U.S. Supreme Court Upholds California's Prevailing Wage Statute

U.S. SUPREME COURT UPHOLDS

CALIFORNIA'S PREVAILING WAGE STATUTE

California has a prevailing-wage law that requires public-works contractors to pay workers the prevailing wage in their project locale, but also allows them to pay apprentice wages to participants in state-approved apprenticeship programs.

Dillingham and Sound Systems challenge the law

Dillingham Construction subcontracted some of its state contract to Sound Systems Media. Later, Sound Systems entered into a collective bargaining agreement which included an apprenticeship wage scale, but its apprenticeship program was not state-approved.

The California Division of Apprenticeship Standards issued a notice of noncompliance to both Dillingham and Sound Systems, charging that by paying apprentice wages, rather than the prevailing journeyman wages, to apprentices in an unapproved program, they were violating the state's prevailing-wage law.

Dillingham and Sound Systems sued the state in the US District Court to prevent it from interfering with their contract. Among other things, they argued that the US Employee Retirement Income Security Act (ERISA) '514(a) pre-empted enforcement of the state prevailing-wage law, because their apprenticeship program was an employee-benefit plan for ERISA purposes, and since the state's prevailing-wage law related to this ERISA employee benefit plan, ERISA rules superseded it, and the companies were entitled to pay the lower, benefit wages.

Supreme Court upholds

On February 18th of this year, however, in Cal. Div. of Labor Standards Enforcement v. Dillingham Construction, the US Supreme Court held that California's prevailing-wage law does not inherently relate to ERISA plans per se, and thus is not pre-empted by ERISA rules. Thus the California Prevailing-wage law stands for non-approved apprenticeship programs.

The Court's reasoning

Approved apprenticeship programs need not be ERISA benefit plans, the Court noted. Therefore, California's prevailing-wage exemption does not inherently refer to ERISA plans.

On its face, the prevailing-wage law seems to allow the lower wage only to contractors who find their apprentices through programs sponsored by joint management-labor committees whose expenses are defrayed out of a separate fund; the existence of such funds is what triggers ERISA coverage. If the law applied exclusively to such ERISA apprenticeship programs, then non-ERISA programs such as that of Dillingham and Sound Systems, would be eligible for the lower wage.

However, the regulations make clear that single employers who defray the cost of an apprenticeship programs out of general assets also fall under the prevailing-wage law. Such privately funded apprenticeship programs are not ERISA benefit plans, but California's prevailing-wage law, as written, is indifferent to the manner of apprenticeship program funding, and thus also to the ERISA coverage (or not) of apprenticeship programs. The issue is solely one of state approval. Accordingly, the prevailing-wage law does not inherently refer to ERISA benefit plans.

If the Court had found that the California law was superseded by ERISA regulations, it would effectively have invalidated California's prevailing wage law. As it is, the law stands.

This article, 1997, was written by William C. Last, Jr. Mr. Last is an attorney specializing in Construction Law. He can be contacted at 415-764-1990. This bulletin is published periodically to provide general information about current legal issues. If you have a specific legal question or need legal advice, you should contact an attorney.