The First Appellate District of the California Court of Appeal recently held that the construction of a movie theater, which was performed in furtherance of a city’s redevelopment agenda, constitutes a “public work” within the meaning of California’s prevailing wage law. Cinema West, LLC v. Christine Baker, No. A144265, (Cal. Ct. App. June 30, 2017).
Like many California cities, the City of Hesperia (the “City”) endeavored to revitalize its downtown. In furtherance of this goal, the City acquired vacant property in its downtown with the hope of turning it into a new city hall, a public library, and “complimentary retail, restaurant, and entertainment establishments.” After completing construction of the civic buildings, the City entered into discussions with Cinema West, LLC (“Cinema West”) for the construction of a “state-of-the-art cinema experience.”
Under the agreement with the City, Cinema West agreed to purchase the property from the City at fair market value, obtain financing for the construction costs, and build and maintain the movie theater. The City, on the other hand, agreed to provide Cinema West with an interest-bearing loan forgivable over ten years, and to construct an adjacent parking lot “for use by Cinema West… as a parking lot for the movie theater.” The City, moreover, agreed to issue Cinema West a one-time payment as consideration for the operating covenant.
Shortly before construction was completed, the International Brotherhood of Electrical Workers Local 477 (the “Union”) submitted a request with the California Department of Industrial Relations (the “Department”) for a public works coverage determination for the theater and parking lot developments. In opposition, Cinema West asserted that it never actually received the loan or one-time payment from the City. Cinema West, therefore, argued that the theater project was a private development that used no public funds or assistance. Cinema West, however, submitted no documents or evidence in support of its position.
The Department ultimately concluded that “the construction of a movie theatre and related facilities is a public work subject to prevailing wage requirements.” In doing so, the Department found that the “very specific terms” of the agreement called for the theater and the parking lot to be constructed in tandem, and, as such, “there is no doubt” the Project contemplated “a single complete and integrated theatre complex.” The Department also found that “the construction of the adjacent parking lot, a water retention system for the theater and parking lot, and the installation of off-site improvements to curbs, gutters and sidewalks” constituted “public subsidies” that subjected the theater development to the requirements of the prevailing wage law. Cinema West filed an administrative appeal, but submitted no evidence to support its position. The Department affirmed its original decision. As a result, the Division of Labor Standards Enforcement commenced wage enforcement proceedings against Cinema West and its contractors and subcontractors.
Cinema West subsequently filed a writ of mandate with the Superior Court of Sonoma County. In its writ, Cinema West contended that the construction of the theater was not a public works project and that the Department made an “erroneous determination.” This time, Cinema West submitted evidence, which it urged the Superior Court to consider. The Superior Court, however, rejected Cinema West’s request, finding that Cinema West should have presented the evidence in the administrative proceedings and “did not avail itself of the opportunity” to do so. The Superior Court subsequently found that the evidence in the administrative record established that the theater development was, indeed, a public work subject to the requirements of the prevailing wage law.
Cinema West appealed the Superior Court’s ruling to the Court of Appeal. On appeal, the Court made several critical findings of law: 1) the prevailing wage law is liberally construed to further its purpose; 2) the phrases “public works” and “paid for in whole or in part out of public funds” are broadly defined under the Labor Code; and 3) all interested parties have a “continuing duty” to provide the Department with relevant documents until a determination is made. Applying these principles, the Court found that Cinema West was not deprived of due process since its failure to submit evidence during the administrative appeal “was its own choice.” The Court also found that there was ample evidence to conclude that the theater, parking lot, and related amenities were part of a “completed integrated object,” i.e., were one construction project.
Perhaps more importantly, however, the Court found it irrelevant that Cinema West may not have actually received any public funding. Specifically, the Court determined that “allowing a developer to accept public benefits and, if a later determination is made that the project is a public work, disclaim public benefits to avoid paying prevailing wages would seriously undermine the [prevailing wage law],” and would “incentivize gamesmanship on the part of local government bodies and developers.” The Court also recognized that the converse – allowing developers to keep the public benefits if it outweighs the cost of compliance with the prevailing wage law – would “place undue burdens on the Department’s limited enforcement personnel.” For these reasons, the Court held the construction of the theater was paid for in part with public funds.
Cinema West provides an important reminder to developers: if you collaborate with a public entity, be prepared to pay prevailing wages. It is well-established that administrative agencies and courts will broadly construe the definition of a “public work,” and will strive to further the interests of the prevailing wage law. Similarly, disavowing the public benefits that may have incentivized the project will not shield a contractor from wage liability. Consequently, if there is any hint that public funds may be used, or even contemplated, developers and/or contractors should automatically seek a determination under California Labor Code section 1773.5 whether prevailing wages apply to any particular project. The failure to pay required prevailing wages can result in penalties of up to $200 per day per worker and these penalties can be assessed for 18 months after the project is completed. Conversely, if a developer and/or contractor contests a prevailing wage determination, it is critical that it submit all evidence in support of its position at the time of the initial challenge, or it runs of the risk of being unable to use such evidence on appeal.
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