Section 302(a)(1) of the Labor Management Relations Act
prohibits agreements of employers to pay money to any
representative of their employees, but §§ 302(c)(5) and (6) exempt
from this proscription agreements to pay money to trust funds
jointly created and administered by trustees representing employer
associations and a labor union for the purpose of providing medical
or hospital care, pensions, or pooled vacations for employees of
signatory employers, or to defray the costs of apprenticeship or
other training programs. A collective bargaining agreement between
petitioner general contractor and a carpenters' union required
signatory employers to pay contributions at an aggregate rate of 96
cents per hour worked by carpenter employees to certain trust funds
(Health and Welfare, Pension, Vacation Savings, Apprenticeship and
Training, and Construction Industry Advancement (CIAF))
administered by respondent trustees. With respect to nonsignatory
subcontractors, a subcontractor's clause of the agreement specified
that petitioner should require the subcontractor to be bound by the
agreement or that petitioner should maintain daily records of the
subcontractor's employees' hours and to be liable for payment of
the contributions to the trust funds with respect to these
employees. Petitioner subcontracted certain carpentry work on a
federally subsidized low income apartment project in Oregon to a
nonsignatory employer (whose employees were not entitled to
benefits in the trust funds), but did not exercise either of the
above options. Instead, the subcontractor paid directly to his
employees, as fringe benefits, 96 cents per hour in addition to
their wages at union scale, thus paying out the same aggregate of
wages and fringe benefits paid by signatory employers in the form
of wages to their employees and contributions to the trust funds.
Upon completion of the project, respondents sued petitioner in
Oregon state court to enforce the subcontractor's clause, and
petitioner defended on the ground that the clause violated §
302(a)(1). The trial court sustained respondents' demurrer, and,
while holding that it would be "inequitable" to require
contributions to the Health and Welfare, Pension, and Vacation
Savings Funds because they would
Page 429 U. S. 402
amount to a double payment with respect to the subcontractor's
employees, ordered an accounting limited to contributions to the
Apprenticeship and CIAF trusts that did "not accrue benefits
directly to the workmen." The Oregon Supreme Court affirmed
sustainment of the demurrer, but, construing the subcontractor's
clause as giving all the funds equal standing, reversed the
judgment insofar as it limited the accounting to the Apprenticeship
and CIAF trusts.
Held:
1. Federal- rather than state law principles of contract
construction apply in determining the meaning of the
subcontractor's clause, since it is a provision of a collective
bargaining agreement and application of federal law is necessary to
avoid the "possibility that individual contract terms might have
different meanings under state and federal law,"
Teamsters
Local v. Lucas Flour Co., 369 U. S. 95,
369 U. S. 103.
Pp.
429 U. S.
407-408.
2. The subcontractor's clause, as construed by the Oregon
Supreme Court to require petitioner to make contributions to the
trust funds measured by the hours worked by his subcontractor's
employees, the benefits being payable only to carpenters employed
by petitioner or other signatory employers, does not violate §
302(a)(1), but is authorized by §§ 302(c)(5) and (6). Enforcement
of the clause as so construed not only is consistent with the
wording of §§ 302(c)(5) and (6), but also does no disservice to the
congressional purpose in enacting § 302 to combat
"corruption of collective bargaining through bribery of employee
representatives by employers, . . . extortion by employee
representatives, and . . . the possible abuse by union officers of
the power which they might achieve if welfare funds were left to
their sole control."
Arroyo v. United States, 359 U.
S. 419,
359 U. S.
425-426. Pp.
429 U. S.
408-411.
3. The objective of the Davis-Bacon Act to protect contractors'
employees from substandard earnings by fixing a floor under wages
on Government projects, is not "frustrated" by the subcontractor's
clause, since such objective is clearly not "frustrated" when
contractual arrangements between employers and their employees
result in higher compensation and benefits than the floor
established by that Act. P.
429 U. S.
411.
273 Ore. 221,
540 P.2d
1011, affirmed.
BRENNAN, J., delivered the opinion of the Court, in which BURGER
C.J., and STEWART, MARSHALL, BLACKMUN, POWELL, REHNQUIST, and
STEVENS, JJ., joined. WHITE, J., filed a dissenting opinion,
post, p.
429 U. S.
411.
Page 429 U. S. 403
MR. JUSTICE BRENNAN delivered the opinion of the Court.
