California Supreme Court Holds that Charter Cities Do Not Have to Pay Prevailing Wages

On July 2, 2012, the California Supreme Court, in a much anticipated decision, held that charter cities do not have to pay prevailing wages on municipal public works projects. At issue was a conflict between Article XI, Section 5 of the California Constitution which provides that the ordinances of charter cities supersede state law with respect to “municipal affairs,” on one hand, and existing California law which provides that state law is supreme with respect to matters of “statewide concern,” on the other hand.

In State Building and Construction Trades Council of California, AFL-CIO v. City of Vista, Case No. S173586 (July 2, 2012), the City of Vista (“City”) in San Diego County approved a 5% sales tax to fund the construction and renovation of several public buildings.  At the time, the City was a general law city subject to the state’s prevailing wage law on public works projects.  After the sales tax was approved, a ballot measure was passed that changed the City from a general law city to a charter city.  Thereafter, the City amended a city ordinance to prohibit any City contract from requiring payment of prevailing wages unless: (1) such payment was compelled by the terms of a state or a federal grant; (2) the contract does not involve a municipal affair; or (3) the payment of prevailing wages is separately authorized by the city council. After the City adopted a resolution approving the use of the bond funds to design and build two fire stations, the State Building and Construction Trades Council of California, AFL-CIO, a labor federation federation comprised of local unions, district labor councils, and local building trades councils, petitioned the court for a peremptory writ of mandate directing the City to comply with the state’s prevailing wage law.

The California Supreme Court, applying a four-part test from its decision in California Federal Savings & Loan Association v. City of Los Angeles, 54 Cal.3d 1, (1991) in determining whether the “Home Rule Doctrine” embodied in Article XI, 5 of the state Constitution preempted state law, looked at whether:

1. The city ordinance at issue regulates an activity that can be characterized as a “municipal affair”;
2. The city ordinance presents an “actual conflict” between state and local law;
3. The state law addresses and issue of “statewide concern”; and
4. The state law is “reasonably related to resolution of that concern” and “narrowly tailored” to avoid unnecessary interference in local governance.

The Supreme Court held that the wage levels of contract workers constructing locally funded public works are a “municipal affair,” that there was an “actual conflict” between state law and the ordinance of the City, but that the wage levels of contract workers constructing locally funded public works was an issue of local concern, not “statewide concern.”  As such, the Supreme Court held that it did not need to address whether the state’s prevailing wage law was “reasonably related to resolution of that concern” or “narrowly tailored” to avoid unnecessary interference in local governance:

In this case, we conclude that no statewide concern has been presented justifying the state’s regulation of the wages that charter cities require their contractors to pay to workers hired to construct locally funded public works. In light of our conclusion that there is no statewide concern here, we need not determine whether the state’s prevailing wage law is “reasonably related to . . . resolution” of that concern and is “narrowly tailored” to avoid unnecessary interference in local governance.

The City of Vista case is a big win for charter cities and a huge loss for labor unions as it establishes what appears to be a bright line rule which permits charter cities to construct municipal public works projects without having to comply with the state’s prevailing wage law.