Employers Suffer Set Back in Challenge to California
Apprenticeship Training Laws

Employers were unsuccessful in persuading the Ninth Circuit Court of Appeals to reverse a federal district court decision refusing to find that California regulations governing apprenticeship programs in the building and trades industry were preempted either by the Employee Retirement Income Security Act (“ERISA”) or the National Labor Relations Act (“NLRA”). The case, Associated Builders and Contractors of Southern California, Inc. v. Nunn, was decided on January 16, 2004 (amended opinion filed February 17, 2004).

The challenged regulations are in furtherance of the California Apprenticeship Labor Standards Act, which, in turn, implements an apprentice partnership arrangement between the federal and state government by which “employers and unions [are] encourage[d] …to support training and education programs for citizens who seek access to the building construction trades and other skilled jobs.” Under the Apprenticeship Labor Standards Act, employers who use apprentice trainees from state approved apprenticeship programs receive a break in wages and benefits that they otherwise would have to pay under the state’s “prevailing wage” law. In most cases, the prevailing wage law requires employers in the construction industry to pay wages and benefits equal to the “rate actually paid to a majority of workers in the craft and locality.” Usually this will mean “union rates.” Employers who do not use apprentice trainees from a state approved program get no such break from the prevailing wage law; consequently, these employers must pay union journeymen rates, which arguably puts them at a competitive disadvantage with employers who, through participation in the apprenticeship programs, can pay reduced rates for their apprentice trainees.

The employers in the Associated Builders case challenged the apprenticeship regulations on federal preemption grounds under ERISA, which is the federal law regulating the establishment and administration of employee benefit plans such as health, pension and retirement plans, and under the NLRA, which is the federal law protecting employee rights to participate or to refuse to participate in union related activities such as collective bargaining negotiations with employers.

Looking to prior Supreme Court decisions and its own precedent, the Ninth Circuit rejected the employer’s arguments that California’s apprenticeship labor standards laws effectively require employers to maintain benefits or wages in a manner that interfered with the statutory objectives and policies of either ERISA or the NLRA. Although the case is a disappointing setback for employers, the ruling does not come as a surprise, given the Ninth Circuit’s prior case law on this subject.