The question presented by this case is whether the provision of
a collective bargaining agreement between petitioner, a general
contractor, and the Oregon State Council of Carpenters, requiring
that petitioner pay contributions to certain trust funds with
respect to hours of carpentry work performed by employees of a
nonsignatory subcontractor, violated § 302(a)(1) of the Labor
Management Relations (Taft-Hartley) Act, 29 U.S.C. § 186(a)(1).
That section generally prohibits agreements of employers to pay
money to any representative of their employees. Sections 302(c)(5)
and (6), however, exempt from this general proscription written
agreements to pay money to trust funds jointly created and
administered by trustees representing employer associations and the
union for the purpose of providing medical or hospital care,
pensions, pooled vacations for employees of signatory employers, or
to defray the costs of apprenticeship or other training programs.
[
Footnote 1]
Page 429 U. S. 404
Petitioner constructed a federally subsidized low-income
apartment project in Salem, Ore. A collective bargaining agreement
between petitioner and the Oregon. State Council of Carpenters
required petitioner to pay contributions to five employer-union
trust funds jointly created by the carpenters' union and
multiemployer general contractors associations, and jointly
administered by respondents, trustees designated in equal numbers
by the employers and union. The trusts are, respectively, the
Health and Welfare Trust Fund, the Pension Trust Fund, the Vacation
Savings Trust Fund, the Apprenticeship and Training Trust Fund, and
the Construction Industry Advancement Fund (CIAF). Only signatory
employers may contribute to the funds; and no carpenter employee of
a nonsignatory employer is entitled to benefits in the Health and
Welfare, Pension, and Vacation Savings Funds, the three funds that
provide benefits for carpenter employees. [
Footnote 2] Contributions were payable at the
Page 429 U. S. 405
aggregate rate of 96 cents per hour of carpentry work done at
the project.
Petitioner subcontracted the framing work on the project to
Lloyd Jackson, a framing specialist, who was a nonsignatory
employer and whose employees were therefore not eligible for trust
fund benefits. In such cases, petitioner had the option under a
"subcontractor's clause," Art. IV of the collective bargaining
agreement, of requiring "such subcontractor to be bound to all the
provisions of this Agreement," or of maintaining
"daily records of the subcontractors employees jobsite hours and
be liable for payment of these employees [
sic] . . .
[trust fund] contributions in accordance with this Agreement.
[
Footnote 3]"
Petitioner did neither. He did not require that the
subcontractor "be bound" to the agreement and the subcontractor
made no contributions to the funds. Instead the subcontractor paid
directly to his carpenter employees, as fringe benefits, 96 cents
per hour in addition to their wages at union scale, [
Footnote 4] thus paying out the same
aggregate of wages
Page 429 U. S. 406
and fringe benefit paid by signatory employers in the form of
wages to their employees and contributions to the trust funds.
Nor did petitioner maintain daily records of and pay
contributions to the trust funds with respect to the hours of
carpentry work performed on the project by the subcontractor's
carpenter employees. Therefore, after completion of the project,
respondent trustees brought this action in the Circuit Court of
Multnomah County, Ore. to enforce the provision of Art. IV.
Grounded upon petitioner's agreement to "be liable for payment of
these [the subcontractor's] employees [
sic] . . . [trust
fund] contributions . . . ," the complaint sought,
inter
alia, an accounting of the hours of carpentry work performed
by the subcontractor's employees on the project, and a judgment for
the amount of such work at 96 cents per hour. Petitioner's
principal defense was that the subcontractor's clause violated §
302(a)(1). The Circuit Court sustained respondents' demurrer to
that defense. The Circuit Court held, however, that it would be
"inequitable" to require contributions to the Health and Welfare,
Pension, and Vacation Savings Funds because they would, in effect,
amount "to double fringe benefits" with respect to the
subcontractor's employees. It therefore ordered an accounting
limited to contributions to the Apprenticeship and CIAF trusts that
did "not accrue benefits directly to the workmen." The Supreme
Court of Oregon affirmed the judgment insofar as it sustained the
demurrer to petitioner's defense based on § 302(a)(1) but,
construing the subcontractor's clause as giving all the "funds . .
. equal standing under the terms of the contract . . . ," reversed
the judgment insofar as it limited the accounting to the
Apprenticeship and CIAF trusts.
Page 429 U. S. 407
273 Ore. 221, 225-22,
540 P.2d
1011, 1013-1014 (1975). We granted certiorari, 424 U.S. 942
(1976). We affirm.
