What’s On Their Minds: Can The State Prohibit a City From Requiring A Certain Percentage of Jobs for City Residents on Public Improvement Projects? City of Cleveland v. State of Ohio

“So you are saying that any percentage that the city attempts to enact that favors its residents in any percentage over anybody else is unlawful?”

Justice Stewart, to the State Solicitor

“So could Cleveland require that 100% of contractors and employees live in the city?”

Justice DeWine, to Cleveland’s Law Department Chief Counsel

On March 6, 2019, the Supreme Court of Ohio heard oral argument in City of Cleveland v. State of Ohio, 2018-0097. At issue in this case is whether the State has the power under Article II, Section 34 of the Ohio Constitution to prohibit public authorities from requiring contractors who work on public improvement projects to hire a certain percentage of laborers who reside in defined geographic areas. If the State does not have such power, then the question becomes whether such a prohibition violates home-rule authority.

Case Background

In 2003, the City of Cleveland (“Cleveland”) enacted Cleveland City Ordinances (C.C.O.) Chapter 188, also known as the Fannie Lewis Law. The Fannie Lewis Law mandates that all construction contracts over $100,000 with the city shall require at least 20% of the construction hours to be performed by Cleveland city residents. If a contractor fails to comply with this requirement, a penalty is imposed. Other Ohio cities such as Cincinnati, Columbus, and Akron have similar laws. In 2014, the Ohio Contractor’s Association challenged the Akron law on equal protection grounds in federal court, but that court rejected the argument and upheld the law.

In 2016, following the federal court’s ruling, the State enacted what is now R.C. 9.75, known as the residency choice law, which prohibits public authorities from requiring contractors who work on public improvement projects to employ certain percentages of laborers who reside in defined geographic areas. R.C. 9.75 effectively proscribes the mandates of the Fannie Lewis Law. The legislature found this to be a matter of statewide concern, affecting the general welfare of all employees, and the right to live wherever one wishes.

After the enactment of R.C. 9.75, Cleveland filed a complaint challenging the constitutionality of the statute. Cleveland claimed the State improperly invoked Article II, Section 34 of the Ohio Constitution to enact R.C. 9.75 and that the law unconstitutionally infringes upon the city’s home-rule authority. The trial court agreed with Cleveland and enjoined the State from enforcing the law.

The Eighth District Court of Appeals unanimously affirmed the trial court’s ruling, holding that Article II, Section 34 of the Ohio Constitution did not give the General Assembly power to enact R.C. 9.75 and that the statute infringed upon the municipal home-rule authority granted in Article XVIII, Section 3. The Eighth District reasoned that R.C. 9.75 was not related to the general welfare of employees, so it was not covered by Article II, Section 34 and was thus subject to home-rule analysis. The Eighth District found that R.C. 9.75 did not pass the home-rule test because the Fannie Lewis Law was an exercise of local self- government, not an exercise of police power, and R.C. 9.75 was not a general law.

Read the oral argument preview here.

Key Precedent

Article II, Section 34 of the Ohio Constitution (Employee Welfare Amendment — “Laws may be passed fixing and regulating the hours of labor, establishing a minimum wage, and providing for the comfort, health, safety and general welfare of all employees; and no other provision of the constitution shall impair or limit this power.”)

Article XVIII, Section 3 of the Ohio Constitution (Home-Rule Amendment — “Municipalities shall have authority to exercise all powers of local self-government and to adopt and enforce within their limits such local police, sanitary and other similar regulations, as are not in conflict with general laws.”)

R.C. 9.481 (Barring residency requirements for political subdivision employees.)

R.C. 9.75 (B)(1) (Residency-Choice Law) (“No public authority shall require a contractor… for the construction of a specific public improvement…to employ as laborers a certain number or percentage of individuals who reside within the defined geographic area or service area of the public authority.”)

C.C.O. Chapter 188 (The Fannie Lewis Law) (“[E]very Construction Contract shall…Require that one (1) or more Residents perform twenty percent (20%) of the total Construction Worker Hours…performed under the Construction Contract.”)

Dies Elec. Co. v. City of Akron, 62 Ohio St.2d 322 (1980) (A City’s authority to contract arises as a power of local self-government under the Home Rule Amendment.)

Rocky River v. State Emp. Relations Bd., 43 Ohio St. 3d 1 (1989) (Upheld a statute enacted pursuant to Article II Section 34 that mandated binding arbitration between a city and its safety forces in the event of a collective-bargaining impasse.)

Canton v. State, 2002-Ohio-2005 (Home-Rule authority test: an Ohio statute overrides a local ordinance when (1) a conflict exists, (2) the ordinance is an exercise of police power, not local self-government, and (3) the statute is a general law. General law test: a general law must (1) be a part of a comprehensive enactment, (2) apply uniformly throughout Ohio, (3) do more than just grant or limit municipal power, and (4) prescribe a rule of conduct.)

