Controversial New Law Conditions State Funding on Charter City Compliance With State Prevailing Wage Law for Locally Funded Projects

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SB 7 Could Face Legal Challenges

A charter city’s right in California to exempt itself from the payment of state prevailing wages on locally funded public works projects was placed at risk by the passage of Senate Bill 7 (SB 7), adding new Section 1782 to the California Labor Code. The bill, signed on Sunday by Gov. Brown, was sparked by the California Supreme Court’s decision in State Bldg. & Constr. Council of Cal., AFL-CIO v. City of Vista (Vista), which concluded that the wage levels of workers employed by charter cities on locally funded public works projects are a municipal affair not subject to state regulation. SB 7, once effective, requires charter cities to adopt and comply with prevailing wage requirements equal to or greater than state standards as a condition of state funding on future public works projects.

The passage of SB 7 is highly controversial and may be subject to future litigation challenging its constitutionality under the California Constitution, which authorizes charter cities to legislate upon “municipal affairs” autonomously without interference by the state. While SB 7 does not prohibit a charter city from enacting the prevailing wage exemption for locally funded projects affirmed in Vista, doing so would disqualify the charter city from receiving or using state funding on future public works projects under the bill’s provisions. Effective January 1, 2015, unless the contract was advertised for bid prior to that date, charter cities are additionally disqualified under SB 7 if the city has awarded, within the prior two years, a public works contract without requiring the contractor to comply with prevailing wage requirements. Charter cities that have charter provisions exempting city projects from prevailing wage requirements may adopt a local prevailing wage ordinance with requirements equal to or greater than state prevailing wage law in order to avoid disqualification.

SB 7 does not apply to all public works contracts and expressly excludes contracts for construction of $25,000 or less and contracts for alternation, repair or maintenance work of $15,000 or less. The bill also exempts state funding received or public works contracts awarded prior to January 1, 2015. In addition to the effect on public works projects, SB 7 will likely require private projects receiving charter-city subsidies to comply with prevailing wage requirements.