I
The parties agree that the determinative question for decision
is that of the proper construction of the subcontractor's clause:
whether that clause binds petitioner to make contributions to the
trust funds "on behalf of" or "for the benefit of" the
subcontractor's employees, so that they may participate in the
benefits provided carpenters by the funds. Thus interpreted, the
clause would violate § 302(a)(1) because the subcontractor is not a
signatory to the collective bargaining agreement, and his employees
are therefore ineligible for trust fund benefits based on carpentry
work performed for him. On the other hand, if the clause merely
obligates petitioner to pay contributions to the funds measured by
the hours of carpentry work performed at the project by the
subcontractor's employees, the benefits being payable only to
carpenters employed by petitioner and other signatory employers,
then the clause is authorized by the exceptions to the general
prohibition of § 302(a) enacted in §§ 302(c)(5) and (6).
Before turning to the question of the meaning of the clause, we
must address a threshold question -- whether federal or state law
principles of contract construction, if they differ, are to be
applied. Plainly federal law principles apply. Although the Oregon
courts were not foreclosed from entertaining this suit merely
because petitioner's defense invoked § 302(a)(1) of the
Taft-Hartley Act,
Charles Dowd Box Co. v. Courtney,
368 U. S. 502
(1962), we have proceeded "upon the hypothesis that state courts
would apply federal law in exercising [such] jurisdiction," and
that "incompatible doctrines of local law must give way to
principles of federal labor law."
Teamsters v. Lucas Flour
Co., 369 U. S. 95,
369 U. S. 102
(1962) (citations omitted). Application
Page 429 U. S. 408
of federal law is necessary to avoid the "possibility that
individual contract terms might have different meanings under state
and federal law . . . ,"
id. at
369 U. S.
103.
The Oregon courts did not specify in this case whether federal
or state principles of contract construction guided their
concurring conclusions that the subcontractor's clause was not to
be read as violating § 302(a)(1). We shall therefore assume that
federal principles were applied. In any event, if in fact state
rules of contract interpretation were employed, federal rules would
require agreement with the Oregon courts' construction. Since a
general rule of construction presumes the legality and
enforceability of contracts, 6A A. Corbin, Contracts § § 1499, 1533
(1962) , ambiguously worded contracts should not be interpreted to
render them illegal and unenforceable where the wording lends
itself to a logically acceptable construction that renders them
legal and enforceable. The subcontractor's clause, although
inartfully worded, lends itself to a construction that ties
signatory employer contributions to the trust funds as measured
both by hours worked by his own employees and hours worked by his
nonsignatory subcontractor's employees, and, so construed, Art. IV
does not violate § 302(a)(1)
Petitioner argues that the Oregon Supreme Court's opinion reads
the clause as requiring petitioner to make payments "on behalf of"
Jackson's employees in order that they may participate in the
benefits of the trusts. This reading, he contends, is implicit in
the following passage from the State Supreme Court's opinion:
"In this case, the requirement of such a written contract was
satisfied in that defendant had a written contract with the union
which required that he make contributions to the trust funds
for his own employees and also specifically provided that
in the event he engaged a subcontractor to do any work covered by
the agreement
Page 429 U. S. 409
he would be, liable for payments into the various trust funds
for the employees of such a subcontractor."
273 Ore. at 229, 540 P.2d at 1015 (emphasis added).
Read in isolation, this somewhat ambiguous passage might appear
to support petitioner's argument. In the context of the entire
opinion, however, particularly its reliance upon lower federal
court decisions upholding the legality of payments measured in
whole or in part by wages paid to employees ineligible to receive
benefits, it becomes clear that the Oregon Supreme Court read the
subcontractor's clause as an agreement by petitioner to make
contributions to the funds measured by the hours of carpentry work
performed by the subcontractor's employees, not "on behalf of" or
"for the benefit of" the nonsignatory contractor's ineligible
employees, but solely for the benefit of the employees of
petitioner and other signatory employers. This conclusion follows,
we think, from the Oregon Supreme Court's treatment of
Moglia
v. Geoghegan, 403 F.2d 110 (CA2 1968), and
Kreindler v.
Clarise Sportswear Co., 184 F.
