Third Circuit Deals Blow to Jersey City Ordinance Requiring PLAs on Privately Funded Projects in Exchange for Tax Abatements

Jersey City’s Municipal Code offers real estate developers generous tax exemptions that are designed to spur the City’s economic growth, but the tax incentives have strings attached. Specifically, to receive a tax exemption, even on a privately funded project, the developer must agree to use the City-approved project labor agreement (“PLA”), which is a pre-hire agreement that favors unionized contractors and subcontractors. On September 12, 2016, the Third Circuit Court of Appeals reinstated claims against Jersey City that its tax exemption ordinance mandating PLAs is preempted by the National Labor Relations Act and the Employee Retirement Income Security Act, and violates the dormant Commerce Clause of the U.S. Constitution. Now the case returns to the District Court for a determination whether Jersey City’s PLA requirement is unlawful. The Court was careful to explain that its ruling has nothing to do with public construction projects, and is limited to the City’s attempted regulation of privately funded projects. Associated Builders and Contractors v. City of Jersey City, No. 15-3166 (3rd Cir. Sept. 12, 2016).

By imposing the PLA requirement on privately funded projects that sought tax abatements, the Third Circuit found that Jersey City “require[d] that an employer negotiate with a labor union and that all employees be represented by that labor union as part of the negotiations— even if the developers, contractors, and subcontractors do not ordinarily employ unionized labor and the employees are not union members.” In addition, the City’s standard PLA requires that employers and unions agree not to strike or lock-out during construction, and agree to sponsor or participate in apprenticeship programs.

The Court of Appeals found that the three laws allegedly violated by Jersey City’s ordinance — the NLRA, ERISA and the Commerce Clause — “share the same threshold requirement before their constraints are triggered: that the allegedly unlawful act by the state or local government be regulatory in nature,” as opposed to action by a market participant. The Court determined that Jersey City is not a market participant because the City “is not selling or providing any goods or services with respect to Tax Abated Projects, nor acting as an investor, owner, or financier with respect to those projects.” Invoking Supreme Court precedent, the Court rejected the City’s claim that offering tax abatements gives the City a proprietary interest in the project. The Court found that the City acted instead as a market regulator and since the ordinance strips employers and employees of the economic weapons of strikes and lockouts, and relates to employee benefit plans, the City’s ordinance may indeed be preempted by the NLRA and by ERISA. Finally, by enacting “regulatory measures designed to benefit in-state economic interests by burdening out of state competitors,” the ordinance arguably violates the dormant Commerce Clause.

Absent a request for rehearing or a petition for rehearing en banc, this case will return to the District Court for a determination whether the PLA requirements in the City’s tax exemption ordinance are enforceable. The larger questions are whether PLAs now in place on privately funded projects in Jersey City will remain in effect and, if not, whether this affects developers’ tax exemptions. Also an open question is whether the Third Circuit’s decision affects similar tax exemption ordinances in other municipalities that impose PLA requirements. Questions relating to this important decision and the path forward for developers in Jersey City and elsewhere in the state may be directed to any partner in our firm’s Labor Law Practice Group – James McGovern III, Patrick McGovern, Douglas Solomon, and John Vreeland.

NJ Federal Court Rules Pension Plan Established by Church-Controlled Hospital Not an ERISA-Exempt Church Plan

On March 31, 2014 the U.S. District Court in New Jersey held that a defined benefit pension plan established by St. Peter’s Healthcare System was not a church plan exempt under ERISA despite the fact that St. Peter’s is controlled by and associated with the Roman Catholic Church and its employees are considered employees of the Roman Catholic Church. Kaplan v. St. Peter’s Healthcare Sys., 2014 U.S. Dist. LEXIS 44963.

The suit arose from a claim by a former St. Peter’s employee that the pension plan was under-funded to the tune of $70 million. St. Peter’s moved to dismiss the complaint on the grounds of lack of subject matter jurisdiction claiming that the pension plan is an ERISA-exempt church plan. The Court denied St. Peter’s motion and found that the plan did not qualify as an ERISA-exempt church plan.

The Court focused its analysis on the plain meaning of ERISA’s church plan exemption and held that “Congress has explicitly provided two ways to fall within the church plan exemption: (1) a plan established and maintained by a church, or (2) a plan established by a church and maintained by a tax-exempt organization, the principal purpose or function of which is the administration or funding of the plan, that is either controlled by or associated with the church.” The Court held that St. Peter’s satisfied neither of these requirements because, while St. Peter’s sponsored the plan and is controlled by and associated with the Roman Catholic Church, the plan was not established by the Church in the first instance and therefore is not an ERISA-exempt church plan. Judge Shipp relied on a recent decision by a federal court in California which found that ERISA “requires that a church establish a church plan …[defendant’s] effort to expand the scope of the church plan exemption to any organization maintained by a church-associated organization stretches the statutory text beyond its logical ends.” The Court declined to defer to an IRS Ruling that St. Peter’s plan was an ERISA-exempt church plan.

Sponsors of defined benefit pension plans, especially those plans that converted to church plan status, should review the status of these plans to confirm that they comply with ERISA and the “established by a church” requirement. If you have any questions or for more information about this decision or ERISA and its impact on your organization or your employees’ benefit plans, please contact Patrick W. McGovern, Esq., pmcgovern@nullgenovaburns.com or Gina M. Schneider, Esq., gmschneider@nullgenovaburns.com in the Firm’s Employee Benefits Practice Group.

Hospital’s State Law Claims against Health Plan Held Preempted by ERISA, Rules NJ Appellate Division

Last month a NJ Appellate Division panel held in three consolidated appeals that a NJ hospital’s state law claims that a health care plan must pay full price for medical services the hospital provided to plan participants are preempted by the Employee Retirement Income Security Act (“ERISA”). St. Peter’s University Hospital v. New Jersey Building Laborers Statewide Welfare Fund et al.; St. Peter’s University Hospital v. Local 594 — Building Laborers Welfare Fund et al.; and St. Peter’s University Hospital v. Local 94 Health and Welfare Fund.

St. Peter’s Hospital agreed to provide medical services at reduced rates to a PPO’s members, one of which was the N.J. Building Laborers Statewide Welfare Fund (“Fund”), provided that the Hospital’s bill was paid within 30 days, but otherwise the Hospital would charge its customary rates.  The Fund is an ERISA employee welfare benefit plan, was a defendant in the consolidated cases, and entered into subscriber agreements with the PPO that included similar rate-reduction terms.

When the Fund failed to pay the Hospital’s reduced rate within 30 days, the Hospital sued the Fund for breach of contract and unjust enrichment in state court, to recover the difference between the discounted rates and the customary rates. The trial court granted summary judgment against the Hospital holding that the claims were preempted by ERISA Section 514(a) which preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . .”

The Appellate Division affirmed and determined that the Hospital’s state law claims were preempted. The Court reasoned that the Hospital’s claims would not have existed but for the presence of an ERISA plan that provided coverage to the members and the Court was “required to examine and consult the terms of the ERISA plan to determine whether the Fund was liable under either state law cause of action.”

If you have any questions or for more information about the Appellate Division’s decision or ERISA and its impact on your organization or your employees’ benefit plans, please contact Patrick W. McGovern, Esq., pmcgovern@nullgenovaburns.com, Gina M. Schneider, Esq., gmschneider@nullgenovaburns.com, or Phillip M. Rofsky, Esq., profsky@nullgenovaburns.com in the Firm’s Labor Practice Group.