Can the New York Department of Labor investigate whether public-works contractors are meeting prevailing-wage supplemental-benefit requirements when some of those benefits are paid into ERISA employee benefit plans?

Plain-English summary

New York's prevailing wage law (Labor Law § 220) requires that workers on public works projects receive wages and supplemental benefits at least equal to the prevailing rate for similar work in the locality. "Supplements" include things like health insurance, retirement, vacation, holiday pay, and life insurance ($ 220(5)(b)). Employers commonly fund supplemental benefits, in whole or in part, by contributing to employee benefit plans, including ERISA-covered plans. Under the Department of Labor's policy, an employer fulfills its prevailing-wage obligation when the total package of wages plus supplements meets local prevailing levels.

The Department spotted potential noncompliance patterns. One was the employer that pays prevailing-wage supplements into an ERISA plan only for hours actually worked on public works, but uses the money to buy benefits covering the worker all year (including non-public-works periods). Another was the employer that funds supplements into an ERISA plan covering both public-works workers and other employees, effectively spreading the funds. In both, the workers on a public works project might not be receiving the prevailing supplemental benefit they were entitled to.

The Commissioner asked the AG whether the Department's investigation and enforcement was preempted by ERISA. ERISA, 29 USCA § 1144(a), preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan."

The AG concluded that investigation and enforcement is not preempted under the Second Circuit's framework in Burgio and Campofelice, Inc. v NYS Department of Labor, 107 F3d 1000 (2d Cir 1997).

Distinguishing GE I. The earlier Second Circuit case, General Electric Co. v New York State Department of Labor, 891 F2d 25 (2d Cir 1989), cert denied, 496 US 912 (1990) (GE I), had found preemption when the State enforced the prevailing wage law using a "line-item" approach. Under that approach, the Commissioner prescribed prevailing benefit levels for each individual type of wage supplement, and the employer could not substitute one form for another. That structure was held to dictate ERISA-plan terms, which is preempted.

The total-package approach. In Burgio, the Department had abandoned the line-item approach and adopted what it called the total-package policy. An employer can provide supplemental benefits in any form or combination, as long as the sum total is not less than the locally prevailing benefits. Total liability is the same whether the employer bargained to provide benefits exclusively through ERISA plans, exclusively through non-ERISA plans, through additional cash wages, or some combination. This approach is consistent with ERISA, which does not mandate any particular benefit level and which leaves private parties (not the government) to set the level of benefits.

Burgio applied the GE I test and held the total-package approach did not regulate, directly or indirectly, the terms and conditions of ERISA plans. The prevailing wage law did not prescribe the type and amount of employer contributions to such plans, the rules and regulations of plan operation, or the nature and amount of plan benefits. The effect on ERISA plans was "too tenuous, remote or peripheral" to warrant preemption.

Enforcement, not just substance. Burgio also addressed the question whether the State's enforcement mechanism constituted an "alternative enforcement mechanism" for ERISA-plan obligations, which would also be preempted under the GE I framework. The court examined the State's revised enforcement policy and concluded that the contractor's obligation arose under Labor Law § 223, not under ERISA or any collective bargaining agreement providing for ERISA benefits. Underpayments were owed to individual workers, not to the ERISA plan. The Department, not the plan, collected and distributed the funds. The State's enforcement did not fall within ERISA's civil enforcement mechanism.

Practical scope. The AG drew the line clearly: a factual investigation by the Department to determine whether money paid into an ERISA plan as credit toward prevailing-supplement obligations is being diluted is not preempted. If the Department finds underpayment of prevailing supplements, it can take enforcement action requiring the employer to increase the total package. What the Department cannot do is require specific changes to the employer's ERISA plans; the enforcement remedy runs to the workers, not to the plan structure.

So the Department could continue to police compliance with the prevailing wage law without violating ERISA, provided it stuck to the Burgio framework.

Currency note

This opinion was issued in 1998. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is ERISA preemption?

ERISA, 29 USCA § 1144(a), broadly preempts state laws that "relate to" any covered employee benefit plan. The U.S. Supreme Court and the lower federal courts have read this broadly to cover state laws that regulate plan structure, mandate plan benefit levels, or create alternative enforcement schemes for plan obligations. State laws with too-tenuous, too-remote, or too-peripheral effects on plans are not preempted.

Why does the "total package" approach matter?

Because it gives the employer choice on how to deliver the prevailing benefit level, ERISA's policy of leaving plan terms to private parties is respected. The State's interest (workers receive prevailing benefits) is satisfied without dictating which forms the benefits take. That separation is what GE I demanded and what Burgio confirmed.

What's the difference between investigating the ERISA plan and investigating the employer?

The Department's investigation runs to the employer's compliance with Labor Law § 220, not to ERISA-plan operations. The Department can look at how much went into the plan from prevailing-wage work and what the workers received in return, and compare that to the locally prevailing level. The Department cannot change how the plan is structured, what its rules are, or what benefit levels it provides.

