Supreme Court Calls for Clarity on Prevailing Wage Affecting Special Districts –
Kaanaana v Barret Business Services, Inc.
By Deborah Wilder[1], Attorney, President, Contractor Compliance and Monitoring Inc.
The California Supreme Court ruled (March 29, 2021), in the case of Kaanaana v Barrett Business Services, Inc., that prevailing wages are not limited to just construction related projects when it comes to public utility, reclamation, and other similar special districts. The Court, ignoring over 90 years of California prevailing wage history, could affect a multitude of contracts special districts enter into. What exposure does a special district have at this juncture while we wait for corrective legislative or judicial action.
The Kaanaana case involved the Los Angeles County Sanitation District No. 2 and their contract with Barrett Business Services to sort recycling and have other staff operate the Downey Area Recycling and Transfer Station and the Puente Hills Material Recovery Facility. None of the work performed by Barrett was construed as construction, maintenance, or repair.
For the last 90 years, prevailing wage or public works projects have been limited to construction or construction-related projects, including construction, repair, remodeling, alternation, maintenance, service work, emergency work, and warranty work. Even though the California Department of Industrial Relations (DIR) has continued to define the work performed under Labor Code Section 1720 et seq. as restricted to construction related work, the court ruled Section 1720(a)(2) provides that prevailing wage includes “work done for irrigation, utility, reclamation, and improvement districts, and other districts of this type.”
The court reasoned that the language in Labor Code Section 1720(a)(2) specifically referencing special districts was different than the language relating to other agencies engaged in “public works.” The court stated because this particular section of the code did not specifically call out construction and related work, that the Legislature had meant it to have a more expansive interpretation for special districts to include all work awarded by a public agency and paid for in whole or in part from public funds.
What this means is that myriad contracts between a special district and any contractor could potentially be open to prevailing wages. Because there are not prevailing wage classifications published for non-construction work, special districts are in quite a quandary.
So, what is the solution? While the Supreme Court has called upon the State Legislature to clarify the statute, local agencies should not assume that a legislative solution will be attainable in this session. The DIR recently requested information from the public as to the wages paid to workers who perform the sorting of recycling, so a wage classification and wage rate is anticipated for that type of work as that is the specific type of work performed that was subject to the litigation. However, DIR has not moved to issue prevailing wage classifications or wage rates for other types of non-construction work.
So, do special districts just operate as they always do; and hope that the DIR does not retroactively impose some type of prevailing wage rate on non-construction contract? That is one option. The other is to request a wage determination for this non-construction work.
There is a provision in the Labor Code and related regulations that allow an Awarding Agency to request a wage classification and wage rates from the Director of the DIR. The provision requires providing the DIR with 45 days’ notice before the Bid Date to issue a new prevailing wage classification and wage rate. While this may seem like a time-consuming process, this at least puts the special district somewhat in control of the issue instead of having to respond after the fact with only bad options. The concern is that, if there is not a prevailing wage classification readily available, then the worker is classified into the closest wage classification. For example, most likely the workers sorting the recycling will be classified into the closest prevailing wage classification, likely Laborers with wages upwards of $55 an hour. A computer programmer could be classified under the Electrician Inside Wireman trade in excess of $80 an hour. The only way to prevent that is to request a classification from the Director of the DIR of, for example, “computer service technician” and suggest a “scope of work” and “prevailing wage rate” commensurate with market rates. In this instance, the special district has more control of the special determination than waiting for the DIR to act on its own.
Absent a favorable legislative solution, each special district should determine its position on this case and proceed with caution.
[1] Deborah Wilder is a licensed attorney in Oregon and California and is the president of Contractor Compliance and Monitoring Inc., a prevailing wage consulting firm. Deborah is also the author or three books on the topic of California and federal prevailing wages. She can be contacted at dwilder@ccmilcp.com.
This article was written by Deborah Wilder, attorney and president of Contractor Compliance and Monitoring Inc., as part of CSDA’s New Laws Series, where experts explain recently enacted laws and how they will impact special districts moving forward. This article is provided for general information only and is not offered or intended as legal advice. Readers should seek the advice of an attorney when confronted with legal issues, and attorneys should perform an independent evaluation of the issues raised in these materials.
Stay tuned to the New Laws Series in CSDA eNews for more in-depth analyses on new laws affecting special districts.
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