by John McGill
When you work on a public works project, which is any project that involves contribution of public funds, you need to pay prevailing wage. There are some exceptions, the most important being when the project is undertaken by a charter city that has opted out of requiring prevailing wage for projects funded by the charter city and that are not of statewide concern. All other projects require that contractors pay their workers the prevailing wage.
It may be tempting to circumvent the requirement if the contractor works on both public and private works projects and is not already paying prevailing rates. Blending or averaging the prevailing wage and another rate for workers that are on both types of projects is one way this is done. And it is not just open shops that have drifted off the path; signatory contractors too can play outside the rules by categorizing the work as work of a lesser pay rate. However it is done, it is, or can be, a violation with serious consequences.
On public projects there is always the requirement that Certified Payroll Reports (“CPR”) be turned in on a weekly basis. The CPR will record the workers name, social security number, status (i.e.- apprentice, journeyman, foreman), rate of pay, and benefits. The CPR is sent to the Owner and the Owner is supposed to monitor it to make sure that the correct pay is being provided for the work being performed. If it is not, and depending on whether the underpayment is willful or inadvertent, there can be significant repercussions.
If the Department of Industrial Relations gets involved, a hearing will be required. Unless there is a very serious breach of the rules at the hearing, the decision of the DIR Hearing Officer is going to be final. It can be challenged in court, but that decision will be given great deference by any judge and overturning the DIR decision is a long shot at best. And those decisions can have some devastating consequences.
In a recent case, a contractor was caught underpaying his workers, one of them quite significantly. The worker was supposed to be paid $32/hour but instead was being paid only $16. The CPR confirmed the higher rate and by turning in the CPR the contractor was certifying that the worker was getting that payment. The problem was that the pay check the worker received for the hours he worked showed the lesser amount. The CPR confirmed the hours, the pay check confirmed the dollar value, and dividing one into the other gave the rate; and it was not the correct rate.
The DIR Hearing Officer found that the underpayment was deliberate and willful. Along with the monetary penalties that were assessed, and they were significant, the Hearing Officer also recommended debarment for a period of one year. This was not a good thing; in fact it was a very bad thing.
The contractor appealed but the decision was upheld. The courts looked at the evidence to determine if there was ‘substantial evidence’ to support the Hearing Officer’s decision. Substantial evidence is “relevant evidence that reasonable minds might accept as adequate to support the conclusion”. Unless the decision is so lacking in support that it is unreasonable, the administrative decision will not be set aside. This is not an especially high bar!
The contractor also argued that he had a ‘vested right’ to continue bidding public works projects. A vested right is a right of such significance that it cannot be taken away by a non-judicial authority, in this case the Hearing Officer from the DIR. The contractor presented evidence that 99% of the work he did was on public works projects. With the debarment, he claimed that his business would be effectively shut down. The courts disagreed and found that he could still get work in the private sector and therefore the debarment did not affect any fundamental right.
In this case though, the debarment for a year will have a long-term consequence. On many, if not most, public works contracts there is a prequalification process. On the prequalification form there is always a question about debarment and/or termination for cause. The question usually asks about debarments that occurred in the last 5 years. You will not be prequalified if you have report a debarment. This contractor may be debarred for only one year but the impact of that debarment will follow for another 5 years, effectively debarring him for 6 years.
It is not a good idea to play around with the rules on prevailing wages. If the DIR gets involved, it may seem to be an informal process, but don’t be mislead. The DIR is not to be taken lightly and its decisions have teeth, very sharp teeth, and it can be a worst case scenario too if it gets to the point that this case got. Better to just pay the required wage; the pennies saved are not worth the dollars lost.
Bio: John P. 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 as well as in 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. Contact info: johnpmcgill@sbcglobal.net or jmcgill@archernorris.com or direct office 925-952 5403 & cell- 707 337 1932.
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