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State Agency Does Not Violate Due Process by Withholding Prevailing Wages and Penalties Without a Hearing


May 21, 2001


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(A version of this article appears in the California Construction Law Reporter, published by the West Group.)


By James E. Acret

The California Labor Code requires contractors and subcontractors on public projects to pay a prevailing wage determined by the state. Public agencies are required to withhold from progress payments wages and penalties that have been forfeited for failure to pay prevailing wages. (§1727) If money is withheld from a contractor because of a subcontractor's failure to pay prevailing wages, the contractor may withhold such sums from the subcontractor. (§1729) The contractor may bring suit against the agency within 90 days of the completion of the contract and acceptance of the work to recover wages and penalties withheld. (§§1730, 1731, 1732)

As ordered by the Division of Labor Standards Enforcement, agencies withheld more than $135,000 in wages and penalties based on the alleged failure of G&G to pay prevailing wages. G&G asserted that the issuance of withholding orders without a hearing constituted a deprivation of property without due process of law in violation of the 14th Amendment. The District Court granted summary judgment; declared §§1727, 1730 to 1733, 1775, 1776 (g), and 1813 of the Labor Code unconstitutional; and enjoined the state from enforcing these provisions against G&G. REVERSED. Lujan v. G&G Fire Sprinklers, Inc., ___ F.3d ___, 2001 DJDAR 3701 (9th Cir. 2001).

"The Due Process Clause grants the aggrieved party the opportunity to present his case and have its merits fairly judged." G&G was not presently entitled to exercise dominion over the payment. G&G was deprived of a payment it contends it is owed under a contract based on the state's determination that G&G failure to comply with the contract's terms. G&G has only a claim that it did comply with those terms. This interest can be fully protected by an ordinary breach of contract suit. "We hold that if California makes ordinary judicial process available to respondent for resolving its contractual dispute, that process is due process."


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