Petition for Writ of Certiorari — WSB Electric, Inc. v. Curry

Supreme Court brief1997

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“96 789 NOV 19 1996.

NO: —pepmenF THE CUERI 2

In The

Supreme Court of the United States

October Term, 1996

WSB ELECTRIC, INC. and

J. R. ROBERTS CORPORATION,

Petitioners,

JAMES CURRY, IN HIS OFFICIAL CAPACITY

AS THE LABOR COMMISSIONER OF THE STATE

OF CALIFORNIA; RONALD RINALDI,

DIRECTOR OF INDUSTRIAL RELATIONS

FOR THE STATE OF CALIFORNIA,

Respondents.

Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

Mark R. THIERMAN, Esa.*

Georce P. Parisotto, Esa.

THIERMAN LAW FIRM

120 Green Street

San Francisco, California 94111

Telephone: (415) 391-9200

Counsel for Petitioners

WSB Electric, Inc. and

J. R. Roberts Corporation

*Counsel of Record

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

Whether the California prevailing wage law, which

denies credit against the total wage obligation for pay-

ments of fringe benefits contributions over a “prevailing”

state mandated amount, thereby effectively placing a cap

on fringe benefits that public works contractors may pro-

vide on behalf of employees in lieu of cash compensation,

“relates to” or has a “connection” with employee welfare

benefit plans and is therefore preempted by operation of

the Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. § 1001, et seq., where credit is

allowed for fringe benefit contributions below the state

mandated amount and the prevailing wage amount is

based upon the “costs” of prevailing fringe benefit pro-

grams plus wages.

TABLE OF CONTENTS

Page

OCUBSTIONS PREGEIUEEO 6 occ ceccsvenvascssnvesets iv

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SEATS TVG Ge bv kinase cee eceep sche terns 2

STAT IMGMICE GP THEE CARS occ esccctevistvivcenes yp

REASONS FOR GRANTING THE WRIT ........... 9

1. THE CALIFORNIA PREVAILING WAGE LAWS

“RELATE TO,” AND IN FACT REGULATE,

THE FUNDING OF AN EMPLOYEE BENEFIT

PLAN AND ARE THEREFORE PREEMPTED BY

BRIS os oc nv coneesnanheeaeau ves Ceeeneleeers nee es 11

A. The Prevailing Wage Laws Regulates And

Purports To Regulate ERISA Plans By

Requiring Employers To Calculate Their

Wage Obligations By Reference To Other

Existing, Or Prevailing, ERISA Plans Which

The State Deems “Prevailing”.............. 13

B. The California Prevailing Wage Laws Are

Preempited by ERISA Because They Create

Ongoing Administrative Burdens For Public

Warks (One QtOs coe sce cncscccncsciseasnne 23

CONCTAIGIIG «cc nscincevustacedisanersanaeneuenes 27

iii

TABLE OF AUTHORITIES

Page

Cases

ABC National Line Erection Apprenticeship Training

Trust, 66 F.3d 343 (9th Cir. 1995)........cccseccees 25

Aloha Airlines, Inc. v. Ahue, 12 F.3d 1498 (9th Cir.

ELEC AG Edd uweo cedex Vesdekhnys oes tcaneeecs 8

Associated Builders and Contractors v. Baca, 769

F.Supp. 1537 (N.D. Cal. 1991), aff’d. on other

grounds sub nom. Chamber of Commerce v. Brag-

don, 64 F.3d 497 (Sth Cir. 1995) ..........cceccvees 18

Associated Builders and Contractors v. Perry, 869 F.

Supp. 1239 (E.D. Mich. 1994) .............. 18, 20, 22

City of Des Moines v. Master Builders of Iowa, 498

N.W.2d 702, 1 Wage & Hour Cas. 2d (BNA) 688

PE WSR eal gs W's as Ab oo 6 Odes cd 6K dss cae ci 20

Delta Air Lines v. Shaw, 463 U.S. 85 (1983)........... 12

District Council v. James McHugh Construction Co.,

596 N.E.2d 19, 30 Wage & Hour Cas. (BNA)

gf Me Se errs 20, 21

District of Columbia v. Greater Washington Board of

A ee 9, 12, 20

Employee Staffing Services, Inc. v. Aubry, 20 F.3d

ce hed y eke baegbhea abs easeaeed 8

FMC Corp. v. Holliday, 498 U.S. 52 (1990)............ 11

Fort Halifax Packing Company v. Coyne, 482 U.S. 1

PCL E chce se deuch wa tse 40 o¥isous Ver caveenesc 23, 26

TABLE OF AUTHORITIES - Continued

Page

General Electric v. Dept. of Labor, 891 F.2d 25 (2nd

GE SEG evn cas edus bechesvackbetevsbawbacukeriede: 20

Greater Washington Board of Trade v. District of

Columbia, 948 F.2d 1317 (D.C. Cir. 1991)........... 22

Ingersoll-Rand v. McClendon, 498 U.S. 133 (1990) ..12, 26

Keystone Chapter, Associated Builders and Contrac-

tors v. Foley, 37 F.3d 945 (3rd Cir. 1994), cert.

Geet... TES FB. CE TR CIP abscess cowcccedsebenass 21

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

FRO (ERE 80 2 0 che snckessabvarsciwereickiedtatsink 12

Minnesota Chpt. of Associated Builders and Contrac-

tors v. Minnesota Dept. of Labor, 47 F.3d 975 (8th

CBs. FORD ohn Gowsivcs posgnsauyessaweceked uve ns oh 21

New York State Conference of Blue Cross and Blue

Shield v. Travelers Insurance Company, __ U.S.

wees Bs | ee ee ye %, 11,

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987) ..... 12

State of California, etc. v. Dillingham Construction,

FON. PGE dicnnckesedeskiecersevedess hanes a 9, 47, 25

STATUTES

Federal

Oe TEA BT 105 hhakduecasdtreveceureaerictete 1

a UDA, & Ts 0c be os bn Sudeewenses cesibeeacti 22

PF UDR. B Tei so vee eenie vada enses tees 2 11, 72

BUA 6. ee ee, 11

TABLE OF AUTHORITIES - Continued

Page

California

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Michigan

Mich. Comp. Laws § 408.551, et seq. ................ 19

REGULATIONS

California

Title 8, California Code of Regulations (“C.C.R.”)

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Pied A te ond 5 7605 1 0b 0kn tne keke eo Aer 17

Ee | er ee ere a, & 3, 14, 16,

GS GAs 2 i inte ies veer eee 2

ee A Peer rey re 5, 14, 15

PETITION FOR WRIT OF CERTIORARI

Petitioners WSB Electric, Inc. and J. R. Roberts Cor-

poration respectfully pray that a writ of certiorari issue to

review the judgment of the United States Court of

Appeals for the Ninth Circuit, entered in the above action

on July 5, 1996. :

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Ninth Circuit is reported at 88 F.3d 788 (9th Cir. 1996)

and is reprinted in the appendix to the certiorari petition

(“App.”) at App. la. The Order of the Court of Appeals

denying Petitioners’ Petition for Rehearing and Sugges-

tion for Rehearing En Banc is reprinted at App. 23a. The

unpublished opinion of the United States District Court

for the Northern District of California granting Respon-

dents’ Motion for Summary Judgment is reprinted at

App. 25a.

JURISDICTION

The Ninth Circuit issued its decision and judgment

herein on July 5, 1996. A timely Petition for Rehearing

and Suggestion for Rehearing En Banc was denied on

August 19, 1996. This Court has jurisdiction pursuant to

28 U.S.C. § 1254(1).

STATUTES INVOLVED

The relevant statutes are reproduced in the appendix

at App. 47a. The relevant federal statutory provisions are

§ 514(a), 29 U.S.C. § 1144(a) of the Employee Retirement

income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001,

et seq. The relevant California statutory provisions are

California Labor Code § 1771, 1777.1 and 1775. The rele-

vant California regulations interpreting Labor Code

§ 1771 are Title 8, California Code of Regulations

(“C.C.R.”) §§ 16000, 16200, and 16203.

STATEMENT OF THE CASE

Petitioners seek review of the California prevailing

wage laws which improperly integrate fringe benefit con-

tributions from existing “prevailing” benefit plans into

the wage obligation of public works contractors. This

action is similar to another case before the Court, State of

California, etc. v. Dillingham Construction, No. 95-789

(argued Nov. 5, 1996), in that it represents another

attempt by the State to coerce public works contractors

into funding or creating benefit plans whose level of

contributions are defined by the State. In this case, the

state is attempting to regulate the funding aspects of a

fringe benefit program covered by the Employee Retire-

ment Income Security Act of 1974, ERISA.

Currently, construction contractors who are awarded

California public works contracts which are more than

$1,000.00 must pay their employees “the general prevail-

ing rate of per diem wages for work of a similar character

in the locality in which the public work is performed{.]”

Labor Code § 1771. The prevailing wage is defined by

regulation as the “basic hourly rate being paid to a major-

ity of workers engaged in the particular craft, classifica-

tion or type of work within the locality and in the nearest

labor market area.” 8 C.C.R. § 16000.

In California, the prevailing wage is generally a

“modal” rate, that single rate being paid to the greatest

number of workers in the area.! General per diem wages

set forth include the prevailing basic straight-time hourly

rate of pay, the prevailing rate for holiday and overtime

work, apprenticeship training contributions, and the pre-

vailing rate of employer payments for fringe benefits,

which includes contributions to plans providing health

and welfare, and pension benefits, which are by defini-

tion employee benefit plans regulated under ERISA.?

1 The “modal” rate, which is not an average rate, allows

union wages to become the State’s prevailing wage, even if

only a fraction of the workers are union or are paid union

scale. For example, if one considers ten workers, two being

paid $9.00 per hour, and the rest paid different and separate

amounts between $6.00 and $8.00, the “prevailing” wage will

be $9.06, since that amount is being paid to a greater number of

workers (two) than any other amount, regardless of the fact

that the average wage of the ten workers will be lower. Unions

are exempt from antitrust and anti-collusion laws which pre-

vent non-union employers from ever enjoying the modal rate.

2 Under 8 C.C.R. § 16000, “General Prevailing Rate of Per

Diem Wages” is defined to include:

(1) The prevailing basic straight-time hourly rate of pay;

and

(2) The prevailing rate for holiday and overtime work;

and

All prevailing wage determination for public projects

must separately siate, inter alia, the basic Straight time

hourly rate and the prevailing contribution level, i.e., the

prevailing employer payments for benefits. 8 C.C.R.

