By Jon Welner
PREVAILING WAGE LAW is California’s “other” minimum wage. It requires workers to be paid union wages on publicly funded construction projects. But in recent years, the law in California has EXPANDED well beyond its initial purpose. It has become a tool for workers to demand union wages on virtually any construction project in California. These claims can increase the cost of a major construction project by millions of dollars–and can be brought years after construction is complete.
Even if you think your project is private, it still might be a “Public Work” subject to Prevailing Wage in California!
Five Traps to Avoid
California Prevailing Wage Law applies to any project “paid for in whole or in part out of public funds.”
Prior to 2002, this was easy to understand. Public funds were public funds. If a project received cash from a state or local agency, it was a “public work” subject to prevailing wage.
But in 2001, SB 975 was signed by then-Governor Davis, which greatly expanded the reach of the statute. The term “public funds” was expanded to mean virtually any kind of public subsidy, including the waiver of fees, the transfer of property at below-market value, or the issuance of loan guarantees or below-market loans.
As a result, many projects that were previously understood to be “private” were suddenly classified as “public works” and subject to prevailing wage. Even sophisticated developers were–and still are–being surprised by union claims that their privately funded projects have been transformed into “public works” by some real or perceived subsidy from the government.
Here are five common traps that can turn your privately funded project into a disputed “public work”:
- Accepting grants. Grants from state agencies to promote energy efficiency, environmental cleanup, or other public benefits can be characterized as public funds in support of construction.
- Accepting fee waivers. Local governments often compete for development by offering waivers from permit fees or impact fees. These can trigger a prevailing wage claim.
- Buying or leasing property from a government entity. Any property that is bought or leased from a state or local entity can trigger a prevailing wage claim, because the unions will argue that it is being transferred or leased at below-market value. This can happen even if the developer has an independent appraisal establishing the market price! (Unions will challenge the validity of the appraisal.)
- Constructing public improvements. Local governments will often require public improvements as a condition of approving a development. Some common examples are public parks, street widening and improvement, or sewer improvements. If these improvements are paid for in whole or in part out of public funds, their construction is subject to prevailing wage. However, these improvements do not necessarily cause the rest of the project to be subject to prevailing wage. To protect the rest of the project, developers must carefully document their dealings with the local government!
- Utilizing public amenities. If the government contributes to a project by building a part of it, the entire project is subject to prevailing wage. This sounds like a situation that would be easy to avoid, right? Wrong. What if the government previously built a parking lot that will be used, in part, by a new, privately-funded development? Does that constitute the payment of public funds to the new private project? Maybe! Unions have made this claim in the past.
The bottom line: the California Prevailing Wage Law is a tricky statute. Creative plaintiffs can find a way to bring after-the-fact prevailing wage claims on virtually any major project. Beware of these traps!
Jon Welner is a leading practitioner of prevailing wage law in California. He is a Partner at Jeffer Mangels Butler & Mitchell LLP (JMBM) and Chair of JMBM’s Prevailing Wage Group. Contact him at JWelner@jmbm.com.
JMBM’s Prevailing Wage Group advises and defends developers, contractors, and manufacturers on the most challenging and complex prevailing wage matters in California.