The trend over the last 20 years has been for California's prevailing wage law to spread to areas previously unimagined.  This spread has been due to inexact drafting of the law, constant tinkering by the legislature, and expansive readings of this arcane statute by the courts and agencies charged with its enforcement.  It has been aptly described as the “Winchester Mystery House” of California wage and hour law:  always under construction or modification, never finished, with strange and inexplicable features like its namesake’s stairways that stop at ceilings and doorways that lead nowhere. 

The recent California Supreme Court decision in Kaanaana v. Barrett Business Services Inc. is another step in this trend, holding that work done for a “special district” can be considered a “public work” under Labor Code section 1720(a)(2), and the payment of prevailing wages are therefore required, whether or not the work being performed relates to the traditional subjects of the law:  “construction, alteration, demolition, installation or repair” work, or certain kinds of “maintenance.”¹  But as with Sarah Winchester’s ceaseless remodeling and reconstruction of her home, the court’s most recent embellishments to the statute remain frustratingly unfinished and incomplete.  The decision will not come as welcome news to the more than 3,000 special districts operating in California, which are now on notice that henceforth some of them will be treated differently than other government entities under the Prevailing Wage Law.  Which ones, and how differently, remains to be seen.

Background

In Kaanaana, the employer was a staffing agency that provided workers directly to the Los Angeles Sanitation District.  The employees worked as belt-sorters, sorting trash and refuse for recycling that moved along conveyor belts in facilities owned and operated by the District.  The workers sorted recyclable from non-recyclable materials as they moved along the conveyor belts, cleared obstructions and placed the sorted materials into containers.  They were directly employed and supervised by the staffing agency, which was sued in a class action lawsuit alleging it unlawfully failed to pay prevailing wages, along with various other wage and hour claims, and seeking civil penalties as well.  The trial court dismissed the prevailing wage claims on the grounds that the sorting and other work performed by the staffing agency employees was not “covered work” under the California Prevailing Wage Law (PWL).  The Court of Appeal reversed the trial court, concluding that the belt sorting activities qualified as a covered “public works” under the PWL.²  

California Supreme Court Decision

The California Supreme Court affirmed the appellate court decision, holding that the work was covered by the PWL.  In doing so, the court focused on two provisions of the PWL:  Labor Code sections 1720(a)(1) and 1720(a)(2).  As a result of numerous amendments in the decades since the statute was first enacted, the Supreme Court correctly noted that “the types of projects included in Labor Code section 1720(a)’s definitions of ‘public works’ reflect no clear common theme, but rather a scattershot series of subjects.”  Nonetheless, the Supreme Court attempted to make sense of the scattershot pattern in this frequently amended section of the statute.

Labor Code section 1720(a)(1) defines a “public work” as:  "Construction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds. . . ."  There was no question that the work was done under contract and paid for by the District, but the principal argument presented to the Supreme Court was that Section 1720(a)(1) did not apply because recycling work does not fit into the traditional and commonly accepted definition of a public work, i.e., the work was not construction, alteration, demolition, installation, repair or maintenance work.  The California Supreme Court appeared to agree, but did not rule, one way or the other, whether Section 1720(a)(1) applied to the work in question.  Instead, it focused on the legislative intent behind Section 1720(a)(2), which defines a public work as: "Work done for irrigation, utility, reclamation, and improvement districts, and other districts of this type."   

The Supreme Court found that the recycling work was clearly "work done for a District."  The key question presented was whether there is any limitation on the scope of work covered under Section 1720(a)(2). The employer argued that Section 1720(a)(2) was limited to construction, alteration, demolition, installation, or repair work, like (supposedly) all of the other provisions of the PWL, in line with prior determinations by the California Department of Industrial Relations and the common understanding of the PWL as being basically directed to and covering only “construction” work and immediately related activities.

The Supreme Court rejected this argument, holding that no such limiting language can be read into Section 1720(a)(2), and noted that the legislature in 1937 had expressly removed the limiting word “construction” from a prior version of the law, which had specified that “the following activities ‘shall be held to be “public works” within the meaning of this act’: (1) ‘[c]onstruction work done for irrigation, utility, reclamation, improvement and other districts. . . .’”  (emphasis in original.)  The new subsection simply stated that: "'Public work' does not include the operation of the irrigation or drainage system of any irrigation or reclamation district, except as used in Section 1778 relating to retaining wages."  Having noted that the legislature had seemingly deliberately removed the word “construction” from the subsection of the public works definitions applying to special districts, the court reasoned:

[w]hen the Legislature alters statutory language, “as for example when it deletes express provisions of the prior version,” the presumption is that it intended to change the law’s meaning.  Here, the Legislature’s deletion of the word “construction” indicates an intent to expand, beyond construction work, the assortment of activities that would qualify as public works when done for a covered district. 

The court also rejected the staffing agency’s argument (and the arguments in the many amicus curiae briefs that were filed in its support) that this otherwise unexplained (and perhaps inexplicable) omission should not be seen to override the traditional and historic purposes of the PWL, which custom, practice and agency opinions had generally limited to construction-related activities except where the legislature had expressly amended the statute to expand the its application into certain areas.  The Supreme Court held that:

The most reasonable interpretation of “public works” in section 1720(a)(2) is that it is not limited by a different definition set out in section 1720(a)(1).  This interpretation gives effect to all parts of the covered district provision and recognizes the difference between definitions based on the tasks performed and section 1720(a)(2), whose coverage turns on the governmental entity for which the work is done.  The belt sorters’ labor qualifies as “public works” under section 1720(a)(2).

