July 2014 FBA Labor and Employment Law Third Circuit Update

Posted on Thursday, September 4th, 2014.

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July 2014 FBA Labor and Employment Law Third Circuit Update

Stephen E. Trimboli, Esq.

Trimboli & Prusinowski, L.L.C.


Neither the Employee Retirement Income Security Act (ERISA) nor the Labor Management Relations Act (LMRA) completely preempts a state statute requiring the payment of prevailing wages to laborers on public works projects.


New Jersey Carpenters and the Trustees Thereof v. Tishman Constr. Corp. of New Jersey, ­— F.3d —-, 2014 WL 3702591, C.A.3 (N.J.), July 28, 2014, available at www2.ca3.uscourts.gov/opinarch/133005-1p.pdf


The New Jersey Carpenters case raised the question whether the New Jersey Prevailing Wage Act, (NJPWA), N.J.S.A. 34:11-56.25, et seq., is completely preempted by either the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1001, et seq., or the Labor Management Relations Act, (LMRA), 29 U.S.C. Sec. 141, et seq.


The “complete preemption” doctrine is a jurisdictional concept. Other forms of preemption operate merely as federal-law defenses to state law claims. “Complete preemption” goes further and also confers federal subject matter jurisdiction over what otherwise would be purely a state law claim, even in the absence of a federal cause of action on the face of the complaint. The United States Supreme Court has recognized only three instances in which the “complete preemption” doctrine applies: (a) Section 301 of the LMRA, 29 U.S.C. Sec. 185, which provides for exclusive federal jurisdiction over suits concerning alleged violations of contracts between employers and labor organizations, (b) Section 502(a) of ERISA, 29 U.S.C. Sec. 1132, which authorizes civil suits for ERISA violations, suits to enforce the terms of an ERISA benefit plan, and suits to provide other relief to a plan, its participants or its fiduciaries under ERISA, and (c) Sections 85 and 86 of the National Bank Act, 12 U.S.C. Secs. 85, 86, pertaining to rates of interest that may be charged by national banks.


The NJPWA requires laborers on certain public works projects in New Jersey to be paid the “prevailing wage,” defined as the “wage rate paid by virtue of collective bargaining agreements by employers employing a majority of workers of that craft or trade subject to said collective bargaining agreements, in the locality in which the public work is done.” N.J.S.A. 34:11-56.26(9). The prevailing wage for each locality is determined by the Commissioner of the New Jersey Department of Labor and Workforce Development every two years, and includes both hourly wage rate and hourly fringe benefit rate components.


The workers in New Jersey Carpenters were carpenters hired to work on the Revel Casino Project in Atlantic City, which they contended to be “public work” due to financial assistance the project received from the New Jersey Economic Development Authority in the form of incentives, tax exemptions, and tax reimbursements. The workers claimed that the subcontractor for whom they were employed failed to pay them the appropriate fringe benefit component of the prevailing local wage. The workers assigned their claims to the various employee benefit funds and trust funds that became the plaintiffs in the action. The plaintiffs, in turn, sought recovery from Tishman Construction Corp., the general contractor on the project.


When the plaintiffs brought suit in state court under the NJPWA and other New Jersey statutes, Tishman removed the case to federal district court, alleging that the plaintiffs’ claims were subject to “complete preemption” under Section 502(a) of ERISA and Section 301 of the LMRA. The federal district court agreed that the plaintiffs’ claims were completely preempted under Section 502(a) of ERISA. The district court also found the plaintiffs’ claims to be expressly preempted by Section 514 of ERISA, 29 U.S.C. 1144, under which ERISA “supersede{s} any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” On appeal, the Third Circuit reversed.


A claim is “completely preempted” under Section 502(a) of ERISA only if (1) the plaintiff could have brought his or her claim under Section 502(a), and (2) no other independent legal duty can be cited to support the plaintiff’s claim. A legal duty is “independent” under the second prong if it not based on an obligation under an ERISA plan, or would exist whether or not an ERISA plan existed. Both prongs of this test must be met for “complete preemption” to arise.


The Third Circuit held that the second prong of the “complete preemption” test under Section 502(a) was not met in this case. (Given this holding, it was not necessary to address the first prong). The NJPWA created a legal duty to pay prevailing wages independent of any ERISA plan. No interpretation of any ERISA plan is needed to determine a prevailing wage claim. Further, the NJPWA is a law that regulates wages, as any shortfall in the hourly fringe benefit rate component can be made up through cash payment. ERISA does not displace state laws governing wages, and state actions to recover unpaid wages are not preempted by ERISA, “completely” or otherwise. Finally, it was irrelevant that one of the plaintiffs in the case was an ERISA plan; it is the nature of the legal claim, not the identity of the parties, that matters.


Although the district court did not address the issue, the Third Circuit also held that “complete preemption” did not arise under Section 301 of the LMRA. Such preemption arises only when a claim is substantially dependent upon the analysis of the terms of an agreement made between parties in a collective bargaining agreement. A claim is not preempted if it is independent of a collective bargaining agreement, and does not require interpreting or construing a collective bargaining agreement. The plaintiffs’ NJPWA claim did not require the construction or interpretation of a collective negotiations agreement. Even if the claim under a collective bargaining agreement and a claim under state law involve precisely the same set of facts, as long as the state law claim can be resolved without interpreting the collective bargaining agreement itself, the claim is independent of the collective bargaining agreement and is not preempted. Further, Section 301 of the LMRA does not displace non-negotiable rights conferred on individual employees as a matter of state law.

Finding no support for “complete preemption” in the case, the Third Circuit vacated the district court order dismissing the case, and remanded with directions to remand the matter back to state court due to lack of federal subject matter jurisdiction.



