The legislature is considering adopting a statute that would require workers on private projects to be paid prevailing wage if public subsidies exceed the lesser of $10,000 or 1% of the project cost.  This would effectively eliminate the de minimis exception and likely change the landscape for public subsidies on private projects.

Workers employed on public works projects are required to be paid not less than prevailing wage. Public works include private projects that are paid for, in whole or in part, out of public funds. However, according to Labor Code section 1720, workers who are employed on such projects are not entitled to prevailing wage if the public funds are de minimis in the context of the project. 

 

Although section 1720 does not define "de minimis," the Department of Industrial Relations ("DIR") has articulated that prevailing wage need not be paid if "the public funding was proportionally small enough, in relation to the overall cost of the Project, that the availability of those funds did not significantly affect the economic viability of the Project." In the 2005 case in which the DIR articulated this standard, public funding that amounted to 1.64% of the total project cost ($65,710 on a $4,101,010 project) was determined to be de minimis. Since then, the DIR has consistently treated subsidies amounting to less than 1.64% as de minimis regardless of the total project cost.

 

A new bill sponsored by the State Building and Construction Trades Council of California, AB 302, would define de minimis to mean less than $10,000 and less than one percent of the total project cost. Those in favor of the bill argue that the exception was originally intended to only apply to projects receiving a "trifling" public subsidy and that $10,000 is more than just a trifle. They note that private developers could still refuse public subsidies to avoid paying prevailing wage. Those opposed argue that while the exception was widely debated prior to its enactment, it was generally agreed to mean 2% of project cost, consistent with the DIR’s subsequent determinations that a substantial public subsidy is required to trigger California’s Public Works Law.  

 

Although the Assembly passed the bill and ordered it to the Senate, where it is currently being considered by the Standing Committee on Labor and Industrial Relations, it noted in its fiscal analysis that "[t]o the extent the definition of ‘de minimis’ leads to the payment of a prevailing wage, private projects costs will likely increase." This is unfortunate, particularly considering that the economy is still in a somewhat fragile state. 

 

The legislature has acknowledged that the purpose of prevailing wage laws is to ensure that workers on public projects are paid wages commonly paid in a particular region. It is difficult to see how a 2% subsidy somehow transforms a private project into a public one. Moreover, if this change is enacted, public entities will be significantly restrictied in their ability to stimulate their local economies.

Those wishing to track the progress of AB 302 in the legislature can do so by clicking here.