The Supreme Court decision was unanimous, though a concurring opinion noted the various anomalies and inconsistencies in the legislative history of the prevailing wage statute.  The concurrence acknowledges that the reasons for the legislature’s supposed expansion of the scope of the PWL in 1937 to apply to a broader range of activities undertaken by special districts, and special districts alone, was not readily apparent from the legislative record (noting, poetically, that “[w]hatever reasons the Legislature may once have had, they have been lost in the mists of time”), and that this particular anomaly of the statutory language was obscure enough to have gone unnoticed for decades after its enactment, as no one thought to apply the language in Section 1720(a)(2) to the work the plaintiffs performed for a special district.  Wryly noting the incongruity of the result being reached in the decision (“[t]here is nothing immediately and obviously distinctive about irrigation districts, reclamation districts, and the like, that explains why they should be singled out in this fashion”), the concurrence gently suggests that “[n]ow, more than 80 years after the statute was first enacted, the Legislature may wish to revisit the issue.” 

Indeed it might.  For as it now stands, major questions are left unanswered by the Kaanaana decision. 

Unanswered Questions

Two unresolved questions are of immediate and practical concern.  First, while it is apparent that the court has greatly expanded the scope of work that can be covered by the Prevailing Wage Law, it neglected to define precisely which “special districts” are affected by its ruling.  The section of the statute being interpreted by the court, Labor Code section 1720(a)(2), states that “public works means” “[w]ork done for irrigation, utility, reclamation, and improvement districts, and other districts of this type.”  (Emphasis added.)  The California Special Districts Association “boasts a membership of over 1,000 organizations throughout California,”³ and there were said to be 3,400 special districts in the state in total as of 2009. 

There are numerous types of special districts, formed for a variety of purposes:  not just irrigation, utility, and reclamation districts nor, whatever the term might be interpreted to mean, “improvement districts.”  There are airport districts, harbor and port districts, fire protection districts, park and recreation districts, sanitation districts, water districts, sewer districts and resource conservation districts, as well as transit districts, library, community services, healthcare, and pest abatement districts.  Which are “districts of this type” for purposes of the statute and the court’s interpretation?  Nowhere in its decision does the court directly address this question, or suggest where, if anywhere, the line can be drawn between “other districts of this type” and districts outside the reach of section 1720(a)(2).  For now, all special districts, and their contractors, need to accept the fact that they may be more broadly covered by the Prevailing Wage Law than they were before April Fools’ Day.  Library districts beware.

The second major practical question left unanswered is precisely what “work” performed for special districts by their contractors will henceforth be deemed “covered” by the state Prevailing Wage Law.  The defendant in Kaanaana and the special district that employed it now know that the sorting of garbage will henceforth be deemed “covered work” for purposes of the Prevailing Wage Law.  But under the court’s interpretation of the subsection, and its “severance” of the section from the more basic sections generally defining, and limiting, the definition of “public works,” theoretically any work performed by a contractor for a special district might be subject to the extensive prevailing wage requirements.  The defendant protested to the court that, accepting the broad interpretation being advocated by the plaintiff (which the court ultimately did) “would make the prevailing wage law applicable to every type of contract worker doing work for a covered district, including accountants, lawyers, and other professionals.”  The defendant pleaded that such was not the legislature’s intent. 

Though acknowledging this problem and uncertainty, with enviable insouciance the court simply observed:

[w]e need not specify the precise outer boundaries of section 1720(a)(2) here.  For our purposes, it suffices to observe that the prevailing wage law is designed to protect laborers, workers, and mechanics employed on public works (see §§ 1771, 1723) and that plaintiffs fall squarely within that class.

Resolution of the basic question of whether all work done by contractors for special districts will henceforth be subject to the state Prevailing Wage Law, or just “some” as yet undefined class of work, is left for another day.  And for other costly and protracted litigation.⁴

Special districts in particular will, therefore, need to continue to monitor developments.  Agency and court decisions may well conclude that “work done” for a special district means any work.  If sorting recycling materials for a special district is a public work, then what about information technology, consulting or catering an event for a special district?  

Significantly, the California Supreme Court did not address the issues raised by the dissent in the court of appeal’s decision, which pointed out that public works has historically meant work on some infrastructure, and reading the statute to include literally any "work done for the district" is unqualified and unlimited in scope.  The dissenting opinion thought the work had to have some connection to the facilities or infrastructure.  "I see no evidence the Legislature intended that all work done for improvement districts, without limitation - unlike that for all other public agencies - was to be compensated at prevailing wage rates, and I can think of no reason justifying such an anomalous result."⁵  This essential point was not addressed by the Supreme Court, although the concurring opinion in Kaanaana alludes to the “incongruity in the scope of public works coverage for these districts, as opposed to other public entities,” and observes that the “Legislature can, if it sees fit, adjust the statutory definition to align with its current conception of the appropriate scope of the prevailing wage law and the other protections to which the definition applies.”  Whether the legislature takes the hint is anyone’s guess.

Bottom Line

There are many other unanswered questions raised by Kaanaana.⁶  But there is no question that the Supreme Court’s decision constitutes a major expansion of the PWL with regard to work for special districts, and a major yet undefined disruption of their operations and contracting.  The implications of the decision could be far-reaching:  as noted above, there were 3,400 “special districts” in California as of 2009, and 50 major types of special districts (and many subcategories).  In the aggregate these districts employ thousands of contractors, who in turn employ tens of thousands of workers.  Under Kaanaana, all “work” performed for any of these “special districts” is potentially a “public work” subject to prevailing wage requirements, and the other costly and cumbersome requirements of the Prevailing Wage Law.

Somewhere Sarah Winchester is no doubt smiling.