On January 1, 2014, several new Prevailing Wage Laws (“PWL”) were enacted in California that could have a significant impact on California public works contractors and contractors in certain private works categories. These new laws increase compliance requirements, expand the ability of the Labor Commissioner to investigate potential violations, and provide the Labor Commissioner with wide latitude to seek escalated and draconian penalties/damages. These new laws also serve as motivation for the Labor Commission to investigate compliance issues. The result is a perfect storm of increased risk and higher scrutiny. Any California contractor who does not examine its contracts and confirm that its actions comply with these new laws could face substantial losses.

California Labor Code § 1720 et seq. requires public works contractors and subcontractors to pay the wages prevailing in the locality and to comply with several record-keeping and employee work schedule requirements. The violations of the law subject a contractor or subcontractor to claims for unpaid prevailing wages, and a variety of assessments and penalties. Contractors should also be cognizant of the fact that they are also ultimately responsible for any shortcomings of their subcontractors.

The first action of the California Legislature was to increase the time period in which the claims for violations of the PWL may be brought. Assembly Bill (“AB”) 1336 amends Labor Code §1741(a) to extend the deadline for the Labor Commissioner to serve a civil wage and penalty assessment alleging violations of the PWL from 180 days to 18 months after the filing of a notice of completion or acceptance of the work, whichever occurs later. Moreover, Senate Bill (“SB”) 377 adds the requirement under Labor Code §1741(a) that the awarding body provide notice to the Labor Commissioner of acceptance or the notice of completion. Under the new laws, if timely notice is not given to the Labor Commissioner, the time in which to serve civil wage and penalty assessments is tolled for the length of time that notice is not given. Thus, the extension of the time period in which to serve a civil wage and penalty assessment increases the Contractor’s potential risk on each project.

There are many instances where the public versus private nature of a project is in question. This can arise due to many factors, for example where public land leased to a private entity or where the agency letting the contract is a charter city that has opted out of the Public Contract Code. Where the nature of the project is unclear, SB 377 has amended Labor Code §1773.5 and provides that when a request is made for to determine whether a project is covered by the PWL, the Department of Industrial Relations (“DIR”) is required to issue its determination within 60 days of receipt of the last notice of support or opposition to the determination from an interested party.

This time period may be extended an additional 60 days if additional time is required and the DIR certifies the reasons why additional time is needed. For projects that appear to be private but receive public funds, the DIR has 120 days in which to issue a coverage determination, and this period also may be extended for 60 days. Finally, SB 377 states that the DIR shall have quasi-legislative authority to make coverage determinations, which will likely result in a reduction of court’s reversing the determination in a later judicial proceeding.

Similarly, a joint labor management committee seeking to file a lawsuit alleging prevailing-wage violations must do so within the same 180-day time periods. Assembly Bill 1336 amends the law to extend these time periods to 18 months after the recording of a valid notice of completion, or 18 months after the public entity’s acceptance of the project, whichever is later.

One of the more perplexing changes for contractors is AB 1336, which amends Labor Code §1771.2 and expands the remedies available to a joint labor-management committee in a lawsuit concerning PWL violations. Prior to this year, the Labor Commissioner could obtain liquidated damages and civil penalties for PWL violations. Now, a court may award restitution to an employee for unpaid wages, plus interest, liquidated damages in an amount equal to the unpaid wages, civil penalties, injunctive relief and any other form of equitable relief. The civil penalties alone range from $40 to $200 per calendar day for each employee who is not paid the prevailing wage. On top of this, a court must award a prevailing joint labor-management committee its reasonable attorneys’ fees and costs, including expert witness fees. There is no corresponding statutory obligation to award the prevailing employer its attorneys’ fees and costs. The massive increase in potential risk and the one-way street concerning attorneys’ fees is a major change. Contractors should note that, if the applicable provisions of the Labor Code are not repeated verbatim within its subcontract form, the contractor could be responsible for the penalties and damages assessed against its subcontractor for a PWL violation. If you have not checked your subcontract form, you should do so now.

The California Legislature’s recent bills demonstrate California’s increasing emphasis on prevailing wages. In 2012, the California Supreme Court’s ruling in State Building & Construction Trades Council of California, AFL-CIO v. City of Chula Vista, 54 Cal. 4th 547 (2012) held that charter cities retain control over the wages paid to workers on their locally funded projects. Thus, such projects are not subject to the PWL. Now, the Legislature has attempted to induce charter cities to require contractors to pay prevailing wages on local projects. Under SB 7, a charter city may not receive or use state funds for construction projects if the charter city has an ordinance or charter provision that authorizes contractors to not pay prevailing wages on local projects, or if the city has awarded a contract for construction in the last two years without requiring the contractor to comply with prevailing-wage requirements. In the past, projects let by charter cities usually did not require the payment of prevailing wages. SB 7 illustrates the increasing scope of projects to which prevailing-wage rules may apply and the Legislature’s growing attention to this matter.

Similarly, SB 54 requires parties working on projects involving hazardous materials, when contracting for construction, alteration, demolition, installation, repair, or maintenance work, to require that contractors and any subcontractors use skilled and trained labor, including journeymen who are paid at a wage equal to the prevailing hourly wage for a journeyman in that local. Under this law, California is mandating that certain projects that do not receive public funding to page the prevailing wage per the PWL.

California has an obvious increasing emphasis on the payment of prevailing wages. These new laws expand the ability of the labor commissioner and joint labor management committees to bring enforcement actions, and give joint labor management committees greater incentives to do so by expanding the range of remedies available to them. As a consequence, contractors will see an increase in PWL enforcement in the form of administrative actions by the labor commissioner, and civil lawsuits brought by joint labor management committees.

It is imperative for all public works contractors to comply with the PWL and enact measures to ensure compliance by all subcontractors. Contractors who do not focus on compliance will likely become targets for the Labor Commissioner and face assessments or a prevailing wage lawsuit. The best practices for contractors are to confirm that all subcontracts comply with the law and, at a minimum, include all applicable Labor Code Sections. Contractors should also respond quickly to any requests by the Labor Commissioner for certified payroll records. Due to the increase in time for potential assessments, all labor records should be maintained until the applicable time period to bring a civil wage and penalty assessment or lawsuit have lapsed. Finally, these laws are another reason for the timely filing of Notices of Completion and notices of acceptance. By being proactive and creating measures to ensure compliance and preventing the tolling of an assessment, a contractor can better control its risk and increase its profit.