§ 16203 App. at 84a. Under the current system, a public

works contractor is given a choice whereby he or she can

either: a) pay the stated total hourly rate in cash; b) pay

(3)

(A)

(B)

(C)

(D)

(E)

(F)

(G)

(H)

(I)

(J)

(4)

The prevailing rate of employer payments for any or

all programs or benefits for employees, their families

and dependents, and retirees which are of the types

enumerated below:

medical and hospital care, prescription drugs, dental

care, vision care, diagnostic services, and other health

and welfare benefits;

retirement plan benefits;

vacations and holidays with pay, or cash payments in

lieu thereof;

compensation for injuries or illnesses resulting from

occupational activity;

life, accidental death and dismemberment, and dis-

ability or sickness and accident insurance;

supplemental unemployment benefits;

thrift, security savings, supplemental trust, and bene-

ficial trust funds otherwise designated, provided all

of the money except that used for reasonable adminis-

trative expenses is returned to the employees;

occupational health and safety research, safety train-

ing, monitoring job hazards, and the like, as specified

in the applicable collective bargaining agreement;

See definition of “Employer Payments,” (3).

other bona fide benefits for employees, their families

and dependents, or retirees as the Director may deter-

mine; and

travel time and subsistence pay as provided for in

Labor Code Section 1773.8.

the basic straight time wage in cash and the remaining

prevailing contribution level for legitimate fringe benefits

on behalf of the employee; or c) pay the basic straight

time wage in cash, a lesser amount than the prevailing

contribution level to fringe benefits, and the remaining

difference of the contribution level 1 cash. According to

8 C.C.R. § 16200(a)(3)(I), entitled (emphasis added):

“Credit Available For Actual Payment of Fringe Benefit

Costs up to the Prevailing Amount:”

The contractor obligated to pay the full prevail-

ing rate of per diem wages may take credit for

amounts up to the total of all fringe benefit

amounts listed as prevailing in the appropriate

wage determination. This credit may be taken

only as to amounts which are actual payments

under Employer Payments Section 16000 (1) -

(3). In the event the total of Employer Payments

by a contractor for the fringe benefits listed as

prevailing is less than the aggregate amount set

out as prevailing in the wage determination, the

contractor must pay the difference directly to

the employee. No amount of credit for payments

over the aggregate amount of employer pay-

ments shall be taken nor shall any credit

decrease the amount of direct payment of

hourly wages of those amounts found to be

prevailing for straight time or overtime wages.

Employer Payments are expressly defined under 8 C.C.R.

§ 16000 to include:

(1) The rate of contribution irrevocably

made by a contractor or subcontractor to a

trustee or to a third person pursuant to a fund,

plan, or program for the benefit of employees,

their families and dependents, or retirees;

(2) The rate of costs to the contractor or

subcontractor which may be reasonably antici-

pated in providing benefits to employees, their

families and dependents, or to retirees pursuant

to an enforceable commitment or agreement to

carry out a financially responsible plan or pro-

gram which was communicated in writing to the

worker affected; and

(3) The rate of contribution irrevocably

made by the contractor or subcontractor for

apprenticeship or other training programs

authorized by Section 3071 and/or 3093 of the

Labor Code.

A contractor must therefore consider two separate items

when paying the Prevailing wage: the basic hourly rate

and the prevailing contribution level. While the regula-

tions allow a contractor to take credits up to the prevail-

ing contribution level against the total hourly prevailing

wage rate, the contractor cannot take any credit what-

soever against the basic straight time hourly wage for

contributions that exceed the Prevailing contribution

level. Any amounts which are contributed for fringe ben-

efits that exceed the Prevailing contribution level are

simply ignored in terms of calculating the total hourly

Prevailing wage paid. Essentially, a contractor providing

lower than the prevailing contribution level is required to

pay additional cash wages or benefits in order to comply

with this two-tier method while a contractor paying

above the prevailing contribution level is not able to

credit more than the Prevailing contribution level in

determining the wages to be paid to his or her

employees.

If the basic hourly wage is not paid in cash, and the

prevailing contribution level is not paid in a combination

of either cash or fringe benefits, a contractor will be

subject to statutory penalties. Besides the assessment of

the purported back wages owed, the contractor will be

subject to penalties in the amount of $50.00 per day for

each worker who fails to receive the total hourly wage.

Labor Code § 1775. In addition, willful violations of the

prevailing wage laws may result in the debarment of a

contractor from public works for a period of up to three

years. Labor Code § 1777.1.

Petitioners J.R. Roberts Corporation and WSB Elec-

tric, Inc. brought this action in 1989 to enjoin the State

from enforcing its prevailing wage laws. At that time, the

State utilized the “line-by-line” method, whereby the

total prevailing rate of per diem wages consisted of a

: base cash wage, money paid directly to an employee by

means of a payroll check with all proper deductions, and

set amounts for specific fringe benefits (i.e., $2.50 per

hour for health, $0.55 for pension). To comply with pre-

vailing wage laws, a contractor had to either pay the

entire amount, including the specific fringe benefit totals,

in cash, or pay the base cash wage and receive credit for

the balance based on contributions for the specific fringe

benefits. Credit could not be taken, however, for contri-

butions that exceeded the stated amounts for each speci-

fic benefit.

The District Court for the Northern District of Cali-

fornia found the line-by-line method to be preempted by

ERISA. During the course of the litigation, however, the

State replaced the line-by-line fringe benefit requirement

with the current method. Following an appeal of the

District Court decision, the Ninth Circuit remanded the

action for a determination as to whether the current

method was also preempted.

Cross motions for summary judgment were filed in

the District Court. The District Court found against the

Petitioners, ruling that ERISA did not preempt the pre-

vailing wage laws because the statutes did not require the

establishment of benefit plans or mandate benefit contri-

butions and because they do not regulate the relationship

between the employer and a benefit plan or regulate the

relationship between the employer and employee with

respect to a benefit plan.

The Ninth Circuit affirmed the District Court deci-

sion on July 5, 1996. Citing Employee Staffing Services,

Inc. v. Aubry, 20 F.3d 1038 (9th Cir. 1994), the Circuit

Court stated that the prevailing wage laws do “not force

employers to provide any particular employee benefit or

plans, to alter their existing plans, or even provide ERISA

plans or employee benefits at all.” App. at 14a-15a. Based

on this conclusion, the Ninth Circuit held that the pre-

vailing wage laws do not “refer” to ERISA plans since an

employer’s obligation to pay the prevailing wage does

not depend upon the existence or operation of an ERISA

plan. Reviewing the factors set forth in Aloha Airlines,

Inc. v. Ahue, 12 F.3d 1498 (9th Cir. 1994), the Ninth Circuit

held that the prevailing wage laws do not have a “con-

nection” with ERISA plans since the state laws do not

require the establishment of a separate ERISA plan.

According to the appellate court, the fact that an

employer must create a separate administrative scheme

and may choose to limit funding to an ERISA plan based

on the state prevailing wage law was seen by the Panel as

too tenuous to support a determination that the laws are

subject to preemption.

On July 19, 1996, Petitioners filed a timely Petition

for Rehearing and Suggestion for Rehearing En Banc,

asking the Ninth Circuit to reconsider its decision based

on the different interpretation of the scope of ERISA

preemption found in Dillingham, and because the pre-

vailing wage laws in fact “relate to” benefit plans since

the laws not only depend on existing, favored, benefit

plans to determine the prevailing contribution level, but

also place limits on employer credits against the prevail-

ing wage and necessitate the creation of an administra-

tive scheme to determine a public works contractors’

entire obligation. The Petition was denied by the Ninth

Circuit on August 19, 1996.

REASONS FOR GRANTING THE WRIT

This case presents the opportunity to clarify the dis-

tinction between the Supreme Court's decisions in New

York State Conference of Blue Cross and Blue Shield v.

Travelers Insurance Company, __ U.S. __, 115 S. Ct.

1671 (1996) and District of Columbia v. Greater Washing-

ton Board of Trade, 506 U.S. 125 (1992), by defining the

scope of preemption only to laws that regulate, or pur-

port to regulate ERISA plans, especially since the laws in

question concern the State control of the funding of a

plan and are not laws of general application. The Ninth

Circuit erred by concluding that the prevailing wage laws

do not relate to ERISA plans because the state laws,

which cannot be described as a traditional minimum

wage law or a law of general application, expressly relate

to and regulate employee welfare benefit plans by requir-

ing contributions and/or payments based on existing

ERISA fringe benefit plans. The laws also place adminis-

trative burdens on public works contractors to calculate

the payment of direct cash wages by reference to other

ERISA plans, thereby creating an incentive to vary exist-

ing plans to fit State-mandated criteria.

Further, the California laws are contrary to the

underlying goal of ERISA which is to assure uniformity

of law in the field of employee benefits, creates a disin-

centive for employers to fund their cwn employee wel-

fare benefit plans, and favors loc*‘ j':ms over national

plans. Essentially, the State simply c*:.not determine the

“prevailing” amount of contributions to fringe benefit

plans, base the amount of direct cash wage on the exis-

tence of these favored local ERISA plans, and then

assume the position that this method of paying the pre-

vailing wage does not relate to ERISA plans. The State’s

attempt to favor certain ERISA plans over others cannot

be concealed and flies in the fact of ERISA’s purpose: to

create a uniform body of federal law governing employee

welfare benefit plans

1. THE CALIFORNIA PREVAILING WAGE LAWS

“RELATE TO,” AND IN FACT REGULATE, THE

FUNDING OF AN EMPLOYEE WELFARE BENEFIT

PLAN AND ARE THEREFORE PREEMPTED BY

ERISA.

The basic principles underlying the broad reach of

ERISA preemption are well settled. ERISA is a compre-

hensive federal statute whose purpose is to “protect the

interest of employees in pension and welfare plans, and

to protect employers from conflicting and inconsistent

state and local regulation of such plans. To achieve this

goal, Congress enacted ERISA’s expansive preemption

provision, 29 U.S.C. § 1144(a), which provides that “the

provisions of this subchapter . . . shall supersede any and

all State laws insofar as they may now or hereafter relate

to any employee benefit plan.” This provision “is con-

spicuous for its breadth. It establishes as an area of exclu-

sive federal concern the subject of every state law that

“relate[s] to” an employee benefit plan governed by

ERISA.” FMC Corp. v. Holliday, 498 U.S. 52, 58 (1990).

State law includes “all laws, decisions, rules, regulations,

or other State action having the effect of law.” 29 U.S.C.

§ 1144(c)(1). “The basic thrust of the pre-emption

clause . . . was to avoid a multiplicity of regulation in

order to permit the nationally uniform administration of

employee welfare benefit plans.” New York State Confer-

ence of Blue Cross & Blue Shield Plans v. Travelers

Insurance Company, __ U.S.__, 115 S. Ct. 1671,

1677-1678 (1995).

