Local hiring programs are used by public entities to encourage local employment on public works projects. In general, these programs require contractors on public works projects to use a particular minimum amount of local labor as part of the workforce. Many local governments use these programs to encourage local employment on construction projects. However, some jurisdictions have experienced a backlash against these policies, which may sometimes be difficult to comply with and may prevent competition among contractors.
In fact, Ohio recently passed a law prohibiting public entities from using local workforce requirements or goals on public projects. Other municipalities (like New Orleans) have also considered similar legislation. Contractors working on public projects should be aware of these new legal developments and confirm the status of the local hiring laws in their jurisdictions before bidding on projects. These developments will also be of interest to government agents in public procurement departments who may be faced with similar controversies over local hiring policies, and to owners who receive funding from public entities for their capital development projects.
Local Hiring on Public Projects
Many cities, counties and other public entities around the nation use goals, requirements and incentives to encourage employment of local residents on public works projects.
Local governments may also use similar programs to encourage use of local businesses or other minority, disadvantaged or underrepresented groups on public works projects. However, this article focuses primarily on local resident hiring programs, like those at issue in Ohio and New Orleans.
There are a variety of types of local hiring policies. Local hiring laws can range from aspirational goals encouraged by use of bid preferences or other financial incentives, to strict requirements with penalties for failing to achieve set percentages of local workforce. Public entities can establish local hiring programs by statute or ordinance, or the goals and requirements can be incorporated into contractual documents for a particular project (such as the contract for construction or a project labor agreement applicable to the project).
Below are some examples of local hiring programs:
- Boston: The Boston Residents Construction Employment Standards require contractors and developers to use best faith efforts so that at least 50 percent of the total employee worker hours in each trade are completed by bona fide Boston residents.
- St. Louis: St. Louis City Ordinance 68412, approved May 21, 2009, establishes a local resident project labor hour goal of 20 percent for public works contracts with an estimated value of $1 million or more. The City of St. Louis Workforce Study, issued in June 2015, found that from 2010 to 2011, only 15.54 percent of workers on qualified projects were local residents. From 2012 to 2013, the percentage dropped to 12.72 percent. The Workforce Study ultimately proposed a local workforce goal of at least 23 percent of all contract labor hours in order to reflect the availability of workers who reside in the city.
- San Francisco: The San Francisco Local Hiring Policy for Construction, effective March 25, 2011, applies to public works or improvement projects with an estimated cost of $600,000 or more. The policy requires a mandatory San Francisco resident participation level of 25 percent for all project work hours within each trade for projects beginning March 25, 2012, with the percentage increasing each year to a total of 50 percent by March 25, 2019. The requirement is currently 30 percent.
- New Orleans: The New Orleans ordinance dubbed “Hire NOLA” requires contractors on city projects over $150,000 to make a good faith effort to ensure that 30 percent of the work hours go to Orleans Parish residents, 20 percent of whom must qualify as “disadvantaged.” Subject to periodic review, the percentages will increase by 5 percent each year toward a goal of 50 percent by 2020. The law forbids the city to sign contracts with firms that refuse to commit to the goals.
Backlash Against Local Hiring Programs
There has recently been a backlash against local hiring requirements in certain jurisdictions. In Louisiana, for example, some have criticized New Orleans’ local hiring ordinance, claiming that it would require them to lay off out- of-town workers in order to hire local labor to fulfill the requirements. Others claimed that there were not enough skilled workers to hire. The Louisiana State Senate introduced legislation in March 2016 (SB 288) that would have prohibited political subdivisions from adopting local hiring ordinances like the New Orleans program. But that legislation was rejected by committee in May 2016.
Ohio has also experienced a backlash against local hiring programs throughout the state. Unlike Louisiana, however, Ohio did pass legislation (House Bill 180) that seeks to curtail the use of such programs.
Ohio’s New Law
House Bill 180 bars public authorities (including the State of Ohio, political subdivisions like cities, counties and municipalities, public agencies and public instrumentalities) from requiring contractors on public projects to hire a certain number or percentage of local residents from defined geographical areas. The law also prohibits the use of bid award bonuses or preferences as incentives to meet such requirements.
The bill was introduced on April 29, 2015 and was signed into law by Ohio Governor John R. Kasich on May 31, 2016. The law becomes effective 90 days after the Governor’s signature.
Just like in Massachusetts, Missouri, California and Louisiana, many municipalities in Ohio use local hiring programs to encourage local resident employment on public works projects.
- The City of Cleveland’s “Fannie M. Lewis Cleveland Resident Employment Law” requires 20 percent local resident participation (and 4 percent of that 20 percent must be reserved for low-income Cleveland residents) on construction contracts over $100,000. In addition, the ordinance contains a penalty provision requiring contractors to pay the city 0.125 percent of the final total contract price for each percentage by which it fails to meet the local residency requirement.
- The City of Cincinnati has also established local hiring ordinances (Chapter 318) that require contractors to hire 30 to 40 percent of their workforce from local residents.
House Bill 180 is intended to trump these local laws. Ohio is a “home rule” state. Under the Ohio Constitution, municipalities are granted the right of self-governance and can adopt ordinances that differ from state statutes.
However, Article II, Section 34 of the Ohio Constitution allows the state to supersede the “home rule” authority of local governments by enacting generally applicable laws providing for the “health, safety and general welfare” of the people of Ohio.
House Bill 180 specifically states that it was passed under Section 34. However, it remains to be seen whether the new law will withstand a court challenge.
The Ohio Supreme Court in Lima v. State found that a state law prohibiting a political subdivision from requiring its employees to be residents trumped a conflicting municipal ordinance because the state law was passed under Section 34 of the Ohio Constitution and was intended to provide for the “health, safety and general welfare” of all employees in Ohio. It is uncertain whether the holding of Lima will apply to House Bill 180.
Local hiring programs are used throughout the United States to encourage local participation on public projects. Ohio recently passed a law that limits the authority of public entities to establish hard rules for participation. Other jurisdictions have experienced similar controversies. Public contractors, owners and local governments should take note of the recent developments in Ohio and other states, and tailor programs to comply with applicable laws.