On January 31, 2017, the Cuyahoga County Court of Common Pleas dealt a blow to open contracting in Ohio. The Court granted a preliminary injunction, permanently enjoining the State from enforcing Ohio General Assembly House Bill 180 (HB 180) which was passed on May 11, 2016, and ORC § 9.49. HB 180 was intended to prohibit public authorities from requiring a contractor to employ a certain percentage of individuals from its territory for construction of, or the professional design of, a public improvement. The City of Cleveland which has had such a requirement for construction projects in Cleveland since 2003, took issue with HB 180. On August 23, 2016, the City filed a complaint seeking a restraining order and permanent injunction enjoining the enforcement of HB 180.
Cleveland’s “residency requirement”, CCO 188, more commonly known as the Fannie Lewis Law, is similar to many such requirements throughout the State and requires that a minimum of 20% of the total work hours under a construction contract be performed by Cleveland residents. At least 4% of those Resident Work Hours must be performed by low-income individuals. HB 180 was seen to restrict local authorities’ in the establishment of the terms of their contracts for public improvements and prohibited the enforcement of Cleveland’s Fannie Lewis Law.
In defense of the statute, the State argued that it was empowered by the Ohio Constitution to enact HB 180. Specifically, the State argued that Article II, § 34 of the Ohio Constitution allows the State to enact laws that provide for the comfort, health and safety, and general welfare of all employees. Relying on prior Ohio Supreme Court case law, the State argued that § 34 was a “broad grant of authority to the legislature to provide for the welfare of all working persons.”
The Court disagreed stating that HB 180 was improperly enacted because it did not provide for the comfort, health and safety, or welfare of employees. Instead, the Court concluded that HB 180 only sought to dictate the terms of which municipalities may contract for workers on construction projects within their territory. Having determined that the Ohio Constitution did not authorize the State to enact HB 180, the Court next analyzed whether HB 180 unconstitutionally interfered with the City’s Home rule authority under Article XVIII, § 3 of the Ohio Constitution.
The Court noted the statute may take precedence over a local ordinance despite the municipality’s Home Rule authority when (1) the ordinance is in conflict with the statute; (2) the ordinance is in exercise of police power, not local self-government; and (3) the statute is a General Law. The Court noted that the parties stipulated that the ordinance conflicted with HB 180, but determined that the Fannie Lewis Law not an exercise of Cleveland’s police power. Instead, the Court viewed the Fannie Lewis Law as an exercise of self-government to create contractor requirements for public projects within Cleveland. The Court also noted that the statute is not a General Law as determined by the Ohio Supreme Court. As a result, the Court concluded that the statute impinged on Cleveland’s Home rule authority and enjoined the State from enforcing HB 180.
The Court’s opinion is an important one for contractors working on public projects in Ohio. Numerous municipalities throughout the State have similar residency requirements, and with the Court’s endorsement of Cleveland’s, it can be expected we will see more municipalities taking this step to limit foreign corporations from coming into their respective territories. The impact to quality of work, potential inefficiencies, and the contractors’ bottom line is readily apparent. Bidders should consider the type of project and the source of funding which may affect the enforceability of a residency requirement. While we expect to see an appeal, at least for now, municipalities will have a say in who contractors hire to perform public projects. As a result, vetting unknown lower-tiers and properly defraying lower-tier risk will be critical to project success. Similarly, a proactive evaluation of the project bidding requirements will enable contractors to make an informed decision about whether the project is a risk worth taking.
If you would like to discuss how this decision may affect your business, please contact Michael J. Frantz, Jr.
or (216) 515-1624.