What's the remedy if the Department finds underpayment?

Under Burgio's reading of Labor Law § 223, the remedy is collection by the Department from the employer of the funds owed to individual workers. The Department then disburses to the workers. The funds do not flow back through the ERISA plan.

Could a worker bring a private prevailing-wage claim against the employer?

Yes, under Labor Law § 220's enforcement provisions, which exist alongside the Department's enforcement authority. The Department-level enforcement at issue in this opinion is the State's piece; private actions are a separate channel.

Background and statutory framework

Labor Law §§ 220 and 223 contain New York's prevailing wage law and its enforcement provisions. The law dates to the early twentieth century and reflects a public-works contracting principle: when public money pays for construction, the construction workers should receive the prevailing wage in the locality. The 1980s and 1990s saw growing complexity as supplemental benefits (health, retirement, life insurance) became larger components of compensation and as those benefits increasingly ran through ERISA-covered plans.

ERISA, enacted in 1974, comprehensively regulates employee benefit plans and preempts conflicting state law. The Supreme Court has struggled to define the precise reach of ERISA preemption, and the Second Circuit has been a focus court because New York's heavy public-works construction sector intersects with ERISA-plan funding extensively.

GE I (1989) was the first major Second Circuit treatment of the New York-prevailing-wage / ERISA-preemption question. It held the State's then-extant line-item approach preempted because it effectively dictated plan-benefit levels. The Department revamped its policy in response, adopting the total-package approach. Burgio (1997) tested the revamped approach and upheld it.

The 1998 AG opinion synthesizes Burgio's framework into operational guidance for the Department: stay in the total-package lane, focus on worker recovery rather than plan reform, and the preemption defense fails. The opinion is essentially a green light for continued enforcement under the Burgio framework.

Citations

• Labor Law § 220 (prevailing wage law).
• Labor Law § 220(3) (wage and supplement requirements).
• Labor Law § 220(5)(a) (definition of "prevailing rate of wage").
• Labor Law § 220(5)(b) (definition of "supplements").
• Labor Law § 223 (enforcement provisions).
• 29 USCA §§ 1001 et seq. (Employee Retirement Income Security Act).
• 29 USCA § 1144(a) (ERISA's preemption clause).
• Burgio and Campofelice, Inc. v NYS Department of Labor, 107 F3d 1000 (2d Cir 1997) (total-package approach not ERISA-preempted).
• General Electric Co. v New York State Department of Labor, 891 F2d 25 (2d Cir 1989), cert denied, 496 US 912 (1990) (line-item approach ERISA-preempted).

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/98-F7_pw.pdf

Original opinion text

LABOR LAW §§ 220, 223; 29 USCA §§ 1001, et seq. Investigation and enforcement of compliance with the New York prevailing wage law is not preempted by the Employee Retirement Income Security Act.

May 6, 1998
Hon. James McGowan
Commissioner
Department of Labor
Governor W. Averell Harriman
State Office Building Campus
Building 12
Albany, NY 12240

Formal Opinion
No. 98-F7

Dear Commissioner McGowan:
Your counsel has requested an opinion regarding whether the investigation and enforcement of the payment of supplemental benefits to employees on public works projects to insure compliance with New York's prevailing wage law, where a portion of the benefits are provided through Employee Retirement Income Security Act (ERISA) employee benefit plans, is preempted by ERISA. 29 USCA §§ 1001, et seq. He has raised concerns where employers take credit under the prevailing wage law for payment of some or all supplemental benefits into ERISA plans. He questions whether the Department is preempted from investigating if total supplements paid meet State requirements and from enforcing payment of any deficiencies. He has cited the following examples: (1) An employer may establish an ERISA plan for its workers who are employed on public works projects for part of the year, and on private projects for the remainder of the year. The employer will pay the required hourly amount of supplemental benefits into the plan for the time that the workers were actually employed on the public works project. However, the monies paid into the plan are then used to purchase benefits for the workers for the entire calendar year, even though they are not working on public works projects all year long.

