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"Ground-Stop" the Pretense of Using Market Participant Exception to Impose Minimum Wage Rules at Airports

Insight
02.12.2019
By Roy Goldberg

Businesses that sell goods and services to airlines and airports often face razor thin profit margins. They want their workers to be fairly compensated, but also must reasonably cap costs to stay profitable. Unfortunately, the latest trend to catch fire is for airport authorities to succumb to union pressure and mandate high minimum wage levels, and other labor benefits, for employees of airlines and other businesses that have some connection, however remote, to airports. Even worse, to avoid legal restrictions on their regulatory powers, airport authorities are perpetrating the idea that minimum wage and other labor standards are not actually regulations. Rather, the airports claim they are acting as a "market participant," like any Fortune 500 company that has the lawful right contractually to set the terms and conditions for any business that wants to engage directly or indirectly with the airport.

Minimum Wage Hikes by the Port Authority of New York & New Jersey

A recent example is the minimum wage rule promulgated by the Port Authority of New York & New Jersey last September, which will raise the hourly wage in annual increments to $19 by 2023. The new rule applies to workers who perform "covered services" at JFK, LaGuardia and Newark. This includes catering security, passenger aircraft security, fireguards, terminal and traffic security, cargo screening, warehouse security, baggage and cargo handling, aircraft mechanics and fueling, aircraft servicing, ramp area cleaning, sky cap services, wheelchair attendants, ticketing agents, ID checkers, shuttle drivers, cleaning services, plane washers, food service, concessions, airport lounge services, catering workers, airline meals and dish cleaning. In addition, the Port Authority claims that its minimum wage rule also applies to workers at private facilities— such as catering kitchens— outside airport boundaries, but within the so-called "Port District"— a large land swath in the New York City area that is roughly 25 miles in any direction from the Statue of Liberty.

The Port Authority insists it has the legal right to apply its minimum wage rule to employees working outside airport boundaries because the Port Authority is not acting as a regulator; rather, it is only enforcing its contractual rights as a "market participant." The Port Authority states: its rules "are issued by the Port Authority solely in its proprietary capacity, under the power granted by its governing compact to operate transportation facilities and own and control real property. Acting in their governmental or regulatory capacities, agencies may have various powers—to initiate prosecutions, for example, or to gather evidence using criminal or administrative subpoenas. The Port Authority is not exercising any such powers with respect to enforcement of its minimum wage rules. Rather, the Port Authority is acting in a purely 'proprietary capacity.'"

This means that the Port Authority will enforce its minimum wage rules "only using the means that would be available to a similarly-situated private party," such as filing "a breach of contract lawsuit, based on the theory that a given Airport employer's non-compliance with the minimum wage rules is a material breach of the employer's binding legal agreement or agreements with the Port Authority."

Misusing Market Participant Exception

Similar new minimum wage rules are now in place in San Francisco, San Jose, Los Angeles and Chicago, among other cities, with Denver and Minneapolis on the verge of following suit. All of these airport authorities claim to be relying on market participant authority rather than regulatory powers. These airport authorities are engaged in a power grab that misuses the market participant exception to justify imposition of their minimum wage and other labor rules beyond airport boundaries. The airports are interfering with the private, separate economic relationships between airlines and their trading partners by demanding that the down stream entities (such as aircraft caterers) comply with minimum wage and other labor standards. These overly zealous regulatory fiats should be challenged, and courts should "ground-stop" the airport authorities' misuse of the market participant exception to regulate minimum wage and other labor standards outside their legitimate regulatory reach.

Airlines do not decide to "do business" with an airport authority based on a commercial motivation. Rather, they understand that major airports, such as JFK, LaGuardia, Newark, O'Hare, LAX, SFO, Denver, Minneapolis-St. Paul, are for all intents and purposes the "only game in town." Airports are local monopolists—"essential facilities"—that airlines must access if they want to serve the greater metropolitan area in which the airport is located. So, while the airlines enter into leases and operating agreements, and receive permits from the airport authorities, these are not typical commercial contracts. The permits and licenses from the airport undeniably reflect the police power enjoyed by the airports, many of which claim antitrust immunity because of their state-sanctioned regulatory authority.

Moreover, other businesses caught in the web of the airport mandates do not even contract with the airport. For example, catering companies have agreements with airlines they serve. The airports claim they participate in a contractual market with these companies because they define them as "subcontractors" to the airlines, or because the airport insists that the caterers execute permits or licenses to be able to deliver catered items to airlines at the airports. But these arrangements do not transform regulatory relationships into commercial contracts.

The U.S. Supreme Court has recognized that the market participant exception (also known as the market participant doctrine) "is not carte blanche to impose any conditions that the State has the economic power to dictate." South-Central Timber Development, Inc. v. Wunnicke, 467 U.S. 92, 97 (1984). A state can choose its own trading partners, but not claim it is exercising contractual rights in order "to govern the private, separate economic relationships of its trading partners," by restricting their "post-purchase activity." Yet this is precisely what airports in New York, Illinois, New Jersey, California and increasingly other states are now doing.

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