Originally posted at the California Construction Law Blog.
By Garret Murai – Partner, Wendel, Rosen, Black & Dean LLP.

Behind the scenes a quiet war is raging.

A war pitting local sovereignty, on one hand, against a Depression-era law intended to help those working on state and local public works projects, on the other.

California’s Prevailing Wage Law

Beginning in 1929 and continuing through the late 1930s, the Great Depression is widely considered to be the longest, most widespread depression of the 20th century. In 1931, the federal government enacted the Davis-Bacon Act to help workers on federal construction projects. The Davis-Bacon Act, also known as the federal prevailing wage law, sets minimum wages that must be paid to workers on federal construction projects based on local “prevailing” wages. The law was designed to help curb the displacement of families by employers who were recruiting lower-wage workers from outside local areas.

Many states, including California, adopted “Little Davis-Bacon” laws applying similar requirements on state and local construction projects. California’s current prevailing wage law requires that contractors on state and local public works projects pay their employees the general prevailing rate of per diem wages based on the classification or type of work performed by the employee in the locality where the project is located, as well as to hire apprentices enrolled in state-approved apprentice programs and to make monetary contributions for apprenticeship training.

California’s Charter Cities

In 1850, just two years after Mexico ceded much of its northern territories, including what is now California, to the United States, following the end of the Mexican-American War, California became the 31st state of the United States. At the time, California’s municipal governments were a mix of Mexican- and American-influenced governance systems, with more Mexican-influenced governing bodies (alcaldes) further south and more American-influenced governing bodies (legislative) further north.

California’s first constitutional convention was held in 1849. The 48 delegates to the convention were born in 22 different states and nations, including Ireland, Spain, France, Scotland and Switzerland, and only seven were born in California. The 48 delegates brought with them many different and varied governmental traditions and constitutional models, and under California’s first constitution, the State Legislature was given exclusive power to establish cities and to enlarge or restrict city powers.

During the next thirty years, the process of incorporating cities in California became bogged down by special interests, as commissions were appointed to manage individual municipal property and funds, and cities were directed to finance the construction of railroads and other state-wide projects and to pay claims by politically well-connected parties. State meddling in municipal affairs ultimately led to a constitutional amendment in 1879 that granted “home rule” power to California cities, including the ability of cities to become “charter cities” and exempt themselves from state laws applicable to “general law cities.” Today, 121 of California’s 482 cities are charter cities including California’s largest cities of Los Angeles, San Diego, San Jose, San Francisco, and Sacramento.

When Home Rule and Prevailing Wages Collide

Under Article XI, Section 5 of the California Constitution, ordinances of charter cities supersede state law with respect to “municipal affairs.”  Thus, charter cities are exempt from California’s prevailing wage laws. This was brought to a head in 2012 in a case we reported on earlier –State Building and Construction Trades Council of California, AFL-CIO v. City of Vista, 54 Cal.4th 547 (2012) – in which the California Supreme Court held that charter cities are exempt from California’s prevailing wage laws.

In 2013, in response to the City of Vista case, the State Legislature enacted Labor Code section 1782, which provides that a charter city is ineligible to receive “state funding or financial assistance” on a construction project if either:

  1. The city has a charter provision or ordinance that authorizes a contractor not to pay prevailing wages on a public works contract; or
  2. The city has awarded, within the last two years (i.e., since January 1, 2012), a public works contract without requiring the contractor to pay prevailing wages.

Section 1782 does not apply to funds or contracts awarded prior to January 1, 2015, to contracts for construction projects of $25,000 or less, or contracts for alteration, demolition, repair, or maintenance projects of $15,000 or less.

In City of El Centro v. Lanier, Case No. D066755, California Court of Appeals for the Fourth District, five charter cities, including the cities of El Centro, Fresno, Vista, Carlsbad and El Cajon (collectively “Cities”), filed a petition for writ of mandate and complaint for declaratory and injunctive relief to have Labor Code section 1782 declared invalid.  Specifically, in their lawsuit, the Cities argued that Section 1782 violated two provisions of the California Constitution:

  1. Article XI, Section 5, which provides “home rule” authority to charter cities; and
  2. Article XIII, Section 24, which precludes the State Legislature from restricting the use of local tax revenues.

According to the Cities, Labor Code section 1782 conflicted with the “home rule” authority granted under the California Constitution and amounted to an unconstitutional financial coercion of charter cities, as it forces such cities to relinquish their sovereignty and use local funds to further state goals of paying prevailing wages. The Court of Appeals disagreed:

Here, the Cities have regulations or ordinances that prohibit or do not require the payment of prevailing wages for the construction of their public works projects. Section 1782 does not conflict with these charter city laws as it does not mandate or require that charter cities do anything, such as paying prevailing wages for its public works projects. Rather, section 1782 provides the Cities with a choice, to meet the requirements set forth in Section 1782 to obtain state funding or financial assistance on its public works projects, or forego eligibility.

Moreover, the Court of Appeals held that the Cities had presented no evidence that Labor Code Section 1782 amounted to unconstitutional financial coercion, since no evidence was presented that the State Legislature was acting unreasonably or arbitrarily in enacting Section 1782.  Finally, the Court also disagreed that Section 1782 violated Article XIII, Section 24, which precludes the State Legislature from restricting the use of local tax revenues, since Section 1782 does not require charter cities to pay prevailing wages.

Conclusion

While it’s too early to tell, it’s likely that the Cities will petition the California Supreme Court for review of the decision, particularly since the opinion includes a strong dissent by Appellate Justice Patricia Benke, who agreed with the Cities that Labor Code section 1782 coerces charter cities to pay prevailing wages. For now, though, it’s a win for supporters of prevailing wages.