Lima v. State, 2009-Ohio-2597 (Upheld an Ohio law barring residency requirements for city employees, finding that the law provided for the comfort and general welfare of employees because it allowed “employees more freedom of choice of residency”; no home-rule analysis was needed.)

Propositions of Law Accepted for Review

Proposition 1

R.C. 9.75 is a valid exercise of authority under Article II, Section 34, because it provides for the general welfare of employees by protecting them from local preferences. Thus, no home-rule analysis is needed.

Proposition 2

R.C. 9.75 satisfies home rule. Cleveland’s ordinance is an exercise of police power designed to serve general-welfare interests by shifting work to local residents. The challenged law is a general law that counteracts the significant extraterritorial effects residency quotas have on Ohioans living outside the relevant local jurisdiction.

At Oral Argument

Arguing Counsel

Benjamin M. Flowers, State Solicitor, Office of the Ohio Attorney General, for Appellant, State of Ohio

Gary S. Singletary, Chief Counsel Civil Division, Law Department, City of Cleveland, for Appellee City of Cleveland

State’s Argument

Lima resolves this case. In Lima, the Court upheld a state law that forbade cities from discriminating against nonresidents in hiring decisions. The Court held that any law that improves freedom of choice of residency is valid under Article II Section 34 of the Ohio Constitution. Lima established two propositions that everyone in this case agrees on. The first is that laws passed under Article II Section 34 are immune from home rule challenges. The second is that Section 34 empowers the General Assembly to pass laws that improve employees’ freedom of choice of residency. Because R.C. 9.75 was enacted pursuant to Section 34, and does improve employees’ freedom of residency, Cleveland’s home rule challenge fails.

Construction workers cannot know where their next job is going to be. Those jobs move all the time. For that reason, the legislature determined that it was important to protect these workers from discriminatory regulations like Cleveland’s Fannie Lewis law. That law requires contractors to fill 20% of labor hours with local residents. So construction workers who live outside the city cannot compete on equal terms with those who do. As to those 20% of the labor hours, the resident who doesn’t live in Cleveland is discriminated against with respect to the Cleveland resident. Residents and nonresidents must be allowed to compete on a level playing field.

Cleveland argues that Fannie Lewis is a quota, not a residency requirement. But the key question is not whether Fannie Lewis is a quota or a residency requirement or anything else. If that were a relevant distinction, Lima could be evaded simply by having a 90 or 99% quota. The relevant question under Section 34 is not what the local law is called. It’s whether the state law improves freedom of choice of residency. And here the state law does, because it ensures that a construction worker will not be put at any competitive disadvantage in seeking work on public improvements. It ensures that residents and nonresidents can compete for work on equal terms. But laws with a quota like the Fannie Lewis law do not allow this, because a nonresident is at a disadvantage as to 20% of the labor hours.

The Eighth District’s decision that the residency choice law does not regulate an employee/employer relationship is incorrect. First, Section 34 does not limit the legislature to acting upon employee/employer relationships. More significantly for this case, the residency choice law does regulate the employee/employer relationship by giving contractors and their construction workers freedom to negotiate without regard to discriminatory regulations like the Fannie Lewis law. Ohio’s residency choice law provides employers and employees with the right of deciding who to work for and where to work without regard to where they live.

Cleveland’s Argument

The City of Cleveland is here to defend the Fannie Lewis law against the State’s attempt to preempt Cleveland from adopting a law that addresses the welfare of its residents. This wasn’t a law that was drafted or put into place on a whim. The Cleveland city council studied what was happening in Cleveland for well over a year, to determine why the city was not receiving benefits from the money it was spending. Cleveland’s tax dollars were being spent for construction projects, but Cleveland residents were not getting the work. With the Fannie Lewis law, Cleveland was just trying to do the same thing that Article II Section 34 accomplishes, which is the general welfare of individuals that live in Cleveland, where the history of employment has been against people living there. While Cleveland’s law wasn’t enacted under Article II Section 34, it certainly was enacted under the spirit of that provision.

The City doesn’t think R.C. 9.75 was genuinely enacted under the authority of Article II Section 34. This case gives this Court a chance to look at the parameters of this law in the context of home rule, among other provisions in the Ohio Constitution. The state wants to say Lima is the beginning and the end of this case. When the law at issue in Lima was enacted, all workers had to live in the city or they would not get their jobs. That is not the case here. Cleveland’s Fannie Lewis Law does not require any residency of any worker, nor does the city require a contractor to live in Cleveland as a basis for contracting with the city. The decision as to who works for the city’s public construction contracts is not the city’s—the contractor hires. And these are sophisticated contractors. They know what they are bidding on. In this case there is no employer/employee relationship between Cleveland and these independent contractors that are coming into the city.