Essential to any determination of ERISA preemption

is whether a state law “relates to” an employee benefit

plan. Under the preemption provision, a state law

on”

“ “relates to’” an employee benefit plan, in the normal

sense of the phrase, if it has either a connection with or a

reference to such a plan. Delta Air Lines v. Shaw, 463

U.S. 85, 96-97 (1983); Pilot Life Ins. Co. v. Dedeaux, 481

U.S. 41, 47-48 (1987). “This reading is true to the ordinary

meaning of ‘relate to,’ see Black’s Law Dictionary 1288

(6th ed. 1990), and thus gives effect to the ‘deliberately

expansive’ language chosen by Congress.” District of

Columbia v. Greater Washington Board of Trade, 498 U.S.

52, 58 (1992). A state law may be subject to preemption

even though the law is not specifically designed to affect

such plans, or the effect is only indirect. Ingersoll-Rand v.

McClendon, 498 U.S. 133, 139 (1990). Further, preemption

will occur even if the state law is “consistent with

ERISA’s substantive requirements” or was enacted to

“effectuate ERISA’s underlying purpose, Metropolitan

Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985), or

represent a traditional exercise of a state’s police power.

Blue Cross, 115 S. Ct. at 1677. However, state laws which

have only a “tenuous, remote, or peripheral” connection

with ERISA plans, however, are not subject to preemp-

tion. Shaw v. Delta Air Lines, 463 U.S. 85, 100 n.21.

In deciding Ingersoll-Rand, the Supreme Court

broadened the scope of the test for “related to” from

“regulates and purports to regulate” to a more illusive

“connection to” test. 498 U.S. at 139. However, if the law

“regulates and purports to regulate,” an ERISA plan, then

it must fall well within the definition of “relates to”

under ERISA Section 514, 29 U.S.C. 1144 (a). If a state

law does not “relate to” an ERISA plan, only then it must

be determined whether or not the law has a “connection

to” ERISA plans. Only if the statute fails the “regulates

and purports to regulate” test must the objectives of

ERISA be examined “as a guide to the scope of the state

law that Congress understood would survive.” Blue

Cross, 115 S. Ct. at 1677. In Blue Cross, this Court found

that a state law imposing ordinary hospital surcharges on

the bills of insured patients did not have a “connection”

with ERISA plans because the law neither mandated any

changes in the administrative practices of the plan nor

subjected the plans to conflicting regulations. Here, the

state law mentions and limits direct contributions into an

employee benefit plan based upon a state’s preference to

impose a “prevailing” benefit plan on all government

contractors.

A. The Prevailing Wage Laws Regulates And Pur-

ports To Regulate ERISA Plans By Requiring

Employers To Calculate Their Wage Obliga-

tions By Reference To Other Existing, Or Pre-

vailing, ERISA Plans Which The State Deems

“Prevailing.”

The California prevailing wage laws “relate to” wel-

fare plans for the purposes of ERISA preemption because

they impose requirements on public works contractors

that are premised on the existence of employee welfare

benefit plans; under the decisions of this Court, preemp-

tion is required. The amount of direct cash wages paid to

employee is calculated by the State and can only be

determined by the contractor with reference to payments

for employee welfare benefit plans because the total

hourly prevailing wage is based on the local prevailing

rate of employer payments for benefit plans. However

credit can only be taken for payments up to the allowed

maximum. The “General Prevailing Rate of Per Diem

Wages” is defined under 8 C.C.R. § 16000 to include the

“prevailing rate of employer payments for any or all pro-

grams of benefits” which provide health and welfare,

retirement, and other fringe benefits.

Thus, to determine the total hourly prevailing wage,

other employer payments made to other ERISA plans

must be referenced.? The law therefore goes further than

merely referring to benefits. Based on these ERISA plans,

the State imposes the requirement that public works con-

tractors must pay a base hourly rate in cash, and then

either match the prevailing contribution level with simi-

lar prevailing fringe benefits contributions or combine

lesser contributions with additional cash wages. Under 8

C.C.R. § 16200(a)(3)(I), credit for employer payments,

which are defined under 8 C.C.R. § 16000 to include

“It}he rate of contribution irrevocably made by a contrac-

tor or subcontractor to a trustee or to a third person

pursuant to a fund, plan, or program for the benefit of

employees .. . ” can only be taken up to the determined

prevailing contribution level (”No amount of credit for

3 Of course, this is an omission in many cases since

payments into certain plans are more a function of the age and

health of the participants rather than the level of benefits

offered. Especially in defined benefit pension plans, when

Congress has chosen to limit contributions to 25% of pay, a

state’s discouragement of payments up to the 25% limit may

encourage plans to go unfunded or be under-funded, putting a

burden on federal pension insurance regulated through the

Pension Benefit Guarantee Corporation.

payments over the aggregate amount of employer pay-

ments shall be taken nor shall any credit decrease the

amount of direct payment of hourly wages of those

amounts found to be prevailing for straight time or over-

time wages”). By definition, this mandate regulates and

purports to regulate ERISA plans.

Under this system, the total hourly prevailing wage

rate consists of an established direct cash wage compo-

nent and a fringe benefit component which is determined

by the prevailing rate of employer payments for any or

all benefit programs, including those for health and wel-

fare, retirement, and vacations and holiday. Contractors

are allowed to take a credit for fringe benefits paid into

an ERISA plan up to the total fringe benefit allowance

level set by the State. The total hourly rate, and not

simply the cash component, must be paid in direct cash

wages unless the public works contractor decides to con-

tribute all or a portion of the fringe benefit component to

a bona fide fringe benefit. 8 C.C.R. § 16200(a)(3)(I); 8

C.C.R. § 16000, “Employer Payments.”

Sirwe the amount of contributions that can be used as

a credit against the total prevailing hourly wage is lim-

ited to the fringe benefit component that the State deems

prevailing, the State is again regulating an ERISA pro-

gram because if the total amount of contributions for

employee benefits in any combination exceed the prevail-

ing contribution level, the excess amount cannot be

deducted from the total prevailing hourly wage, which

forces an employer to cut its benefit contributions to its

plans.* While an employee's direct cash wage is depen-

dent on the public works contractor's decision to contrib-

ute to employee welfare benefit plans, the total cash

payment requirement is set by including the cost of bene-

fits to other employers. If the contractor decides not to

contribute to any plan, the total prevailing hourly wage

must be paid in direct cash wages, which carries a signifi-

cant tax burden.5 If the contractor decides to contribute

only a portion of the prevailing contribution level to

various plans, such as for health and welfare and train-

ing, then only that portion can be credited against the

total hourly wage and the difference between the contri-

butions and the prevailing contribution level must be

paid in direct cash wages along with the basic direct cash

wage rate. If the contractor decides to contribute only the

prevailing contribution level to employee welfare benefit

plans, then only the basic hourly direct cash wage rate

must be paid to the employee. Since public works con-

struction is awarded to the lowest responsible bidder, the

contractors are mandated to conform to State “benefit”

payment levels.

However, if a contractor decides to contribute more

than the prevailing contribution level, he or she will not

be given any credit whatsoever against the total hourly

4 Congress deliberately chose not to limit the costs an

employer can pay for medical and other types of welfare plans,

perhaps realizing the medical insurance protects the employee

and preserves the social safety net for those not able to work.

5 Congress exempted employer contributions from that tax

burden specifically to encourage them to establish plans. The

State is now discouraging employers from taking advantage of

that incentive by limiting the contractor’s contributions.

ERR. NP Ae en oe

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wage rate for any contributions that exceed the prevailing

contribution level. The employee must receive the basic

hourly wage rate and the “excess” contributions are not

considered toward compliance with the total hourly wage

rate. Since the employee must be compensated in cash for

contributions made on his or her behalf over the State

mandated benefit level, the employer is discouraged from

having a total fringe benefit package that exceeds state

set maximums, even if ERISA would allow additional

contributions.

In addition, included within the fringe benefit com-

ponent of the prevailing wage is the “prevailing” amount

for contributions made to apprenticeship training trust

funds, ERISA plans which provide the funding for

apprenticeship and other training programs.® California

Labor Code § 1777.5, 8 C.C.R. § 16200 (a)(3)(G). This

contribution, taken from wage scales found in the ap-

prenticeship standards of existing State-approved

apprenticeship programs, must be paid to a State-

approved program or, if apprentices are not utilized on

the public works project, directly to the California

Apprenticeship Council, the agency certified by the U.S.

Department of Labor, Bureau of Apprenticeship and

Training to regulate apprenticeship training in California.

8 C.C.R. §§ 230.1 and 230.2. The prevailing wage laws

thereby affect the funding of ERISA plans by mandating a

set contribution to a training trust fund in total disregard

6 This fact may have been inadvertently misstated by

Counsel for the State of California during oral argument in the

Dillingham case. In fact, 8 C.C.R. § 208 specifically regulates

funding of apprenticeship programs.

for a specific program’s contribution rates as set forth in

the program’s standards or the trust agreement of the

training trust.

Laws of this nature have been found to be preempted

by ERISA. In Associated Builders and Contractors v.

Baca, 769 F.Supp. 1537 (N.D. Cal. 1991), affd. on other

grounds sub nom. Chamber of Commerce v. Bragdon, 64

F.3d 497 (9th Cir. 1995), the District Court ruled that the

same laws at issue in this action were preempted by

ERISA. The prevailing wage laws were incorporated into

a local ordinance which conditioned the issuing of build-

ing permits on private construction projects on the pay-

ment of prevailing wages. The court found that: a) the

laws related to ERISA plans because the definition of per

diem wages necessitated reference to, and calculation of,

fringe benefit contributions to ERISA plans (id. at 1547);

b) contractors were forced to create an on-going adminis-

trative scheme to calculate wages and benefits paid to

individual workers and to determine the cash equivalent

of provided benefits; c) employers were “forced to calcu-

late wages and benefits on covered projects separately

from other projects, creating an ongoing administrative

system.” ( id. at 1547); and d) they imposed a dispropor-

tionate impact on the benefits of various employees. The

Court concluded that the “equivalent cost of fringe bene-

fits to the employees may be of lesser value to the

employees than the benefits themselves.” Id. at 1547.

Baca was followed by the Eastern District of Michi-

gan in Associated Builders and Contractors v. Perry, 869

F. Supp. 1239 (E.D. Mich. 1994), where the court found

a pee NO SI POA I I ORE mm Sl a

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that the Michigan prevailing wage laws,” which operates

in the same manner as the California laws, was pre-

empted by ERISA. Michigan prevailing wages and fringe

benefit requirements are determined from a survey

among local construction unions. Non-union contractors

must utilize local union rates and job classification sys-

tems. Contractors must make hourly calculations if they

wish to obtain credit for existing fringe benefits paid on

other than an hourly basis, which is generally found in

collective bargaining agreements. The Michigan law fur-

ther applies an “excess benefit cap,” which precludes a

contractor from receiving credit for any fringe benefits

that exceed the prevailing union fringe benefit rates. Con-

tractors are also required to keep accurate records regard-

ing wages and benefits paid to employees.

