Construction Law Update: Supreme Court Rules Charter Cities Do Not Have to Pay Prevailing Wages on Public Construction Projects

On April 12, 2012, we reported on legislative developments involving Project Labor Agreements (“PLAs”) and the tension developing between Sacramento and charter cities regarding the required use of PLAs [click here for previous alert]. Now, in a 5-2 decision, the California Supreme Court ruled that charter cities do not have to comply with California’s prevailing wage law. In California, 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).

In State Building and Construction Trade Council of California, AFL-CIO v. City of Vista, the City of Vista (a charter city) contracted to have two fire stations built. These contracts did not require compliance with the Public Wage Rate Act. The AFL-CIO filed a peremptory writ attempting to force the City of Vista to comply with the Public Wage Rate Act. The City of Vista countered that prevailing wage issues are not a statewide concern, and that charter cities have the legal right to determine whether to require “prevailing wages” on locally funded public work projects. Applying a four-part test on interpretation of the state constitution, the Supreme Court sided with the City of Vista. The Supreme Court held that wages of contract workers constructing locally funded public works are a municipal affair, and that wage levels of contract workers constructing locally funded public works was not a statewide concern. There were two strong dissents which argued that allowing charter cities to “opt out of” state laws simply to save money undermined the goals of the Public Wage Rate Act.

Even with this ruling, charter cities are not yet out of the woods when it comes to prevailing wages because Governor Brown signed SB 829 on April 26, 2012. SB 829 goes into effect on January 1, 2013 and provides that if any entity (charter city or general law city) constrains the use of PLAs, then that entity will not be entitled to receive any state construction dollars for any of its projects. SB 829 was aimed at local ordinances – primarily San Diego’s Proposition A – that ban the required use of PLAs. Proposition A was approved by the voters in the election of June 5, 2012. Proposition A has an “out clause” that permits PLAs as a condition of the receipt of state or federal funds. Meanwhile, AB 1804, which was supported by the Associated General Contractors, died in committee on May 21, 2012. AB 1804 would have repealed any state funding restrictions on charter cities that had imposed PLA restrictions.

Some charter cities have time to reconsider PLA restrictions. If a charter city had a PLA restriction in effect prior to November 1, 2011, the state funding ban does not go into effect until January 1, 2015. As for San Diego, it is unclear whether SB 829 would restrict state funding of its projects because of Prop A. While some argue that Prop A’s “out clause” will continue to allow San Diego to receive funds, others are not so sure because of the broadly written nature of SB 829. Litigation will likely be necessary to answer these questions.

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.

July 9, 2012