Prevailing Wages in California Relevant Law and Case Updates Ethan Walsh

Transcription

1 Prevailing Wages in California Relevant Law and Case Updates Ethan Walsh Best Best & Krieger LLP League of California Cities Annual Conference San Francisco

2 What are prevailing wages? The prevailing wage rate paid to laborers in a region, based on craft or type of work. Wage rates are set by the Department of Industrial Relations ( DIR ). Rates are set based on the single rate paid to the largest number of workers within a market area. As a result, wage rates frequently reflect collectively bargained wage rates.

3 Why do we care about prevailing wages? Prevailing wages must be paid on all public works. Often higher than wages paid on private construction projects. Can impact cities ability to provide financial assistance to economic development and redevelopment projects.

4 What is a public work? Defined in Labor Code section Primary definition contained in section 1720(a)(1): Construction, alteration, demolition, installation or repair work done under contract, and paid for in whole or in part out of public funds.

5 Definition of paid for in whole or in part out of public funds : Payment of public money or equivalent to contractor or developer; Performance of construction work by the public agency in execution of the project; Transfer of an asset of value for less than fair market price;

6 Definition of paid for in whole or in part out of public funds (cont.): Fees, costs, rents, insurance or bond premiums, loans, interest rates or other obligations that are paid, reduced, charged at less than fair market value, waived or forgiven; Contingent loans; and Credits against repayment obligations to the public agency. Labor Code section 1720(b).

7 Exemptions from prevailing wage requirements Private residential projects not built pursuant to agreement with state agency, redevelopment agency or housing authority; If public money paid solely for public improvements in connection with private project, prevailing wages are not triggered for private components of project;

8 Exemptions from prevailing wage requirements (cont.) De minimus exception; and Additional discrete exceptions for certain affordable housing, emergency shelters and transitional housing projects. Labor Code section 1720(c).

9 Azusa Land Partners v. Department of Industrial Relations (2010) 191 Cal.App.4 th acre master planned community on former Monrovia Nursery site ( Roseland ). Developer to pay approximately $146 million in public infrastructure costs. City and Developer agreed to establish a community facilities district ( CFD ) to pay approximately $71 million of infrastructure costs.

10 Azusa Land Partners v. Department of Industrial Relations (2010) 191 Cal.App.4 th 1 (cont.) Holding: CFD bond proceeds are public funds. Entire Roseland development was a public work under Labor Code section The private components were not subject to prevailing wages because public funds were only used for public improvements. However, all public improvements were subject to prevailing wages, even if privately financed.

11 Azusa Land Partners v. Department of Industrial Relations (2010) 191 Cal.App.4 th 1 (cont.) Practice Tips: Money that is held in public coffers or that is subject to public control is likely to be considered public funds. With all new projects consider how far prevailing wage requirement will spread. The project that is subject to prevailing wages is likely to be construed broadly.

12 Oxbow Carbon & Minerals, LLC v. Department of Industrial Relations (2011) 194 Cal.App.4 th 538 Oxbow leased a facility on the Long Beach pier from the City of Long Beach for storage and loading of petroleum coke. To make the facility operational, Oxbow took on two construction projects: Construction of a conveyor system for transport of petroleum coke to and from ships in the harbor. Installation of a roof on the facility to comply with air quality standards.

13 Oxbow Carbon & Minerals, LLC v. Department of Industrial Relations (2011) 194 Cal.App.4 th 538 (cont.) Oxbow was reimbursed by the City for the cost of the conveyor system, and paid prevailing wages for that work. Oxbow paid the cost of constructing the enclosure itself, and did not pay prevailing wages. The two projects were done under separate contracts.

14 Oxbow Carbon & Minerals, LLC v. Department of Industrial Relations (2011) 194 Cal.App.4 th 538 (cont.) Holding: Construction of the enclosure and the conveyor system were undertaken to convert an unusable structure into a functioning coke receiving and storage facility. Both construction projects constituted a single public work subject to prevailing wage requirements.

15 Oxbow Carbon & Minerals, LLC v. Department of Industrial Relations (2011) 194 Cal.App.4 th 538 (cont.) Practice Tips: The Courts and DIR look at the end product to determine the scope of the public work that is subject to prevailing wage requirements. Be wary of segmenting projects into public and private components.

16 Hensel Phelps Construction Co. v. San Diego Unified Port District (2011) 197 Cal.App.4 th 1020 Port District issued an RFP for development of a hotel on waterfront property owned by the District, and following the selection and negotiation process entered into a lease for the property with the selected developer/operator. During the selection process, the developer/operator indicated that a subsidy would be required to make the project financially feasible.

17 Hensel Phelps Construction Co. v. San Diego Unified Port District (2011) 197 Cal.App.4 th 1020 (cont.) The lease gave the developer/operator a 100% rent credit during construction, and a 60% rent credit for up to 11 years. Port District and developer/operator did provide evidence that the Port District would receive a market rate return over the full term of the lease.

18 Hensel Phelps Construction Co. v. San Diego Unified Port District (2011) 197 Cal.App.4 th 1020 (cont.) Holding: The rent credit was a reduction in rent that constituted a payment of public funds. The hotel development was therefore a public work and subject to prevailing wage requirements.

19 Hensel Phelps Construction Co. v. San Diego Unified Port District (2011) 197 Cal.App.4 th 1020 (cont.) Practice Tips: Reductions, waiver or payment of fees, rents and similar costs by a public agency significantly increase prevailing wage risk even if the deal is on market rate terms. Be wary of including these components when structuring transactions. Evidence of a need for public subsidy in the public record significantly increases prevailing wage risk, regardless of deal structure.

20 State Building & Construction Trades Council v. City of Vista (Supreme Court Case No. S173586) Supreme Court will address whether or not charter cities can exempt themselves from state prevailing wage requirements on local public works projects. Question is whether the payment of prevailing wages on local projects is a municipal affair under Article XI, section 5 of the California Constitution. Case is fully briefed. Not yet scheduled for oral argument.

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22 Contact Information Ethan Walsh Best Best & Krieger LLP 400 Capitol Mall Suite 1650 Sacramento, CA Phone: Website: