A charter city does not have to comply with California's prevailing-wage law if its public works projects are financed exclusively with city revenues, a divided three-judge panel of the Fourth District Court of Appeal has ruled. The reason: The state law "does not touch upon matters of statewide concern sufficient to outweigh the power of charter cities over their municipal affairs," Justice Patricia Benke wrote for the court's majority.

In a long dissent, Justice Joan Irion contended that her "colleagues improperly perform an inquiry into the effectiveness and advisability of the prevailing wage law" rather than review the statute's reach under the state constitution.

The case involved the San Diego suburb of Vista, one of the state's 83 charter cities. In November 2006, Vista voters approved a half-cent sales tax to finance construction of two fire stations, a civic center, a sports park and an amphitheater stage house. The estimated cost of the projects was about $100 million. Seven months later, the city's voters approved a charter to govern city affairs. Among the pro-charter arguments was that a charter would permit Vista to bypass prevailing wage and other public contracting statutes that apply to general law cities.

"One of the advantages that the charter gave us was the ability to do design-build," city attorney Darold Pieper said. "All of these projects are design-build."

The fire stations are occupied, and the stage house is scheduled to be completed this summer. The civic center and sports park are under construction and due to open in 2010, according to Robin Putnam, community projects director.

Shortly after voters approved the city charter, the State Building and Construction Trades Council of California, AFL-CIO, filed a lawsuit asking a court to direct Vista to comply with the prevailing wage law despite the city's charter status. San Diego County Superior Court Judge Robert Dahlquist ruled against the union, a decision upheld by the appellate court panel.

Adopted in 1937, the prevailing-wage law (Labor Code §§ 1720–1780) aims to ensure that contractors that use union labor can compete for public works projects; to prevent public agencies from undercutting local wage rates; and to maintain construction trades apprentice programs. To achieve these goals, the law requires contractors on public works projects to pay their workers, skilled and unskilled, a "prevailing wage." The state director of industrial relations determines that wage in different labor markets by consulting local collective bargaining contracts. Hence, prevailing wages are typically urban area union rates. The law also requires contractors in most instances to hire some lower-wage apprentices and to pay into a state fund for apprentice training programs.

Public agencies frequently complain that the law drives up the costs of construction. Labor unions counter that it ensures high-quality work on public works projects.

In arriving at its ruling, the Fourth District Court of Appeal, Division One, first examined the "home rule," or municipal affairs clause, of California's constitution. This clause – article XI, § 5 – permits cities to adopt charters to govern their municipal affairs. A state's interest may supersede city charter powers only when a state law qualifies as a matter of "statewide concern," Justice Benke wrote in the majority opinion. If a state law meets that standard, the reviewing court must determine whether it "is both reasonably related to resolution of that [statewide] concern and narrowly tailored to limit incursion into legitimate municipal interests."

In turning to the prevailing wage law in question, the court focused on the statute's exemption for construction projects that do not use public funds.

"This basic exception to the application of the law is, for us, telling," Benke wrote. "The protection which the PWL [prevailing wage law] provides to workers is plainly not so vital a part of the state's larger overall goal of protecting the state's workers that it applies generally to all construction contracts. Thus, at its most basic level, the dimensions of the policies advanced by the PWL are limited."

In addition, the court noted, the Legislature has exempted some agreements between public agencies and private entities – including those to construct low-income and group housing – from the law's provisions.  "[A]pplication of the law is fairly elastic," the court declared.

"[T]he statute is not designed to raise or set local wages and working conditions, but rather to keep state contracting from undermining what local labor markets have established," Benke wrote. "At its core, the PWL is not a mandate, but a restraint on the manner in which the state spends its resources."

A city's decision to expend its resources on public works is solely a municipal concern and does not undermine the state government's contracting practices, the court concluded.

"[I]t does not take undue speculation to recognize that in any given locality the volume of private construction activity is likely to match or exceed the volume of a municipality's public works contracts. As has been the case since the PWL was enacted, in this factual context, it is difficult to conclude that extraterritorial impact of a municipality's contracting practices is significant and substantial enough to warrant subordination of a municipality's power over its spending, when the Legislature itself has determined that no regulation is necessary with respect to what, in any particular area, might be an equal or far larger volume of private contracting," wrote Benke.

The State Building and Construction Trades Council of California, AFL-CIO, she added, "offers no evidence which suggests the contracting activity of municipalities materially impacts regional labor markets. ... [T]he wages paid on local public works projects are not matters of sufficient extramural dimension to support legislative intervention."

In her dissent, Irion contended that the panel's majority had framed the question incorrectly to address the law's effectiveness. "In my view, using the proper legal construct, the record establishes that the legislative purposes of (1) maintaining the wage base in the construction industry and (2) promoting quality apprentice training in the construction trades are both matters of statewide concern and, further, that the prevailing wage law is reasonably related to advancing those purposes."

Pieper, Vista's attorney, said the city is "especially pleased that the electoral will of the citizens of Vista will be respected, and that their decisions to tax themselves and assert local autonomy can be fully implemented."

The union will appeal to the California Supreme Court, said Sandy Harrison, the union's spokesman. "It is a matter of statewide concern, and charter cities are able to skirt state law only on matters of exclusively local concern," he said.

While the state's top court accepts only about 1% of the cases brought to its attention, observers see the Vista case as a strong candidate for review. "Given the importance of this issue and the divided vote in the Court of Appeal, this case seems like a very good bet for Supreme Court review," wrote Steven Mayer, an appellate lawyer with the law firm Howard Rice who has argued before the state high court.

Harrison added that, "There are a great many charter cities that find that it's in their interest to pay a prevailing wage." According to Putnam, Vista's projects director, some of the workers on the city's projects, such as the iron workers building the civic center, are indeed union members.

The Case:
State Building and Construction Trades Council of California, AFL-CIO v. City of Vista, No. D052181, 2009 DJDAR 6133. Filed April 28, 2009.

The Lawyers:
For the Trades Council: Scott Kronland, Altshuler Berzon, (415) 421-7151.
For the city: Darold Pieper, city attorney, (760) 639-6119.