Prevailing Wage Update: New Law Limits Charter City Exemption

Author: Roger A. Grable

Charter cities were pleased with the California Supreme Court decision in State Building and Construction Trades Council of California AFL-CIO v. City of Vista, which permitted charter cities to avoid the requirement for the payment of prevailing wage rates on public works projects. As predicted, however (see Manatt Real Estate Land Use Newsletter: "Prevailing Wage Update: Charter City Public Works Projects Are Not Subject to Prevailing Wage Requirements," July 5, 2012), the State Legislature wasted no time in attempting to limit this exemption.

SB 7, sponsored by Senate President Pro Tem Darrell Steinberg, signed by the Governor and chaptered as Cal. Stats. Ch. 794, is the first cut at limiting this exemption. SB 7 would prohibit a charter city from receiving or using state funding or financial assistance for a construction project if the city has a charter provision or ordinance that authorizes a contractor not to comply with prevailing wage provisions on any public works contract. Among other things, it would also prohibit a charter city from receiving or using state funding or financial assistance for a construction project if the city has awarded, within the prior two years, a public works contract without requiring the contractor to comply with prevailing wage provisions. The bill would affirmatively authorize charter cities to receive or use state funding or financial assistance if the city has a local prevailing wage ordinance, applicable to all of its public.

Not surprisingly, the League of California Cities lobbied vigorously against the bill asserting that it was unconstitutional. The likelihood of the League of California Cities and some charter cities filing litigation to challenge SB 7 appears likely. The cities' position is that the state, in effect, is forcing charter cities to adhere to state policy, even though the California Supreme Court has determined that public works projects are municipal affairs exempt from state regulation.

Advocates for the new law contend that the state has the right to condition the use of its money on adherence to important state policies, such as those which are the foundation of the prevailing wage law. Among the policies cited by the Legislature and recognized by the courts are the protection of employees from substandard wages, permitting union contractors to compete with nonunion contractors and the benefits to the public through the superior efficiency of well-paid employees. State Building and Construction Trades Council of California v. Duncan, 162 Cal. App. 4th 289, 324 (2008).

Stay tuned. More to come.