A favorite tactic of the New Jersey Department of Labor, in a prevailing wage case, where the subcontractor cannot pay the assessments, is to go “upstream” against the General Contractor or developer. Private companies can do this as well if they get hit with assessments they feel were inappropriate. A recent case is testing the premise as to whether the State of New Jersey can be held liable on an upstream theory and I find it fascinating. The case is entitled CrowderGulf LLC et al. v. State of New Jersey, Department of Treasury Division of Purchase and Property and issued from the New Jersey Appellate Division.

The Appellate Division ruled that the State cannot yet be held liable for the wages on a cleanup project after Superstorm Sandy, because the federal court had to first determine if prevailing rates were required to be paid for the project. In so doing, the Court reversed the lower court which found that such an obligation existed. The Court also rejected the State’s overture to find the claims were “barred as a matter of law.” The Court noted that “it is abundantly clear to us that this matter is not ripe for ultimate resolution — not in the trial court and not here. Without a determination of whether this was or was not a prevailing wage contract, the issues here are only academic ones that may never need to be reached.”

The lower court had founded its ruling on the alleged statement from the State that this was not a PW project. It appears the State made that assertion when specifically asked, as a part of the bidding protocol, whether the job required prevailing wage. The workers sued in 2017 alleging they were not paid properly. Then, in 2018, CrowderGulf filed an indemnification action against the State and in November 2020, the trial Judge ruled in the Company’s favor.

The Appellate Division gave a cool reception to the Company’s position. It stated that “CrowderGulf has not even established the state made a contractual misrepresentation.” The Court also observed that “no court has ruled that this was a prevailing wage contract.” The Court held that the crucial issue is whether the State made any misrepresentation and if that happened, was the Company damaged by that misrepresentation.

The Court also noted that the Company “can point to no case or statute allowing indemnification from the state for prevailing wages, and its brief is remarkably silent as to those statutes, namely the Contractual Liability Act and the Prevailing Wage Act, which would appear to preclude it.” The Court noted that the standard State contract explicitly disavowed any duty or obligation to indemnify. The contract also specifically noted that a project is covered by the Prevailing Wage Act “to the extent the act applied” and the State could not waive the applicability of the Prevailing Wage Act.

The Takeaway

The lesson here is that if public money is involved (in any form, such as a loan from a government authority) then the work is prevailing wage. It does not matter what representations may/may not have been made. It remains the obligation of the contractor to make its own independent determination of the applicability of prevailing wage rates. Added to that are the actual provisions in the State contract that explicitly address this issue, i.e. no obligation to indemnify.

Nice try, though…

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