UPDATE: On September 18, 2013, the Independent Training and Apprenticeship Program (I-TAP) lost its appeal to the U.S. Court of Appeals for the Ninth Circuit in Independent Training v. California Department of Industrial Relations. As the decision noted, “The panel affirmed the district court’s judgment in favor of the defendants in a suit seeking declaratory and injunctive relief on the ground that the California Department of Industrial Relations’ actions were inconsistent with federal Fitzgerald Act regulations governing the employment of apprentices on public works projects qualifying as ‘Federal purposes.'”
Construction trade unions are sometimes accused of misusing the government-regulated apprenticeship structure as a tool to control who, how, and how many people enter the construction workforce. Sponsors of proposed apprenticeship programs who aim to compete against existing union programs have long endured legal obstacles in states such as Washington, Oregon, and Nevada.
But as usual, California takes the prize for the best use of government to cut competition and freedom of choice in the marketplace. From 2002 to 2007, the U.S. Department of Labor threatened to punish – and then proceeded to punish – the State of California for failing to follow federal laws meant to encourage the construction industry to train the future American workforce through apprenticeships.
Now a California-based training program for apprentices, approved by the federal government in 2004 to train electrical workers, is suing the State of California because the state takes a very narrow interpretation of the federal punishment – so much so that the punishment is effectively meaningless. This apprenticeship program contends that its apprentices have lost a substantial number of opportunities to get on-the-job training on state and local construction projects as a result of this inappropriately narrow interpretation.
Background of How the State of California Has Traditionally Regulated Apprenticeship for the Construction Trades
California Labor Code Section 1777.5 outlines the statutory requirements for construction contractors regarding apprenticeship when these companies work on public works projects of $30,000 or more. These contractors must request apprentices from state-approved training programs. Contractors must employ these apprentices in a ratio not less than one hour of apprentice work for every five hours of journeyman work (with a few exceptions).
Because they are less than fully trained, apprentices are the only workers on a public works project to whom contractors can pay less than the full “journeyman” prevailing wage. For trades such as electrical inside wireman, the pay rate for apprentices increases in conjunction with the progress of the apprentice through classroom instruction and on-the-job training.
The state generally understands that a contractor is required to request apprentices from a program approved by the Chief of the Division of Apprenticeship Standards to train workers for that trade in the county where the work is performed. Contractors are required to make payments designated for “apprenticeship and training” in the state-mandated prevailing wage rate to the program or programs that provided the apprentices, or (if not enough apprentices are dispatched to fulfill the 5:1 ratio) to any program approved to train workers for that trade in the county where the work is performed, or to the California Apprenticeship Council.
Under California Labor Code Section 1773.1(a)(6), contractors are able to take a “credit” for the payments for apprenticeship and training against the total hourly state-mandated “prevailing wage” rate, provided that the amount paid to the program is reasonably related to the cost of the program. In other words, the state-mandated hourly wage to a worker is reduced by the amount paid for apprenticeship and training, but the contractor cannot pay an excessive amount to a training program’s trust fund.
When does the reasonable cost for apprenticeship and training become an issue? The state sets the standard employer payment amounts for apprenticeship and training based on the applicable union collective bargaining agreement for that trade in that geographical region, so a competing program not affiliated with that union might charge a contractor a different rate for apprenticeship and training than the amount designated in the applicable state-mandated prevailing wage rate.
Under California Labor Code Section 3075 (a), the Director of the Division of Apprenticeship Standards is authorized to approve three categories of apprenticeship programs: (1) those run by unions and their affiliated contractor associations through joint apprenticeship committees, (2) those run by non-union contractor associations through unilateral apprenticeship committees, and (3) programs run by individual corporate employers. Unions had a complete monopoly on apprenticeship training in the California construction trades until 1988, and they still monopolize apprenticeship training for many trades in many geographic areas.
Why the Federal Government Took Away California’s Authority to Regulate Apprenticeship for Federal Purposes
President Franklin Delano Roosevelt signed the National Apprenticeship Act (the Fitzgerald Act) into law in 1937. This law authorizes the U.S. Department of Labor to “formulate and promote the furtherance of labor standards necessary to safeguard the welfare of apprentices and to cooperate with the States in the promotion of such standards.”
California is one of 27 states that exercise an option to perform their own oversight and regulation of apprenticeship programs, rather than leaving it to the U.S. Department of Labor’s Office of Apprenticeship Training, Employment and Labor Services (OATELS). They are commonly called “SAC states” – that is, states with State Apprenticeship Councils.
