On July 12, 2019, an Anchorage-based road construction company, and an employee of that company who resides in Washington state, sued the State of Alaska, the State’s Department of Labor and Workforce Development, and Labor Commissioner Tamika Ledbetter over $158,670.29 in fines that the State issued against the construction company in 2019, for violating Alaska’s local hire law. The construction company, Colaska, Inc., does business in Alaska under several different names, including QAP and SECON. Colaska asserts that “Alaska’s hiring preference law, AS 36.10.150 and the attendant implementing regulation, 8 AAC 30.064” violate the Privileges and Immunities Clause of the U.S. Constitution and the Equal Protection Clause of the Alaska Constitution.

Colaska’s attorney is Michael C. Geraghty, who is now in private practice, but served as Governor Sean Parnell’s Attorney General from 2012-2014. In its lawsuit, Colaska asks the court to declare Alaska’s local hire law to be unconstitutional. Colaska also asks for a ruling that the State must return the fine monies Colaska has already paid ($3,678.34), and that the State may no longer enforce the local hire law and seek to collect the $158,670.29 in fines the State has issued against Colaska in 2019, but that Colaska has yet to pay.

On October 3, 2019, Alaska Attorney General Kevin Clarkson issued an 11-page legal memorandum to Governor Mike Dunleavy of the legality of the Alaska hire law. General Clarkson concludes that the Alaska hire law is unconstitutional under both the federal and Alaska constitutions and urges that the “State should stop enforcing it.”

What is the local hire law, what projects does it apply to, and is it constitutional?

Alaska’s local hire law is located in statutes passed by the Legislature and regulations written by the commissioner of labor and workforce development. It applies only to government construction projects, which are commonly referred to as “public works.”

The statute that Colaska seeks to have the courts strike down as unconstitutional is AS 36.10.150. That statute allows the commissioner of the department of labor to determine that a “zone” of underemployment exists in Alaska (the “zone” can be a census area, economic region, or the entire state as a whole). Underemployment occurs, for purposes of this law, when the commissioner decides: (1) the rate of unemployment within a zone is “substantially higher” than the national rate of unemployment, (2) a “substantial number” of residents in the zone have experience or training that would be employed on a public works project, (3) the lack of employment opportunities in the zone has substantially contributed to serious social or economic problems in the zone; and (4) employment of workers who are not residents is a “peculiar source of the unemployment of residents of the zone.”

If the commission determines that these four factors are present in some area of Alaska, or in the entire state, he/she “shall determine the amount of work that must be performed under this section by qualified residents who are eligible for the [residential] employment preference[.]” The preference applies on a “craft-by-craft or occupational basis,” meaning that the labor commissioner must specifically list what occupations (for example, truck drivers, mechanics, boilermakers, laborers, etc.) are subject to the local hire preference.

The regulation that Colaska asks the courts to strike down is 8 AAC 30.064. That regulation provides additional specifics to the language of AS 36.10.150 of what the commissioner must find to conclude an area of Alaska has “underemployment.” Unemployment within a zone is “substantially higher” than the national rate when the “unemployment within the area is at least 10 percent greater than the average national unemployment . . . for example, if the national unemployment rate is seven percent, the rate of unemployment in the area must be at least 7.7 percent for the area to be a zone of underemployment.” Further, at least 10 percent of the jobs on a public works project must be appropriate to be filled by residents who are trained for work needed on that project. The entire State is currently (and commonly) a “zone” of “underemployment” under these rules as, as of July 2019, Alaska’s underemployment was 6.3% and the national average was only 3.7%.

In order to comply with the local hire law, an employer hired on a public works project must certify each week on this form that it is in “full compliance with the provisions set forth in [Alaska’s local hire law], which requires 90% employment preference for Alaska residents as outlined in [Alaska’s local hire law.]”’

The penalties for a contractor miss-certifying that it is in compliance with the Alaska hire law “is not more than $2,000 for each of the first five false certifications. The penalty for the sixth false certification made by an employer and for each false certification thereafter is at least $2,000 and not more than $4,000.” It is not clear how many miss-certifications Colaska submitted to the Department of Labor to receive $158,670.29 in fines.

Constitutional Provisions

Local hire laws do not have a good track record of surviving constitutional challenges in court.

The U.S. Supreme Court reviewed a prior version of the Alaska’s local hire law in the 1978 case Hicklin v. Orbeck. Alaska’s law at the time was broader than the current version, as the local hiring preference applied to anyone that leased state-owned land. In other words, while the current hiring preference only applies to actual government construction projects, this prior version at issue in Hicklin would require any employer that leased state lands (say, British Petroleum leasing lands on the North Slope) to have a certain percentage of its workforce comprised of Alaskan residents. The U.S. Supreme Court affirmed the Alaska Supreme Court’s ruling that this state law violated the federal constitution’s Privileges and Immunities clause, which states:

The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.

The Founders included this clause, the U.S. Supreme Court has reasoned, to avoid the tendencies of the several states “toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation.” Notably, the Court rejected the State’s argument that non-resident hires were causing unnecessary resident unemployment, and instead concluded that the high resident unemployment was caused by a lack of education and job training and because of their geographical remoteness.

