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Deja Vu: Court Overturns AB 219… Again!

My partner, Jon Welner, is a leading practitioner of prevailing wage law in California and is the Chair of JMBM’s Prevailing Wage Group. He is also a member of JMBM’s Natural Resources and Mining Group and advises and defends the construction materials industry on prevailing wage matters including recent California legislation to expand prevailing wage law to cover the delivery of concrete to public work sites (AB 219).

— Kerry Shapiro

Reversal of Fortune Deja Vu: Court Overturns AB 219… Again!

By Jon Welner

PREVAILING WAGE LAW is California’s “other” minimum wage. It requires workers to be paid union wages on publicly funded construction projects. But in recent years, the law in California has EXPANDED well beyond its initial purpose. It has become a tool for workers to demand union wages on virtually any construction project in California. These claims can increase the cost of a major construction project by millions of dollars–and can be brought years after construction is complete.

The U.S. District Court in Los Angeles has struck down AB 219 as unconstitutional once again.

AB 219 took effect on July 1, 2016. It applied California prevailing wage requirements to the delivery of ready-mix concrete to public works. This was big news for two reasons: (1) it hit the ready-mix concrete industry—and all of the businesses that depend on it—very hard; and (2) it represents the first time that prevailing wage requirements have been imposed on material suppliers (as opposed to on-site contractors).

On June 30, 2016—the day before AB 219 took effect—eight ready-mix companies filed a lawsuit in federal court challenging the constitutionality of the new statute on Equal Protection grounds. In essence, they argued it was unfair to single out ready-mix concrete companies for special treatment, leaving all other material suppliers unaffected.

Since then, the Court battle has taken a number of dramatic twists and turns. AB 219 has been suspended, reinstated, overturned, and appealed, as follows:

  • Oct. 21, 2016—District Court issues preliminary injunction suspending enforcement of AB 219. [AB 219 not in effect.]
  • Oct. 24, 2016—State appeals the preliminary injunction.
  • Dec. 16, 2016—Court of Appeals stays the preliminary injunction pending appeal. [AB 219 back in effect.]
  • Mar. 14, 2017—District Court issues permanent injunction overturning AB 219. [AB 219 not in effect.]
  • Mar. 14, 2017—State appeals the permanent injunction.
  • Mar. 29, 2017—State files motion to stay the permanent injunction pending appeal.

If the Court of Appeals grants the stay, AB 219 will be back in effect once again!

What should ready-mix companies do now?

With all of this back and forth, what should ready-mix companies do? Should they stop complying with AB 219, since it has been declared unconstitutional by the District Court? Or should they continue complying until there is a final decision on appeal?

Companies should consult with their own legal counsel to decide on a course of action. Here are some important considerations:

  • Contracts. Even though AB 219 has been ruled unconstitutional, ready-mix companies must still comply with their contractual obligations. If they have contracts requiring them to pay prevailing wage or take other steps consistent with AB 219, they must continue to do so (or modify the contract).
  • Non-DIR Enforcement. The lawsuit challenging AB 219 was brought against the Director of the Department of Industrial Relations (DIR) and the Labor Commissioner, the chief enforcement official at DIR. DIR has therefore taken the position that the permanent injunction only prohibits the enforcement of AB 219 by DIR—not enforcement by other agencies such as Caltrans or by workers or unions in private lawsuits. So despite the District Court’s ruling, we can expect Caltrans to continue requiring and enforcing AB 219 on its projects; and some drivers might work with unions to file lawsuits against their employers. (Of course, ready-mix companies will argue that no agency or person should be allowed to enforce AB 219, since the District Court ruled it to be unconstitutional!)
  • Retroactive Enforcement. DIR has also taken the aggressive position that if AB 219 is upheld on appeal, DIR intends to retroactively enforce it going back to the date it first took effect, i.e., July 1, 2016. This policy seems patently unfair: it requires companies to comply with AB 219 even though the District Court has declared the law to be unconstitutional. It is not clear whether courts in the future will allow DIR to do this. Nonetheless, DIR’s position creates uncertainty and risk for ready-mix companies who choose not to comply with AB 219.

What’s Next?

DIR has moved for a stay of the permanent injunction, pending a final decision on appeal. The Court will decide on the stay in the next few weeks.

The parties are scheduled to file their appeal briefs in August and September 2017. Oral argument will likely be scheduled for early 2018, with a decision sometime later in the year.

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Jon Welner is a leading practitioner of prevailing wage law in California. He is a Partner at Jeffer Mangels Butler & Mitchell LLP (JMBM) and Chair of JMBM’s Prevailing Wage Group. Contact him at JWelner@jmbm.com.

JMBM’s Prevailing Wage Group advises and defends developers, contractors, and manufacturers on the most challenging and complex prevailing wage matters in California.