filed: September 22, 1994; As Amended October 19, 1994. Second Amendment October 19, 1994.
On Appeal from the United States District Court for the Middle District of Pennsylvania. (D.C. Civil Action Nos. 92-00459 & 92-01105).
Before: Becker, Mansmann and Scirica, Circuit Judges.
In this appeal, we must decide whether the Employee Retirement Income Security Act of 1974 (ERISA)*fn1 preempts a Pennsylvania minimum wage law applying to public works projects. We hold that such a law may not refer to ERISA plans or accord them special treatment, but may set minimum wages and give employers the option of satisfying a portion of the wage through contributions for employee benefits.
An employer, an employers' association, and a labor union*fn2 sued Pennsylvania's Secretary of Labor and Industry and the members of the state Prevailing Wage Appeals Board (collectively, the Secretary) in federal district court, claiming Pennsylvania's Prevailing Wage Act (the Act),*fn3 its accompanying regulations, and an administrative Declaratory Order interpreting the Act are preempted by ERISA. The district court agreed and overturned the Act, regulations, and order. The Secretary of Labor and Industry appeals, and the employers' association cross-appeals.
We agree the Declaratory Order implements the Act in a manner preempted by ERISA. But we find the Act and its regulations are not preempted because they confer broad authority that may be implemented in a manner consistent with ERISA. Therefore we will affirm the judgment of the district court striking the Declaratory Order, but reverse its judgment striking the Act and accompanying regulations.
A. The Prevailing Wage Act
The purpose of the Prevailing Wage Act "is to protect workers employed on public projects from substandard wages by insuring that they receive the prevailing minimum wage." Lycoming County Nursing Home v. Pennsylvania, 156 Pa. Commw. 280, 627 A.2d 238, 242 (Pa. Commw. Ct. 1993). The statute provides, "Not less than the prevailing minimum wages as determined hereunder shall be paid to all workmen on public work," 43 P.S.A. § 165-5, and sets forth general rules for determining prevailing minimum wages. Before public contracts are put out to bid, the Secretary of Labor and Industry, in consultation with an Advisory Board, determines the prevailing minimum wage for each locality and for each "craft or classification" of worker to be employed. 43 P.S.A. § 165-7. In making this determination, "employer and employe contributions for employe benefits pursuant to a bona fide collective bargaining agreement shall be considered an integral part of the wage rate." Id. The statute does not define "prevailing minimum wage rate," nor specify how contributions for benefits are to be integrated into the wage rate.*fn4
The seven-member Prevailing Wage Appeals Board hears "any grievance or appeal arising out of the administration of this act" "promulgate[s] rules and regulations necessary to carry out [its] duties." 43 P.S.A. § 165-2.2(e). Contractors and subcontractors must "keep an accurate record showing the name, craft and the actual hourly rate of wage paid to each workman employed by him in connection with public work" for two years following payment, subject to inspection by the Secretary and the public body awarding the contract. Id. § 165-6.
B. The Accompanying Regulations
The Pennsylvania Code, Title 34 §§ 9.101-9.112, provides additional rules for calculating and enforcing the prevailing minimum wage in public works contracts. The regulations make clear that a prevailing minimum wage will state a cash wage and a level of benefits contributions as separate components. Contractors and subcontractors must pay "not less than the general prevailing minimum wage rates determined by the Secretary." If a contract does not provide for employee benefits contributions "which the Secretary has determined to be included in the general prevailing minimum wage rate," the employer may pay "the monetary equivalent thereof." Id. § 9.106.
Contributions for employee benefits are defined as "'fringe benefits' paid or to be paid, including payment made whether directly or indirectly, to the workmen for sick, disability, death, other than Workmen's Compensation, medical, surgical, hospital, vacation, travel expense, retirement and pension benefits." Id. § 9.102. Contractors may pay their workers above the prevailing rate. Id.
To determine the prevailing minimum wages and benefits in a locality, the Secretary considers local collective bargaining agreements between established bargaining representatives and employers and other information. Id. § 9.105. The regulations specify additional records and reporting requirements for employers. Id. §§ 9.109, 9.110. The Secretary may investigate and hold hearings on allegations of underpayment, and may bar public contracts with a violating firm and request the Attorney General to recover penalties. Id. § 9.111.
C. The April 13, 1992 Declaratory Order
Although the Act and regulations specify the prevailing minimum wage will have separate cash and benefits components, they do not state whether the benefits component should merely state the total level of benefits contributions an employer must make (through benefits contributions or their cash equivalent), or whether it should specify which types and levels of benefits must be given. That issue has been resolved by the Secretary and Board in different ways at different times.
For several years prior to April 13, 1992, the Secretary used a "line-item" approach in determining compliance with a prevailing wage's benefits component.*fn5 The Secretary made a "predetermination" of the prevailing wage for each category of worker in a given locality, specifying the prevailing levels of benefits in a number of categories, such as "health-and-welfare," "pension," and "apprenticeship-and-training". An employer had to meet the prevailing level of each category of benefit, or pay the shortfall in cash to the worker. An employer was not given credit toward the benefits component for benefits provided in a given category in excess of that required in the predetermination, nor for any benefits paid in a category not included in the predetermination. Thus, in addition to paying the prevailing cash wage, an employer was required either to make benefits contributions in the specified categories and amounts or to pay cash to the extent its benefits contributions fell short in any specified category.*fn6
On November 28, 1990, counsel for Keystone Chapter, Associated Builders and Contractors, Inc., a construction industry employers' association wrote to the Secretary, complaining about the line-item approach. The complaint was referred to the Prevailing Wage Appeals Board, which treated it as a "Petition for Declaratory Order" and heard oral argument. Bell Telephone Co., an employer that performs public work, also participated in the proceeding. The petitioners argued that the line-item approach was not the best interpretation of the Prevailing Wage Act, that it was unfair to non-union and non-local contractors, and that it was preempted by ERISA. The Prevailing Wage Division of the Department of Labor and Industry (the Division) conceded that the Prevailing Wage Act did not require line-item specification of fringe benefits, but stated that as remedial legislation it should be interpreted broadly in favor of the protected class.*fn7
On April 13, 1992, apparently in response to the petitioners' ERISA preemption arguments, the Prevailing Wage Appeals Board issued a Declaratory Order modifying the implementation of the Prevailing Wage Act. The Board stated it "should interpret state law so that it comports with constitutional and federal law," Keystone App. at 71, and established a special bona fide status for contributions for ERISA benefits. It ordered:
2. That the [Prevailing Wage] Division must determine, in the first instance, whether or not a contribution for employee benefits is bona fide;
3. That a contribution is bona fide if that contribution: (a) is made to an "employee benefit plan" or fund or program subject to the [ERISA]; (b) has been determined to be bona fide by the Division; and (c) is not required by federal, state or local law;
The next part of the order, paragraph 4, appears to abolish the line-item system, although it is not clear if this applies only to the ERISA benefit contributions discussed in paragraph 3, or to all benefits. It provides:
4. That credit for contributions for employee benefits, up to the maximum established by the predetermination, shall be given as follows:
c) Credit shall be given for contributions in each predetermined category up to the predetermined rate for each category;
d) Contributions which exceed the predetermined rate in any employee benefit category shall be credited in any other predetermined benefit category (or categories) for which ...