Fabrication and Prevailing Wage

 

California Labor Code section 1771 generally requires that workers employed on public works projects are to be paid the local prevailing wage for the work. The Appellate Court found in the case of Sheet Metal Workers' International Association, Local 104 v. John C. Duncan (Russ Will Mechanical, Inc., Real Party in Interest) that the prevailing wage laws need not to be adhered to for a subcontractor's employee who fabricated materials at a permanent offsite facility even though the materials were for a public works project.

 

This matter began in 2005 when Russ Will Mechanical, Inc. ("Russ Will") entered into a subcontract for heating, ventilation and air conditioning for a public works project for a Santa Clara County community college. The subcontract stated that the project was subject to prevailing wage requirements and did not specify whether Russ Will was required to fabricate material in order to complete the project. Russ Will had a permanent offsite facility where materials were fabricated since 1991 for various private and public projects but not for sale to the general public.

 

Russ Will had sheet metal items fabricated at their permanent offsite facility. Many of the sheet metal items were of custom sizes and it was less costly to fabricate rather than ordering through a manufacturer. The employee that fabricated the sheet metal items filed a complaint with the Department of Industrial Relations ("DIR") Department of Labor Standards Enforcement ("DLSE") because he believed he should have been paid prevailing wages for the fabrication work he did at the offsite location for the project in question.

 

Even though this employee never did work on the project site, the DLSE issued a civil wage and penalty assessment against Russ Will for failing to pay prevailing wages for the fabrication work. Russ Will requested a review pursuant to Labor Code section 1742 with the DIR. This is the stage where the Sheet Metal Workers' International Association, Local 104 ("Local 104") got involved by submitting a position statement in support of the DLSE's assessment. The DIR initially concluded that in order for Russ Will to qualify for the material supplier exemption then the supplies must be sold to the general public as well as the fabrication facility being offsite and not just for the use of the public works project. Even though Russ Will's fabrication facility was offsite and not just for the use of this public works project, the fact that their fabricated products were not sold to the general public had the DIR indicating that Russ Will was not exempt from the prevailing wage law as a material supplier.

 

This initial determination caused Russ Will to file a formal administrative appeal. The DIR took into consideration that there was no California case law to question whether the offsite fabrication was subject to the prevailing wage requirements and looked at Federal Regulations to make their determination. Accordingly, it was determined that prevailing wages were not to be applied to work at a permanent fabrication plant if the existence of the plant was started without the public works project in mind - thus, the DIR reversed its initial determination.

 

This reversal cause Local 104 to file a Petition for a Writ of Mandate against the DIR challenging its latest decision because it believed that the fabrication work should have been covered by the prevailing wage laws. The Superior Court granted the petition holding the DIR incorrectly relied on only Federal law and remanded the matter for reconsideration to the DIR. Russ Will then filed an appeal with the Appellate Court seeking to have the decision once again reversed. The Appellate Court analyzed whether offsite fabrication was considered work covered by the prevailing wage law. It was concluded that neither the statutes nor DIR's prior treatment back to 1984 of the topic supported that the offsite fabrication was covered.

 

This decision now means that subcontractors are not required to pay prevailing wages to employees that perform work that is related to the public works projects as long as that work is done at an offsite permanent fabrication facility. It is expected that the unions will lobby the California legislature to expand the scope of the prevailing wage laws to offsite fabrication. We will have to wait and see if that happens in the future.