N.J. Supreme Court Rejects Defense of Federal Labor Law Preemption of CEPA Claim in Underlying Unpaid Wage Action

On August 16, 2016 the N.J. Supreme Court held, in a 6-0 opinion, that neither the federal Labor Management Relations Act nor the National Labor Relations Act preempts a claim under the Conscientious Employee Protection Act (CEPA) by a private sector employee who is covered by a collective bargaining agreement.  Puglia v. Elk Pipeline, Inc. (Case No. A-38-14).

Elk Pipeline employed Mr. Puglia, a union member, on a construction project in Camden. The project was subject to N.J. prevailing wage law and apparently as a cost savings measure, Elk reduced severely the wages of several laborers on the project, claiming that the employees were re-classified as apprentices.  Puglia complained to his supervisor and to Elk’s project manager that with the wage reduction, he was not being paid correct prevailing wages. An unhelpful fact for Elk was that its project manager commented to the project engineer that “the owner wanted to [f**k] with [Puglia] and wants to get rid of him.” In fact, no more than 11 months after Puglia first complained to Elk about his wages, Elk laid Puglia off, ahead of two less senior employees who were not laid off. Elk explained that the two less senior employees had relevant certifications that Puglia lacked. Puglia’s CEPA claim alleged that, by complaining internally about Elk’s failure to pay him proper prevailing wages, he engaged in protected whistleblowing activity, for which he lost his job. Elk moved for summary judgment, arguing that Puglia’s CEPA claim was preempted by federal labor law.

The trial court concluded that Puglia’s CEPA claim was preempted, by both the Labor Management Relations Act (LMRA), and based on Garmon preemption, a U.S. Supreme Court-based doctrine that holds that state-law claims that involve conduct arguably subject to Section 7 or Section 8 of the NLRA are preempted. The Appellate Division affirmed, holding that Puglia’s claim was preempted by the LMRA, and by the NLRA under Garmon. The Appellate Division reasoned that the issues of Puglia’s contract seniority and Elk’s assertion that the Camden project was winding down required evaluation of the terms of Elk’s labor agreement.

The Supreme Court reversed and held that Puglia’s CEPA claim was not preempted by federal labor law. The issue the Court teed up for analysis and foreshadowed the Court’s conclusion was “whether complaints about violations of that minimum labor standard [of prevailing wages], and the concomitant State interest in curbing retaliation for such complaints, invoke preemption concerns.”  The Court analyzed Puglia’s CEPA complaint to determine whether it required an interpretation of the CBA and found that it did not. “Whether Puglia performed a whistleblowing activity in reporting the alleged failure by Elk to abide by Prevailing Wage Act requirements, and whether Elk retaliated against Puglia for doing so are factual questions, untied to any interpretation of the CBA.” The Court dismissed Elk’s best argument — that Puglia’s complaint depended on interpreting the labor agreement — and strained to find no contract issue. “It is far from clear that Puglia claimed a violation of the CBA in [his complaint]. He was making a factual allegation: He was more senior than other employees who were not let go. … That Puglia mentioned seniority in his deposition does not alter the substance of his claim. Nor does it inject a question of CBA interpretation into the factual questions at the heart of a CEPA claim. … Having a claim under the CBA does not void state-law remedies that are independent of the CBA. The employer’s attorney cannot change that by the course of his questioning at a deposition.” Despite Puglia’s claim that he was laid off out of seniority order, the Court still determined that it was “unclear” that he was claiming a contract violation. The Court gave no weight to Elk’s argument that the labor contract permitted Elk to lay Puglia off ahead of more junior employees and therefore Puglia’s layoff was dictated by the labor contract, and not retaliatory. Turning to Garmon preemption, the Court agreed with Elk “that Puglia’s conduct was at least arguably protected under Section 7” of the NLRA.  However, the Court determined it could not find that “Puglia’s CEPA claim is identical to the claim that he could have, but did not, present to the Board.” The Court explained, “[W]e believe that when the State’s interests in enforcing CEPA in a factual setting like this one — whistleblowing activity arising out of a prevailing wage dispute — are balanced against any potential interference with the federal labor scheme, the State’s interests win out. New Jersey’s interest in enforcing CEPA runs deep.” The Court concluded with this syllogism: “If an employee can allege a violation of those state minimum labor standards without being preempted by federal law, then it follows that allegations of retaliatory discharge based on whistleblower conduct in response to a violation of those standards should not be preempted.”

This decision indicates that rarely if ever will this Court find that a CEPA claim based on an alleged violation of N.J. wage laws is preempted by federal labor law, no matter how many labor contract issues are pled or implicated. A major concern for N.J. businesses flowing from this decision is the proliferation of claims and litigation, since this holding confirms that union-represented employees like Mr. Puglia can prosecute claims of retaliatory discharge and get three bites at the apple — in the contractual grievance-arbitration procedure, before the NLRB, and in state court under CEPA.

Questions relating to this important decision may be directed to any partner in our firm’s Labor Law Practice Group. Our Group’s attorney roster can be accessed at http://www.genovaburns.com/attorney-search-results.