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Sheet Metal Workers' International Association v. Duncan

California Court of Appeals, First District, Third Division

August 27, 2014

SHEET METAL WORKERS’ INTERNATIONAL ASSOCIATION, LOCAL 104, Plaintiff and Respondent,
v.
JOHN C. DUNCAN, as Director, etc., et al., Defendants and Respondents RUSS WILL MECHANICAL, INC., Real Party in Interest and Appellant.

City & of San Francisco County, No. 510528 Hon. Peter J. Busch Judge.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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COUNSEL

Sheppard Mullin Richter & Hampton, Richard M. Freeman and Matthew Scott McConnell for Real Party in Interest and Appellant.

Atkinson, Andelson, Loya, Ruud & Romo, Robert Fried and Thomas A. Lenz for National Precast Concrete Association, Precast/Pre-Stressed Concrete Manufacturers Association of California and Associated Builders & Contractors of California as Amici Curiae on behalf of Real Party in Interest and Appellant.

Cook Brown, Dennis B. Cook, Barbara A. Cotter and Meggi E. Wilson for Air Conditioning Trade Association, The California Counsel for Affordable Housing, The Modular Building Institute, Inc., and the Western Electrical Contractors Association, Inc., as Amici Curiae on behalf of Real Party in Interest and Appellant.

Altshuler Berzon, Peter D. Nussbaum and Anne Nelson Arkush for Plaintiff and Respondent.

No appearance for Defendants and Respondents.

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OPINION

McGuiness, P. J.

California’s prevailing wage law generally requires that workers employed on public works be paid the local prevailing wage for work of a similar character. (Lab. Code, [1] § 1771.) The question presented by this appeal is whether the prevailing wage law applies to an employee of a subcontractor who fabricates materials for a public works project at a permanent, offsite manufacturing facility that is not exclusively dedicated to the project. We conclude that California law does not require the prevailing wage to be paid to the employee in this circumstance.

Factual and Procedural Background

In 2005, a contractor entered into a public works contract with a community college district to modernize an administration building at a community college in Santa Clara County (the project). Real party in interest and appellant Russ Will Mechanical, Inc. (Russ Will) was the subcontractor for the heating, ventilation, and air conditioning (HVAC) component of the project. The subcontract provided that the project was to be built according to the specifications of the prime contract between the contractor and the community college district. Russ Will was required to “furnish all labor, materials, equipment, services and supplies necessary to complete” the HVAC work. The subcontract did not specify whether Russ Will was required to fabricate any material necessary to complete the HVAC work. A lengthy document that was part of the prime contract specified minimum requirements for all trades on the project. The requirements were not specific to Russ Will or any other particular subcontractor. Among other things, the general project requirements specified that ductwork was to be fabricated according to industry HVAC construction standards. The general requirements that formed part of the prime contract did not specify who was required to fabricate HVAC materials. The subcontract provided that the project was subject to prevailing wage requirements and required Russ Will to “pay not less than the [applicable prevailing wage] to all laborers, workmen, and mechanics employed by him at the project site in the execution of work hereunder.”

Since 1991, Russ Will has fabricated materials at a permanent, offsite facility it operates in Hayward. The offsite facility was not established for the project at issue here but instead has been utilized to manufacture items for various private and public projects. Russ Will does not sell the materials it fabricates to the general public.

Steve Neves, an employee of Russ Will, filed a complaint with the Department of Industrial Relations, Division of Labor Standards Enforcement

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(DLSE) alleging he should have been paid prevailing wages for work related to the project. The work that Neves performed involved the fabrication of sheet metal at Russ Will’s Hayward facility in accordance with the plans and specifications set forth in the contract documents for the project. Neves fabricated various ducts, flashing, square rounds, and fittings for use in the project. There is no indication in the record that Neves ever worked at the site of the project in Santa Clara County. According to Russ Will, at least some of the fabricated sheet metal items could have been ordered from standard industry catalogs. Other required sheet metal items for the project were considered custom because of the non-standard dimensions. Russ Will contemplated ordering custom sheet metal items from a third party, which in turn was going to order them from a manufacturer. After learning that the price for the custom items would be high, Russ Will ended up fabricating the custom items in its own permanent facility in Hayward.

DLSE issued a civil wage and penalty assessment against Russ Will for failing to pay prevailing wages for the fabrication work performed in its Hayward facility. Russ Will requested a review of the assessment pursuant to section 1742, subdivision (a). At the invitation of DLSE, plaintiff and respondent Sheet Metal Workers’ International Association, Local 104 (Local 104) expressed an interest in participating in the proceedings and submitted a position statement in support of DLSE’s assessment.

The Department of Industrial Relations (department) issued a coverage determination in which it concluded that Russ Will was required to pay prevailing wages for the offsite fabrication work associated with the project. The department’s determination turned on whether Russ Will was exempt from the prevailing wage law as a material supplier. To qualify for the material supplier exemption, the employer must sell supplies to the general public and its fabrication or manufacturing facility must not be established for the particular public works contract or be located at the site of the public work. (See O.G. Sansone Co. v. Department of Transportation (1976) 55 Cal.App.3d 434, 442 [127 Cal.Rptr. 799] (Sansone).) Because Russ Will does not sell supplies to the general public, the department concluded that Russ Will was properly characterized as a subcontractor under section 1722 and was not exempt from the prevailing wage law as a material supplier. Russ Will filed an administrative appeal.

In its decision on administrative appeal, the department reversed its initial coverage determination and concluded that the offsite fabrication performed by Russ Will was not subject to the prevailing wage law. Although the department again concluded that Russ Will was a subcontractor within the meaning of the prevailing wage law and did not qualify for the material supplier exemption, the department explained that this conclusion did not

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necessarily resolve the question of whether the offsite fabrication was subject to prevailing wage requirements. The department noted that California case law did not specifically address the issue posed by this case—i.e., whether fabrication is subject to prevailing wage requirements when performed in an offsite facility of a subcontractor that does not sell supplies to the general public. In the absence of directly applicable California case law, the department interpreted the prevailing wage law consistent with federal regulations specifying that prevailing wages do not apply to work performed at a permanent fabrication plant when the location and existence of the plant are determined wholly without regard to any particular public works project. Because the project at issue here had no bearing on the location or existence of Russ Will’s offsite fabrication facility, the department concluded that fabrication work performed at the offsite facility was not subject to the prevailing wage law.

Local 104 filed a petition for a writ of mandate in the superior court against the department and its director challenging the department’s coverage decision.[2] In its petition, Local 104 alleged that, unlike a material supplier that is exempt from the prevailing wage law, Russ Will’s offsite facility fabricated customized sheet metal items in accordance with the specifications in the project’s contract documents. According to Local 104, because the custom fabrication was an integral part of the project and was performed in the execution of a public works contract, the work should have been covered by the prevailing wage law.

The superior court granted the petition and directed the issuance of a writ of mandate. The court reasoned that the department “applied an incorrect legal standard by relying exclusively on federal law.” According to the court, the correct legal standard for analyzing whether offsite work is covered by California’s prevailing wage law is set forth in Williams v. SnSands Corp. (2007) 156 Cal.App.4th 742 [67 Cal.Rptr.3d 606] (Williams). The court remanded the matter to the department for reconsideration utilizing the legal standard set forth in Williams.

Following entry of judgment, Russ Will filed a timely notice of appeal. Although the department participated in the proceedings before the superior court, it did not participate in this appeal or file any briefs in this court.

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Discussion

1. Standard of Review


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