Absent a clear contractual agreement to the contrary, the availability of class-wide arbitration is a question of substantive arbitrability to be decided by the courts, not the arbitrator.


Opalinski v. Robert Half International, Inc., — F.3d —-, 2014 WL 3733685, C.A.3 (N.J.), July 30, 2014, available at www2.ca3.uscourts.gov/opinarch/124444p-1.pdf


In this case, the Third Circuit joined the Sixth Circuit in holding that the question whether a contract allows for class-wide arbitration is a question of substantive arbitrability. As such, it is a question to be decided by the courts, not the arbitrator, absent a clear contractual agreement to the contrary. The Third and Sixth Circuits are the only Courts of Appeals yet to address this issue.


The plaintiffs in Robert Half were employees who claimed that they had not been paid overtime compensation they were allegedly owed, and that they had allegedly been improperly classified as overtime-exempt under the Fair Labor Standards Act (FLSA). Each plaintiff was party to an individual employment contract that required the binding arbitration of all employment-related claims. They nonetheless brought a class action suit in federal court under the FLSA on behalf of themselves and all similarly-situated individuals. The defendant employer moved to compel the individual arbitration of the plaintiffs’ claims. The district court granted the motion to compel arbitration, but held that the propriety of individual versus class arbitration was for the arbitrator to determine. It then administratively terminated the case. Instead of appealing that district court order, the defendant proceeded with arbitration. After the arbitrator had issued a “partial” award allowing class-wide arbitration, the defendant returned to district court to have the “partial” award vacated. The district court denied the motion to vacate, and the defendant appealed.


As a preliminary matter, the Third Circuit rejected the argument that the appeal was untimely. The plaintiffs argued that the defendant should have appealed from the initial district court order allowing the arbitrator to determine whether class arbitration was available. However, the initial order was not a final, appealable order because it administrative dismissals are not “final” orders, and because the district court “explicitly acknowledged the potential need for further litigation” on the same matter. The defendant’s appeal from the order denying its motion to vacate was therefore a timely appeal from a final order, and could proceed.


After disposing of a procedural waiver argument raised by the plaintiffs, the Third Circuit turned to the substantive issue of the case, which it defined as “whether, in the context of an otherwise silent contract, the availability of classwide arbitration is to be decided by a court rather than an arbitrator…We decide first whether the availability of classwide arbitration is a ‘question of arbitrability’ … If yes, it is presumed that the issue is ‘for judicial determination unless the parties clearly and unmistakably provide otherwise.’”


Questions of arbitrability are limited to a narrow range of gateway issues, such as whether the parties are bound by a given arbitration clause, and whether an arbitration clause that is otherwise binding applies to a particular type of controversy. “The crucial consideration is the expectation of the contracting parties: We do not ‘forc[e] parties to arbitrate a matter that they may well not have agreed to arbitrate.’” In contrast, procedural issues that grow out of a dispute and procedural defenses such as waiver and delay, are for the arbitrator to determine.


Neither the United States Supreme Court nor the Third Circuit had conclusively resolved the question whether the availability of class arbitration was a “question of arbitrability.” Addressing the issue squarely for the first time, the Opalinksi Court held that “whether an agreement provides for classwide arbitration is a ‘question of arbitrability’ to be decided by the District Court.”


First, the Opalinksi Court reasoned that the availability of class arbitration implicates the question of whose claims the arbitrator may resolve:


By seeking classwide arbitration … Opalinski and McCabe contend that their arbitration agreements empower the arbitrator to resolve not only their personal claims but the claims of additional individuals not currently parties to this action. The determination whether RHI must include absent individuals in its arbitrations with Opalinski or McCabe affects whose claims may be arbitrated and is thus a question of arbitrability to be decided by the court … Additionally, as Justice Alito warned in his concurrence in Oxford Health {Plans LLL v. Sutter,_U.S._, 133 S.Ct. 2064, 2071-2 (2013)}, courts should be wary of concluding that the availability of classwide arbitration is for the arbitrator to decide, as that decision implicates the rights of absent class members without their consent.


Second, the Opalinksi Court reasoned that the availability of class arbitration implicates the types of cases that can be submitted to arbitration under an arbitration clause. “{W}e read the Supreme Court as characterizing the permissibility of classwide arbitration not solely as a question of procedure or contract interpretation but as a substantive gateway dispute qualitatively separate from deciding an individual quarrel. Traditional individual arbitration and class arbitration are so distinct that a choice between the two goes, we believe, to the very type of controversy to be resolved.” The Opalinksi Court rejected the argument that the availability of class arbitration was merely a procedural question, citing Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 685 (2010), for the proposition that “class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.”


The Opalinski Court quoted with approval the Sixth Circuit’s reasoning in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594, 598-9 (6th Cir. 2013), which likewise held class-wide arbitration to be a “gateway question rather than a subsidiary one … whether the parties arbitrate one claim or 1,000 in a single proceeding is no mere detail.”


Finally, having determined that the availability of class arbitration is question of arbitrability, the Opalinski Court found no evidence that the parties had “clearly and unmistakably” agreed to allow the arbitrator to decide the issue:


The burden of overcoming the presumption is onerous, as it requires express contractual language unambiguously delegating the question of arbitrability to the arbitrator … Silence or ambiguous contractual language is insufficient to rebut the presumption …  Here, Opalinski and McCabe’s employment agreements provide for arbitration of any dispute or claim arising out of or relating to their employment but are silent as to the availability of classwide arbitration or whether the question should be submitted to the arbitrator. Nothing else in the agreements or record suggests that the parties agreed to submit questions of arbitrability to the arbitrator. Thus, the strong presumption favoring judicial resolution of questions of arbitrability is not undone.


The Opalinski Court remanded the matter to the district court for a determination whether the plaintiffs’ employment agreements allow for class-wide arbitration.


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