Northern Illinois Chapter of Associated Builders & Contractors, Inc. v. Lavin

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

No. 05-2174
NORTHERN ILLINOIS CHAPTER OF ASSOCIATED
BUILDERS AND CONTRACTORS, INC., and
LOBERG EXCAVATING, INC.,
Plaintiffs-Appellants,
v.

JACK LAVIN, Director of the Illinois Department
of Commerce and Economic Opportunity,
Defendant-Appellee.
____________
Appeal from the United States District Court for the
Northern District of Illinois, Western Division.
No. 04 C 50357—Philip G. Reinhard, Judge.
____________
ARGUED OCTOBER 28, 2005—DECIDED DECEMBER 9, 2005
____________

Before EASTERBROOK, MANION, and ROVNER, Circuit
Judges.
EASTERBROOK, Circuit Judge. Illinois subsidizes the
construction or renovation of renewable-fuel plants—
principally facilities that make ethanol. One condition of a
grant is that the recipient “enter into a project labor agree-
ment”. 20 ILCS 689/15(a)(3). The agreement must establish
wages and benefits and must include a no-strike clause. 20
ILCS 689/25(a). As a practical matter such agreements can
be achieved only by employers that recognize and bargain
2 No. 05-2174

with labor unions. An association of non-union contractors
(and one of its members) filed this suit under 42 U.S.C.
§1983, seeking a declaratory judgment that the requirement
of a project labor agreement is preempted by federal law.
See Golden State Transit Corp. v. Los Angeles, 493 U.S. 103
(1989). Relying on Building & Construction Trades Council
v. Associates Builders & Contractors of Massachusetts, 507
U.S. 218 (1993) (Boston Harbor), the district court entered
judgment for Illinois.
Boston required its contractors to negotiate project labor
agreements under which all workers would be referred
by union hiring halls and would be obliged to pay dues
under union-security clauses; in exchange the unions would
agree to forego strikes. Federal law permits such prehire
agreements in the construction industry. See 29 U.S.C.
§158(e), (f). See also Jim McNeff, Inc. v. Todd, 461 U.S. 260
(1983); Woelke & Romero Framing, Inc. v. NLRB, 456 U.S.
645 (1982). Boston Harbor holds that a public owner has the
same entitlement as a private owner to decide how it will
manage a construction project. Federal law preempts all
state regulation of those aspects of labor relations that are
arguably protected, arguably prohibited, or left to the
domain of market forces. See San Diego Building Trades
Council v. Garmon, 359 U.S. 236 (1959); Machinists v.
Wisconsin Employment Relations Comm’n, 427 U.S. 132
(1976). A city or state acting as proprietor, however, is a
market participant rather than a market regulator. Boston
Harbor, 507 U.S. at 230-31.
The district court concluded that Illinois is acting as
a proprietor in its renewable-fuels program. The problem
with this view is that the state is not the proprietor of
anything. It does not own any renewable-fuels project,
either before or after granting a subsidy. The project’s
owner, not the state, is its proprietor. Boston hired the
general contractors for the project; Illinois does not hire
contractors. Nor does it invest in the projects through
No. 05-2174 3

bonds. Contrast Hotel Employees v. Sage Hospitality
Resources, LLC, 390 F.3d 206 (3d Cir. 2004). All it has done
is set a condition on grants to private proprietors.
To say that Illinois is not acting as a proprietor is not,
however, to resolve the main question. Boston Harbor holds
that if a state acts as a proprietor, then it may insist on the
sort of prehire agreements that federal labor law permits
private owners to adopt. It does not hold that only if a state
acts in this capacity is its decision compatible with federal
law. The Court stated the rule this way: “[T]he NLRA
prevents a State from regulating within a protected zone,
whether it be a zone protected and preserved for market
freedom, see Machinists, or for NLRB jurisdiction, see
Garmon. A State does not regulate, however, simply by
acting within one of those protected areas. . . . We have held
consistently that the NLRA was intended to supplant state
labor regulation, not all legitimate state activity that affects
labor.” Boston Harbor, 507 U.S. at 226-27 (emphasis in
original). The need to distinguish regulation from other
governmental activity is the Court’s theme in Boston
Harbor.
So is the conditional offer of a subsidy for renewable-fuels
plants a form of regulation? It is hard to see how it could be:
Illinois does not seek to affect labor relations generally.
Both labor and management are free to make independent
decisions with respect to all activities other than those for
which the state pays.
The question “is a condition on the receipt of a grant a
form of regulation?” comes up frequently, and the answer
almost always is negative. Consider, for example, the many
conditions on grants to states. The national government
lacks the authority to regulate how states behave; it cannot
direct them to pass or enforce laws. See Printz v. United
States, 521 U.S. 898 (1997). But it can set conditions on
grants, and a state’s decision to take the money obliges it to
4 No. 05-2174

