Workforce retention rule upheld by court

The city of Providence could require hotels to retain their employees for three months in the event of a change in ownership, the 1st U.S. Circuit Court of Appeals has found.

Two hotels, along with a trade association, argued that a city ordinance mandating the workforce retention was preempted by the National Labor Relations Act and thus unenforceable.

But the 1st Circuit disagreed.

“Because the NLRA does not itself protect an employer’s ability to hire or fire, and indeed regulates it, such conduct is not arguably protected or arguably prohibited, and thus the Ordinance is not pre-empted … for altering those aspects of the employment relationship,” Chief Judge Sandra L. Lynch wrote for the court. “[I]n this request for pre-enforcement declaratory relief, we are unable to conclude that the Ordinance ‘would frustrate effective implementation of the Act’s processes’ with respect to the successorship determination,” she added.

The 57-page decision is Rhode Island Hospitality Association, et al. v. City of Providence.

Robert P. Brooks of Providence argued the appeal on behalf of the plaintiff hotels. Deputy City Solicitor Anthony F. Cottone represented the city.

Challenge filed

The suit arose out of Ordinance 467, which was enacted by the city of Providence and regulates segments of the hospitality industry. The ordinance requires that, when there is a change in the identity of a hospitality employer, the employer must retain its predecessor’s employees, subject to some conditions, for a three-month period.

The ordinance was challenged by three plaintiffs: the Rhode Island Hospitality Association; PRI I, L.P., which does business as the Hilton Providence; and PRI XVIII, L.P., which operates the Westin Providence.

The plaintiffs brought suit against the city of Providence requesting a declaratory judgment that the ordinance was unlawful. They also sought an injunction preventing enforcement of the ordinance.

U.S. District Court Chief Judge Mary M. Lisi ruled for the city, after which the plaintiffs filed their appeal.

‘Machinists’ issue

The plaintiffs’ primary argument was that the ordinance is preempted under the “Machinists” doctrine, established by the U.S. Supreme Court in the 1976 case Lodge 76, Int’l Ass’n of Machinists v. Wis. Emp. Relations Comm’n.

Specifically, the plaintiffs claimed that because the ordinance mandates retention of a predecessor’s employees, and because the composition of the workforce is an important factor in determining whether a new employer is a “successor,” the ordinance has an impermissible impact on the successorship determination, and thus is pre-empted under Machinists.

A finding of successorship, the court noted, imposes an obligation on the successor “to bargain with the union” of its predecessor.

The plaintiffs’ theory rested on the premise that the risk that the National Labor Relations Board might reach such a conclusion is, of itself, sufficient to render the ordinance preempted.

“[T]he degree of risk present here is insufficient to result in Machinists pre-emption,” Lynch said. “[T]he NLRB has not to date clearly moved in the direction plaintiffs posit, and it is far from clear that it will. The remedy for such a determination, if it should ever be made, does not lie in this pre-enforcement suit.”

The plaintiffs went on to contend that the Machinists doctrine “protects a new employer’s ‘right’ to make its own determinations of both which employees to hire and to fire, and that state laws cannot interfere with this ‘right.’”

The 1st Circuit found that the plaintiffs’ argument relied on two “carefully chosen quotes” from the Supreme Court’s 1974 decision in Howard Johnson Co. v. Detroit Local Joint Executive Board and its 1987 ruling in Fall River Dyeing & Finishing Corp. v. NLRB.

“These cases do not support plaintiffs’ argument that there is a ‘right’ protected under Machinists for a new employer to make independent hiring or termination determinations, much less that any such ‘right,’ if it existed, would be impaired by compliance with the Ordinance,” Lynch stated.

‘Garmon’ issue

The plaintiffs also sought relief under the Garmon pre-emption doctrine, which the Supreme Court established in 1959 in San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236 (1959). Under that doctrine, “States may not regulate activity that the NLRA protects, prohibits, or arguably protects or prohibits.”

The plaintiffs’ primary contention regarding the Garmon preemption was that, because the ordinance regulates a mandatory subject of bargaining, it interferes with conduct protected by the NLRA and is thus pre-empted.

“Plaintiffs assert that because the obligation to hire, the right of an employer to subcontract, and the existence of a good cause termination standard are all mandatory subjects of bargaining, a state law that impacts these terms is invalid under Garmon,” Lynch said.

“Plaintiffs’ argument misses the mark,” she continued. “As an initial matter, it is clear that states can, and do, regulate numerous subjects that the NLRB has held to be mandatory subjects of bargaining.”

Lynch also pointed out that the Supreme Court rejected that type of argument in the context of severance pay. Though severance pay clearly is a subject of mandatory bargaining, “the Supreme Court found ‘no support’ for a Garmon pre-emption argument with respect to a Maine statute mandating severance pay for certain plant closings,” she observed.

The 1st Circuit found it “far from clear” whether the ordinance will enhance tourism in Providence, which is its stated purpose.

“The City has leeway to experiment so long as it does not run afoul of federal labor policy and pre-emption under the United States Constitution,” Lynch concluded. “At this stage we cannot say it has.”