UPDATE: Charter City Not Required To Pay Prevailing Wage On Municipal Construction Projects

In a decision strongly upholding the municipal home rule doctrine, the California Supreme Court held that charter cities are not subject to state prevailing wage requirements for purely local construction projects.  The Court ruled that the wage levels of workers on a city-funded and operated construction project built to benefit the city’s residents was quintessentially a municipal affair and not a matter of statewide concern.  State Building and Construction Trades Council of California, AFL-CIO v. City of Vista (--- P.3d ----, Cal., July 2, 2012).

While not a change in state law, the issue of charter city immunity from state prevailing wage standards had not been taken up by the State’s highest court since 1932, shortly after California first enacted the prevailing wage law.  The ruling may encourage other cities to adopt charter law status in order to be free of state restrictions on prevailing wages, and to govern themselves free from state interference on local matters.

Note

For a discussion on the previous Court of Appeal decision, please see our earlier Legal Alert entitled, “Charter City Is Not Required To Comply With Prevailing Wage Law With Respect To Public Works Contracts That Are Solely Financed From City Revenues", May 4, 2009.

Facts

In 2007, voters in the City of Vista (“City”) voted to change Vista from a general law city to a charter city, giving the City the legal authority to establish local regulations that differed from state law on purely municipal matters.  Ballot arguments for the charter measure cited immunity from state prevailing wage law as one particular benefit of adopting charter status.  That same year, the City approved contracts to design and build two fire stations.  The contracts did not require compliance with state prevailing wage laws, in compliance with a City ordinance generally prohibiting payment of prevailing wages in City public works contracts.

State Building and Construction Trades Council, AFL-CIO, an umbrella organization of labor unions in the construction field (“Union”), filed suit seeking to compel the City to comply with the state’s prevailing wage law, asserting that compliance was of statewide concern and within the state’s power.  The trial court and appellate court rejected the Union’s arguments, finding the payment of prevailing wages to be within the municipal affairs of a charter city, over which the state has no authority.  The Union appealed to the California Supreme Court.

Supreme Court Decision

The state’s prevailing wage law requires contractors to pay prevailing wages on “public works” projects, defined as work done under contract and paid for with public funds.  Prevailing wage rates are determined by the state Department of Industrial Relations, and are generally equivalent to union pay rates.

Article XI, Section 5 of the California Constitution allows charter cities to make and enforce local ordinances, free of state interference with respect to “municipal affairs,” but leaves state law supreme with respect to matters of “statewide concern.”  The Court applied a four-part test to resolve whether a matter falls within the home rule authority of charter cities.  First, is it a “municipal affair”?  Second, do local and state laws on the matter conflict?  Third, is the matter a “statewide concern”?  Finally, is the state law drafted in a manner to avoid unnecessary local interference?    

The Court found that “the construction of a city-operated facility for the benefit of a city’s inhabitants is quintessentially a municipal affair, as is the control over the expenditures of a city’s own funds.”  The City’s prevailing wage ordinance, which prohibits compliance with state prevailing wage law, clearly conflicts with that state law.  The key question was therefore whether the wages earned by the workers building Vista’s firehouses was a matter of statewide concern or purely a municipal affair.  Ruling for the City, the Court concluded that “no statewide concern has been presented justifying the state’s regulation of the wages that charter cities require their contractors to pay to workers hired to construct locally funded public works.”  The Court stated that the Union’s argument that the lower wages paid by the city had an effect on the regional and state economy was an “abstract” concern and not sufficient to justify state regulation of a charter city’s spending practices.  The Court showed little deference to Legislative determinations of what constitutes a statewide concern, ruling that these determinations must be made by courts instead.

The ruling may also have an impact on other governmental agencies with constitutional independence from the state, including the University of California, but should not impact other government agencies subject to state control.  It is unclear whether the ruling will impact the state’s ability to require prevailing wages for private developers who receive financial assistance from a charter city.

Questions

If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Jeffrey L. Massey | 916.321.4500

Jon E. Goetz | 805.786.4302