respect the conditions. Thus South Dakota v. Dole, 483 U.S.
203 (1987), held that states that accept federal highway-
construction money must set and enforce speed limits
specified by Congress. That condition on the subsidy was
not, the Court held, a form of forbidden regulation.
Similarly Congress lacks the authority to regulate
what physicians say about abortion but may set condi-
tions on federal grants and require those who accept the
money to follow federal rules for family-planning advice.
Rust v. Sullivan, 500 U.S. 173 (1991). The condition differs
from regulation because any physician or clinic may decline
the offer. The list of similar decisions is lengthy. See, e.g.,
National Endowment for the Arts v. Finley, 524 U.S. 569
(1998); Buckley v. Valeo, 424 U.S. 1, 57 & n.65 (1976).
Conditions on spending may become regulation if they
affect conduct other than the financed project. Wisconsin
Department of Industry v. Gould Inc., 475 U.S. 282 (1986),
illustrates this limit. Wisconsin refused to purchase
goods or services from firms that had violated the Na-
tional Labor Relations Act three or more times during the
preceding five years. The Supreme Court understood this as
an effort to control how employers behave when not dealing
with the state, and thus as a form of regulation. “Because
Wisconsin’s debarment law functions unambiguously as a
supplemental sanction for violations of the NLRA, it
conflicts with the Board’s comprehensive regulation of
industrial relations in precisely the same way as would a
state statute preventing repeat labor law violators from
doing any business with private parties within the State.”
Id. at 288. See also the discussion of Gould in Boston
Harbor, 507 U.S. at 228-30. Our decision in Metropolitan
Milwaukee Association of Commerce v. Milwaukee County,
2005 U.S. App. LEXIS 26467 (7th Cir. Dec. 5, 2005) likewise
concludes that a purchasing rule prescribing how employers
must handle labor relations in all aspects of their business
is preempted by federal labor law. Illinois is concerned
No. 05-2174 5

exclusively with how subsidized renewable-fuels projects
contract for labor; its condition is project-specific.
Boston Harbor is just one illustration of the proposition
that states may act in commerce without regulating
commerce. The situation in this litigation is another
illustration. See also Colfax Corp. v. Illinois State Toll
Highway Authority, 79 F.3d 631 (7th Cir. 1996). Any owner
or contractor that does not want to deal with organized
labor may indulge that preference. The lure of a subsidy
may lead firms at the margin to reach labor agreements
that they would not otherwise have signed, but if an
incentive to change one’s conduct is a form of “regulation”
then South Dakota v. Dole, Rust v. Sullivan, and many
other cases were wrongly decided. Federal labor laws
give both workers and employers a right to avoid unions,
but states may pay them to surrender that right even
though states can’t confiscate it by sumptuary legislation.
See also Building & Construction Trades Department v.
Allbaugh, 295 F.3d 28 (D.C. Cir. 2002) (executive order
specifying conditions under which project-labor agreements
are appropriate for federally subsidized construc-
tion projects is compatible with federal labor law).
If (as seems likely) Illinois has taken the approach in this
law because state officials want to assist organized labor as
well as the farmers who supply the grain to be made into
ethanol and the owners of ethanol plants, that is neither a
surprise nor a reason for invalidity. Most legislation is the
product of coalitions among interest groups. Boston wanted
to clean up its harbor, but there can be little doubt that it
also wanted to shower benefits on workers who were the
incumbents’ political supporters. Many a public project is
bigger or more expensive than it need be, in order to enlist
the support of multiple interest groups. Federal preemption
doctrine evaluates what legislation does, not why legislators
voted for it or what political coalition led to its enactment.
This statute does not affect people who spurn the state’s
6 No. 05-2174

largesse. Because Illinois has limited its condition to the
project financed by the subsidy, it has not engaged in
“regulation” under the approach of Boston Harbor or Gould,
and its conditions are not preempted by federal labor law.
AFFIRMED

A true Copy:
Teste:

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

USCA-02-C-0072—12-9-05