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May 4, 2021  |  Written by Alexis K. Stevens, Kyler C. Rayden

IS YOUR DISTRICT VIOLATING PREVAILING WAGE LAW? Prevailing Wage Law Expanded to Cover Potentially All Contract Work

On March 29, 2021, California’s Supreme Court issued a far-reaching decision (Kaanaana v. Barrett Business Services, Inc. (2021) 11 Cal.5th 158) placing special districts on notice going forward that all contract workers employed on public works projects are entitled to prevailing wages.

Brief Overview of Legal Dispute

Los Angeles County Sanitation District No. 2 (District) contracted with a private company (contractor) to provide and manage belt sorters and other staff at two county owned recycling facilities in southern California.  Belt sorters (plaintiffs) remove nonrecyclable materials, clear obstructions, sort recyclables, and separate them into different containers.  Plaintiffs filed a class action lawsuit against the contractor, claiming their form of labor fell within the Labor Code’s definition of “public works,” entitling them to minimum and overtime prevailing wages for past work.

Under current law, prevailing wages must be paid to all those employed on “public works” projects exceeding $1,000.  This requirement applies only to work performed under a contract.  It does not apply to “work carried out by a public agency with its own forces.”  Labor Code section 1720(a) defines the term “public works” to mean various types of work including but not limited to construction-type labor, improvement works, laying of carpet, some public transportation demonstration projects, and other types of work.

Plaintiffs argued that their work fell within Labor Code section 1720(a)(2)’s definition of “public works” which includes “work done for irrigation, utility, reclamation, and improvement districts, and other districts of this type.”  The contractor argued that plaintiffs’ work was not the type of work generally covered by section 1720(a)(2) because this section had historically been modified by section 1720(a)(1) which defines “public works” to mean “construction, alteration, demolition, installation or repair work . . . .”  The trial court granted the contractor’s motion to strike the plaintiffs’ wage allegations, and the Court of Appeal subsequently reversed.  The Supreme Court affirmed the Court of Appeal decision.

Supreme Court’s Expanded Interpretation of Prevailing Wage Laws

The Court first analyzed the Legislature’s intent in enacting California’s Public Wage Rate Act (Act) of 1931 which was later codified into the Labor Code, and its federal counterpart.  Both were enacted in response to the dire economic conditions of the Great Depression, the goal being to create prevailing wage laws to ensure local contractors and labor had a fair opportunity to work on public building projects that may otherwise have been awarded to unscrupulous contractors hiring cheaper out-of-market labor.  The Court thus held that the plain language of section 1720(a)(2), when read in context, indicates its scope is not limited to construction-type work as suggested by the contractor.  The Court concluded that this interpretation serves the purpose of the prevailing wage law which is to protect those who work under contract for covered districts from substandard wages.

The Court disagreed with the contractor’s narrow interpretation of the term “public works,” explaining that section 1720(a)(2) merely refers to “work,” indicating that the Legislature intended to include a wider array of tasks than only construction-type labor as described in section 1720(a)(1).  The Court pointed to the Legislature’s removal of the word “construction” as a modifier for the word “work” when it enacted selected provisions of the Act into the Labor Code.  According to the Court, this also indicated an intent to expand the type of activities that qualify as “public works” when performed for a special district.

The Court also rejected the contractor’s argument that deference was owed to past decisions from the Director of the Department of Industrial Relations (Department) which ruled that the activities set forth in section 1720(a)(2) must be limited to those listed in section 1720(a)(1). The Court held that deference to these decisions was unwarranted because the Department’s interpretation was “neither long-standing nor consistent.”

The Court went on to explain that the contractor failed to provide any evidence demonstrating that the belt sorters were materially different from laborers whose work falls under the other provisions of section 1720(a) in terms of their “vulnerability to exploitation, their risk of receiving substandard wages, or their need for higher compensation to make up for the lack of benefits normally associated with public employment.”

Additionally, the Court explained that unlike other subsections of section 1720(a) where the definition of public works is based on tasks performed (i.e., construction-type labor), covered work under section 1720(a)(2) turns on the governmental entity for which the work is done.  Thus, because the plaintiffs were employed by the contractor to perform work for a covered district, the Court held the plaintiffs were entitled to prevailing wages.

Key Takeaway

The Supreme Court’s decision has significant implications for California’s 3,000+ special districts.  As a result of this decision, any “work” performed for a special district under contract, and exceeding $1,000, may now be subject to prevailing wage requirements.  At this time, it is unclear if, when, or how the Legislature will weigh in to limit the scope of section 1720(a)(2) as requested by the dissenting opinion.

For more information about prevailing wage requirements or the how the Supreme Court’s holding may affect your business operations, please contact Kyler C. Rayden (krayden@somachlaw.com) or Alexis K. Stevens (astevens@somachlaw.com).

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