People ex rel. Department of Labor v. Lion Construction, LLC

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Appellate Court Date: 2020.05.08
14:02:10 -05'00'
People ex rel. Department of Labor v. Lion Construction, LLC,
2019 IL App (3d) 180080Appellate Court THE PEOPLE OF THE STATE OF ILLINOIS ex rel. THE
Caption DEPARTMENT OF LABOR, Plaintiff-Appellant, v. LION
CONSTRUCTION, LLC, an Indiana Corporation, Defendant-
Appellee.
District & No. Third District
No. 3-18-0080
Filed December 2, 2019
Decision Under Appeal from the Circuit Court of Kankakee County, No. 15-L-133; the
Review Hon. Kenneth A. Leshen, Judge, presiding.
Judgment Reversed and remanded.
Counsel on Kwame Raoul, Attorney General, of Chicago (Jane Elinor Notz,
Appeal Solicitor General, and Richard S. Huszagh, Assistant Attorney
General, of counsel), for appellant.
Bruce L. Cook, of Chicago, for appellee.
Panel JUSTICE CARTER delivered the judgment of the court, with opinion.
Justices McDade and Wright concurred in the judgment and opinion.
OPINION
¶1 Plaintiff, the People of the State of Illinois (State), at the request of the Department of
Labor (Department), by and through the Attorney General of Illinois, 1 filed an action against
defendant, Lion Construction, LLC (Lion), 2 alleging the company had violated the Prevailing
Wage Act (820 ILCS 130/1 et seq. (West 2016)). The trial court granted defendant’s motion
to dismiss pursuant to section 2-619(a)(9) of the Code of Civil Procedure (Code) (735 ILCS
5/2-619(a)(9) (West 2016)), reasoning that the State’s claim was preempted by federal law—
the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1001 et seq.
(2012)). The State appeals. We reverse and remand.
¶2 I. BACKGROUND
¶3 After conducting an audit, the Department concluded that Lion had violated the Prevailing
Wage Act in regard to more than 25 individuals employed by Lion as general construction
laborers on six different public works projects. The Department had determined that Lion had
nominally paid those employees wages equal to or greater than the prevailing base wage
(before deducting approximately 33% of those wages and remitting the deducted wages to the
“Union Fund”—monies forwarded to a local union (Local 944) for union initiation fees, dues,
and training), but Lion had failed to pay fringe benefits (pension benefits, health and welfare
benefits, and approved training).
¶4 At the Department’s request, the State, by way of the Attorney General, filed this action,
alleging that Lion violated the Prevailing Wage Act. Specifically, in an amended complaint
filed in April 2017, the State alleged that, in 2012, 2013, and 2014, Lion had performed work
on six public works projects in Illinois, for which Lion used more than 25 employees (mostly
as general laborers); Lion was acting under a collective bargaining agreement (between the
Associated Disadvantaged General Contractors and the Allied Skilled Workers Trades Union
(affiliated with Local 944)); the collective bargaining agreement governed the terms and
conditions under which Local 944 members worked for Lion; pursuant to the collective
bargaining agreement, Lion was required to, among other things, pay those employees “wages
at the Prevailing Wage per/hour Rate” and “a total compensation of the prevailing wage plus
a fringe benefit package”; at all relevant times, the Prevailing Wage Act set the minimum
compensation rate that was to be paid and applied to all employers engaged in public works
projects in the State of Illinois (820 ILCS 130/1 (West 2016)) and applied to the wages of all
“laborers, mechanics, and other workers employed in any public works *** and to anyone
under contracts for public works” (820 ILCS 130/2 (West 2016)); and on each of the six public
works projects referred to in the amended complaint, Lion had failed to pay for pension
1
Pursuant to the Prevailing Wage Act, “[t]he Department of Labor shall inquire diligently as to any
violation of this Act, shall institute actions for penalties herein prescribed, and shall enforce generally
the provisions of this Act. The Attorney General shall prosecute such cases upon complaint by the
Department or any interested person.” 820 ILCS 130/6 (West 2016).
