United States: Potential Liability Of General Contractors For Actions Of Subcontractors On PLA Projects

Frederick D. Braid is a Partner in our New York office

• A Third Circuit ruling in a case brought by a sheet metal workers union raises the possibility that general contractors may be liable if their subcontractors fail to assign work in accordance with the terms of a project labor agreement (PLA).
• The Donnelly case is a reminder that general contractors, construction managers and similar entities should ensure that PLAs are strictly enforced.

In Sheet Metal Workers International Association Local Union No. 27 v. E.P. Donnelly, Inc., the U.S. Court of Appeals for the Third Circuit (which has jurisdiction over the federal courts in Delaware, New Jersey and Pennsylvania) issued a decision that emphasizes the importance for general contractors, construction managers and similarly situated entities signatory to project labor agreements (PLA) to assure their diligent enforcement.

The case raises the specter of a general contractor being held liable for the failure of one of its subcontractors to assign work in accordance with the terms of the PLA. Since the Third Circuit upheld the decision of the National Labor Relations Board, it is reasonable to expect similar decisions in other parts of the country by the NLRB.

Background

Sambe Construction Co., Inc. was a general contractor on a public construction project subject to a PLA. The PLA had typical provisions requiring that all contractors and subcontractors become signatories to and be bound by the terms of the PLA and that the PLA and any local arrangements incorporated therein superseded all other agreements. Sambe subcontracted the roofing work on the project to E.P. Donnelly, Inc., and Donnelly signed a letter of assent agreeing to be bound by the PLA and to subcontract only to others who would become signatory to the PLA. Instead, however, Donnelly assigned its work to carpenters who were not signatory to the PLA, and a dispute arose when the sheet metal workers, who were signatory to the PLA, claimed the work that had been assigned to the carpenters.

Donnelly not only failed to require the carpenters to sign the PLA, but in addition, its collective bargaining agreement with the carpenters specifically provided that it could not be superseded by a PLA without the mutual consent of the carpenters and Donnelly.

Competing Litigation

The sheet metal workers initiated an arbitration under the PLA grievance procedure in order to resolve the jurisdictional dispute, and the arbitrator awarded the work in dispute to the sheet metal workers. The carpenters threatened to picket if the work was reassigned, and Donnelly filed a jurisdictional dispute charge with the NLRB. Over objection from the sheet metal workers, the NLRB decided it had jurisdiction to hear the jurisdictional dispute notwithstanding the existing arbitration award for two reasons. First, not all parties (i.e., the carpenters) were bound to resolve the jurisdictional dispute through the PLA's grievance procedure and, second, whenever an employer has entered into conflicting labor agreements, it necessarily follows that there is no determinative agreed upon jurisdictional dispute resolution mechanism.

While the NLRB's 10(k) hearing progressed to resolve the jurisdictional dispute, the sheet metal workers filed another grievance against both Sambe and Donnelly for failing to abide by the arbitration award, and another award issued finding both in violation and awarding substantial damages for which it held both Sambe and Donnelly jointly and severally liable. The sheet metal workers then sued both Sambe and Donnelly in federal court under section 301 of the Labor Management Relations Act for breaching the PLA, seeking enforcement of the arbitration award granting the work to the sheet metal workers and also enforcement of the award of damages for the work that its members lost. Conversely, Sambe and Donnelly sought to have the arbitration award granting the work to the sheet metal workers vacated.

Eventually, the NLRB awarded the work to the carpenters on the basis of its usual criteria, namely employer preference, current assignment and past practice, and economy and efficiency of operations. Sambe and Donnelly then filed an additional unfair labor practice charge against the sheet metal workers alleging that the continued pursuit of the 301 action, in the face of the NLRB's award of the work to the carpenters, constituted a further jurisdictional dispute violation because it sought reassignment of the work to the sheet metal workers. The NLRB upheld Donnelly's position and found a further violation as to it, but not as to Sambe.

Nuances of the Third Circuit's Ruling

Ultimately, the Third Circuit upheld the NLRB's jurisdictional dispute award of the work to the carpenters and vacated the arbitration award to the contrary. It also upheld the NLRB's ruling that continued maintenance of the federal lawsuit by the sheet metal workers after the NLRB had awarded the work to the carpenters was a further violation of the NLRA. In so doing, it rejected the sheet metal workers' attempt to draw a distinction between seeking the work, which it had done before the NLRB decision, and seeking pay for the work its members lost, which is what it changed its position to after the NLRB decision. The NLRB found this to be a distinction without a difference, since it was obviously intended to put pressure on the contractor to reassign the work in order to avoid paying twice for the same work. Seeking damages is the same as seeking the work, the Third Circuit held.

However, the Third Circuit was careful to clarify that its preclusion of a suit for damages only applies to Donnelly, the employer who made the disputed work assignment. It does not apply to Sambe, which was not responsible for making the disputed work assignment, and, therefore, was not subject to the competing pressures from which the jurisdictional dispute provisions are intended to shield employers.  

Practical Implications of the Case

Recommendations to general contractors, construction managers and other similar entities include the following:

• Assure that everyone working on a PLA project for you signs the PLA, including the subcontractors' unions.
• Review your subcontracting agreements to determine if they might be improved with modifications to provide for a warranty from the subcontractor that it will sign and comply with the PLA on the project and assure that anyone it engages does so as well.
• Couple the warranty with an indemnification provision against any litigation costs or loss arising out of a failure to comply with the PLA.
• Review PLA agreements to determine whether any modifications would be helpful in addressing a potential problem.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.