The District Court first found that the excess benefit

cap was preempted by ERISA as it first dictated and/or

restricted an employer’s choice of ERISA benefit plans

since employers are subject to “additional burdensome

administrative calculations” and are “forbidden to substi-

tute benefits under ERISA plans for cash wages above a

certain benefit level.” Id. at 1246. Further, the court found

the administrative requirements of the law, “establishing

rules for the calculation of benefits to be paid, and impos-

ing remedies for alleged misconduct arising from the

administration of plans” (id. at 1249) related to ERISA

plans “because it dictates and restricts the choices of

ERISA plans with regard to reporting and administra-

tion.” Id. at 1248.

7 Mich. Comp. Laws § 408.551, et seq.

Another ground for preemption was that the law’s

administrative requirements impermissibly subjected

ERISA plans to conflicting regulations. “In the instant

case, various states could — under the defendant's ruling

~ enact differing prevailing wage laws with dissimilar

administrative requirements. Allowing such laws to stand

would ‘impair the ability of a[n ERISA] plan to function

simultaneously in a number of states.’ [Citation]” Id. at

1249.

Finally, the District Court, citing the Supreme Court's

decision in District of Columbia, supra, v. Greater Wash-

ington Board of Trade, supra, 498 U.S. 52, held that the

Michigan law expressly referred to ERISA plans, and thus

were subject to preemption, because prevailing fringe

benefits were determined by reference to existing ERISA

(union) plans and because all contributions were required

to be made to an identified fund, plan, or program. Perry,

869 F. Supp. at 1250. See also General Electric v. Dept. of

Labor, 891 F.2d 25, 27 (2nd Cir. 1989) (prevailing law that

required employers “to bring their pensions and welfare

plans into conformity with those prevailing in the

locality . . . or to make up the difference to cash payments

to their employees” preempted by ERISA); City of Des

Moines v. Master Builders of Iowa, 498 N.W.2d 702, 1

Wage & Hour Cas. 2d (BNA) 688 (Iowa 1993) (city ordi-

nance requiring the payment of “not less than the current

applicable prevailing wage and fringe benefit, as pub-

lished in the Federal Register” preempted by ERISA);

District Council v. James McHugh Construction Co., 596

N.E.2d 19, 30 Wage & Hour Cas. (BNA) 1653 (Ill. App. Ct.

1992) (claim under Illinois Prevailing Wage Act for pre-

vailing wages preempted by ERISA because amount of

wages based on fringe benefit contributions).

States may perform their traditional role of regulat-

ing wages either by establishing a minimum wage only

without reference to or credit for any fringe benefit con-

tribution or adopting the federal Davis-Bacon system of

measuring the “total package” or costs to employ, with-

out a wage/fringe ratio limitation. In Keystone Chapter,

Associated Builders and Contractors v. Foley, 37 F.3d 945

(3rd Cir. 1994), cert: den. 115 S. Ct. 1393 (1995), the Third

Circuit held that Pennsylvania’s prevailing wage law,

similar to California’s, did not relate to ERISA plans and

therefore escaped preemption because the State adopted

a “total package” approach which gave credit for any and

all fringe benefit contributions. Since the employer was

not required to establish an ERISA plan in order to com-

ply with the law and no reference was made to any

particular benefit or benefit contribution, the state could

honestly state that “[t]he benefits component only relates

to ERISA plans when an employer decides to satisfy it

through contributions to ERISA plans instead of cash

payments or contributions to non-ERISA benefits.” 37

F.3d at 960. See also Minnesota Chpt. of Associated

Builders and Contractors v. Minnesota Dept. of Labor, 47

F.3d 975, 979-980 (8th Cir. 1995).

However, this Court has rejected the notion that a

state statute which relates to an ERISA covered plan

might survive ERISA preemption merely because an

employer has the option of avoiding the impact on its

employee benefit plans by satisfying statutory obliga-

tions, through non-ERISA alternatives. In District of

Columbia, supra, the Court found preempted by ERISA a

District of Columbia law requiring employers providing

health insurance coverage to provide equivalent health

benefits for injured employees eligible for workers’ com-

pensation benefits. ERISA specifically excludes workers’

compensation benefits from its preemption provisions. 29

U.S.C. § 1003(b)(3). The Court of Appeals in District of

Columbia had found the statute preempted in part

because “[b]y tying the benefit levels of workers’ com-

pensation plans to those Provided in an ERISA covered

plan, ‘the [statute] could have a serious impact on the

administration and content of the ERISA covered plan.’ ”

506 U.S. at 129 (quoting Greater Washington Board of

Trade v. District of Columbia, 948 F.2d 1317, 1325 (D.C.

Cir. 1991)). The Supreme Court affirmed, holding that by

“specifically referring to welfare benefit plans regulated

by ERISA,” the statute was preempted. Id. at 130. The fact

that the provision simply referred to an ERISA plan pro-

vided the basis for preemption. “[A]ny state law impos-

ing requirements by reference to such covered programs

must yield to ERISA.” Id. at 130-131. As with the

workers’ compensation law at issue in District of Colum-

bia, the two-tier method refers to employee welfare plans

and are subject to ERISA preemption because they

impose requirement on public works contractors which

are premised on the existence of such plans. According to

the District Court in Perry, supra, 869 F. Supp. at 1246:

The Keystone court did Precisely what the

Supreme Court stated it could not do in Greater

Washington: It engrafted a two-step analysis

onto a one-step statute, first finding that the

benefits component of the prevailing wage act

had “some connection” to (i.e., was related to)

employee benefit plans, then finding no pre-

emption because employers could comply with

the law by not paying any benefits if they paid a

sufficiently high cash wage. This court rejects

the Keystone court’s two-step analysis.

The only issue to be determined is whether the Cali-

fornia prevailing wage “refers to” ERISA employee bene-

fit plans, since this Court finds ERISA preemption of state

laws impacting employee benefit plans notwithstanding

that the law could be complied with through means out-

side of ERISA. Therefore, there is no legal or logical basis

to conclude that California’s prevailing wage laws, which

specifically references employee benefit plans, should not

be preempted by ERISA merely because an employer may

have the “option” of ignoring its contributions to

employee benefit plans and satisfying its obligations

under the Act by paying benefit rates in wages.

B. The California Prevailing Wage Laws Are Pre-

empted By ERISA Because They Create Ongo-

ing Administrative Burdens For Public Works

Contractors.

Courts “have not hesitated to enforce ERISA’s pre-

emption provision where state law created the prospect

that an employer’s ministrative scheme would be sub-

ject to conflicting requirements.” Fort Halifax Packing

Company v. Coyne, 482 U.S. 1, 10 (1987). California con-

struction contractors working on public projects are con-

tinually faced with “the task of coordinating complex

administrative activities” based on the State’s “patch-

work scheme of regulation” to the extent that contractors

are subject to different laws regarding the calculation of

the value of their benefits when working across state, and

even county, lines. Because the State’s prevailing wage

law determines the value of benefits on a county-by-

county basis, according to which collective bargaining

agreement is in place, employers are subject to conflicting

regulations with respect to the calculation of their own

employee benefits even if one job may be in San Francisco

and another in Fresno, since the total hourly prevailing

wage is generally taken directly from the applicable col-

lective bargaining agreement in force in that geographic

location, non-union contractors are forced to calculate

benefit levels according to trade union jurisdiction in

connection with the specific type of work that an

employee is performing on a state public works project.

The effect of this law is especially egregious when

employees perform different types of work on a single

project since the contractor must pay the employee

according to the collective bargaining agreement which

claims the work. This type of on-the-job segmentation

results in the requirement that an employer calculate each

individual employee’s benefit level upon the intermittent

changing of job classifications, an impossibility for a non-

union, qualified pension plan under ERISA. Certainly, the

administrative burdens of the two-tier method is obvious

when a contractor must refer to its benefit plans (or even

the lack of such plans) to determine the amount of cash

wages that must be paid to employees. According to the

District Court in Baca, interpreting the same laws at issue

here:

Complex calculations are required to determine

the prevailing base wage that must be paid. The

calculations can only be made after referencing

the dollar value of benefits paid. Thus, the wage

requirement incorporates employee benefits into

the prevailing wage statute. This incorporation

can only be accomplished by requiring per diem

wages that “refer to” and “regulate” employee

benefit plans. Baca, 769 F.Supp. at 1547.

The Ninth Circuit recognized the burdens demanded

by the prevailing wage laws in ABC National Line Erec-

tion Apprenticeship Training Trust, 68 F.3d 343 (9th Cir.

1995), where the court held that an apprenticeship train-

ing trust fund has standing under ERISA to challenge

California’s prevailing wage laws. The trust sought to

preempt California Labor Code § 1777.5, which requires

that public works contractors pay a training contribution

(an Employer Payment under 8 C.C.R. § 16000 which can

be credited against the total hourly prevailing wage) to

either a State-approved apprenticeship program or the

California Apprenticeship Council. Relying on Dil-

lingham, the Court found that the California statute

“related to” ERISA plans because it favored State

approved ERISA plans over other ERISA plans and

required contractors to either use an apprentice from a

State-approved program or “utilize a complicated

accounting system in order to pay into an unapproved

program.” Line Erectors, 68 F.3d at 346. The court distin-

guished the decision in Blue Cross, supra, 115 S. Ct. 1671

by finding that a common hospital surcharge on patients

with commercial insurers did not equate with the prevail-

ing wage requirement that forced public works contrac-

tors to either utilize State-approved program or

“undertake a complicated set-off procedure to equalize

the payment.” Line Erectors, 68 F.3d at 346-347.

Without question, the California prevailing wage

laws demand the creation of an administrative scheme

that directly impacts ERISA plans. The focus of the laws

are not on the base cash wage, but on the fact that the

total wage required includes the cost of ERISA benefits

plus the fact that the State limits credit for contributions

to a benefit plan to the local prevailing benefit contribu-

tion amount. To simply assert that ERISA plans are not

implicated in this scheme is too narrow an interpretation

of ERISA’s broad preemption provision and completely

fails to even remotely address the most significant

employer interests protected by ERISA. According to this

Court in Fort Halifax, 482 U.S. at 11:

ERISA’s preemption provision was prompted by

recognition that employers establishing and

maintaining employee benefit plans are faced

with the task of coordinating complex adminis-

trative activities. A patchwork scheme of regula-

tions would introduce considerable

inefficiencies in benefit program operation,

which might lead those employers with existing

plans to reduce benefits, and those without such

plans to refrain from adopting them.

The prevailing wage laws therefore contradict

ERISA’s stated goal to ensure that plans and plan spon-

sors be subject to a uniform body of benefits law. Inger-

soll-Rand, 498 U.S. at 142. As such, the Ninth Circuit's

decision must be reviewed and reversed.