2
In its amended complaint, the State alleged Lion was “an Indiana Corporation registered to do
business in Illinois under the assumed name of Lion Construction 1, LLC.” At oral arguments and in
Lion’s brief on appeal, Lion’s attorney asserts that Lion is an Illinois corporation, not an Indiana
corporation.
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benefits, health and welfare benefits, or approved training in violation of the requirements of
the Prevailing Wage Act.
¶5 In response, Lion moved to dismiss the State’s amended complaint pursuant to section 2-
619 of the Code, contending that ERISA preempted the Prevailing Wage Act claim because
the monies Lion deducted from its employees’ wages were remitted to the “Union Fund”—an
employee welfare plan subject to ERISA. Lion argued that in such circumstances the
Prevailing Wage Act is preempted by ERISA. The trial court granted Lion’s motion to dismiss
on the basis that ERISA preempted the Prevailing Wage Act claim. The State appealed.
¶6 II. ANALYSIS
¶7 On appeal, the State argues that the trial court erred in granting Lion’s section 2-619 motion
to dismiss because the Prevailing Wage Act’s fringe benefit requirements for public works
projects are not preempted by ERISA. In response on appeal, Lion argues that the Prevailing
Wage Act claim does not stem from Lion’s failure to pay prevailing wages but, rather, from
the State’s decision to discredit contributions that Lion had made for training “in lieu of
payments for traditional pension and welfare benefits.” Lion contends the State’s attempt to
enforce the Prevailing Wage Act in order to “strong arm” Lion into providing “traditional
pension and welfare benefits” is preempted by ERISA. Lion contends that based on the
pleadings, plaintiff’s admissions, affidavits of record, undisputed facts, and the law, the trial
court did not err in dismissing the State’s Prevailing Wage Act claim.
¶8 A dismissal pursuant to section 2-619 is reviewed de novo. Doe A. v. Diocese of Dallas,
234 Ill. 2d 393, 396 (2009). A motion to dismiss under section 2-619(a)(9) asserts that a
plaintiff’s claim is “barred by other affirmative matter avoiding the legal effect of or defeating
the claim.” 735 ILCS 5/2-619(a)(9) (West 2016); see also Diocese of Dallas, 234 Ill. 2d at 396.
When reviewing an order granting a dismissal pursuant to section 2-619(a)(9), a reviewing
court may consider “all facts presented in the pleadings, affidavits, and depositions found in
the record.” Diocese of Dallas, 234 Ill. 2d at 396. “The pleadings and supporting documents
must be interpreted in the light most favorable to the nonmoving party.” Id.¶9 Whether a federal statute, such as ERISA, preempts a state law is a question of
congressional intent. Scholtens v. Schneider, 173 Ill. 2d 375, 379 (1996). ERISA preemption
analysis begins with the presumption that Congress did not intend to supplant state law. New
York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514 U.S.
645, 655 (1995); Scholtens, 173 Ill. 2d at 379-80. Our inquiry into congressional intent starts
with the language of the statute. Travelers, 514 U.S. at 654-55; Scholtens, 173 Ill. 2d at 379-
80.
¶ 10 Section 1144(a) of ERISA (ERISA’s preemption provision) provides for preemption of
“all State laws insofar as they may now or hereafter relate to any employee benefit plan” that
is covered by ERISA. 29 U.S.C. § 1144(a) (2012). Prior to 1995, United States Supreme Court
cases analyzing preemption claims under ERISA relied heavily upon the “relate to” language
in the preemption provision to determine whether a state law was preempted, giving the phrase
“relate to” a “broad common sense meaning.” (Internal quotation marks omitted.) Scholtens,
173 Ill. 2d at 380-81 (quoting Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724,
738-39 (1985)). As recognized by this state’s supreme court in Scholtens, in 1995 the United
States Supreme Court in Travelers made a fundamental shift away from mere interpretation of
the words of ERISA’s preemption provision toward an analysis of “the objectives of the
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ERISA statute.” (Internal quotation marks omitted.) Id. at 382 (determining that we must go
beyond the unhelpful text of ERISA to determine preemption because “ ‘[i]f “relate to” were
taken to extend to the furthest stretch of its indeterminacy, then for all practical purposes
preemption would never run its course’ ” (quoting Travelers, 514 U.S. at 655-56)).
