Setback Dealt To Law Tying Tax Exemptions To Use of Unionized Contractors

A federal appeals court has reinstated a challenge to an ordinance that offers tax exemptions and abatements to private developers in exchange for project labor agreements that favor unionized contractors.

The U.S. Court of Appeals for the Third Circuit ruled on Sept. 12, 2016 in Associated Builders and Contractors Inc. v. City of Jersey City that the suit could proceed because the municipality was only a regulator and not a market participant in the matter.

The plaintiffs, employers and a trade group, contended that the ordinance was preempted by the National Labor Relations Act and the Employee Retirement Income Security Act and prohibited by the U.S. Constitution’s dormant Commerce Clause.

The ordinance said the exemptions and abatements, permitted for projects in excess of $25 million in certain areas, could be suspended or terminated if developers agreed to the terms but did not comply.

In addition, a 300 percent conventional real estate tax could be imposed in those cases.

The trial court dismissed the complaint, finding that Jersey City was market participant, not a regulator, and that the NLRA, ERISA and Commerce Clause claims were not cognizable.

But the appeals court found that Jersey City was only a regulator. It did not have a proprietary interest in the projects and its actions did not constitute direct state involvement in the market, the court said. The municipality was only computing taxes, the court added.

The court emphasized that it was not ruling on whether the ordinance is preempted by the NLRA or ERISA, or runs afoul of the dormant Commerce Clause.

Read the opinion here: http://www2.ca3.uscourts.gov/opinarch/153166p.pdf

If you have questions about this topic or would like to discuss your land-use or tax law needs, John Wisniewski may be reached at 732-651-0040 or JWisniewski@wisniewskilaw.com.

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