The Eighth District Court of Appeals recently affirmed a Cuyahoga County court’s decision striking down the State of Ohio’s attempt to prohibit local hiring requirements for public improvement contracts awarded by cities. The decisions were both in favor of the City of Cleveland’s “Home Rule” powers and the City’s constitutional authority to create laws relating to public improvement projects funded by the City.
Cleveland’s Attempt to Combat Poverty
In 2003, Cleveland passed a law that created a labor requirement for public improvement construction contracts funded by the City. The law – commonly known as the Fannie Lewis Law named in honor of the long-time Cleveland councilwoman that fought to combat poverty in the City – requires that a minimum of 20% of the total work hours in any contract be performed by Cleveland residents, with at least 4% of those hours performed by low-income individuals. Other municipalities in Ohio, like Akron, have passed similar laws.
Significantly, according to the trial court, the Cleveland law is not technically a “residency” requirement, meaning that it does not require a contractor to have a certain number of employees that are residents of Cleveland. Instead, the law is a labor requirement, also referred to as a local-hiring requirement made part of a public construction contract. This distinction proved fatal to the State’s arguments in the trial court.
The State Fights Back
In response to these local-hiring-requirement laws in Cleveland and other municipalities, the State of Ohio passed HB 180 in May 2016, which was enacted as Ohio Revised Code 9.49, and states that a public authority cannot require a contractor to employ a certain percentage of individuals to perform work on a project that are residents of a specific geographic area, or provide a bid incentive to do so.
The constitutionality of the State’s law was challenged by the City of Cleveland when it filed a complaint against the State in the Cuyahoga County Common Pleas Court requesting temporary, preliminary and permanent injunction against the State from enforcing HB 180. The City argued that HB 180 is unconstitutional because it violates and restricts the City’s home rule powers.
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. The State argued that § 34 was a “broad grant of authority to the legislature to provide for the welfare of all working persons.” The State relied heavily on an Ohio Supreme Court prior ruling in which the Supreme Court upheld another State statute that prohibits any political subdivision from requiring an employee to reside within the political subdivision as a condition of employment (e.g. laws that mandate all employees of a city police department must reside in the city).
The Courts Rule Against the State
The trial court disagreed with the State’s argument and ruled that the State did not have authority to enact HB 180 because the law did not provide for the comfort, health and safety, or welfare of employees. Instead, the trial court concluded that the State was attempting to dictate the terms by which municipalities may contract for workers on construction projects within their territory.
The trial court also analyzed whether the statute could take precedence over a local ordinance despite the municipality’s Home Rule authority. A State law takes precedence when the following three requirements are met: (1) the ordinance is in conflict with the statute; (2) the ordinance is an exercise of police power, not local self-government; and (3) the statute is a “general law.”
The parties stipulated that Cleveland’s ordinance was in conflict with the State law, so the trial court did not analyze that issue. On the second issue, the trial court determined that the Fannie Lewis law was not an exercise of Cleveland’s police power, but instead held that the Fannie Lewis Law was an exercise of self-government to create contractor requirements for public projects within Cleveland. Notably, the trial court held that the law is not a residency requirement because it does not require a contractor to employ residents of the City. The State appealed the trial court’s decision.
On December 7, 2017, the appellate court affirmed the trial court’s decision. The appellate court agreed with the trial court on all issues holding that the “Fannie Lewis Law is not a residency law.” City of Cleveland v. State of Ohio, 2017-Ohio-8882, ¶36. The appellate court agreed that the law was simply an ordinance relating to provisions and terms of public construction contracts funded by the City, which the City is within its home rule authority to do.
As expected, the State sought a discretionary appeal to the Ohio Supreme Court (since there is no automatic appeal). The parties filed briefs relating to the Supreme Court’s jurisdiction to hear the appeal in January and February of this year. The Supreme Court has not yet ruled on whether it will accept jurisdiction of the case. If it does not, the appellate court’s decision will stand.
At What Cost?
The trial and appellate courts’ decisions are important for contractors working on public projects in Ohio. The Ohio Supreme Court’s decision, if it accepts jurisdiction, will be critical. If the Ohio Supreme Court rules on the merits in the City’s favor, contractors can expect to see more municipalities passing similar laws to provide opportunities for their own residents.
Bidders on public projects should consider the type of project and the source of funding which may affect the enforceability of “local labor” requirements. Vetting unknown lower-tiers and properly addressing lower-tier risk will be critical to project success. 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.