Another version of the local hire law that the Alaska Supreme Court struck down as unconstitutional was in the 1986 case Robison v. Francis. In this case, the Court provided a helpful statement of why local hire laws were so popular in local legislatures and unconstitutional:

Restricting entry by non-residents into a job market will make more positions available to residents. It is not difficult to make a case to a sympathetic legislature, whose members are accountable only to residents, that residents are deserving of protection because some of them are unemployed. But the universality of this condition is itself a reason why it is impermissible as a justification in privileges and immunities analysis. If every state could exclude or severely limit non-resident workers because some of its residents were unemployed our country would be little more than a league of states rather than the Union which now exists. Such a result would run strongly counter to the policy of national economic unity on which the privileges and immunities clause is based. The result would not be much better if the power to exclude non-resident workers were limited to those states with above average employment. Many states fit that category and many of the others, no doubt have particular industries in which a case for protection can be made.

The Robinson Court explained that while local politicians were likely to applaud these laws, they were unconstitutional protectionist policies.

The Legislature passed a third version just a few years later. This newest version contained the provision at issue in the current local hire litigation discussed above. It contains four hiring preferences on public works projects:

1. A preference for eligible individuals residing within a zone of underemployment.
2. A preference for eligible residents of an economically distressed zone.
3. A preference for eligible economically disadvantaged minority residents of a zone.
4. A preference for eligible economically disadvantaged female residents of a zone.

In the 1989 case State v. Enserch Alaska Construction Inc., the Alaska Supreme Court struck down the third preference as violating Alaskans’ right to equal protection of the law. A construction company that had been awarded the contract to construct the fifty-five mile road from the Bering Sea coast to the Red Dog Mine sued after the State’s Commissioner of Labor found that the Northwest Arctic Borough was a “zone” of underemployment and triggered the requirement that the construction company hire a certain percentage of residents of the Borough. The construction company asserted that there simply were not enough qualified workers in the Borough to meet the State’s requirement. The Alaska Supreme Court agreed and struck down the third preference listed above, as violating equal protection because it gave a preference of some Alaskans (residents of the Borough) over all other Alaskans. While the Court appreciated that the State was trying to reduce the unemployment in the Borough, that goal concealed “the underlying objective of economically assisting one class over another. We have held that this objective is illegitimate.”

There didn’t appear to be any court challenges to the Alaska hire law between 1989 and Colaska’s current lawsuit.

Thoughts

• Both federal and Alaska courts are skeptical of laws that mandate contractors on public works projects give preference to residents over non-residents. This kind of economic protection of residents runs headlong into the U.S. Constitution’s Privileges and Immunities Clause, which was meant to prevent the Balkanization of the economies of the several states and instead promote a national economy, where a worker is free to pursue his or her calling in any State regardless of residence. Given the U.S. Supreme Court’s decision in Hicklin v. Orbeck (striking down Alaska’s first local hire law), and the Alaska Supreme Court’s decisions in Robinson (striking down another local hire law) and Enserch (striking down a portion of another local hire law), it appears likely that an Alaska court will conclude that the State’s current preference of residents over non-residents on public works jobs will violates the Privileges and Immunities Clause. Colaska’s legal challenge is substantial and should be watched.

• A provision of the current version of the Alaska hire law that provides a means for a contractor to obtain a waiver may be important. The current version of the local hire law appears to provide a contractor with a means to obtain a waiver which exempts it from the local hire requirement. Under AS 36.10.070, an employer subject to the hiring requirements may request the Department of Labor’s assistance in finding qualified residents to fill the jobs needed for a public works project. That statute states that if the state is unable to find a sufficient number of qualified, eligible, and available residents able to perform the work, the commissioner of labor may exempt the contractor from the local hire requirements. In other words, if the commissioner determines that there aren’t enough local residents to fill the jobs needed, they can exempt the contractor from those requirements or can choose not to issue that waiver.

• What happened between 1989 when the Alaska Supreme Court struck down the preference for in-zone workers of an underemployed zone and 2019 when Colaska sued to invalidate the preference? Constitutional challenges to resident preference laws are prevalent throughout the United States. Yet after the Alaska Supreme Court’s decision in Enserch Alaska Construction, it doesn’t appear that anyone filed a court challenge to these laws until Colaska did in July 2019. Why did no one challenge these laws during the last 30 years? Was it because no contractor thought of or wanted to challenge these laws? Or was it because the Department of Labor did not heavily use the residence preference during this time? The only readily available information to answer these questions is that since 2015, the Department of Labor has consistently determined the entire State is a zone of underemployment, making all Alaska public works projects subject to the resident preference in hiring.

• What does the Alaska Attorney General mean when he says the “State should stop enforcing” the Alaska hire law? Does that mean he’s urging the Department of Labor to stop fining construction firms on public works projects that do not comply with the preferential hiring requirements? Or does it mean the Attorney General does not intend to defend the constitutionality of the Alaska hire law in court? Historically, state attorneys general have defended laws passed by local legislatures even if the attorney general personally believes the law is unconstitutional. But, this is becoming less common. More and more, state attorneys general are refusing to defend laws they conclude are unconstitutional. In 2013, the Washington Post published an article discussing the increase of this phenomenon in the same-sex marriage and immigration contexts. The reason this is important is because it determines how the case is litigated and the quality of the legal defense of the law at issue. If General Clarkson refuses to defend the constitutionality of the Alaska hire law in Alaska state court, who, if anyone, will step in to do that work?

Lee Baxter is a practicing Anchorage attorney. He provides periodic legal analysis for the Landmine in his spare time – when he is not fishing.