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California court of appeal rejects expansion of wage/hour liability

August 2, 2011

Yes, we’ve got some quirky employment laws in California.

California Labor Code 2810 permits employees in certain industries — construction, farm labor, garment, and security services — to sue the entity that hired their employer for certain wage and hour violations.  To prevail, however, the employees need to show that the hiring entity, or “contracting party” in the parlance of section 2810, “knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided.”

A very recent case from the court of appeal, Castillo v. Toll Bros., gave a restrictive, employer-friendly interpretation to this section, and rejected plaintiffs’ attempts to push the envelope.  Toll Bros. was the general contractor in a number of residential construction projects.  Toll Bros. subcontracted some of the work to Capaz Construction Corp.  Capaz allegedly breached all sorts of wage and hour laws in paying its own employees.  The employees sued Capaz for the violations.  The employees also asserted a claim against Toll Bros., seeking to hold it liable under section 2810 for its subcontractor’s failures.

The court held that the employees could not prove that Toll Bros. knew or should have known there were insufficient funds to comply with labor laws.  The main bone of contention was whether the labor portion of the subcontract disclosed to Toll Bros. had to be analyzed based upon the legal minimum wage or what the plaintiffs called the “real world” (read, “higher”) wages paid to most construction workers.  The court concluded it was the minimum wage:

[Section 2810] is violated only if the contract “does not include funds sufficient to allow the contractor to comply with all applicable . . . laws or regulations governing the labor or services to be provided.”  The wage a laborer must be paid for an hour of work, just like overtime compensation, rest periods, and other aspects of hourly employment, is governed by an applicable law—the law or regulation setting a minimum wage for the relevant work.  A contract price that provides enough funds to permit the employer to pay its workers this minimum wage, as well as to comply with other applicable laws, therefore satisfies the plain language of section 2810.  Such funds are sufficient to permit the employer to comply with applicable laws in performing the contract.

The rejected plaintiffs’ interpretation:

Plaintiffs’ position is untenable because there is no general law requiring an employer to pay its workers the average local wage for a particular skill or trade, if that average wage is higher than the legal minimum.  Merely to pay less than the prevailing wage therefore violates no law.  In the absence of a local, state, or federal law requiring the payment of a wage higher than the legal minimum, a contract cannot be insufficient under section 2810 merely because it does not provide sufficient funds to pay that higher wage, since section 2810 imposes nothing more than compliance with legal requirements.

The court went on to confirm that, with few exceptions, none of the plaintiffs could show Toll Bros. knew or should have known that its contractor with the sub contained insufficient funds to pay the subs employees the minimum wage (currently $8 per hour in California) for the sub’s part of the project.

What lessons can be drawn from Castillo?  Here are a few:

  • If you contract out for construction services, farm labor, garment workers, or security services in California, keep an eye on the labor portion of the contract.  If it’s too low, the great deal you’re getting may come with a bonus you didn’t expect — a wage and hour suit.
  • Contractors working on public projects need to be even more careful.  Prevailing wage laws may well require the sufficiency analysis to be done with a larger wage factor, which would require a higher total labor cost in the contract to be reasonably sufficient.
  • If a contract sounds too good to be true, perhaps it is.  Check with a knowledgeable lawyer before acting.

You’ve got to keep on your toes out here on the left coast.

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From → Wage and hour

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