Diknmsaai He Mia iN IME oie oe

anise GR ANAA ERAT ta usec

CONCLUSION

For the reasons stated above, this Petition for a Writ

of Certiorari to the United States Court of Appeals for the

Ninth Circuit should be granted.

Dated: November 19, 1996, San Francisco, California

Respectfully submitted,

Mark R. THIERMAN*

Georce P. Parisotto

THIERMAN Law Firm

120 Green Street

San Francisco, California 94111

Telephone: (415) 391-9200

Attorneys for Petitioners

WSB Electric, Inc. and

]. R. Roberts Corporation

APPENDIX A

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

WSB E -ecrric, Inc. and J.R.

Roserts CORPORATION,

Plaintiffs-Appellants,

- No. 94-16613

James Curry, in his official

capacity as the Labor

Commissioner of the State of

California; RoNALD RINALDI,

Director of Industrial Relations

for the State of California,

D.C. No.

CV-90-00771-CW

Defendants-Appellees.

].R. Roserts CORPORATION,

Plaintiff-Appellant,

= No. 94-16646

James Curry, Labor

Commissioner of the State of D.C. No.

California; RoNALD RINALDI,

Director of Industrial Relations

for the State of California,

CV-90-01109-CW

OPINION

Defendants-Appellees.

me me ee ee ee ee et eee ee eee”

Appeals from the United States District Court

for the Northern District of California

Claudia Wilken, District Judge, Presiding

Argued and Submitted

December 5, 1995 - San Francisco, California

Filed July 5, 1996

Before: James R. Browning, William C. Canby, Jr., and

Cynthia Holcomb Hall, Circuit Judges.

Opinion by Judge Hall

SUMMARY

Labor and Employment/Compensation/ERISA

The court of appeals affirmed < district court judg-

ment. The court held the California prevailing wage pro-

visions for public works contracts are not preempted by

the Employee Retirement Income Security Act of 1974

(ERISA).

Appellants WSB Electric, Inc. and J.R. Roberts Corp.

are licensed contractors who perform public works con-

tracts in California. They sued the California Department

of Industrial Relations (DIR) and its officers, challenging

the State’s enforcement of its prevailing wage law for

public works contracts. The State’s prevailing wage law

requires that public works contractors pay their

employees a minimum wage, called the “prevailing rate

of per diem wages.” The prevailing wage is determined

on a county-by-county basis and is calculated by adding

the basic hourly rate paid to the majority of workers in a

particular job classification plus the prevailing costs to

oe eT

———_ -- —— |

employers of fringe benefits provided in that locality.

Under the “two-tier” approach, an employer must pay

employees the prevailing wage, and it may do so through

a combination of cash and benefits. To calculate the wage,

the employer adds the hourly cash wage paid plus the

total amount of employer contributions to benefit plans.

If the sum falls short of the prevailing wage, the

employer must make up the difference in cash. An

“excess benefit cap” applies, whereby employers may not

credit more than a fixed amount of benefits contributions

toward the prevailing wage. WSB and Roberts claimed

that the state law is preempted by ERISA because Califor-

nia’s prevailing wage rate is measured by reference to the

prevailing cash wage plus the prevailing benefits contri-

butions of employers in a given locality.

The district court found that ERISA does not preempt

the prevailing wage statute. WSB and Roberts appealed.

[1] The ERISA preemption clause establishes as an

area of exclusive federal concern the subject of every state

law that relates to an empioyee benefit plan governed by

ERISA. [2] A state law relates to an ERISA employee

benefit plan if it has either a “connection with” or “refer-

ence to” such a plan.

[3] Regulation of wages per se is not within ERISA’s

coverage. [4] In this case, the prevailing wage law provi-

sions at issue regulate wages generally, not wages that

are part of a particular employee benefit plan.

[5] California’s prevailing wage rate is measured by

reference to prevailing cash wages and prevailing benefit

contributions in a locality. Employee benefits and benefit

plans are mentioned in the statute and regulations in two

different respects. Provisions require the DIR to consider

the prevailing level of benefit contributions by employers

in a given locality. [6] However, a statute “refers to” an

ERISA plan and has some effect on the referenced plans.

[7] The references to ERISA plans in the California pre-

vailing wage law have no effect on any ERISA plans, but

simply take them into account when calculating the cash

wage that must be paid. The scheme does not force

employers to provide particular employee benefits or

plans, to alter their existing plans, or to even provide

ERISA plans or employee benefits at all. [8] California’s

prevailing wage law is concerned with guaranteeing a

minimum cash wage for employees on public works con-

tracts. Although the prevailing rate of per diem wages in

a given locality is measured by reference to employers’

fringe benefit costs, those costs are calculated without

regard to whether they consist of contributions to ERISA

plans. Moreover, each individual employer’s obligation

to pay the prevailing wage does not depend on the exis-

tence or operation of that employer's ERISA plans. Thus,

California’s prevailing wage law does not refer to ERISA

plans sufficiently for a finding that it is preempted.

[9] Under the two-tier approach, California’s prevail-

ing wage law does not regulate the types of benefits of

employee welfare benefit plans. [10] In addition, the two-

tier scheme does not impose any additional burden on

ERISA plans or require the employer to take any action

with regard to those plans. [11] Employers can comply

without adjusting their level of benefits contributions,

[12] and the law does not require that employers main-

tain a separate employee benefit plan. [13] Although Cali-

fornia’s prevailing wage law may discourage employer

es see

benefit contributions greater than the excess benefits cap,

that effect is not sufficient by itself to find ERISA preemp-

tion. [14] California is not telling employers how to writ

their ERISA plans, nor is it conditioning some require-

ment on how individual employers write their ERISA

plans. Instead, it is telling employers that regardless of

how they write their ERISA plans, or even whether they

have ERISA plans at all, they must pay the prevailing

wage, and they may do so through some combination of

cash and benefits. Under either relevant test, California’s

prevailing wage law does not have a sufficient connection

to find that the statute is preempted.

[15] California’s prevailing wage law does not refer

to or have a connection with ERISA plans sufficient to

find that it “relates to” such plans. The prevailing wage

provisions of California’s statute are not preempted by

ERISA.

COUNSEL

Mark R. Thierman and George P. Parisotto, Thierman

Law Partnership, San Francisco, California, for the plain-

tiffs-appellants.

John M. Rea, Department of Industrial Relations, San

Francisco, California, for the defendants-appellees.

Marsha S. Berzon, Altshuler, Berzon, Nussbaum, Berzon

& Rubin, San Francisco, California, for the intervenor-

appellee.

OPINION

HALL, Circuit Judge:

Appellants WSB Electric and J.R. Roberts are licensed

contractors who perform public works contracts in the

state of California. They brought suit against the Califor-

nia Department of Industrial Relations (“DIR”) and its

officers challenging the state’s enforcement of its prevail-

ing wage law for public works contracts, Cal. Labor Code

§ 1770 et seq. They claim that the state law is preempted

by the Employee Retirement Income Security Act of 1974

(“ERISA”) because California’s prevailing wage rate is

measured by reference to the prevailing cash wage plus

the prevailing benefits contributions of employers in a

given locality.

The district court found that ERISA does not preempt

the prevailing wage statute, and appellants filed a timely

appeal. We affirm.

This case originally began in 1989, when both con-

tractors filed separate actions to enjoin the DIR from

enforcing California’s prevailing wage law for state pub-

lic works projects. The state’s prevailing wage law

requires that public works contractors pay their

employees a minimum wage, called the “prevailing rate

of per diem wages.” Cal. Labor Code §§ 1771 & 1773. This

prevailing wage is determined on a county-by-county

basis, and is calculated by adding the basic hourly rate

paid to the majority of workers in a particular job classi-

fication plus the prevailing cost to employers of fringe

benefits provided in that locality. In 1989, DIR enforced

the prevailing wage law according to the “line-by-line”

method. Under this approach, the total prevailing wages

consisted of a base cash wage plus set amounts for speci-

fic fringe benefits (i.e., $2.50 per hour for health, $0.50 for

pension, etc.). To comply with the law, a public works

contractor had to either pay the entire prevailing wage in

cash, or pay the base cash wage and receive credit for the

balance based on contributions for specific fringe bene-

” fits. The employer could not, however, take credit for

fringe benefit contributions that exceeded the stated

amount for each specific benefit.

The district court found that this scheme was pre-

empted by ERISA. Subsequently, the DIR adopted the

current system, a “two-tier” approach, and we vacated

the district court’s decision and remanded for further

proceedings as to whether ERISA also preempts the “two-

tier” approach. On remand, the district court granted the

DIR’s motion for summary judgment, holding that ERISA

does not preempt the two-tier approach. The contractors

appealed, and that is the case before us now.

Under the two-tier approach, the employer must pay

employees the prevailing wage, and it may do so through

a combination of cash and benefits. To calculate the wage,

the employer adds the hourly cash wage paid plus the

total amount of employer contributions to benefits plans,

no longer considering each benefit separately. If this sum

falls short of the prevailing wage, then the employer

must make up the difference in cash. However, as before,

the Labor Code also prescribes a minimum amount of

cash wage that must be paid. Therefore, an “excess bene-

fit cap” applies, whereby employers may not credit more

than a fixed amount of benefits contributions toward the

prevailing wage. If the employer contributes more than

the fixed amount for benefits, it is not credited in the

prevailing wage calculation and the employer must make

up any shortfall in cash.

The district court’s decision regarding preemption is

reviewed de novo. Aloha Airlines, Inc. v. Ahue, 12 F.3d

1498, 1500 (9th Cir. 1994). A grant of summary judgment

is reviewed de novo. Warren v. City of Carlsbad, 58 F.3d

439, 441 (9th Cir. .995). We must determine, viewing the

evidence in the light most favorable to the nonmoving

party, whether the district court correctly applied the

relevant substantive law. Id. In this case, both sides con-

cede that there are no disputed issues of fact; therefore,

the only inquiry is whether the district court correctly

applied the substantive law.

[1] Congress enacted ERISA, 29 U.S.C. § 1001 et seq.,

as a comprehensive legislative scheme “to promote the

interests of employees and their beneficiaries in

employee benefit plans.” Shaw v. Delta Air Lines, Inc., 463

U.S. 85, 90 (1983). By enacting such a broad scheme,

Congress also sought to protect employers by “eliminat-

ing the threat of conflicting or inconsistent State and local

regulation of employee benefit plans.” Id. at 99. To further

this goal of nationwide consistency, Congress included a

preemption clause,! section 514(a), which is “conspicuous

? Section 514(a) provides that ERISA “supersede[s] any and

all State laws insofar as they may now or hereafter relate to any

ae San Tana

elle

——————————Eee————————eEeEeEeEeeowre—s ee

for its breadth. It establishes as an area of exclusive

federal concern the subject of every state law that

‘relate[s] to’ an employee benefit plan governed by

ERISA.” FMC Corp. v. Holliday, 498 U.S. 52, 58 (1990).

