California Holds in Class Actions Case That Liability for Failure to Pay Prevailing Wages on Public Works Projects is Limited to Direct Employer
On April 18, 2006, a California court published its opinion in a class action case that addressed an issue of first impression in California: whether employees on public works projects may sue parties other than their direct employer for alleged violations of the prevailing wage law. Violante v. Communities Southwest Dev. & Constr. Co., 138 Cal.App.4th 972 (Cal.App. 2006). There, construction workers filed a putative class action in California state court for recovery of prevailing wages, alleging that perhaps thousands of workers “were paid less than prevailing wages as required by California Labor Code section 1770 et seq. for public works projects.” The class action complaint alleged violations of Labor Code section 1774, breach of contract and unfair business practices against numerous defendants including S. J. Burkhardt, Inc., the contractor that hired Raymond David Paci, doing business as Pacific Structures; Pacific Structures had employed plaintiffs directly. The trial court sustained the demurrers of three other defendants – Chapman Heights (a contractor), Communities Southwest Development and Construction Company (a developer and general partner of Chapman Heights), and Yucaipa Valley Acres (a developer and contractor) – without leave to amend and plaintiffs appealed. 138 Cal.App.4th at 975-76.
After a careful analysis of the statutory scheme, the Court held at page 979, “Plaintiffs have a right of action against the subcontractor, their direct employer [citations]. . . . But the Labor Code nowhere requires the contractor to pay prevailing wages to a subcontractor’s employee or permits a subcontractor’s employee to sue the prime contractor when the subcontractor fails to pay prevailing wages.”
Plaintiffs contend defendants violated section 1774 because plaintiffs were not paid prevailing wages by their direct employer, a subcontractor. This is an untenable interpretation. The Labor Code provides a contractor and a subcontractor must pay prevailing wages to their respective employees on a public works project, not that a contractor must pay prevailing wages to a subcontractor’s employees. 138 Cal.App.4th at 978 (italics added).
Consistent with well-established California law, the Court then held, “In the absence of a valid claim for violation of the prevailing wages law, plaintiffs also cannot successfully allege unfair business practices or unfair competition under the Business and Professions Code.” 138 Cal.App.4th at 980.
Finally, the Court addressed plaintiffs’ third-party beneficiary claim. The Court explained plaintiffs’ theory at page 980 as follows:
Plaintiffs allege they are the third-party beneficiaries of the contracts between Chapman Heights, Yucaipa Valley, and the City of Yucaipa and its Communities Facilities District because those contracts provided generally that defendants would comply with the law governing public works and prevailing wages should be paid to workers on the project.
The Court rejected this claim, holding that agreement between a public agency and a contractor to pay prevailing wages may give employees a third-party beneficiary claim against the employer, but it does not provide any basis for a claim against the public agency. “Here, plaintiffs are not suing their employer. Nor are they suing defendants on a direct contractual obligation to pay prevailing wages. Therefore, plaintiffs have failed to state a cause of action for breach of contract against these defendants.” 138 Cal.App.4th at 981-82 (italics added).