The Sixth Circuit (covering Michigan, Ohio, Kentucky, and Tennessee) recently held that the market-participant doctrine applies to ERISA preemption cases. In doing so, it ruled that the City of Cincinnati could properly impose benefits requirements on bidders for certain city projects.

In June 2012, Cincinnati enacted an ordinance that provided guidelines for selecting the lowest and best bidder for certain Department of Sewers projects. In May 2013, the ordinance was expanded to include bids for projects of the Greater Cincinnati Water Works and Stormwater Management Utility division. 

Allied Construction filed suit on behalf of its non-union members seeking to enjoin the use of the ordinance in selecting bidders.   

At issue were requirements that:

• Bidders certify that they provide or contribute to a health care plan for employees on the project, and certify whether they contribute to an employee pension or retirement plan. These benefits must be a part of the employees’ regular compensation, not just for the duration of the city project.
• Bidders certify that, for the duration of the project, they will maintain or participate in an apprenticeship project that has graduated at least one apprentice for each of the past five years.
• The winning contractor pay $0.10 per hour per worker into a pre-apprenticeship training fund managed by the city.

The district court granted summary judgment for Allied Construction finding that ERISA preempted the contested provisions of the ordinance. On appeal, the Sixth Circuit upheld the ordinance.

ERISA preempts state and local laws that relate to any employee benefit plan. Allied Construction argued that the city was trying to enforce an ordinance that related to ERISA’s employee benefit plans. The Sixth Circuit rejected this argument finding that the city was acting as a market participant rather than a regulator when it codified its preference for bidders. The Sixth Circuit ruled that, “[w]here a state or municipality acts as a proprietor rather than a regulator, it is not subject to ERISA preemption.” 

This case involved only the Cincinnati ordinance. However, the decision could encourage other state and local governments in the Sixth Circuit’s jurisdiction to try to impose benefits requirements on bidders for public projects.

Contact a member of Taft’s Construction practice group if you would like additional information on the impact this decision may have on your business.