Supp. 182 (SDNY 1960). In rejecting petitioner's argument that
§ 302(a)(1) prohibits an employer from making any contributions
except for the benefit of his own and other signatory employers'
employees, the court characterized language in
Moglia,
cited by petitioner in support of this construction, as "not
necessary to . . . decision in that case, in which there was no
written agreement, and it is not binding upon this court in this
case." 273 Ore. at 229 n. 4, 540 P.2d at 1015 n. 4. [
Footnote 5] Rather, the Oregon Supreme Court
relied on
Kreindler, also involving payments to a trust
fund for employees of a
Page 429 U. S. 410
nonunion contractor, where the contention was rejected that an
employer's contributions measured by the hours worked of another
employer's employees violated § 302(a)(1). The court quoted
extensively from the
Kreindler opinion's reasoning in
concluding that payments might be legal even though measured by
hours worked by employees of another employer. The court stated
flatly: "We agree with [the] statement" from
Kreindler
that
"'[t]he fact that the employees of Clarise's contractors cannot
share in the payments based on their payrolls which Clarise has
agreed to make does not give Clarise the right to avoid its
agreement as illegal.'"
273 Ore. at 230, 540 P.2d at 1015. [
Footnote 6]
Accord, Budget Dress Corp. v. Joint Board
of Waistmakers' Union, 198 F. Supp.
4 (SDNY 1961),
aff'd, 299 F.2d 936 (CA2 1962);
Minko v. Scranton Frocks, Inc., 181 F.
Supp. 542 (SDNY),
aff'd, 279 F.2d 115 (CA2 1960);
Greenstein v. National Skirt Sportswear
Assn., 178 F.
Supp. 681 (SDNY 1959).
We agree that enforcement of the subcontractor's clause, as so
construed by the Oregon Supreme Court to require petitioner to make
contributions measured by the hours worked by his subcontractor's
employees, not only is consistent with the wording of §§ 302(c)(5)
and (6) but also does no disservice to the congressional purpose in
enacting § 302 [
Footnote 7] to
combat
"corruption of collective bargaining
Page 429 U. S. 411
through bribery of employee representatives by employers, . . .
extortion by employee representatives, and . . . the possible abuse
by union officers of the power which they might achieve if welfare
funds were left to their sole control."
Arroyo v. United States, 359 U.
S. 419,
359 U. S.
425-426 (1959).
II
Petitioner also advances an argument, apparently not made in the
Oregon courts, that the subcontractor's clause "frustrates" the
objectives of the Davis-Bacon Act, 40 U.S.C. § 276a, by increasing
his labor costs over the minimum required by that Act. However, the
Davis-Bacon Act
"was not enacted to benefit contractors, but rather to protect
their employees from substandard earnings by fixing a floor under
wages on Government projects."
United States v. Binghamton Constr. Co., 347 U.
S. 171,
347 U. S.
176-177 (1954). That objective is clearly not
"frustrated" when contractual arrangements between employers and
their employees result in higher compensation and benefits than the
floor established by the Act.
Affirmed.
[
Footnote 1]
Section 302 of the Labor Management Relations Act, 1947, 61
Stat. 157, as amended, 29 U.S.C. § 186, provides in pertinent
part:
"(a) It shall be unlawful for any employer or association of
employers . . . to pay, lend, or deliver, or agree to pay, lend, or
deliver, any money or other thing of value -- "
"(1) to any representative of any of his employees who are
employed in an industry affecting commerce;"
"
* * * *"
"(c) The provisions of this section shall not be applicable . .
. (5) with respect to money or other thing of value paid to a trust
fund established by such representative, for the sole and exclusive
benefit of the employees of such employer, and their families, and
dependents (or of such employees, families, and dependents jointly
with the employees of other employers making similar payments, and
their families and dependents):
Provided, That (A) such
payments are held in trust for the purpose of paying, either from
principal or income or both, for the benefit of employees, their
families and dependents, for medical or hospital care, pensions on
retirement or death of employees, compensation for injuries or
illness resulting from occupational activity or insurance to
provide any of the foregoing, or unemployment benefits or life
insurance, disability and sickness insurance, or accident
insurance; (b) the detailed basis on which such payments are to be
made is specified in a written agreement with the employer . . . ;
(6) with respect to money or other thing of value paid by any
employer to a trust fund established by such representative for the
purpose of pooled vacation, holiday, severance or similar benefits,
or defraying costs of apprenticeship or other training programs:
Provided, That the requirements of clause (b) of the
proviso to clause (5) of this subsection shall apply to such trust
funds. . . ."
