Alaska Hire Law Created Undefendable Quotas; Not More Jobs, In Zones of Underemployment

By Michael C. Geraghty and Daniel O. Culicover

© Alaska Contractor Magazine Winter 2020 Edition

In early-October 2019, the Alaska Attorney General announced that the state would stop enforcing Alaska’s “Alaska Hire” law.  The state had used this law as a tool to encourage companies to hire Alaskan residents.  However, the law’s approach—setting a hiring quota for Alaska residents on public works contracts—violated both the U.S. and Alaska Constitutions.  And as the Attorney General estimated, it would have cost the state between $600,000 and $800,000 to defend this law in court, and ultimately lose.  Accordingly, the Attorney General made the right call.

Alaska has struggled with unemployment since it became a state, with three factors contributing to its unemployment issues.  For one, the seasonal nature of Alaska’s economy increases the unemployment rate during the winter.  Separately, unemployment in Alaska simply tends to be higher in Alaska than the lower-48.  Finally, Alaska’s rural population is dispersed and has less access to jobs.

One thing is clear: outsiders are not coming to Alaska to take jobs away from Alaskans. Currently, there are no restrictions on hiring nonresidents in Alaska’s other major industries, such as seafood processing, tourism, mining, and oil extraction.  Like construction, these industries are mostly seasonal and require special skills.  During their peak season, these industries must rely on non-residents to meet the demands of the market.  These industries share another trait: they provide much of the state’s tax revenue.  Because of the taxes that these industries pay, Alaska and Alaskans benefit when these industries perform well.

Alaska’s legislature has sought to boost hiring of Alaskans by imposing hiring quotas on companies that spend state dollars—largely ignoring the benefits that non-residents give to the state. For more than 40 years, Alaska  has had laws on the books in one form or another that are intended to decrease unemployment by using resident hiring quotas. However, courts have declared each of these laws to be unconstitutional.

The most recent law—Alaska Hire—set a quota for non-Alaskans working on public construction projects in Alaska by creating “zones of underemployment.” Any public construction project inside a “zone” had to meet the state’s hiring quota on a craft-by-craft basis.  The state set the quota at 90% and concluded that the entire state was one “zone.”  In essence, the Alaska Hire law created a 90% hiring quota for Alaskan residents on any public construction project in the state.

This quota burdened almost every construction related occupation—23 crafts in total including electricians, engineers and architects, foremen and supervisors, and laborers.  For example, a paving subcontractor with a crew of 5 equipment operators including two  non-residents on a state-funded construction job violated Alaska Hire—even if every other worker on the project was Alaskan.  Violations like this could lead to fines or imprisonment.

In October of this year, Alaska’s Attorney General explained in a formal legal opinion that Alaska Hire is unconstitutional.  His opinion joins three court decisions that held that earlier versions of the law were unconstitutional.  The Attorney General’s opinion came in two parts.

First, the Attorney General wrote that Alaska Hire violated the U.S. Constitution’s  guarantee that each citizen is entitled to the “privileges and immunities” of the citizens of the other states.  This provision of the Constitution protects, for example, citizens’ right to travel to other states for work.

The framers of the Constitution included this guarantee to stitch the county together so that it could act as a union—not as a collection of thirteen (and later fifty) states.  In practice, this clause prevents states from limiting non-residents’ right to work in a state.

The Alaska Hire law violated the privileges and immunities clause by giving an economic benefit to Alaskans at the expense of non-residents.  This amounted to economic protectionism, which both the U.S. and Alaska Supreme Courts have held violates the U.S. Constitution.

Second, the Attorney General explained that Alaska Hire also violated the Alaska Constitution.  The Alaska Constitution has an equal protection clause that requires  the state to treat “those who are similarly situated alike.”  Alike, in this context, means that the state cannot treat people from one part of Alaska differently than those from another part of the state.

Alaska Hire treats people who live outside zones of underemployment differently from those who live inside a zone because it gives hiring preference to those inside the zone.  As the Attorney General explained, the Alaska Supreme Court already held that a similar law, that created “economically distressed zones,” was unconstitutional.  For that reason, creating “zones of underemployment”  violated the Alaska Constitution.

Unemployment remains a problem in Alaska. The state’s small  population is spread out over its large area.  This geographic remoteness,  coupled with insufficient education and job training, are the main drivers of unemployment.  The Alaska Hire law does not solve these problems and only burdened contractors with hiring quotas that made it harder to find qualified and trained workers.

There is a lot Alaska can do to address its unemployment problems, from improving education and job training, to increasing transportation options for  its isolated communities  But the Attorney General’s decision not to enforce the Alaska Hire law is a good first step.  His decision follows the constitution and saves taxpayers and the state money in costly litigation.