SDNY Rules JIB is Preempted from Utilizing NY’s Construction Industry Wage Theft Law
The Joint Industry Board (“JIB”) suffered a major setback last month in its attempt to utilize New York State’s recent Labor Law §198-e (the Construction Industry Wage Theft Law or “Wage Theft Law”) to recover unpaid benefits owed on behalf of Local 3 electricians in Dr. Gerald R. Finkel, as Chairman of the Joint Industry Board of the Electrical Industry, v. Structure Tone, LLC, 23-CV-1269 (VSB), Judge Vernon S. Broderick of the United States District Court for Southern District of New York.
While many envisioned the Wage Theft Law to be a useful tool for the JIB to recover unpaid benefits on behalf of union members, the Southern District of New York held that the chairman of the JIB, as a plan fiduciary and collector of employee benefits, was preempted from availing itself of the Wage Theft Law by the Employee Retirement Income Security Act (“ERISA”) and the Labor Management Relations Act (“LMRA”). To explain how the court arrived at its decision, it is best to start by taking a step back to discuss the various laws and parties involved.
New York’s Construction Industry Wage Theft Law (Labor Law §198-e)
Assuming everything goes smoothly on a construction contract, upon completion of the work, or a portion thereof, the owner pays the general contractor, the general contractor pays the subcontractors, and the subcontractors pay their employees’ wages and benefits (though, as all are aware, the subcontractor must pay wages weekly and may not wait until it receives payment on the job to pay its employees’ wages and benefits).
The Wage Theft Law was enacted to protect construction workers in the event their employers fail to pay the wages and benefits they are owed by holding the general contractor joint and severally liable for a subcontractor’s unpaid wages, benefits, or wage supplements. This law is applicable regardless of whether the subcontractor acted with malintent or simply went out of business without sufficient funds to pay its workers’ wages and benefits. The general contractor may be held liable for the subcontractor’s unpaid wages and benefits for up to three years after the work is completed.
The Joint Industry Board
Under the Collective Bargaining Agreement, Local Union. No. 3 and the Employers created the JIB to perform various tasks, including the collection and administration of seven (7) multiemployer benefit plans ( PHPB, Dental, E&C, Annuity, HRA, DSP, and JATC) (collectively, the “Plans”). The Chairman of the JIB, as a fiduciary of the Plans, has a duty to collect the due and owed contributions on behalf of each fund for the hours worked by all workers contributing to the Plans.
The Employee Retirement Income Security Act (ERISA)
The federal government enacted ERISA to provide a uniform regulatory regime for employee benefit plans. Of note here, ERISA §515 imposes a substantive requirement that an employer make contributions to a multiemployer ERISA plan as specified in the plan or collective bargaining agreement. ERISA §502(a) authorizes a plan fiduciary to bring a civil action to remedy a violation of ERISA or a plan. Lastly, ERISA §514 expressly preempts, or supersedes, state laws that “relate to any employee benefit plan” otherwise covered by ERISA. The intent of such an expansive preemption clause is to ensure uniformity in the ability to enforce such rights and requirements created under ERISA when it comes to employee benefit plans.
Finkel v. Structure Tone
In the current case, the JIB sought to enforce the Wage Theft Law to require Structure Tone, the general contractor, to pay $1.4 million in benefits to the Plans that an electrical subcontractor failed to contribute on behalf of its Local Union No. 3 workers. Structure Tone moved to dismiss the case, claiming that the JIB, as the Plans’ fiduciary was preempted from availing itself of New York’s Wage Theft Law because ERISA already provides a plan fiduciary with a cause of action for making delinquent contribution claims.
The JIB argued that the Wage Theft Law was separate and distinct from ERISA, and thus ERISA should not preempt the JIB’s attempt to recoup unpaid benefits from the general contractor under New York’s Wage Theft Law. The JIB argued, among other things, that ERISA only permits a plan fiduciary to bring an action directly against the employer, not the general contractor, and thus the Wage Theft Law was outside the bounds of ERISA’s preemption. The District Court, however, held that ERISA not only precludes state-law causes of action that are like causes of action permitted under ERISA but also precludes causes of action that ERISA does not permit, as ERISA is intended to fully control this area of law and not permit state law to build upon it were silent.
The JIB further argued that availing itself of the Wage Theft Law is under a completely independent legal duty irrespective of ERISA – the law of joint and several liability (meaning one party, even if found partially liable, may be held liable for the entirety of the damages caused by another. In this scenario, the JIB argued that this was a matter of a state law holding a general contractor joint and severally liable for its subcontractor’s failure to make payment to its employees.
The District Court did not agree, finding that the plaintiff here – the JIB Chairman as a Plan fiduciary – only had standing to bring an action because the claim boils down to an ERISA claim. It explained that the JIB’s suit sought to collect from the general contractor based upon the electrical subcontractor’s “required benefit contributions.” ERISA is the law that makes those benefit contributions required, not the Wage Theft Law, which operated as an extension of the JIB’s attempt to collect under ERISA.
In simpler terms, the Court provided the following reasoning: the general contractor had not admitted it owed money to the various plans. If the JIB were to proceed to trial, before proving joint and several liability under the New York Wage Theft Law, the JIB would have to prove that the electrical subcontractor owed money to the Plans for which the Plans’ fiduciary could seek to enforce. And proving that part would require a legal showing under ERISA, which the Court held makes the entire claim preempted by ERISA.
Further Preemption under the Labor Management Relations Act (LMRA)
In addition to being preempted by ERISA, the action was further preempted by the LMRA. The LMRA preempts state-law causes of action that allege that a party has violated a CBA or that require interpretation of the terms of a CBA. The reasoning for such preemption is to create a uniform body of law at the federal level without conflict between state and federal court interpretations. The JIB argued that this action should not have been preempted by the LMRA, because Structure Tone is not a party to the CBA or otherwise bound by it. The Court determined, however, that regardless of the party to the action, the basis for such contribution to the Plans arises out of the CBA and is thus based upon the CBA, making it federally preempted.
Conclusion
Because the federal court held that the Wage Theft Law was preempted by both ERISA and the LMRA, the JIB’s action against the general contractor was dismissed. The JIB was granted leave to seek recovery directly from the electrical subcontractor, but based upon the lengths the JIB went to recover from the general contractor as opposed to the electrical contractor, I assume there is little faith that the electrical contractor has sufficient funds to pay the benefits due.
While we anticipate that the JIB will appeal this decision, this is no doubt a blow to the JIB’s ability to seek alternative avenues to collect unpaid benefits on behalf of the Plans.
Andrew J. Mundo, Esq., MURTAGH, COHEN, BYRNE & MURDY