Employees Limited To Claims Against Their Employer For Alleged Failure To Pay Prevailing Wages On Public Works Projects
In a case of first impression, the Court of Appeal in Violante v. Communities Southwest Development and Construction Co. held that employees on public works projects may only sue their own employer for alleged prevailing wage violations.
In Violante, the plaintiffs were three employees engaged as construction workers on the Chapman Heights project in the City of Yucaipa. The project involved the development of a master planned community of 2,000 residences and numerous public improvements. The City of Yucaipa financed part of the public improvements.
The plaintiffs filed a class action lawsuit in San Bernardino County alleging that they, and hundreds or thousands of other workers, were paid less than the prevailing wages required by law on the Chapman Heights project. The plaintiffs were employed by one of the subcontractors on the project. Generally speaking, workers employed in the execution of any contract for public work are entitled to various statutory protections including the payment of prevailing wages. The plaintiffs filed suit against their employer, as well as numerous other entities including the developer and general contractor. The plaintiffs asserted three causes of action for statutory violation of Labor Code section 1774, breach of contract, and unfair business practices. The trial court sustained the demurrers of the developer and general contractor without leave to amend. The plaintiffs appealed.
The court of appeal affirmed the trial court's decision. Of particular importance was the court's finding that employees do not have a statutory private right of action against entities other than their employer for failure to pay prevailing wages. The court reached this decision based on the plain language of Labor Code section 1774, which the court found unambiguously requires general contractors and subcontractors to each pay prevailing wages to their own respective employees, not each other's employees. Given the plain language of the statute, the court held that the plaintiffs were not entitled to sue the developer or general contractor under section 1774 because neither entity was the plaintiffs' employer. The court further held that absent a violation of section 1774, the plaintiffs' unfair competition claim was also without merit because there was no unlawful conduct by either defendant.
The court next analyzed the breach of contract claim which was based on a provision in the contract between the developer/general contractor and the City of Yucaipa that merely required the developer/general contractor to comply with prevailing wage laws. The court noted that an employee may sue his or her employer for breach of contract under a third party beneficiary theory under such circumstances. However, the court held that an employee may not directly sue any other entity absent a provision in the contract in which the other entity expressly agrees to pay the employee's prevailing wages. Since no such provision was implicated in this case, the court held that the plaintiffs could not directly sue the developer or general contractor.
Public works contracts are a multi-billion dollar industry in California. Companies engaging in public works face complicated rules and regulations. Violations of these rules are frequent, and the penalties can be staggering. Given the stakes, costly litigation, including class action lawsuits, is common. Typically, plaintiffs file suit against not just their employer, but any other "deep pockets" associated with the public works contract including the general contractor and/or developer. Under Violante, this abusive practice must stop. Plaintiffs will now only be permitted to sue their employer for alleged prevailing wage violations.1
1 Violante does not, however, have any impact on the Division of Labor Standards Enforcement's express statutory right to seek recovery from general contractors whose subcontractors have failed to pay prevailing wages. See Labor Code section 1775.