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Prevailing Wage Law Applied to Renovations, Not Just New Construction, and to Shell Work Beneficial to Public Agency
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January 18, 2010
ConstructionWebLinks.com
The California Court of Appeal has held that state prevailing wage laws apply to renovations, not just to new construction, and apply to work on common portions of privately owned buildings, not just to the areas leased by public agencies.
The landlord purchased an 83-year-old professional building and planned to renovate it. The landlord leased 63 percent of the building to Humboldt County for office space. The landlord’s lease with the county earmarked part of the rent paid as being for compliance with prevailing wage laws. The lease provided that “all work on building modifications performed by landlord at the request of tenant” would be governed by prevailing wage laws. One part of the lease required the landlord to construct shell improvements to the building, including utility services and a restroom core. The other part of the lease required landlord to construct tenant improvements within the space leased by the county.
The landlord entered into two contracts with a plumbing contractor, one for shell work on the building and the other for the plumbing portion of tenant improvements to the space leased by the county. The landlord acknowledged that the plumbing contractor was required to pay prevailing wages for work performed on the space leased by the county, and it was undisputed that contractor did pay prevailing wages for that work. The contractor did not pay prevailing wages for shell improvements to the building.
At the request of a union local, the former director of the California Department of Industrial Relations issued a determination that the shell improvements to the building related to a public work and that, pursuant to Labor Code §1720.2, the contractor was required to pay prevailing wages for that work. The landlord appealed this determination, and the then-acting director of DIR issued a decision reversing the prior determination. The union petitioned the Superior Court for a writ of mandate vacating the acting director’s decision. The Superior Court granted the petition, holding that prevailing wages should have been paid for work on the building’s shell, and awarded attorney fees to the union. The department appealed, and the Court of Appeal affirmed. Plumbers and Steamfitters, Local 290 v. Duncan, 157 Cal.App.4th 1083, 69 Cal.Rptr.3d 184 (2007).
The Court of Appeal noted that Labor Code §1720.2 defines “public works” to include “any construction work done under private contract when all of the following conditions exist: (a) The construction contract is between private persons. (b) The property subject to the construction contract is privately owned, but upon completion of the construction work, more than 50 percent of the assignable square feet of the property is leased to the state or a political subdivision for its use. (c) Either of the following conditions exist: (1) The lease agreement between the lessor and the state or political subdivision, as lessee, was entered into prior to the construction contract. (2) The construction work is performed according to plans, specifications, or criteria furnished by the state or political subdivision, and the lease agreement between the lessor and the state or political subdivision, as lessee, is entered into during, or upon completion of, the construction work.”
The department acknowledged that the project at issue met the elements of §1720.2. But, it argued that §1720.2 applied only to new construction and not to renovations. And, it argued that even if §1720.2 were applicable, the phrase “any construction” must be interpreted to apply only to those parts of the project involving the publicly leased space.
The appeals court held that neither the statute nor the legislative history supported the department’s interpretation regarding renovations. It noted that the statute referred to “any construction work” and made no distinction between new construction and renovations. It pointed to prior court decisions treating “construction” to include substantial improvements or modifications to a building. After reviewing the legislative history, the court found nothing in it “differentiate[d] between a building newly constructed for the purpose of being leased to a public entity and a building substantially renovated for that same purpose.”
The court found the department’s alternative argument – that the statute applied only to the space actually leased by the agency – ignored the plain language of the statute. The court held that the Legislature intended the entire structure to be considered a public work if a public agency leased more than 50 percent of the assignable space in the building. The court noted that DIR’s interpretation would render meaningless the statute’s provision that it applies when 50 percent or more of the building is leased by a public agency. As the court noted, a public agency always leases 100 percent of the space it leases. The court also concluded that the legislative history showed that the Legislature intended to create a bright line with the 50 percent provision in §1720.2. The court declined to determine whether §1720.2 would apply to work on a building otherwise subject to §1720.2 if that work had no functional relationship to the space leased by the public agency.
As for the project as issue, the court found that the shell work was essential to the core plumbing work performed for the public agency tenant. It rejected the department’s argument that work on the shell was part of overall renovation intended to make it suitable for other tenants besides the county, “The fact that the rough plumbing may also benefit other tenants does not negate the functional relationship between the work performed under the shell contract and the county’s use of the lease space,” the court wrote.
The court also found that the statute is structured so that an unsuspecting property owner is not “trapped” into paying prevailing wages. This is because §1720.2 applies only if the landlord enters into a lease with a public agency before signing the construction contract or if construction is performed according to plans, specifications or other criteria from a public agency. Here, the court noted, the lease with the public agency expressly provided for payment of prevailing wages.
Finally, the court noted that the prevailing wage law would not apply to a building once a public agency no longer occupied 50 percent or more of its leasable space.
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