ERISA’s preemption provision is not without limits, how-

ever; we “must presume that Congress did not intend to

preempt areas of traditional state regulation.” Metro-

politan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 740

(1985).

[2] A state law relates to an ERISA employee benefit

plan “if it has a connection with or reference to such a

plan.” Shaw, 463 U.S. at 97; New York State Conference of

Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 115

S. Ct. 1671, 1677 (1995). ERISA preempts state laws that

relate to employee benefit plans even if they only indi-

rectly affect those plans. Ingersoll-Rand Co. v. McClendon,

498 U.S. 133, 139 (1990). Nevertheless, “[s]ome state

actions may affect employee benefit plans in too tenuous,

remote, or peripheral a manner to warrant a finding that

the law ‘relates to’ the plan.” Shaw, 463 U.S. at 100 n. 21;

Aloha Airlines, Inc. v. Ahue, 12 F.3d 1498, 1504 (9th Cir.

1993).

[3] It is well settled that wages are a subject of

traditional state concern, and are not included in ERISA’s

definition of “employee benefit plan.” Thus, regulation of

employee benefit plan.” 29 U.S.C. § 1144(a); see also 29 U.S.C.

§ 1002(1) (defining employee benefit plans).

10a

wages per se is not within ERISA’s coverage. Massa-

chusetts v. Morash, 490 U.S. 107, 118 (1989) (holding that

ERISA does not preempt a state law regulating vacation

pay).

No doubt is cast on this proposition by our recent

decision in Dillingham Construction v. County of Sonoma, 57

F.3d 712 (9th Cir. 1995), cert. granted, __ U.S. __, 116 S.

Ct. 1415, 134 L.Ed.2d 541 (1996). In Dillingham, the plain-

tiffs challenged the apprenticeship program provisions of

California’s prevailing wage law, Cal. Labor Code

§ 1777.5. We held that a statute regulating wages in an

apprenticeship program was preempted by ERISA

because the apprenticeship program itself was an

employee welfare benefit plan. Id. at 718. Therefore, the

prevailing wage law apprenticeship provisions directly

“related to” an ERISA plan. Id. at 718-19; see also Inland

Empire Chap. of Assoc. General Contractors v. Dear, 77 F.3d

296 (9th Cir. 1996) (holding that ERISA preempts Wash-

ington’s prevailing wage law’s apprenticeship provisions

for the reasons given in Dillingham).

[4] Here, the prevailing wage law provisions at issue

regulate wages generally, not wages that are part of a

particular employee benefit plan. The question for deci-

sion, then, is whether the statute’s effect on employee

benefit plans is so attenuated that the statute cannot be

said to “relate to” ERISA plans.

A state law relates to an ERISA employee benefit

plan if it has either “a connection with” or “reference to”

such a plan. Shaw, 463 U.S. at 97; Travelers, 115 S. Ct. at

Eee

lla

1677 (1995); District of Columbia v. Greater Washington Bad.

of Trade, 113 S. Ct. 580, 583 (1992). Few cases discuss the

application of the “reference to” language from the Shaw

test, and some courts seem to merge the two prongs. See

NYS H.M.O. Conference v. Curiale, 64 F.3d 794, 800 n. 17

(2nd Cir. 1995). But in Travelers, the Supreme Court

expressly applied a two-pronged analysis, holding first

that the statute at issue did not “refer to” ERISA plans,

and then concluding that it also did not have a sufficient

“connection with” such plans to warrant preemption.

Travelers, 115 S. Ct. at 1677.

The scope of the “reference to” language is open to

varying interpretations. Some courts have found inat stat-

utes which merely make mention of ERISA plans, or

allude to them obliquely, are preempted under this prong

of the Shaw test. E.g., Associated Builders & Contractors v.

Baca, 769 F. Supp. 1537 (N.D. Cal. 1991)? (holding that

California’s prevailing wage law as applied to private

construction projects is preempted by ERISA because the

prevailing wage rate is calculated in part by referring to

the dollar value of benefits paid in the locality), aff'd on

other grounds sub nom. Chamber of Commerce v. Bragdon, 64

2 But see Associated Builders and Contractors v. Curry, 797

F.Supp. 1528, 1537-38 (N.D.Cal.1992) (holding that the same

California statute at issue in Baca is not preempted by ERISA,

otherwise it “would vitiate, without any discernable [sic]

legislative intent or purpose, the state's traditional power to

regulate wages and to establish and enforce other labor

standards”), vacated, 68 F.3d 342 (9th Cir.1995) (remanding for

decision in light of Dillingham).

12a

F.3d 497 (9th Cir. 1995) (holding that the NLRA preempts

application of California’s prevailing wage law to private

construction projects, and not reaching the question of

ERISA preemption); Associated Builders & Contractors v.

Perry, 869 F. Supp. 1239 (E.D. Mich. 1994) (holding that

Michigan’s prevailing wage law, which operated similarly

to California’s “two-tier” method, was preempted by

ERISA).

Appellants argue that under Greater Washington the

prevailing wage law is preempted because the

employer’s obligations are measured by reference to

ERISA plan benefits. In Greater Washington, the pre-

empted statute expressly referred to an ERISA covered

plan - it required all employers who provide employee

health insurance coverage, to also provide equivalent

coverage for employees receiving worker’s compensation

benefits. Greater Washington, 113 S. Ct. at 583-84. This

statute referred to ERISA plans in the literal sense, in that

it specifically mentioned a covered employee welfare

plan (medical coverage). But more importantly, it referred

to the level of benefits provided by a covered plan when

prescribing the additional coverage required. That is, it

imposed an obligation upon an employer that was “mea-

sured by reference” to the level of benefit provided by

that employer under an ERISA plan. Id. at 583-84. The

Court explained that “any state law imposing require-

ments by reference to such covered programs must yield

to ERISA.” Id. at 584; see also Mackey v. Lanier Collection

Agency & Service, Inc., 486 U.S. 825, 829-30 (holding that a

state garnishment statute that expressly referred to

ERISA plans and singled them out for different treatment

under the law was preempted).

13a

[5] California’s prevailing wage rate is measured by

reference to prevailing cash wages and prevailing benefit

contributions in a locality and, thus, would seem to fall

under Greater Washington. Employee benefits and bene-

fit plans are mentioned in the statute and regulations in

two different respects. First, the calculation of per diem

wages includes “employer payments for health and wel-

fare, pension, vacation, travel time, and subsistence pay.”

Cal. Labor Code § 1773.1. The regulation defining how

the employer determines the amount of credit he can

deduct for fringe benefit costs, Cal. Code Regs. tit. 8,

§ 16200(a)(2)(1), refers to “employer payments,” which

include “{t]he rate of contribution irrevocably made by a

contractor or subcontractor . . . pursuant to a fund, plan,

or program for the benefit of employees. . . . “> Cal. Code

Regs. tit. 8, § 16000 (definition of “Employer Payments”).

Second, other provisions of the statutory scheme describe

the method by which the DIR is to determine the prevail-

ing wage in a particular area. These provisions require

the DIR to consider the prevailing level of benefit contri-

butions by employers in a given locality. Cal. Labor Code

§ 1773; Cal. Code Regs. tit. 8, § 16200; Cal. Code Regs. tit.

8, § 16000 (definition of “Prevailing Rate” and “General

Prevailing Rate of Per Diem Wages”).

[6] The Supreme Court, however, has never found a

statute to be preempted simply because its text included

3 The regulations also include anticipated employer costs

for providing benefits not administered by a fund, plan, or

program. In other words, “employer payments” also includes

the costs of benefits not provided through an ERISA plan. Cal.

Code Regs. tit. 8, § 16000.

l4a

the word ERISA or explicitly mentioned a covered

employee welfare benefit plan. See NYS H.M.O. Confer-

ence, 64 F.3d at 799-800. Although the statutes the

Supreme Court has held to be preempted did expressly

refer to ERISA plans, they also had some effect on those

plans. See, e.g., Greater Washington, 113 S. Ct. at 583 (not-

ing that the Court of Appeals had found that the pre-

empted statute “could have a serious impact on the

administration and content of the ERISA-covered plan”).

Therefore, a statute “refers to” an ERISA plan and is

preempted if it mentions or alludes to ERISA plans, and

has some effect on the referenced plans. See also Thiokol

Corp. v. Roberts, 76 F.3d 751, 759-60 (6th Cir. 1996) (hold-

ing that a state tax law is not preempted even though it

specifically refers to employee benefits plans when defin-

ing employee “compensation,” and noting that “statutes

that refer to ERISA plans are struck down not because of

the reference but because of their intended effect” on

those plans); NYS H.M.O. Conference, 64 F.3d at 800 (“a

state law has a reference to ERISA if its text mentions or

alludes to ERISA plans, and if the law affects ERISA plans

in some manner”).

[7] The references to ERISA plans in the California

prevailing wage law have no effect on any ERISA plans,

but simply take them into account when calculating the

cash wage that must be paid. At most, this scheme pro-

vides examples of the types of employer contributions to

benefits that are included in the wage calculation. The

* Otherwise, with no guidance as to what constitutes an

employee benefit, employers could devise all sorts of clever

benefit plans - for example, air conditioning or heating in the

workplace could be considered an employee benefit.

15a

scheme does not force employers to provide any particu-

lar employee benefits or plans, to alter their existing

plans, or to even provide ERISA plans or employee bene-

fits at all. See Employee Staffing Services, Inc. v. Aubry, 20

F.3d 1038, (9th Cir. 1994) (“In the case at bar, unlike

Greater Washington, the state law does not tell employers

how to write their ERISA plans.”). These provisions are

enforced regardless of whether the individual employer

provides benefits through ERISA plans, or whether the

benefit contributions in a given locality are paid to ERISA

plans. See, Travelers, 115 S. Ct. at 1677 (holding that a

statute did not “refer to” ERISA plans because it operated

regardless of whether the medical coverage was secured

by an ERISA plan or otherwise).