[
Footnote 2]
Petitioner conceded that the trustees will not accept
contributions from nonsignatory employers. App. 53. The five trust
funds involved in this case expressly limit participation in
benefits to employees of signatory employers and petitioner makes
no claim that the subcontractors' employees received benefits from
the funds.
[
Footnote 3]
Article IV of the Carpenters Master Labor Agreement between
general contractors associations and the Oregon State and Southwest
Washington District Councils of the United Brotherhood of
Carpenters and Joiners of America, with which petitioner by
memorandum agreement agreed to comply, provides as follows:
"If an employer, bound by this Agreement, contracts or
subcontracts, any work covered by this Agreement to be done at the
jobsite of the construction, alteration or repair of a building,
structure or other work to any person or proprietor who is not
signatory to this Agreement, the employer shall require such
subcontractor to be bound
to all the provisions of this
Agreement, or such employer shall maintain daily records of the
subcontractors employees job site hours and be liable for payment
of these employees wages, travel, Health-Welfare and Dental,
Pension, Vacation, Apprenticeship and CIAF contributions in
accordance with this Agreement."
(Emphasis added.)
[
Footnote 4]
Agreements with the Department of Housing and Urban Development
required employers participating in the Salem project to pay their
employees according to the prevailing wage scale, as defined in the
Davis-Bacon Act, 40 U.S.C. § 276a. Under the Act, fringe benefits
may be paid either to the workmen directly or to union employer
trusts for the benefit of the workmen. The Act applies to all
construction contracts to which the United States is a party.
[
Footnote 5]
Moglia had been employed for 28 years by a single employer whose
payments into the trust fund had been illegal because he was not a
party to a written agreement as required by § 302(c)(5)(b). 403
F.2d at 114. The Court of Appeals for the Second Circuit concluded
that Moglia was not eligible to receive benefits because he had
never been an employee of an employer lawfully contributing to the
fund.
[
Footnote 6]
A provision of the controlling collective bargaining agreement
required Clarise, as a member of a multiple employer bargaining
association, to make payments to the union's health and welfare and
retirement funds based both upon Clarise's own payrolls and upon
the payrolls of the contractors who manufactured Clarise's product.
The employees of Clarise's contractors were not eligible to receive
benefits from the funds.
[
Footnote 7]
The agreement establishing the CIAF trust provides for exclusive
employer administration and that fund is therefore outside the
coverage of § 302.
Our decision that the subcontractor's clause does not violate §
302 makes it unnecessary to address petitioner's argument that §
302(c)(6) should be read to incorporate the "exclusive benefit"
requirement of § 302(c)(5).
MR. JUSTICE WHITE, dissenting.
Because petitioner, a general contractor, employed a nonunion
subcontractor, who did not subscribe to the provisions of the
collective bargaining agreement, he was required to maintain
records of the jobsite hours worked by the subcontractor's
employees and to be
"liable for payment of these employees [
sic] wages,
travel, Health-Welfare and Dental, Pension, Vacation,
Apprenticeship and CIAF contributions in accordance with this
Agreement."
Record 82-83. The Oregon Supreme Court described this language
as making petitioner liable "for payments into the trust funds for
the employees of the nonunion subcontractor." This means to me that
the payments were on behalf of the subcontractor's
Page 429 U. S. 412
employees. It also appears a straightforward reading of the
contractual language that the "subcontractors . . . employees . .
contributions" be made by petitioner. Had the subcontractor been
eligible to make these contributions, they surely would have been
made for the benefit of his employees. The sensible inference from
the contractual language is that the contractor, the petitioner,
intended the same result. Common sense tells us that petitioner had
no intention of making contributions with respect to employees who
could never benefit.
As construed in this way, the provision is illegal because the
employees of the noncontributing contractor may not be a
beneficiary of the trust funds, even though the contributions are
made with respect to them. But this would not be the first time
that parties have drafted unenforceable contractual provisions,
either by design, accident, or mistake.
I do not understand why the Court feels such compulsion to save
the contract by construing it to mean that the payments at issue
are not for the benefit of the contractor's employees at all and
are not made on their behalf. The result of this construction is
that, in addition to the full contract price paid to the
subcontractor, petitioner must pay into the trust funds 96 cents
for each jobsite hour worked by the subcontractor's employees,
these funds to be held for the employees of the contributing
employers but excluding the subcontractor's employees. This is
simply a penalty for employing a nonsignatory subcontractor, a
penalty the Court creates in construing the contract as it does.
With all due respect, I dissent, and would reverse the judgment
below.