Recently, a federal court in New Jersey issued a decision which very well may invalidate all Project Labor Agreements (“PLA’s”) entered into as a condition to receipt of tax incentives for private development. Tax incentives utilized to promote private development are different, according to the court, than typical public works projects where PLA requirements have generally been held valid. Owners, developers, contractors and governmental entities must assess the consequences of this decision upon contracts already and to be awarded in the future where tax benefits may be linked to a PLA requirement.

In 1993, in what has become known as the Boston Harbor Case, the United States Supreme Court held that state and local governmental entities may condition the award of public works contracts on the contractor’s agreement to enter into PLA’s.

That decision has been followed nationwide since then to uphold the validity of various state and local law bidding conditions requiring successful bidders to negotiate and enter into project labor agreements as a condition to the award of public works contracts. The rationale is that when the government, like any other private party, is participating in an economic market, it may exercise its discretion in setting terms and conditions it believes best suit its interests in the efficient procurement of goods and services in that market. Therefore, a PLA requirement by a governmental entity engaged in market activity is no more or less valid than a PLA requirement on a purely private project.

In contrast, if a governmental entity is acting as a “market regulator” rather than a “market participant” it may be prohibited under federal labor laws from imposing a PLA requirement on a contractor because federal labor laws prohibit a state or local government from regulating labor policy pertaining to PLA’s.