The Third and Eighth Circuits have both held that

similar prevailing wage statutes were not preempted by

ERISA. In Keystone Chapter of Assoc. Builders v. Foley, 37

F.3d 945 (3d Cir. 1994), cert. denied, 115 S. Ct. 1393 (1995),

the Third Circuit rejected the argument that the mere

mention of benefits or benefit plans in a statute automat-

ically demands preemption. The court noted that the

statute at issue did not premise any employer obligation

on the existence of benefits plans, but instead merely took

account of such plans if they happened to exist. Keystone,

37 F.3d at 957 (holding that ERISA does not preempt a

prevailing wage statute that operates identically to Cali-

fornia’s current “two-tier” approach); see also Minnesota

Chapter of Assoc. Builders v. Minnesota Dept. of Labor, 47

F.3d 975 (8th Cir. 1995) (holding that ERISA does not

preempt a prevailing wage statute similar to California’s,

but which may not have an excess benefits cap). The

Keystone court distinguished Greater Washington because

l6a

in that case the statute referred to ERISA plans as the

basis for the rights it accorded, whereas in Pennsylvania's

prevailing wage statute, which is similar to California's,

an ERISA plan benefit is given only as an example of the

factors that make up the prevailing wage. Id. at 957 n. 17;

Minnesota Chapter, 47 F.3d at 980 (“ERISA does not

require ‘a state to ignore the existence of ERISA benefits

when considering overall remuneration to workers,’ and

‘a state can set a minimum cash wage, and allow an

employer the option of paying part of that in benefits,’

without triggering ERISA preemption.”) (citation omit-

ted); see also Thiokol, 76 F.3d at 753 & n. 1 (holding that a

state tax law is not preempted, even though it bases an

employer’s tax obligation upon employee compensation,

which includes employers’ payments to retirement and

health benefit plans).

[8] California’s prevailing wage law is concerned

with guaranteeing a minimum cash wage for employees

on public works contracts. Furthermore, it takes into

account those contractors who provide fringe benefits for

their employees. Otherwise, these contractors would be

unable to compete effectively for public works contracts

against contractors who provide only a cash wage.

Although the prevailing rate of per diem wages in a

given locality is measured by reference to employers’

fringe benefit costs, these costs are calculated without

regard to whether they consist of contributions to ERISA

plans. Moreover, each individual employer’s obligation

to pay the prevailing wage does not depend upon the

existence or operation of that employer’s ERISA plans.

Therefore, California’s prevailing wage law does not refer

———————————

17a

to ERISA plans sufficiently for us to find that it is pre-

empted.

This court has defined a set of factors to consider

when determining whether a state law relates to ERISA

plans because it has a “connection with” such plans:

(1) Whether the state law regulates the types of

benefits of ERISA employee welfare benefit

plans;

(2) whether the state law requires the estab-

lishment of a separate employee benefit plan to

comply with the law;

(3) whether the state law imposes reporting,

disclosure, funding, or vesting requirements for

ERISA plans;

(4) whether the state law regulates certain

ERISA relationships, including the relationships

between an ERISA plan and employer and, to

the extent an employee benefit plan is involved,

between an employer and employee.

Ahue, 12 F.3d at 1504 (holding that a state law requiring

that employers cover the expense of federally mandated

physicals for airline pilots is preempted by ERISA).

[9] Under the two-tier approach, California’s prevail-

ing wage law clearly does not regulate the types of bene-

fits of employee welfare benefit plans; therefore, the first

Ahue factor is not implicated.

[10] Under Ahue factors (2) and (3) a state law may

“relate to” ERISA plans if it requires establishment of a

18a

separate employee benefit plan to comply with the law or

if it imposes additional administrative requirements for

ERISA plans. Ahue, 12 F.3d at 1504. Appellants confuse

and combine these two factors when they argue that this

statute is preempted because it imposes additional

administrative burdens regarding benefits contributions

on the employer. Because the two-tier scheme does not

impose any additional burden on ERISA plans or require

the employer to take any action with regard to those

plans, we reject this argument.

Relying on Perry and Baca, appellants contend that

public works contractors will be required to create a

separate administrative scheme in order to: (1) perform

ongoing calculations of wages paid and cash equivalents

of benefits provided; (2) keep track of the prevailing

wage levels in different localities; and (3) maintain

detailed payroll records showing hourly wage levels and

benefit contributions. See Cal. Labor Code § 1776 for

disclosure and reporting requirements. See Perry, 869 F.

Supp. at 1248 (holding that similar calculations and

reporting requirements would “impair the ability of a

plan to function simultaneously in a number of states.”);

Baca, 769 F. Supp. at 1547 (“employers will be forced to

calculate wages and benefits on covered projects sep-

arately from other projects, creating an ongoing adminis-

trative system”).

[11] None of these concerns satisfies either Ahue fac-

tor (2) or (3). First, nothing in California’s scheme

requires the establishment of a separate benefit plan in

order to comply with the state law. California’s statute

does not require public works contractors to modify their

benefits plans at all. It simply requires that they pay 4

Se ke aly aaa”

19a

minimum cash wage, regardless of the level of benefits

provided. Employers can comply without adjusting their

level of benefits contributions.

[12] Furthermore, although the law may cause

employers to maintain a separate administrative scheme

to keep track of prevailing wage data for public works

projects, it does not require that they maintain a separate

employee benefit plan. They may choose to do so if they

want to ensure that they contribute no more to employee

benefits than the maximum credited under the excess

benefit cap. But they are not required to do so. If their

benefit contributions fall below the prevailing benefit

rate, then they can make up the shortfall with cash

wages, which would have no effect on their ERISA plans.

Admittedly, if employers’ benefits contributions

exceed the prevailing benefit rate, then they would quite

likely adjust their contributions downward to reflect the

prevailing rate. In that case, the prevailing wage law

would have an incidental impact on ERISA plans. But this

impact is indirect, and the choice of amount and type of

benefits to provide remains with the private employers.

Under Ahue factor (4) the main focus of appellants’

argument is that the excess benefits cap of the two-tier

scheme discourages employers from making benefits con-

tributions in excess of the prevailing benefit rate, thereby

affecting the relationship between the employer and

employees. They argue that the excess benefit cap creates

an adverse economic impact on public works contractors,

which discourages benefits contributions in excess of the

cap. However, we have rejected this argument in

Employee Staffing Services, Inc. v. Aubry, 20 F.3d 1038 (9th

20a

Cir. 1994). We held that ERISA did not preempt a state

law that required employers to provide separate workers’

compensation insurance even if they included coverage

for work-related injuries under a comprehensive ERISA

plan. The plaintiffs argued that the independent state

requirement would have the economic effect of discour-

aging them from providing “so rich an ERISA plan as

they do now.” Id. at 1042. We rejected this argument

pointing out that “[t]he economic effect of independent

state requirements on employers’ incentives in drafting

ERISA plans should be distinguished from the legal effect

of state commands regarding ERISA plans.” Id.; Travelers,

115 S. Ct. at 1679 (“An indirect economic influen-

ce... does not bind plan administrators to any particular

choice and thus function as a regulation of an ERISA plan

itself”); see also Lane v. Goren, 743 F.2d 1337, 1340 (9th Cir.

1984) (holding that California laws prohibiting employ-

ment discrimination are not preempted by ERISA, and

noting that merely increasing an ERISA plan’s opera-

tional costs is too tenuous, remote or peripheral an effect

to warrant a finding that the law relates to a covered

plan). Any requirement that an employer spend a fixed

amount on wages would reduce the general funds avail- :

able for other methods of employee compensation. See

Travelers, 115 S. Ct. at 1679 (“Even basic regulation of

employment conditions will invariably affect the cost and

price of services.”). But “ERISA does not preempt cash

wage requirements unrelated to employee benefits, nor

does it require the state to encourage benefits contribu-

tions by reducing the minimum cash wage where an

employer makes large benefits contributions.” Keystone,

37 F.3d at 959. :

Ea AD Aaa ECAR ie OBL a 2 a Ge ro

2la

[13] Although California’s prevailing wage law may

discourage employer benefit contributions greater than

the excess benefits cap, this effect is not sufficient by

itself to find ERISA preemption. After all, a cash-only

prevailing wage law, which clearly would not be pre-

empted, would more severely discourage benefits contri-

butions than the current scheme. The economic effect of

the current scheme is too tenuous, remote or peripheral

to support a finding that the law “relates to” employee

benefit plans.

[14] In Employee Staffing we set forth a simplified test

for determining whether a law “relates to” ERISA plans

for preemption purposes:

Is the state telling employers how to write their

ERISA plans, or conditioning some requirement

on how they write their ERISA plans? Or is it

telling them that regardless of how they write

their ERISA plans, they must do something else

outside and independently of the ERISA plans?

If the latter . . . there is no preemption.

Employee Staffing, 20 F.3d at 1041. In the current case,

California is not telling employers how to write their

ERISA plans. Nor is it conditioning some requirement on

how individual employers write their ERISA plans.

Instead, it is telling employers that regardless of how

they write their ERISA plans, or even whether they have

ERISA plans at all, they must pay the prevailing wage,

and they may do so through some combination of cash

and benefits. Under either test as to whether a statute has

a connection with ERISA plans, California’s prevailing

wage law does not have a sufficient connection to find

that the statute is preempted.

22a

[15] In conclusion, California’s prevailing wage law

does not refer to or have a connection with ERISA plans

sufficient to find that it “relates to” such plans. Therefore,

the prevailing wage provisions of California’s statute are

not preempted by ERISA.

Ill

California’s prevailing wage law has some connec-

tion to employee benefits and, therefore, has some con-

nection, however indirect, to employee benefit plans.

Nevertheless, we hold that this connection is not suffi-

cient to find that the statute is preempted by ERISA.

Therefore, we affirm the district court’s judgment that

ERISA does not preempt California’s two-tier prevailing

wage scheme.

23a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

WSB ELECTRIC, INC. and

J.R. ROBERTS CORPORATION,

Plaintiffs-Appellants,

JAMES CURRY, in his official

capacity as the Labor

Commissioner of the State of

California; RONALD RINALDI,

Director of Industrial Relations

for the State of California,

No. 94-16613

D.C.

CV-90-00771-CW

Defendants-Appellees,

and

STATE BUILDING AND

CONSTRUCTION TRADES

COUNCIL OF CALIFORNIA,

AFL-CIO; CARPENTERS-

CONTRACTORS COOPERATION

COMMITTEE, INC.,

Intervenors-Appellees.

Nm Nem ee ee ee ee ee ee ee ee ee” ee See” Nee Ne ee

24a

J.R. ROBERTS CORPORATION,

Plaintiff-Appellant,

~ No. 94-16646

D.C. No.

JAMES CURRY, Labor

Commissioner of the State CV-90-01109-CW

of California; RONALD RINALDI, ORDER

Director of Industrial Relations (Filed

for the State of California, Aug. 21, 1996)

Defendants-Appellees,

and

STATE BUILDING AND

CONSTRUCTION TRADES

COUNCIL OF CALIFORNIA,

AFL-CIO; CARPENTERS-

CONTRACTORS COOPERATION

COMMITTEE, INC.,

Intervenors-Appellees.

Nome ee ee ee ee ee ee ee eee ee ee eet ee”

Before: BROWNING, CANBY, and HALL, Circuit

Judges

The panel has voted to deny appellants’ petition for

rehearing and to reject the suggestion for rehearing en

banc.

