by John McGill
On public projects it should go without saying that you need to pay prevailing wage. And prevailing wage is not the prevailing wage where your main office is but what it is in the area where the project is located. If your office is in Stockton and you are working in Oakland, the prevailing wage is for Oakland, not Stockton. The Department of Industrial Relation’s website will have the rates and all of the add-ons for subsistence, fringes, travel, and any other contributions that need to be included in the employee’s wages. For signatory contractors, prevailing wage is second nature; for open shops, prevailing wage can be a bit troublesome and complicated.
One issue that can be a problem for both signatory and merit shops is what to pay the workers that do not work at the project but at the home office shop. If the project work requires that certain materials be fabricated and those can be fabricated offsite, does the contractor need to pay the employee prevailing wage if they are not working on the actual project site? This is the question that the court addressed in Sheetmetal Workers Intern’l Assoc. Local 104 v Russ Mill Mechanical Inc., and the short answer is that it depends.
In the Sheetmetal Workers case a subcontractor, Russ Mill Mechanical (RMM), was an open shop contractor that was working on a community college project in Santa Clara. RMM properly paid prevailing wage for the workers on the project but then also fabricated some of the sheetmetal work at its shop in Hayward. One of the employees at the shop insisted that he should be paid prevailing wage for the fabrication work that was used on the community college project and he filed a claim with DIR claiming a Labor Code violation. Local 104 intervened on his behalf. The DIR first ruled for the worker but then reversed that decision. Local 104 filed a writ in the local superior court asking the court to overturn the DIR decision, which the court granted and that overturned the DIR ruling. RMM appealed and the court of appeals reversed the trial court and reinstated the DIR decision.
Local 104 argued that because the CA. Labor Code does not specifically require, and limit, prevailing wage to the “site of the work” as the Federal Davis-Bacon Act language does, the Legislature therefore did not intend prevailing wage to be limited to only the site of the work but rather intended it to include all work that would be used in the construction of the project, regardless of whether the work took place on site or off.
The court disagreed with Local 104’s broad conclusion because it would have unintended consequences and would not necessarily further the purpose of the prevailing wage statutes. The court and the DIR took the position that if prevailing wage extended to offsite fabrication facilities, and if materials were purchased from a catalogue or an out of state manufacturer, then California Labor law would be imposed on out of state manufacturers. Not only does California not have that authority, but if it attempted to assert that kind of authority, the cost of materials for California projects could be ridiculously high. Likewise, it would be virtually impossible to know what pre-manufactured materials were going to be consumed in a public work project and so paying prevailing wage would not be feasible. The court and the DIR concluded that the Legislature did not intend that DIR’s enforcement authority to be so expansive, especially when the Labor Code did not say so expressly.
There are exceptions and in some instances prevailing wage is required even for manufactured or shop built materials. If the fabrication shop is set up on the project site then prevailing wage is required to be paid. Likewise, if a fabrication facility is specifically set up to provide materials for a prevailing wage job, then regardless of location (onsite or remote) prevailing wage has to be paid. Lastly, if the contractor has a shop that is used for all of its fabrication for any of its projects, but the contractor sets aside a specific area for the production of materials for a prevailing wage project, then workers that perform that production- and that production only- could arguably fall under the prevailing wage requirement.
The court and DIR seem to take a pragmatic approach to the determination of whether prevailing wage needs to be paid or not. If fabrication of materials takes place at the contractors shop and that shop is used for providing materials for all of the contractor’s projects- prevailing wage and any others- then employees working in the shop on fabrication of parts for a prevailing wage job do not need to be paid the prevailing wage. On the other hand, if the shop is set up solely for fabrication of materials for the prevailing wage project, then prevailing wage must be paid.
An interesting, but not answered, question is what prevailing wage needs to be paid by the signatory contractor performing offsite fabrication for a project located in another jurisdiction. Presumably the other jurisdiction’s prevailing wage is paid, but what happens if the wage is lower and what happens if the work is change order work and the contract calls for change order work at the local prevailing wage only? No answer, but it could be an issue.
For now, the court set out a fairly bright line general rule: “Offsite fabrication is not covered by the prevailing wage law if it takes place at a permanent, offsite, manufacturing facility and the location and existence of that facility is determined wholly without regard to the particular public works project.” That pretty much sums it up and it makes sense too.
John McGill is an attorney and advises and represents contractors and suppliers throughout the Bay Area and Northern California in both private and public work disputes, employment, transactional, and administrative matters. He is the author of California Contractor’s DESKTOP GENERAL COUNSEL What You Need To Know About California Construction Law and he writes on construction issues at California Construction Law Toolbox www.californiaconstructionlaw.wordpress.com. Contacts: johnpmcgill@sbcglobal.net or jmcgill@archernorris.com or direct office 925-952 5403 & cell- 707 337 1932.
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