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Washington State Agency Changes Position and Is Estopped from Enforcing Prevailing Wage Law by Supreme Court
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September 8, 2008
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Howrey LLP
In deciding the applicability of a prevailing wage law to truck drivers delivering materials to a construction project, the Washington Supreme Court equitably estopped the state’s Department of Labor and Industry from enforcing penalties against suppliers that had relied in good faith on the department’s prior interpretation of the act.
The suppliers supplied fill for a runway embankment project at Sea-Tac Airport. They hired two types of truck drivers to deliver material to the jobsite: end-dump drivers and belly dump drivers. End-dump trucks delivered and dumped loads of fill by stopping the truck and then raising the truck bed hydraulically, allowing the fill to empty by force of gravity into a pile behind the truck. In contrast, belly-dump trucks spread the fill materials as they drove by opening a gate in the bottom, or the “belly,” of the truck as they drove across the project. There was no dispute that belly-dump drivers were entitled to prevailing wages.
In developing their bids for the project, the suppliers had relied on a 1992 policy memorandum issued by the Department of Labor and Industries and representations made by the head of the department’s prevailing wage section about the applicability of the Prevailing Wage Act to end-dump trucks.
The statute in question, Revised Code of Washington 39.12.020, provided that:
[t]he hourly wages to be paid to laborers, workers, or mechanics, upon all public works ... of the state or any ... political subdivision ... shall be not less than the prevailing rate of wage for an hour's work in the same trade or occupation in the locality within the state where such labor is performed.
The department had issued regulations specifying the applicability of the act to delivery of materials to public projects. These regulations, at Washington Administrative Code 296-127-018(2)(a), provided:
All workers… are subject to the provisions of [the prevailing wage act] when:
| (a) | They deliver… materials to a public works project site and perform any spreading, leveling, rolling, or otherwise participate in any incorporation of the materials into the project. [emphasis added]
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Accordingly, the suppliers paid prevailing wages only to drivers of belly-dump trucks but not to drivers of end-dump trucks. End-dump drivers got only market rate wages and were not considered eligible for prevailing wages.
One year after completion of the project, the department reversed its position and issued a notice of violation to the suppliers for failure to pay prevailing wages to drivers of end-dump trucks. The differential in wages amounted to approximately $500,000.
The suppliers disputed the wage assessment in an administrative hearing and prevailed before an administrative law judge. The department appealed to its director, who reversed the administrative law judge’s decision and ruled against the suppliers. The suppliers then appealed to the Superior Court but was unsuccessful.
The suppliers sought further review in the Court of Appeals, which reversed and ruled for the suppliers . It held that mere delivery of materials without “spreading, leveling or rolling,” as provided in the Administrative Code, did not constitute incorporation of the materials into the project and, thus, did not trigger the prevailing wage act. It noted that there was no dispute that the end-dump truck drivers never left their trucks, that they were on site only 5 to 15 minutes, and that they simply dumped fill from their trucks.
The department appealed to the Washington Supreme Court, which reversed. Silverstreak, Inc. v. Washington State Department of Labor and Industries, 159 Wash.2d 868, 154 P.3d 891 (2007).
The Supreme Court held that the Prevailing Wage Act did apply to drivers of end-dump trucks even though they did not spread, level or roll the material delivered to the job site. Taking note of the remedial purposes of the Prevailing Wage Act to protect workers, the Supreme Court gave a broad reading to the phrase “or otherwise participated” in the regulation to extend coverage to workers who participated in any way in incorporating materials into the project. To not do so would create a loophole, according to the court.
However, based on the department’s contrary interpretation of the act in its memorandum, the Supreme Court held that the department was equitably estopped from enforcing the act against the suppliers. Because the suppliers had relied in good faith on the department’s prior interpretation of the act in developing its bid, the Supreme Court held that it would be inequitable and against the interests of justice to hold the suppliers liable based on a change in the department’s interpretation.
As the court noted, the suppliers “bid hundreds of thousands of dollars less” than they would have if they had believed prevailing wages were required. “If the Department is allowed to change is interpretation of the rule, Suppliers will be penalized and required to pay the $500,000 difference… seven years after the job’s completion.” The court noted that public works bidding is dependent on putting all players on a level playing field and that such a level playing field exists only if wage rates are certain. The court also expressed concerns about unconstitutional impairment of contract and vagueness.
Despite equitably estopping the department, the Supreme Court denied the suppliers’ request for statutory attorney fees.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey’s Construction Practice Group, click here.
©2008 Howrey LLP
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