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(2) An employer may pay into an ERISA plan on behalf of workers engaged in a public works project, but then purchase benefits for both the workers engaged in the public works project, as well as all other employees of the company. You advised us that in the above circumstances the employer may not be complying with the supplemental benefit requirements of the prevailing wage law. Under State law, the wages to be paid for a legal day's work to laborers, workmen or mechanics engaged in public works projects "shall be not less than the prevailing rate of wages." Labor Law § 220(3). The "prevailing rate of wage" is defined by law. Id., § 220(5)(a). Supplements must also be provided to laborers, workmen or mechanics in accordance with prevailing practices in the locality. Id., § 220(3). "Supplements" are defined as "all remuneration for employment paid in any medium other than cash, or reimbursement for expenses, or any payments which are not 'wages' within the meaning of the law, including, but not limited to, health, welfare, non-occupational disability, retirement, vacation benefits, holiday pay, life insurance, and New York's apprenticeship training." Id., § 220(5)(b). prevailing wage law "was originally designed to insure that employees on public works projects were paid wages equivalent to the prevailing rate of similarly employed workers in the locality." Burgio and Campofelice, Inc. v NYS Department of Labor, 107 F3d 1000, 1003 (2d Cir 1997) [hereinafter Burgio]. Your counsel has informed us that employers making payments of supplemental benefits into employee benefit plans, including ERISA plans, are given credit for such payments under the prevailing wage law. An employer fulfills its obligations under the prevailing wage law when its total package of wages and supplements are equivalent to those in the locality. ERISA preempts, with certain exceptions not relevant to this discussion, "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA. 29 USCA § 1144(a). In Burgio, the United States Court of Appeals for the Second Circuit recently held that New York's prevailing wage law was not preempted by ERISA. Burgio, a general contractor, brought that action to enjoin the State from enforcing the State's prevailing wage law in relation to wage supplements that Burgio's subcontractor allegedly failed to pay its employees and to declare the prevailing wage law preempted by ERISA. Burgio relied on the Second Circuit's decision in General

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Electric Co. v New York State Department of Labor, 891 F2d 25 (2d Cir 1989), cert denied, 496 US 912 (1990) [hereinafter GE I]. At the time of GE I, however, the State enforced the prevailing wage law using a "line-item" approach whereby the Commissioner of Labor prescribed prevailing benefit levels for each individual type of wage supplement. Burgio, at 1004. The employer was not permitted to substitute one form of supplement for another. Id. In Burgio, the State Department of Labor distinguished GE I by explaining that it had abandoned its "line-item" approach and adopted what it referred to as a "total package" policy. Id. The State asserted that under the prevailing wage law "an employer may provide supplemental benefits in any form or combination so long as the sum total is not less than the locally prevailing benefits." Id., at 1009. Therefore, an employer's total liability would be the same whether it "bargained to provide benefits exclusively through ERISA plans, exclusively through non-ERISA plans, through additional cash wages, or through some combination of the three." Id. This practice is consistent with ERISA, which does not mandate that employers provide any particular level of benefits. Id., at 1007. Under ERISA, private parties, not the government, control the level of benefits. Id. Thus, under the prevailing wage law, compliance is determined by examining an employer's total payment of supplemental benefits, the so-called "total package" approach. The payment of benefits into an ERISA plan is strictly an employer option and is considered in determining whether the total supplemental benefits provided comply with prevailing practices in the locality. In Burgio, the court applied the test developed in GE I and determined that New York's prevailing wage law did not regulate, directly or indirectly, the terms and conditions of ERISA employee benefit plans because it did not prescribe the type and amount of an employer's contributions to such plans, the rules and regulations under which such plans would operate, or the nature and amount of the benefits provided under such plans. Id., at 1008. The court found that the prevailing wage law affects ERISA plans in "too tenuous, remote or peripheral" a manner to warrant preemption. Id., at 1009. Also at issue in Burgio was whether the investigation of compliance with New York's prevailing wage law and any necessary enforcement actions were preempted by ERISA. Under GE I, a second basis for preemption was that State law enforcement personnel created what amounted to an "alternative enforcement mechanism" for ERISA plan obligations. Burgio, at 1009. In Burgio, the court cited prior United States Supreme Court cases

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which reasoned that Congress did not intend to authorize remedies that were not incorporated in ERISA. Burgio, at 1010. The court in Burgio, upon examining the State's revised enforcement policy, determined that Burgio's obligation did not arise under ERISA or a collective bargaining agreement providing for ERISA benefits, but directly under section 223 of the Labor Law. Id. The underpayments of supplements were not owed to the ERISA plan to which the subcontractor failed to pay contributions, but to individual workers. Id. The State Department of Labor, not the ERISA plan, was to collect the funds due and disburse them to the workers. Id. Under those facts, the court in Burgio found that the State's enforcement action would not fall "'within the scope of' ERISA's civil enforcement mechanism." Id. The court remanded the case to the District Court for factual determinations consistent with its opinion. Id. Thus, a factual investigation of an ERISA plan by the Department of Labor, to determine whether money paid into the plan as a credit toward the employer's obligation to pay prevailing supplements is being diluted, is not preempted by ERISA. If the Department determines that an employer is not meeting its obligation to pay prevailing supplements, the Department may take enforcement action requiring that the employer increase its "total package" of supplements. However, the Department may not require specific changes in the employer's ERISA plans. We conclude that the investigation and enforcement of compliance with the New York prevailing wage law is not preempted by ERISA provided the standards enunciated by the United States Court of Appeals in Burgio and Campofelice, Inc. v New York State Department of Labor are met. Very truly yours,

DENNIS C. VACCO
Attorney General