If your company provides
services or construction work for a
public entity under a contract that exceeds $1,000, you’re required by state
law to pay workers a prevailing wage, which is usually higher than the state
minimum wage of $6.75 per hour. Employees working for a subcontractor on the
project are also entitled to the prevailing wage. But what happens if the
subcontractor doesn’t pay its workers the prevailing wage—can the employees go
after you because you’re the contractor that holds the public works contract? A
recent case examined this question.
How To Survive an Employee Lawsuit: 10 Tips for Success
With lawsuits against employers becoming ever more common—and jury verdicts skyrocketing—your risk of getting sued has increased dramatically even if you’ve done all the right things. Learn how to protect yourself with our free White Paper, How To Survive an Employee Lawsuit: 10 Tips for Success.
Lawsuit Alleges Failure
to Pay Prevailing Wages
As part of the
development deal for a master planned community of 2,000 residences in the city
of
Bernardino
development partnership
partner, Communities Southwest Development and Construction Co., entered into a
public works contract with the city. Pacific Structures was a subcontractor on
the project. Eventually, a group of Pacific Structures construction workers
claimed the company didn’t pay them the prevailing wage for their work on the
But they also went after
Southwest.
The workers alleged that
Chapman Heights and Communities Southwest, as the general contractors on the
project, violated a Labor Code section that states: “The contractor to whom the
contract is awarded, and any subcontractor under him, shall pay not less than the
specified prevailing rates of wages to all workmen employed” on the contract.
The workers argued that this language means that a general contractor is liable
for a subcontractor’s failure to pay the prevailing wage to its own employees.
Sub’s Employees Can’t
Sue Prime Contractor
But now a
has tossed out the workers’ case against the general contractors.1 According to the court,
the plain language of the Labor Code requires only that a contractor and
subcontractor on a public works project pay prevailing wages to their
respective employees. The law does not require a contractor to pay prevailing
wages to a subcontractor’s employees. Nor does the law give a subcontractor’s
employees the right to sue the general contractor when the sub fails to pay
prevailing wages; rather, the law only gives them the right to sue their own
employer. The court also dismissed the workers’ claims against the general
contractors for breach of contract and unfair competition.
Caution Required
This case is a welcome
development for companies in the public works business. These contracts
typically involve large sums of money, and the employers are subject to a maze
of complicated prevailing wages rules. Violations of the rules are common, and
employees often go after not just their own employer for back wages and damage but
any company associated with the public works project. This new decision should
give public works contractors some protection from these lawsuits.
It is important to keep
in mind, though, that even though a subcontractor’s employee can no longer sue the
general contractor for prevailing wage violations, the labor commissioner can
take its own enforcement action. The labor commissioner can pursue penalties against
the general contractor if the general contractor knew the subcontractor didn’t
pay prevailing wages. This is also true if the general contractor failed to
provide for the payment of prevailing wages in its contract with the
subcontractor, failed to monitor such payments by reviewing the subcontractor’s
payroll records, and failed to get an affidavit of compliance from the subcontractor.
Prevailing Wage
Information
To help ensure you’re in
compliance with prevailing wage rules, be sure to check out the Department of Industrial
Relations website, which includes prevailing wage FAQs and more. Go to www.dir.ca.gov/dlse/DLSE-PublicWorks.htm.
You can read the new case at www.courtinfo.ca.gov/opinions/.
_
1 Violante v. Communities
Southwest Development and Construction Co.,
E037333, 2006