Dispute Over Cleveland's Fannie Lewis Law Pits City Against State

The Ohio Supreme Court will decide if the City of Cleveland can require contractors on public construction projects to hire local residents. 

A city ordinance, known locally as the Fannie Lewis Law, requires contractors working on projects that receive more than $100,000 in city funds to hire city residents for at least 20 percent of the “construction worker hours.” If a contractor doesn’t comply, it has to pay a fine. 

City officials say that attaching these strings to public projects has meant tens of millions of dollars in construction wages for Clevelanders since the law went into effect in 2004. And yet, while many cities, including Detroit, Boston, and Baltimore, have similar “local hire” rules, Cleveland’s could be overturned if Ohio’s Supreme Court decides that a state law prohibiting such “residency quotas” takes precedence.

Backers of the law, championed by the late councilwoman from Hough who died in 2008, say it ensures public money helps support local jobs. For large projects, such as the $185 million dollar renovation of Rocket Mortgage FieldHouse, those jobs can be a big boost for the local economy.
 
The general contractor on that project, Whiting-Turner, has voluntarily agreed to comply with the Fannie Lewis Law by reserving at least a fifth of the construction hours to Clevelanders. But Tara Rose, a real estate and construction attorney at the law firm of Buckingham, Doolittle & Burroughs in Cleveland, said meeting that threshold would be tough for many of her clients.

“A lot of these contractors have teams, and they travel throughout the state,” Rose said. Imagine you’re a welding company, and you have a core team of several workers that you take everywhere, she said. “Then you get a project in the city of Cleveland, and now you can’t use one-and-a-half of your guys. That’s a pretty big deal.”

That’s why contractors and some labor unions cheered when the state’s Republican-controlled legislature passed, and Governor John Kasih signed into law, House Bill 180 in May 2016. The law banned residency requirements for public construction projects on the grounds that “employees working on Ohio's public improvement projects" should be able "to choose where to live.”

In August 2016, days before the law was to go into effect, the City of Cleveland sued the state in the Cuyahoga County Common Pleas Court, arguing that H.B. 180 infringed on its “home rule” authority. In January 2017, Judge Michael Russo ruled in favor of the city. The state appealed to the Eighth District Court of Appeals, which upheld the lower court’s decision in December 2017.

In March 2019, the dispute reached the Ohio Supreme Court. 

Discrimination: “In the Eye of the Beholder”

During oral arguments, attorneys for the city leaned heavily on what known as “home rule” authority. That principle, embedded in the state constitution since 1912, basically says that chartered cities can pass laws to govern themselves, so long as they don’t interfere with the “general laws” of the state. Home rule authority gives cities the power to, for example, establish their own police force or fire department. 

The city argues that home rule includes the right to place conditions on public contracts.

“You come in. You bid on the job. Here are our terms,” said the city’s attorney, Gary Singletary, during oral arguments at the Ohio Supreme Court. “Contracting has long recognized as a power of local self-government.”

For the Fannie Lewis Law, the terms are this: for each percent a contractor falls short of the 20 percent requirement, it is fined 0.125 percent “of the final total amount” of the construction contract. According to the city's Office of Equal Opportunity, the agency charged with enforcing the requirement, that fine, along with additional “shortfall points,” could result in a contractor being dinged for up to 3 percent of the total cost of a project. It also requires that contractors use “significant effort” to ensure that no less than four percent of the construction worker hours required by are performed by “low-income” individuals.

The city claims the Fannie Lewis Law has resulted in most city-funded projects meeting or exceeding the residency requirement, either because the contractors working on those projects are legally required to or because they have agreed to meet the thresholds for local residents and low-income workers. As a result, the city claims that, between 2013 and 2016, Clevelanders earned more than $34 million dollars in construction wages.

But the state maintains that can't justify discriminating against non-Clevelanders. Its lawyers say H.B. 180 is a “general law” aimed at protecting employee welfare -- and trumps Cleveland’s home rule authority. 

“The construction worker who lives in Cleveland Heights or in Euclid or in Parma, cannot compete on equal terms,” said Ohio State Solicitor Ben Flowers in his oral argument. The state’s ban on residency requirements, he argued, is about protecting employee welfare. 

“The construction workers cannot know where their next job is going to be,” Flower’s said. “It moves from week-to-week or month-to-month, and for that reason, the legislature determined that it was important to protect them from discriminatory regulations like the Fannie Lewis Law.”

Jonathan Entin, a law professor at Case Western Reserve University, says "discrimination is in the eye of the beholder."

One way to think about it, Entin said, is that “if you live in Cleveland, as a practical matter, you're eligible for the 100 percent of the work.” However, “if you don't, you're eligible for only 80 percent of the work.”

“It may not be as egregious as other kinds of discrimination that we can think about, but you’re treating people differently on the basis of where they live,” Entin said. 

Contractors Have Adapted to the Requirement

If the Fannie Lewis Law is allowed to stand, construction attorney Tara Rose predicts that some contractors will meet to the requirement by reserving the highest-paying positions for their core team and looking to Cleveland residents to fill low-paying jobs, like sweeping and picking up debris. Additionally, Rose added, some large companies that operate in multiple states may be able to avoid the requirement by bringing in out-of-state workers, since the law’s definition of “construction worker hours” does not apply to work performed by non-Ohio residents. 

And yet, there is data to suggest that contractors have adapted to the law’s demands.

In recent years, contractors subject to the Fannie Lewis Law have, in aggregate, exceeded the 20 percent local resident hiring requirement, according to data that was collected by the city and published in a 2018 report. From 2013 to 2017, the city calculated, Clevelanders worked 24 percent of the construction worker hours; 9 percent of hours were worked by low-income residents. It estimates that Cleveland residents worked 1,393,276 construction hours during that period, earning more than $232 million.

Moreover, the 2018 report states that from 2012 to 2017, the City assessed $397,576 in fines and collected of 72 percent of that figure.

Cleveland isn’t the only city that has tried to give its residents an edge on public construction projects. Cities like Boston and Detroit have their own local hire laws. And a few Ohio cities like Cincinnati and Columbus, have at various times gotten behind the idea.

Whether Ohio cities will be able to do so in the future will depend on the seven justices of the state Supreme Court. 

A ruling from the high court could come at any time.