiff
liquidated-damages provision as a sanction for untimely
performance; there is also, as a further incentive to good
performance, the implicit threat of refusing to renew the
contract if performance is unsatisfactory.
The County need only write a strong sanction for work
stoppages into its contracts to protect its interest as a buyer
of services, and then, if labor-peace agreements really are
efficacious methods of preventing work stoppages, employ-
ers will voluntarily offer such agreements to unions that
want to organize their employees in order to reduce the
likelihood of having to pay damages to the County. Em-
ployers know better how to keep their workers from
striking than purchasers of the employers’ services, such
as Milwaukee County, do.
Generalizing, we see that the existence of effective
contractual remedies for service interruptions eliminates
the need for states or their subdivisions to create a special
regime for the labor relations of their contractors. The
inference is inescapable that the County is trying to substi-
tute its own labor-management philosophy for that of the
National Labor Relations Act. It is no answer that sanctions
for breach of contract after a stoppage has occurred cannot
guarantee uninterrupted service. Sanctions for violating a
8 No. 05-1531

labor-peace agreement are also imposed after the fact.
Nothing prevents an employer or a union from violating
such an agreement, just as nothing prevents the employer
from violating his contract with the County. In either case
there is a sanction, and the timing of its imposition is the
same.
We emphasize that a labor-peace agreement is as likely to
increase as to decrease work stoppages, a consequence
manifestly inconsistent with an employer’s legitimate
concern with avoiding stoppages. The labor-peace agree-
ment could be complied with yet a stoppage occur anyway
after the employer’s workforce had been unionized. Indeed,
by making it easier for unions to organize, Chapter 31 is
calculated to result in more contractors’ workforces being
unionized and if this happens there will be an increased risk
of strikes—not in the organizing phase but later, when the
union is pressing for a collective bargaining agreement or
complaining of unfair labor practices. The County does not
require its contractors to negotiate no-strike clauses in
collective bargaining agreements with their unionized
workers, common as such clauses are.
Five-sixths of the County’s contractors are not subject
to the requirement of negotiating labor-peace agreements.
Yet they are no less vulnerable to work stoppages than the
providers of services for elderly and disabled persons. The
failure of a road contractor to complete repairs on a
county highway could delay the elderly and the disabled,
together with many other people, as effectively as a
work stoppage involving the transporters of the elderly and
the disabled; yet the County is apparently content
with whatever provisions it has inserted in its contracts
to discourage such failures.
No. 05-1531 9

The mismatch between the interest in uninterrupted
service and the requirement of labor-peace agreements
further demonstrates that the County’s motive is dissatisfac-
tion with the balance that the National Labor Relations Act
strikes between unions and management rather than
concern with service interruptions. This is in contrast to the
leading case that recognizes a market-participant exception
to NLRA preemption—Boston Harbor. The Massachusetts
Water Resources Authority was under a court order to
complete a major construction project by a specified dead-
line. The Authority could not afford delay. It is customary
in the building industry to negotiate pre-hire collective
bargaining contracts because there is no stable workforce
with which to negotiate after the project is commenced, and
all the Authority wanted to do was require its contractors to
do that. As the Court explained, if a private purchaser of
construction services required his contractors to negotiate
pre-hire agreements, there would be no violation of the
National Labor Relations Act (the Act authorizes such
agreements, 29 U.S.C. § 158(f)); why should it make a
difference if the purchaser is a public rather than a private
entity? 507 U.S. at 231. As we said in a similar case, “a
private entity could do what the Authority has done.” Colfax
Corp. v. Illinois State Toll Highway Authority, supra, 79 F.3d at
635. Pre-hire agreements are a tried and true remedy for
construction stoppages owing to labor disputes, which
presumably is why the National Labor Relations Act
authorizes them, and Boston could not afford such a
stoppage. So there was no basis for suspicion that the
Authority’s action in requiring such agreements was a
pretext for regulation. We take from Boston Harbor the rule
that public entities can impose pre-hire agreements on their
contractors, just as private entities can. The rule does not
embrace this case. There has been no similar showing that
10 No. 05-1531

labor-peace agreements are “tried and true.” They are not
recognized by the National Labor Relations Act. And the
County points us to no case in which a purchaser or pro-
vider of services similar (or for that matter dissimilar) to
those at issue in this case has required or imposed such an
agreement.
And so the inference of pretext arising from the terms of
the ordinance and the spillover effect on private labor
relations that the ordinance creates has not been rebutted.
The County has a legitimate interest in avoiding interrup-
tions in the services it furnishes its residents, but there is
nothing to suggest that ordinary contract remedies are
inadequate or if so that labor-peace agreements are a
reasonable means to the end of preventing such interrup-
tions. On the contrary, we have seen that labor-peace
agreements might well increase the frequency of service
interruptions. The claim that the County is requiring labor-
peace agreements in order to further its interest as a buyer
of services cannot withstand scrutiny. On this record, it is a
pretext to regulate the labor relations of companies that
happen, perhaps quite incidentally, to do some County
work.
The judgment is reversed with directions to enter judg-
ment for the plaintiff.
REVERSED WITH DIRECTIONS.
No. 05-1531 11

A true Copy:
Teste:

_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit

USCA-02-C-0072—12-5-05