In 1999, Governor Gray Davis signed into law Assembly Bill 921, a union-backed bill that amended California Labor Code 3075 in order to establish a stringent “needs test” that a proposed apprenticeship program or an apprenticeship program seeking to expand to a new trade or geographic jurisdiction must fulfill before the program can be approved or expanded.
Construction unions have exploited this language to block the approval of new programs or programs expanding into new trades or geographical regions, thus cutting competition in training and limiting the choice in comprehensive training programs for people seeking a career in the construction trades. The law also creates confusion about who has the authority to approve or reject applications for new or expanding apprenticeship programs: the Chief of the California Division of Apprenticeship Standards or the California Apprenticeship Council.
In response to this needs test, the U.S. Department of Labor in 2002 began the process of “derecognition,” or taking away the State of California’s authority to regulate apprenticeship for federal purposes. The California Division of Apprenticeship Standards under the Davis Administration and the union-controlled California Apprenticeship Council both challenged the derecognition process.
In January 2007, a U.S. Department of Labor Administrative Review Board ruled that the U.S. Department of Labor has the right to “derecognize” California’s authority to regulate apprenticeship for federal purposes. The decision upheld an earlier Administrative Law Judge decision noting that the “needs test” in Section 3075 of the California Labor Code used by unions to prevent new or expanded apprenticeship programs “does not promote competition among programs, does not consider the needs of individuals seeking apprenticeship training, and limits training opportunities for apprentices.”
At the demand of the State Building and Construction Trades Council of California, the California State Legislature has stopped four bills that included a provision to repeal the needs test: Assembly Bill 2660 in 2006 (sponsored by Associated Builders and Contractors (ABC) of California), Assembly Bill 947 in 2007 (sponsored by the Schwarzenegger Administration), Assembly Bill 734 in 2008 (a bipartisan bill amended at the very end to eliminate the repeal provision), and Senate Bill 362 in 2012 (sponsored by ABC of California). (Note: I was State Government Affairs Director of ABC of California when these bills were introduced and considered.)
What’s the Practical Effect of Derecognition? The Independent Training and Apprenticeship Program (I-TAP) Seeks to Clarify the Meaning through a Lawsuit
The U.S. Department of Labor’s Office of Apprenticeship Training, Employment and Labor Services (OATELS) approved the Independent Training and Apprenticeship Program (I-TAP) to train apprentices on federal projects in January 2004. This unambiguously means that contractors can classify and pay workers dispatched from the I-TAP program as apprentices on purely federal projects. The workers would also be unambiguously classified as apprentices in states that have not exercised the option of preempting apprenticeship regulatory authority from the U.S. Department of Labor.
The ambiguity about the legality of I-TAP providing on-the-job training to its apprentices working on state and local government projects results from the meaning of “derecognition” and the meaning of “federal purposes” in a state that had long claimed statutory and regulatory authority over apprenticeship.
For a few years after the U.S. Department of Labor’s 2007 derecognition of California’s authority to “register and oversee” apprenticeship policies for federal purposes, electrical contractors requested apprentices from I-TAP, employed them on the job at apprenticeship rates, and made payments on behalf of the apprentices to I-TAP under the belief that the derecognition allowed them to do so. Officials of the California Department of Industrial Relations (DIR) made occasional preliminary inquires about contractors’ compliance with state laws when using I-TAP as a source of apprentices, but did not take further action after contractors justified their use of I-TAP on the new conditions resulting from derecognition.
But in the fall of 2010, the California Department of Industrial Relations threatened to assess back wages and penalties against a contractor – Gray Electric Company – for classifying workers dispatched from I-TAP as apprentices on school construction projects in Marysville and in Grass Valley. Gray Electric had requested apprentices from I-TAP, employed them on the job at apprentice wage rates, and made payments on behalf of the apprentices to I-TAP. The contractor argued that it could regard these workers as apprentices because the project received federal financial assistance and I-TAP was a federally-approved program.
To avoid further controversy, Gray Electric ultimately withdrew from its agreement to train with I-TAP. Then, a labor-management cooperation committee affiliated with the International Brotherhood of Electrical Workers (IBEW) submitted a wage complaint to the California Department of Industrial Relations because another electrical contractor – Harold E. Nutter & Son, Inc. – was classifying workers dispatched from I-TAP as apprentices on a Stockton school construction project.
