Unions Win Prevailing Wage Challenge Brought By Charter Cities: Next Stop The Supreme Court?

In City Of El Centro v. David Lanier (State Building And Construction Trades Council Of California, AFL-CIO), the 4th appellate district upheld by a 2-1 majority the constitutionality of Labor Code section 1782, which prohibits a charter city from receiving or using state funding or financial assistance for a public construction project if the city has a charter provision or ordinance that authorizes a contractor to not comply with the state prevailing wage laws.

As we wrote on this topic back in 2012 (See alert here), charter cities are governed by a municipal constitution and may make and enforce its own ordinances and regulations with respect to municipal affairs (i.e., the ‘home rule’ doctrine), as opposed to general law cities, which must comply with the state laws such as the Public Wage Rate Act (requiring municipalities to pay prevailing wages).

The California Supreme Court previously held in State Building and Construction Trade Council of California, AFL-CIO v. City of Vista that the ‘home rule’ rule permits charter cities not to pay prevailing wages to its contract workers on locally funded public works because such determination is a municipal affair and not a statewide concern.

Thereafter, in 2013, Labor Code section 1782 was enacted to encourage charter cities to pay prevailing wages by denying the charter cities access to state funds that could otherwise be used to construct the project.

Several charter cities challenged the constitutionality of Labor Code section 1782, arguing that it violated the ‘home rule’ doctrine of Article XI and Article XIII of the state Constitution, which prevents the Legislature from restricting the use of local tax revenues. The trial court denied the Charter Cities’ claim.

In affirming the trial court’s decision, the Court of Appeals acknowledged that wages of contract workers under a locally funded public works contract constitute a municipal affair – thus not requiring compliance with state mandated prevailing wages – but it did not agree with the charter cities that section 1782 usurped the constitutional authority of charter cities or penalized them for exercising their constitutionally protected right over municipal affairs. The majority noted it is generally constitutional for a state to pursue its policy objectives through financial incentives, citing several other examples.

The appellate court also addressed the claim that section 1782 violated the Constitution by restricting the use of local tax revenues. The Charter Cities’ claim was rejected with not much analysis.

Finally, Justice Benke wrote a strong dissent that essentially agreed with the charter cities that the legislation was unconstitutionally coercive in nature. In response to the majority’s blessing of the state using so-call financial incentives, he wrote:

[w]henever a particular community attempts to develop a response to a particular problem, whether it is homelessness, drug treatment, water conservation, or immigrant law enforcement, the proponents of the local solution will have far less freedom in doing so, because they will know that in the end, if their solution is not popular in Sacramento, they can be made to pay a price. In diminishing the vigor with which the home rule doctrine protects local prerogatives, the majority opinion is not only inconsistent with our Supreme Court’s home rule jurisprudence, it is unwise.

It is likely that the Charter Cities will petition the Supreme Court to review the ruling. If such a petition is denied, or the Supreme Court affirms, then charter cities will be forced to look at their practices and evaluate whether they are leaving money in Sacramento by not paying prevailing wages. Contractors evaluating charter city public projects need to be aware that their charter city clients may change their policies on prevailing wages. Contractors would be well served by addressing the issue directly with their charter city clients so that the bids reflect any potentially new prevailing wage requirements.

This document is intended to provide you with information about construction law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

April 4, 2016