Labor unions have long been at odds with California charter cities over whether such cities must pay prevailing wages on public works projects. While many charter cities have either not exempted themselves from state prevailing wage laws, or have passed their own prevailing wage laws, other charter cities have no prevailing wage laws for public works projects whatsoever. The building trades have challenged those charter cities which have no such laws. However, the California Supreme Court recently sided with the charter cities on this issue. In State Building and Construction Trades Council of California AFL-CIO v. City of Vista (July 2, 2012, S173586) ___ Cal.4th ___. Relying on 80 years of precedent, the Court held that contract worker wages of locally funded public works are municipal affairs, not of statewide concern, and are exempt from state prevailing wage laws (see City of Pasadena v. Charleville (1932) 215 Cal. 384, 389).

A prevailing wages dispute arose recently when the City of Vista in San Diego County passed a ballot measure to become a charter city. Indeed, the City’s stated intent behind the measure was to save millions of dollars by not paying prevailing wages on public works projects. The City also adopted a resolution that it did not have to pay prevailing wages absent limited circumstances such as when the project had state or federal funding. Thereafter, the City contracted to build two fire stations, and the contracts did not require compliance with the state’s prevailing wage laws. The State Building and Construction Trade Council of California, AFL-CIO (the Union) sued, arguing that prevailing wage laws addressed important statewide concerns and thus applied to charter cities. The City countered that these wage issues were municipal local affairs protected from state legislative intrusion under the California Constitution. The trial court and Court of Appeal agreed with the City.

On appeal the Supreme Court first traced the roots of California’s prevailing wage law to Depression-era legislation that required contractors on public works projects to pay the general prevailing rate of local labor market conditions. The intent behind prevailing wage laws was to prevent government contractors from importing cheap labor from other areas. On the other hand, the California Constitution gives cities the power to become charter cities and control their own “municipal affairs” free from state legislative intrusion. The constitutional roots of charter cities trace back more than 100 years, based on the principle that municipalities know how to govern themselves better than the state at large. Los Angeles, San Francisco, San Diego, and San Jose are included among the 120 charter cities in California. In contrast, if a city ordinance involves a manner of “statewide concern” and conflicts with state law, the latter supersedes the local ordinance.

The Court next analyzed whether the “Home Rule Doctrine” applied. Under this four-part test, a court first determines whether the city ordinance regulates an activity that can be characterized as a municipal affair. Second, a court considers whether the case presents an actual conflict between state and local law. Third, a court must decide whether the state law addresses a matter of statewide concern. And lastly, a court determines whether the law is reasonably related to resolution of that statewide concern and narrowly tailored to avoid unnecessary interference in local government. Where a court finds that state statute is one of statewide concern and not unduly broad, then a charter city measure ceases to be a municipal affair and the state statute controls.

Applying the four-part test, the Court found that the construction of a city-operated facility (here, two fire stations) for the benefit of city’s inhabitants was “quintessentially” a municipal affair. Next, the Court agreed that there was an actual conflict between state law and the City’s ordinance precluding payment of prevailing wages on public works contracts. In perhaps the most interesting portion of the Court’s opinion, the Court found that wage levels of locally funded public works were not of statewide concern. Here, the Court dismissed the Union’s evidence that state prevailing wage laws impacted the state in positive ways. Instead, the Court sided with the City based on the Court’s own precedent that municipalities should be able to govern their finances.

Comment: The City of Vista case has been closely followed by cities, labor unions, and builder interest groups for several years. One could argue that the Supreme Court’s decision gave deference to local municipalities managing their own affairs. However the case dealt with an ordinance that exempted state and federally funded projects from its scope. Therefor the Court’s holding does not bar the requirement of prevailing wages on such projects.

James Higgins is an associate in Sheppard Mullin’s San Francisco office and member of the Firm’s Construction Industry Team.