Harold E. Nutter & Son, Inc. and the individual apprentice argued that because the federal government has “derecognized” the state under the federal Fitzgerald Act and thus deprived the state of its authority to regulate apprenticeship policies for federal purposes, contractors on federally-funded projects are legally permitted to pay apprenticeship-level wages and take credits against the prevailing wage rate for payments to an apprenticeship program, even if the program is only approved by the federal government and not the state.
The California Department of Industrial Relations disagreed and assessed back wages and penalties against the contractor (Harold E. Nutter & Sons, Inc.) for paying apprentice-level wages to its worker enrolled in the federally-approved I-TAP. It did not recognize the I-TAP apprentice as a legitimate apprentice for purposes of state law. It also disallowed payments for “apprenticeship and training” to I-TAP as valid payments under the state prevailing wage law that could be taken as a credit against the total hourly wage.
As a result of the DIR crackdown on contractors classifying I-TAP apprentices as journeymen on projects not exclusively funded by the federal government, several contractors have ended their agreements to train with I-TAP, and apprentices in the program have lost paid on-the-job training opportunities. Some have dropped from the program.
Time for a Lawsuit
On May 19, 2011, the California Department of Industrial Relations (DIR) was sued by three parties: an apprentice indentured in the Independent Training and Apprenticeship Program, an employer with an agreement to train apprentices in the I-TAP program (Harold E. Nutter & Son, Inc.), and the I-TAP program itself. The case is Independent Training and Apprenticeship Program et al. v. California Department of Industrial Relations et al.
This is an interesting case probing the meaning of the U.S. Department of Labor’s “derecognition” of the authority of the State of California to regulate apprenticeship for federal purposes.
The plaintiffs complain that when the DIR alleges a contractor has violated prevailing wage laws for using I-TAP apprentices, the agency does not take responsibility to determine if a construction project is receiving federal funding and thus falls under “federal purposes” under derecognition, but leaves it to the contractor to determine the sources of funding.
The federal financial assistance for the Grass Valley and Stockton school construction projects was provided in the form of “Buy America Bonds,” which are subsidized by the federal government throughout their tax-exempt status. But the plaintiffs in this lawsuit went even further, contending that the federal Fitzgerald Act in essence makes any policies providing “apprenticeship opportunities” as a “federal purpose.”
The Outlook for This Case, and How You Can Help
A federal district court sided with the California Department of Industrial Relations against the I-TAP plaintiffs. However, the I-TAP plaintiffs have appealed to the U.S. Ninth Circuit Court of Appeals.
Obviously there are numerous entrenched interests that don’t want to see the California Department of Industrial Relations (DIR) lose its regulatory control over apprenticeship training opportunities on the construction projects of state and local governments. In contrast, the I-TAP plaintiffs are alone, but they see this case as a higher pursuit of freedom of choice in training for workers and the improvement of apprenticeship training as a whole through greater competition.
I-TAP plaintiffs are looking for funding for their lawsuit, amicus briefs to be submitted to the court in support of their case, and any assistance or evidence that provides additional backing for their arguments. For more information, contact Carolyn Nutter, Training Coordinator for the Independent Training & Apprenticeship Program, at (916) 332-3332 or via email.
Documents Related to Federal District Court Case
- 2011-04-18 I-TAP Complaint & Exhibits to District Court
- 2011-05-19 I-TAP Notice of Motion & Motion for Preliminary Injunction to District Court
- 2011-05-19 I-TAP Memo of Points & Authorities to District Court
- 2011-05-19 I-TAP Compendium of Evidence to District Court
- 2011-05-19 I-TAP Request for Judicial Notice and Exhibit A
- 2011-05-19 I-TAP Exhibits B C and D
- 2011-05-23 I-TAP Case – I-TAP Notice of Errata to Complaint to District Court
- 2011-06-27 DIR Opposition to Preliminary Injunction to District Court
- 2011-06-27 DIR Objections to I-TAP Evidence
- 2011-06-27 DIR DAS Director’s Declaration to District Court
- 2011-07-01 I-TAP Reply to DIR Opposing Motion for Preliminary Injunction to District Court
- 2011-07-01 I-TAP Declaration to District Court Rebut DAS Director’s Declaration
- 2011-08-15 District Court Order Denying Motion for Preliminary Injunction
- 2011-10-31 I-TAP Stipulation and Proposed Order
Documents Related to Ninth District US Court of Appeals Case
- 2012-04-20 I-TAP Opening Brief to Appeals Court
- 2012-06-22 DIR Brief to Appeals Court
- 2012-08-03 I-TAP Reply Brief to Appeals Court
- 2013-09-09 Ninth Circuit US Court of Appeals Decision I-TAP v DIR