¶ 11 The United States Supreme Court has stated that a law “relates to” an employee benefit
plan if it has “a connection with” or “reference to” such a plan. Travelers, 514 U.S. at 656; see
also Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983). A state law makes a “reference
to” an employee benefit plan where it imposes requirements by reference to ERISA covered
programs. California Division of Labor Standards Enforcement v. Dillingham Construction,
N.A., Inc., 519 U.S. 316, 325 (1997) (a state law will be preempted as having a “reference to”
an ERISA plan where the law “acts immediately and exclusively upon ERISA plans” or when
“the existence of ERISA plans is essential to the law’s operation”). In determining whether a
state’s law has a forbidden “connection with” ERISA, courts are to look to “the objectives of
the ERISA statute as a guide to the scope of the state law that Congress understood would
survive.” Travelers, 514 U.S. at 656. Subsequent to Travelers, the United States Supreme
Court in Dillingham indicated that in analyzing whether there is a “connection with” ERISA,
courts should not only look to the objectives of ERISA but also to “the nature of the effect of
the state law on ERISA plans.” Dillingham, 519 U.S. at 325.
¶ 12 As for the objectives of ERISA, Congress enacted ERISA for the express purpose of
providing safeguards to protect the interests of participants in employee benefit plans. 29
U.S.C. § 1001(b) (2006). ERISA is a comprehensive statute that subjects plans providing
employees with fringe benefits to federal regulation. Scholtens, 173 Ill. 2d at 383 (citing Shaw,
463 U.S. at 90). In enacting ERISA, Congress was primarily concerned with the
mismanagement of funds that are accumulated to finance employee benefits and the failure to
pay employee benefits from those accumulated funds. Dillingham, 519 U.S. at 327. ERISA,
therefore, established extensive reporting, disclosure, and fiduciary duty requirements
regarding the management of the benefits by the plan administrator. Id. ERISA imposes
participation, funding, and vesting requirements on pension plans (29 U.S.C. §§ 1051 through
1085 (2012)) and sets uniform standards, including rules concerning reporting, disclosure and
fiduciary responsibility for both pension and welfare benefit plans (29 U.S.C. §§ 1021 through
1031 (2012); 29 U.S.C. §§ 1101 through 1114 (2012)). Scholtens, 173 Ill. 2d at 383. ERISA
does not require employers to provide any particular benefits to employees. Id.¶ 13 As for the preemption section of ERISA, section 1144(a) (29 U.S.C. § 1144(a) (2012))
reflects Congress’s intent to establish the regulation of employee benefit plans as an
exclusively federal concern. Travelers, 514 U.S. at 657; Scholtens, 173 Ill. 2d at 383. The
purpose of § 514(a) is to ensure the administrative practices concerning employee benefit plans
are governed by a uniform body of law to minimize burdens on employers if they were
otherwise required to comply with conflicting directives. Scholtens, 173 Ill. 2d at 383-84
(citing Travelers, 514 U.S. at 657). Thus, the basic purpose of the preemption provision in
ERISA is to “ ‘avoid a multiplicity of regulation in order to permit the nationally uniform
administration of employee benefit plans.’ ” Id. at 384 (quoting Travelers, 514 U.S. at 657).
¶ 14 As for the state law in this case, the Prevailing Wage Act provides,
“[i]t is the policy of the State of Illinois that a wage of no less than the general prevailing
hourly rate as paid for work of a similar character in the locality in which the work is
performed, shall be paid to all laborers, workers and mechanics employed by or on
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behalf of any and all public bodies engaged in public works.” 820 ILCS 130/1 (West
2016).