Cleveland has home rule. This Court has ruled in Dies and other cases that the ability to contract is a power of local self-government, and the state is trying to take this away here. What the General Assembly has done here is invade the province of local self-government under a circumstance where they try to argue that they are giving freedom of choice to live wherever one wants. The General Assembly has enacted a law that deprives Cleveland of its home rule authority to contract. The State tries to act like this is a police law Cleveland has enacted, when it is a contract law.

If the General Assembly is going to deprive Cleveland of its home rule authority, it needs to enact a general law. R.C. 9.75 is not a general law. It meets only one part of the 4-part Canton test, and if even one prong of that test is missed, then it’s not a general law. It may be uniformly applied, but other than that it’s not a comprehensive law, it’s not a police law, and it doesn’t regulate conduct of citizens. So it’s not a general law.

The Fannie Lewis law says that 80% of the work force hired on public construction contracts can come from anywhere. Actually, 100% can come from anywhere, but if a contractor chooses to hire 100%, there’s a penalty of 2.5%, which contractors are well aware of at the time they bid on that contract. That’s a liquidated damages concept. It’s not a police law. The city does not enforce residency requirements against any contracted employee. It’s the contractors’ decision as to who they want to hire. The Fannie Lewis Law does not invade the comfort, health, safety or general welfare of any resident outside the city of Cleveland.

What Was On Their Minds

Article II Section 34

The state’s Section 34 argument relies on the provisions that says “no other provision of this Constitution shall limit this power,” commented Justice DeWine. What would happen if the state decided to pass legislation that said we have too many employees that are criticizing each other. No employee on a work site in Ohio shall say anything bad about another or they will be punished by the state. Leaving aside the federal constitution, would that violate the freedom of expression provisions of the Ohio constitution? What’s the stopping point? What if the state wanted to say no worker shall own a firearm? Does Article II Section 34 trump the free expressions or right to own a firearms provisions of the Ohio Constitution? And why does it apply to Home Rule? There’s nothing in the text or structure that talks about home rule. What if the General Assembly had phrased the law slightly differently—what if they had said that no contractor who has a public contract shall discriminate based on residency. Under the Home Rule Amendment, that would clearly be a general law that would supersede the Cleveland law that requires that contractors discriminate based on residency. If it was phrased that way, wouldn’t everyone say it was o.k.? Why couldn’t the legislature say discrimination based on residency shall be illegal for people on public contracts in Ohio? Is there any reason the legislature couldn’t do that? As a policy preference? Does the legislature just need to phrase this a little differently?

Instead of First or Second Amendment rights, let’s go to 1851 where the Ohio Constitution says we’re not going to have indentured servitude. That’s an employment issue. Would that trump this provision, asked Justice Fischer? Section II Article 34 says that laws may be passed providing for the health, comfort, safety and general welfare of all employees. How does this statute violate that? Isn’t the Fannie Lewis Law for a specific group of people? Those in Cleveland? And the Constitution requires these laws to apply to all employees, which the residency choice law seems to do. It applies throughout the state.

Cleveland has not conceded that Section 34 trumps home rule in this case, has it, asked Chief Justice O’Connor?

The powers of Article II Section 34 belong to the General Assembly, noted Justice French. If what Cleveland is doing is in the spirit of Article II Section 34, and if the General Assembly has those same interests in mind, why does that not trump what the city has done here? Is what the General Assembly said it was doing really a pretext? That what Cleveland was doing really had the employees and their safety in mind but what the General Assembly did, even though they said that’s what they had in mind, was simply a pretext? So we should look behind the provision to see what was the legislature’s intent?

The Fannie Lewis Law

Are the employees who are hired public employees, asked Chief Justice O’Connor? They get no benefits of being a public servant? Aren’t construction workers transient employees? Wouldn’t it be to their benefit to have the flexibly to work wherever they wanted in the state and not be confined to the Cleveland jurisdiction? This doesn’t apply to private employers pursing their private industry, does it? Isn’t the Fannie Lewis law just an economic motivator-a contractor can hire 100% of the workers from outside Cleveland residents; he just makes less money because he has a penalty to pay?

