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When Must a California Contractor Pay Prevailing Wages?—The Answer is Not Always Simple

By June 28, 2021No Comments

California law requires that all workers employed on public works projects must be paid the proper and legally correct prevailing wage, as determined by the Director of the Department of Industrial Relations (DIR) and according to the type of work and location of the project. The applicable prevailing wage rate is typically based on rates specified in the collective bargaining agreements of the particular location of the work. (Labor Code §1773).

Failure to pay the applicable prevailing wage rates to workers can result in a civil wage and penalty assessment being issued against a contractor, including interest, penalties, and liquidated damages. The DIR also has the authority to bring a civil wage and penalty assessment against any surety who issues a payment bond on behalf of the contractor for recovery of said wages. While Civil Wage and Penalty Assessments are administrative in nature, the DIR does have the right to enforce the Assessment as a judgment in Court. Additionally, most public works prequalification processes now ask contractors whether they have ever received a Civil Wage and Penalty Assessment for failing to pay prevailing wages. Therefore, it is critical that contractors ensure full and complete compliance with the wage requirements.

Every construction project in California is at risk of prevailing wage claims. As it pertains to public works projects, the law is simple. If a construction project is funded with public dollars, the project requires payment of prevailing wages. Thus, nearly every public works project requires that prevailing wages be paid.

There are only a few exceptions to California’s prevailing wage law, mostly related to the size of the project. Assembly Bill 2231 was signed into law in late 2020, lowering the thresholds on public dollars which trigger a prevailing wage requirement. Therefore, regardless of size, nearly all public works projects require payment of prevailing wages.

However, what happens when the project is private work and does not involve a public owner? Can prevailing wages still be required? The answer is yes. If the private works project is funded in any manner with public dollars, prevailing wages must be paid. Thus, it does not matter who the owner of the project is, but rather, the source of the project funding.

The issue of prevailing wages has taken on much more complex as more private works projects have public works funding components. For example, there is presently a large governmental push towards housing for the homeless and other marginalized communities. Many of these projects are being developed privately and it is often not clear whether public dollars are in play. It is critical for any contractor looking to bid on these, or other similar projects, to first ascertain the funding source to determine whether prevailing wages are required. That determination almost always plays a sizable role in the cost of labor for the proposed project and thus, whether the proposed project makes financial sense.

On the legal front, California courts continue to interpret California’s prevailing wage law, and applicability, very liberally. In March 2021, a unanimous California Supreme Court ruled for the first time that the State’s prevailing wage requirements could be applied to employees who perform work for a private employer under a contract with a public entity. (Kaanaana v. Barrett. Bus. Servs., Inc., 11 Cal.5th 158 (2021)). Prior to this decision, the prevailing wage law had generally been interpreted to apply only to construction work pursuant to a contract entered into with a public entity.

So, what does a contractor or a private developer do if they are uncertain as to whether prevailing wages will apply? First, the contractor/developer can simply elect to pay prevailing wages in order to avoid problems. Additionally, the contractor/developer can seek a formal determination from the DIR as to whether California’s prevailing wage rates apply. Upon request, the DIR will issue a formal opinion as to whether the particular project triggers California’s prevailing wage rates. (Labor Code §1773.5)

It is crucial that any contractor or developer undertaking a project with uncertain funding sources seek clarity on the applicability of prevailing wages at the outset. In the event of questions, legal consultation should be immediately sought.

For more information on this please contact Principal Attorney Colin McCarthy, ckmccarthy@lanak-hanna.com.

The information contained in this post has been prepared by Lanak & Hanna, P.C. for educational and informational purposes only. It does not constitute legal advice, nor does it substitute for legal advice.

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