In an unprecedented interpretation of the Labor Code, the California Supreme Court just issued an opinion in Kaanaana v. Barrett Business Services, Inc., significantly expanding the reach of this state’s prevailing wage laws. In its March 29, 2021 decision, the Court held that, although the prevailing wage was traditionally interpreted to apply to construction-related work only, the language at issue does not include such limitation when the work is performed for public utility, reclamation, and other special districts. According to the Court, any work whatsoever for such public entities must be paid at prevailing wages.
“Public Works” Projects
The Labor Code provides that workers on “public works” projects paid for in whole or in part out of public funds are entitled to prevailing wage for their work. This has long been understood to apply only to activities that could be characterized as construction, including construction, demolition, installation, repairs, and certain maintenance activities. The Court reexamined this longstanding assumption and determined it should not apply to work contracted by certain special districts. As such, the opinion potentially extends the prevailing wage law to any manual or even non-manual work performed under a contract with a special district worth more than $1,000.
The case arose from the Los Angeles Sanitation District’s operation of a recycling and transfer facility as part of its refuse disposal system. Barrett Business Services, Inc. (Barrett) contracted with the District to provide belt sorters and operate the two facilities. Refuse would be deposited onto a conveyor belt system, and Barrett’s workers would sort the materials, removing nonrecyclables, clearing obstructions, and placing materials into containers. Barrett’s workers sued asserting a variety of claims, including demanding payment of prevailing wage for their work.
Labor Code section 1771 provides that, except for public works projects of $1,000 or less, prevailing wage rates must be paid to all workers employed on “public work.” Labor Code section 1720(a) defines what qualifies as “public work.” Most of the definitions focus on work of a construction character, such as demolition, installation, repair, carpet laying, street, sewer, or other improvement work. However, Section 1720(a)(2) provides that prevailing wage includes “work done for irrigation, utility, reclamation, and improvement districts, and other districts of this type.” Although it did not separately define “work,” this definition was traditionally interpreted consistent with the other definitions to encompass work of a construction character.
The California Supreme Court disregarded the interpretation that had been in settled use by the Department of Industrial Relations, special districts, and their contractors, instead holding that Section 1720(a)(2) must be interpreted in isolation and applied generically to any “work” done for a covered district, resulting in the application of prevailing wage to recyclable sorting. In support of this expansive decision, the Court noted this section “speaks only of ‘work.’ This lack of any limiting language is significant.” Entitlement to prevailing wage under Section 1720(a)(2) does not depend on the tasks being performed, but instead “coverage turns on the governmental entity for which the work is done.” In short, according to the Court, any work done under a contract with these types of districts is subject to prevailing wage.
Prevailing Wage Obligations
This leaves open the question of whether it encompasses every company providing services under a contract for more than $1,000, notwithstanding the historical context of prevailing wage under both California and federal law as focusing on construction-related activities. In a footnote the Supreme Court attempted to defuse this grenade it lobbed into the laps of the districts and their service providers by disclaiming that their interpretation would cover accountants, lawyers, and other professionals, stating “For our purposes, it suffices to observe that the prevailing wage law is designed to protect laborers, workers, and mechanics employed on public works . . .” However, as the Court’s interpretation is untethered to the historical connection to construction-related activities, there remains no limiting principle in the Court’s interpretation, leaving potentially everything from cleaning services to copier repair technicians to IT service providers and others covered, as all such work is arguably performed by “a laborer, worker, or mechanic” within the common definition of those terms.
There are thousands of irrigation, utility, reclamation, and other improvement districts throughout the State of California providing water, sewer, refuse, park, fire protection, and other services. There are also untold numbers of companies that provide services to and perform “work” for them under contracts for more than $1,000. As the Supreme Court’s decision in Barrett makes prevailing wage to any work done under contract with such district, this will not only have impacts for the taxpaying public and the level of services the districts can provide, but also creates exposure to prevailing wage liability for any company that performs “work” for a district.
Employers performing work for districts should consult counsel regarding a determination of whether prevailing wage applies to their work, and how best to comply with prevailing wage obligations if applicable. As Justice Lenondra Kruger noted, the Legislature can “adjust the statutory definition.” In the wake of that comment, companies performing work for special districts may push their trade associations and Legislators to discuss amendment of Labor Code section 1720(a)(2) to return its reach to activities of a construction character, consistent with the other provisions of Section 1720.