Newark, New Jersey, skyline on the Passaic River. Photo: Shutterstock.com

The city of Newark is facing a suit in U.S. District Court over a city ordinance that sets requirements for labor contracts at redevelopment projects.

In a test case for cities' control over labor contracts on publicly funded development projects, Matrix Development Group and Fidelco Realty Group are seeking to overturn an ordinance requiring developers on publicly funded projects to have a project labor agreement and to use Newark residents for 20% of hourly labor costs.

The requirements will raise labor costs, according to Matrix and Fidelco, which seek a judgment that Newark's ordinance interferes with their rights under the National Labor Relations Act, the Employee Retirement Income Security Act, the Fourteenth Amendment, and the Supremacy, Privileges and Immunities, and Commerce clauses of the U.S. Constitution.

Other elements of the contested ordinance require the developers to establish an apprentice program, to guarantee there will be no strikes or lockouts, and to establish a procedure for resolving labor disputes. The ordinance applies to projects whose costs exceed $25 million and receive tax abatements.

"The ordinance and the requirements it imposes dramatically increase the costs associated with developing the projects that it covers. In absence of the relief sought, plaintiffs will be deterred or prohibited from developing such projects in the city of Newark," said the suit, filed Monday in U.S. District Court in Newark.

The PLA requirement would create obstacles to the ability of Matrix and Fidelco to pursue redevelopment projects in Newark because it would put them on an "uneven playing field" with unionized contractors, since the plaintiffs do not have established collective bargaining agreements, the lawsuit says. They would also have to hire employees through a union hiring hall, in accordance with hiring hall rules and not their own standards; and would be restricted in the hiring of subcontractors, since they would also be required to adhere to the PLA.

The suit includes counts for NLRA preemption under the Supremacy Clause, violation of the Privileges and Immunities Clause and the Commerce Clause, and ERISA preemption.

Newark enacted its ordinance in October 2019, modeling it after a similar measure in Jersey City. If developers fail to comply, the ordinance calls for termination of any contract, grant, subsidy agreement or tax abatement with the city. Developers who fail to comply could also be barred from participating in future projects.

Jersey City's ordinance was overturned by the U.S. Court of Appeals for the Third Circuit in 2016. In that case, the court declared Jersey City's attempt to require union labor on redevelopment projects violated the NLRA because it lacked a proprietary interest in the projects in question and therefore was a market regulator, rather than a market participant.

Following the Third Circuit ruling, Newark made certain changes to its ordinance, including making it applicable to a broader range of public financing, but it remains a market regulator, making the ordinance void, the suit claims.

A. Ross Pearlson of Chiesa, Shahinian & Giantomasi in West Orange filed the suit on behalf of Matrix and Fidelco. He was not available for comment.

Newark officials did not immediately respond to a request for comment on the suit.