The Prevailing Wage Act applies to “the wages of laborers, mechanics and other workers
employed in any public works *** by any public body and to anyone under contracts for public
works.” 820 ILCS 130/2 (West 2016). Under the Prevailing Wage Act, the terms “general
prevailing rate of hourly wages,” “general prevailing rate of wages,” or “prevailing rate of
wages” mean
“the hourly cash wages plus annualized fringe benefits for training and apprenticeship
programs approved by the U.S. Department of Labor, Bureau of Apprenticeship and
Training, health and welfare, insurance, vacations and pensions paid generally, in the
locality in which the work is being performed, to employees engaged in work of a
similar character on public works.
*** Not less than the general prevailing rate of hourly wages for work of a similar
character on public works in the locality in which the work is performed, and not less
than the general prevailing rate of hourly wages for legal holiday and overtime work,
shall be paid to all laborers, workers and mechanics employed by or on behalf of any
public body engaged in the construction or demolition of public works.” 820 ILCS
130/2, 3 (West 2016).
¶ 15 Here, in determining whether ERISA preempts the Prevailing Wage Act, we note that
preemption is generally disfavored and start with the presumption that Congress did not intend
to supplant state law. Travelers, 514 U.S. at 655; Bishop v. Burgard, 198 Ill. 2d 495, 501
(2002); Scholtens, 173 Ill. 2d at 379. In this case, neither party suggests the Prevailing Wage
Act has a “reference to” ERISA covered plans. Additionally, after considering the objectives
of Congress in enacting ERISA and the nature and effect of the Prevailing Wage Act on ERISA
plans (see Bishop, 198 Ill. 2d at 501), we conclude that the Prevailing Wage Act does not have
a “connection with” an ERISA benefit plan. Setting prevailing wages on public works projects
has long been regulated by the states and is “quite remote” from the areas with which ERISA
is expressly concerned. See Dillingham, 519 U.S. at 328-30, 334 (holding ERISA did not
preempt California’s prevailing wage law, which allowed the payment of lower wages to
employees participating in state-approved apprenticeship programs but not to employees in
apprenticeship programs lacking such approval). Therefore, the Prevailing Wage Act does not
“relate to” an employee benefit plan that is covered by ERISA.
¶ 16 We note that in ruling that the Prevailing Wage Act claim was preempted by ERISA, the
trial court in this case relied on the First District of the Illinois Appellate Court’s decision in
Construction & General Laborers’ District Council of Chicago & Vicinity v. James McHugh
Construction Co., 230 Ill. App. 3d 939 (1992). The trial court stated, “[t]he McHugh court
held, on facts similar to those here, that ERISA preempted the attempted application of the
Illinois Prevailing Wage Act” and was “the lone Illinois appellate case having addressed
ERISA preemption in the context of the [Prevailing Wage Act].” The trial court indicated that
McHugh, therefore, controlled in this case and, “as such, Plaintiff’s claim [was] preempted by
ERISA and, for that reason, must be dismissed as a matter of law.” We disagree that McHugh
is controlling in this case because McHugh was decided in 1992 before the United States
Supreme Court revised its ERISA preemption analysis in Travelers.
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¶ 17 We, therefore, conclude that the Prevailing Wage Act is not preempted by ERISA. 3
Consequently, we reverse the trial court’s order dismissing the Prevailing Wage Act claim with
prejudice and remand this cause for further proceedings.
¶ 18 III. CONCLUSION
¶ 19 The judgment of the circuit court of Kankakee County is reversed, and this cause is
remanded.
¶ 20 Reversed and remanded.
3
Given our decision that the Prevailing Wage Act is not preempted by ERISA as a matter of law,
the appellee’s motion to supplement the trial court record on appeal is moot.
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