The construction workers don’t have to live in Cleveland, noted Justice Stewart. There is no mandate that contractors can only hire Cleveland residents. The ordinance requires 20% of the work to be by residents of the city, correct? Who is discriminated against here with that requirement? Is it the state’s position that any percentage that the city attempts to enact that favors its residents over anybody else is unlawful? She added that she was having a hard time understanding how Fannie Lewis doesn’t allow freedom of residency. If there were a 100% residency requirement, that everyone who worked on contracts over $100,000 had to live in the city of Cleveland, I could see the discrimination argument there, she said. I’m just having trouble seeing it when you can work on these projects regardless of whether you are a resident or not. Later, she asked Cleveland’s lawyer whether the Court’s analysis should be affected by the merits of why this law went into effect?

The Lima Decision

Is the difference between the Lima decision and what we have here that prior to the decision, all employees had to be residents of the city? So how does the state view the fact that under Fannie Lewis the vast majority can be from any jurisdiction and only 20% need to be from the city in which the construction is taking place, asked Chief Justice O’Connor?

If Cleveland wanted to just completely avoid the Lima decision could it do so by privatizing all of city government, asked Justice DeWine? Could it say, we’re really concerned about all the people in our sanitation department not having to live in the city anymore, we’re going to contract that out and as a condition require that all those employees now live in the city? What’s the difference between Lima and what’s going on here? Other than its 20% rather than 100%?

Home Rule

I’m curious about the City’s argument that because it’s a contract, the city has carte blanche to move forward under home rule, commented Justice DeWine. Could Cleveland by contract require every worker on a city contract to live in the city,? If not 100%, then what’s the line? What if the city said, we’re really concerned about the number of people who aren’t immunized in the city. We are going to require every contractor as a condition of doing business with the city to guarantee that every employer and their family is immunized? Could Cleveland do that? Just as a matter of home rule power? The city suggests that because this is a matter of contract, it’s a matter of local self-government. How far can cities go to accomplish police power aims through contracts? Isn’t that what the city is doing here? Trying to make sure that more residents get employed, so they are doing that through contracts? (Justice Stewart interrupted with, “contracts that contractors are free to enter into or not.” )

How it Looks From The Bleachers

To Professor Emerita Bettman

This case revives a long-running debate about how broad the grant of legislative authority is under Article II Section 34. Lima summarizes key cases in which the Court has upheld statutes enacted pursuant to that section, including a ban on residency requirements in Lima itself. For those interested, the majority opinion by Justice Pfeifer and the dissenting opinion of Justice Lanzinger pretty much set forth the viewpoints being argued here.

My sympathies are with the city, because I think the regulation of residency as part of the general welfare clause of Section 34 is a stretch, but this looks like a win for the state, although this is far from an easy call. It is clear that the Justices just do not all see this the same way, just as different justices didn’t in Lima. Justice Stewart was by far the most sympathetic to the Fannie Lewis Law as a proper exercise of local self-government, and seemed to bristle at the notion that it was in any way discriminatory. I believe the Chief is sympathetic to the city as well. (I disagree with Ivy on this point). Justice DeWine, who was a particularly active questioner, didn’t seem persuaded by the city’s argument that it was just enforcing a contract provision, not using its police power, and Justice French didn’t seem sympathetic to the city’s argument either.

Justices DeWine and Fischer seemed to enjoy pushing the state’s new young and obviously talented state solicitor about the limits of the supremacy clause in Article II Section 34, with some hypotheticals worthy of law school, but I think ultimately will side with him. That provision has always been construed as a broad grant of legislative authority. Justice Donnelly, one of several Clevelanders on the bench, was silent. As an aside, I am impressed when the state solicitor comes to the Court to argue in person, which is relatively rare as far as blog-covered cases go.

To Student Contributor Ivy Charneski

There were tough questions on both sides and I’m really not sure which way this one will go. The Court appeared to be concerned about the slippery slope dangers of each side’s position. For example, on the State’s side, how far can the Article II, Section 34 power go, can it trump freedom of speech rights? Does it trump the section of the Constitution about indentured servitude, after all isn’t that an employment law? On Cleveland’s side, if the city can’t require 100% of the work be done by residents, then what is the stopping point for the quota? Could it require 50%?

Apart from these slippery slope concerns, the Court seemed to be split to me. I think the Chief Justice might be in favor of the State’s side. What made me think this were her early questions that seemed to be taking the words right out of the State’s mouth. Namely she noted that construction workers are generally transient, and wouldn’t they want a law that allows them to move around? The State Solicitor’s response was basically, yes, that is exactly the point. On the other hand, Justice Stewart really didn’t seem to be able to wrap her head around how the Fannie Lewis Law is discriminatory and who it’s discriminating against. Rather, she appeared very focused on the fact that 80% of the work on a construction project is still up for grabs for non-residents.

I thought Cleveland had a strong brief, but I don’t think it translated to the argument. I think this could go either way, but if I had to choose I’d bet on a win for the State. It will be interesting to see which way this one comes out.