The full court has been advised of the suggestion for

rehearing en banc and no active judge has requested a

vote on whether to rehear the matter en banc. Fed. R.

App. P. 35.

The petition for rehearing is DENIED and the sugges-

tion for rehearing en banc is REJECTED.

25a

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

WSB ELECTRIC, INC.; No. C 90-00771 CW

J.R. ROBERTS CORP., No. C 90-01109 CW

Plaintiffs, ORDER DENYING

PLAINTIFFS’ MOTION

FOR SUMMARY

JAMES CURRY, in his JUDGMENT AND

official capacity as the GRANTING

Labor Commissioner of the DEFENDANTS’

State of California; MOTION FOR

RONALD T. RINALDI, SUMMARY JUDGMENT

Director of Industrial

Relations for the State of

California,

(Filed

Aug 11, 1994)

Defendants,

and

STATE BUILDING AND

CONSTRUCTION TRADES

COUNCIL OF

CALIFORNIA, et al.,

Intervenors.

The cross-motions of Plaintiffs and Defendants for

summary judgment were heard by this Court on July 8,

1994. Mark R. Thierman and George P. Parisotto of the

Thierman Law Partnership appeared on behalf of Plain-

tiffs WSB Electric Inc. and J.R. Roberts Corporation.

26a

James D. Fisher of the California Department of Indus-

trial Relations appeared on behalf of Defendants James

Curry and Ronald T. Rinaldi.

Having considered the papers filed by the parties

and oral argument on the motion, and good cause

appearing, the Court hereby DENIES Plaintiffs’ motion

and GRANTS Defendant’s motion for the following rea-

sons.

A. Background and Procedural History

Each Plaintiff is a California contractor which bids on

public works contracts. In 1990, each sued the California

Labor Commissioner and the Director of the California

Department of Industrial Relations (“DIR”) under ERISA

and § 1983 to enjoin the then-existing system of enforce-

ment of the prevailing wage laws in California, and the

actions were ordered related. The State Building and

Construction Trades Council of California, AFL-CIO was

permitted to intervene. While the actions were pending,

the DIR changed its method of enforcement on an interim

basis.

Judge John P. Vukasin entered summary judgment for

Plaintiffs, finding the original enforcement scheme to be

preempted by ERISA, although finding the § 1983 equal

protection claims to be without merit. Judge Vukasin

denied Plaintiffs’ motion for attorneys’ fees, however, as

the action did not fall within the ERISA attorneys’ fees

statute.

The DIR adopted its interim enforcement method on

a permanent basis in state regulations, but also pursued

i aa

27a

an appeal from the judgment against it. The Ninth Circuit

vacated the judgment as moot and remanded for deter-

mination of whether the new scheme is preempted.

Plaintiffs now seek summary judgment that the new

scheme is preempted by ERISA, and further that they are

entitled to interim attorneys’ fees for the first phase of

this case through the appeal. Defendants and Intervenor

jointly oppose the motion and move for summary judg-

ment in their favor.

B. Statement of Facts and Issues

The state of California requires that contractors on

certain public works projects pay their employees at least

the “general prevailing rate of per diem wages for work

of a similar character in the locality.” California Labor

Code § 1771. The Director of the DIR is charged with

determining the prevailing wage in the relevant locality

for each type of work needed to execute a public contract.

Labor Code § 1773. The definition of “per diem wages”

includes the amount of employer payments for certain

benefits, as well as cash wages. Labor Code § 1773.1.

Prior to October 1990, DIR enforced these statutes

according to the “line by line” method. Under this

approach, the DIR determined the prevailing rate of cash

wages and of each specific benefit included in the statute;

the total of all of these was considered the “prevailing

wage.” To comply with the prevailing wage laws, a con-

tractor could either pay at least the total amount of the

prevailing wages in cash wages, or pay a combination of

at least the prevailing cash wages plus countable benefit

contributions adding up to at least the total amount of

28a

prevailing wages. However, for each specified fringe ben-

efit, only contributions up to the prevailing rates for that

benefit were countable. Thus contractors were not enti-

tled to any credit for benefits which were not prevailing

benefits in the area or for benefit payments in excess of

the prevailing rate for that benefit. This is the scheme

which Judge Vukasin held was preempted by ERISA.

The new scheme followed by DIR is dubbed the “two

tier” system by Plaintiffs. Under this scheme, to be in

compliance with the prevailing wage laws, a contractor

could either pay at least the total amount of the prevail-

ing wages in cash wages or pay a combination of at least

the prevailing cash wages, plus benefit contributions

adding up to at least the total amount of the prevailing

wages. The difference from the “line by line” scheme is

that legitimate statutory benefits contributions are count-

able even if they exceed the prevailing rates for that

specific benefit or are for different benefits than the pre-

vailing benefits. This scheme thus interferes far less with

the choice of benefits and allocation of funds to benefits.

However, as with the “line by line” system, a contractor

is still required to pay the prevailing cash wages; it is not

entitled to a credit against the prevailing cash wages for

benefit payments in excess of the prevailing rate for

benefits. This is the scheme being challenged in this

action.

A third possible scheme, used in the federal Davis-

Bacon Act, is the “total package” method. Under that

method, to comply with the prevailing wage statute, a

contractor could pay any combination of cash wages and

benefit contributions, provided that the total adds up to

the total prevailing wage determined by the government.

ee —

29a

In other words, contractors would be entitled to credits

against the prevailing cash wage rate for benefit pay-

ments in excess of the prevailing rate for benefits.

The issue framed in these cross-motions is whether

the “two tier” method is preempted by ERISA. Plaintiffs

concede that the state may adopt prevailing wage laws

which set a floor for the tier of combined wage and

benefits payments (“total package”); they further con-

cede, as they must, that the state may set a floor for the

tier of cash wages alone, regardless of benefits. However,

Plaintiffs argue that the state may not do both without

running afoul of ERISA.

C. Applicable Legal Standards

Summary judgment is properly granted when there

are no genuine and disputed issues of material fact; or,

when viewing the evidence most favorably to the non-

moving party, the movant is clearly entitled to prevail as

a matter of law. Fed. R. Civ. P. 56; Celotex Corp. v. Catrett,

477 U.S. 317, 322-23 (1986); Eisenberg v. Insurance Co. of

North America, 815 F.2d 1285, 1288-89 (9th Cir. 1987). This

case is appropriate for disposition by summary judgment.

There are no disputed facts. The parties seek a ruling on

the legal issue of whether ERISA preempts the state’;

prevailing wage law scheme.

D. ERISA Preemption

ERISA preempts “any and all State laws insofar as

they ... relate to any employee benefit plan... ” 29

U.S.C. § 1144(a). The regulations construing ERISA

30a

explicitly exclude wages from the definition of “employee

benefit plan.” 29 C.F.R. § 2510 3 - 1. The scope of ERISA

preemption under § 1144(a) is extremely broad, but not

unlimited.

In Massachusetts v. Morash, 490 U.S. 107 (1989), the

Supreme Court held that a statute requiring employers to

pay employees for unused accrued vacation time was not

preempted by ERISA. It recognized that the definition of

“employee benefit” was broad enough to encompass

vacation benefits, such that the creation of a separate

fund to pay vacation benefits would constitute an

“employee benefit plan” and subject an employer to the

regulatory provisions of ERISA. It held, however, that

neither ordinary vacation benefit payments nor payment

for unused vacation time constitute a “plan,” reasoning

as follows:

The interpretation of § 3(1) is governed by the

familiar principles that . . . “in expounding a

statute, we [are] not . . . guided by a single

sentence ... but look to the provisions of the

whole law, and to its object and policy. [citations

omitted] In enacting ERISA, Congress’ primary

concern was with the mismanagement of funds

accumulated to finance employee benefits and

the failure to pay employees benefits from accu-

mulated funds. [citation omitted] To that end, it

established extensive reporting, disclosure and

fiduciary duty requirements to insure against

the possibility that the employee’s expectation

of the benefit would be defeated through poor

management by the plan administrator. Because

ordinary vacation payments are typically fixed,

due at known times, and do not depend on

contingencies outside the employee’s control,

nam:

—_———_"----

3la

they present none of the risks that ERISA is

intended to address. If there is a danger of de-

feated expectations, it is no different from the

danger of defeated expectations of wage for ser-

vices performed — a danger Congress chose not

to regulate in ERISA.

490 U.S. at 112-15. The Court also relied upon the Secre-

tary’s definition of “benefits,” noting that deference is

due his reasonable views, and quoting the following from

40 Fed.Reg. 24642-24643 (1975):

[P]aid vacations . . . are not treated as employee

benefit plans because they are associated with

regular wages or salary, rather than benefits

triggered by contingencies such as hospitaliza-

tion. Moreover, the abuses which created the

impetus for the reforms in Title I were not in

this area, and there is no indication that Con-

gress intended to subject these practices to Title

I coverage.

490 U.S. at 117. The promulgated regulations therefore

provided that numerous “payroll practices” such as pay-

ment of vacation benefits out of an employer’s general

assets are not benefit plans within the meaning of ERISA.

The Court noted that a contrary interpretation would

have “profound consequences,” including that:

[S]uch an interpretation would . . . displace the

extensive state regulation of the vesting, fund-

ing, and participation rights of vacation bene-

fits; because ERISA’s vesting and funding

requirements do not apply to welfare benefit

plans [citations omitted], employees would

actually receive less protection if ERISA were

applied to ordinary vacation wages paid from

the employer’s general assets. [citation omitted]

32a

The States have traditionally regulated the pay-

ment of wages, including vacation pay. Absent

any indication that Congress intended such far-

reaching consequences, we are reluctant to so

significantly interfere with “the separate

spheres of governmental authority preserved in

our federalist system.” Fort Halifax Packing Co. v.

Coyne, 482 U.S. at 19.

490 US. at 118-19. Obviously, payment of prevailing cash

wages out of an employer's general assets without credit

for higher than prevailing benefit contributions does not

constitute a benefit plan within the meaning of ERISA.

Plaintiff's argument is rather that such payment affects

and therefore “relates to” their ERISA plans. This argu-

ment must be evaluated, however, in light of the Supreme

Court’s concern that the separate spheres of govern-

mental authority be preserved.

The Ninth Circuit has recently set forth a comprehen-

sive ERISA preemption analysis in Aloha Airlines, Inc. .

Ahue, 12 F.3d 1498 (9th Cir. 1993), affirming the district

court’s grant of summary judgment that Hawaii's statute

requiring employers to pay the cost of medical examina-

tions mandated by federal law was preempted by ERISA.

The court found that the primary purpose of ERISA is “to

promote the interests of employees and their beneficiaries

in employee benefit plans,” quoting Shaw v. Delta AirLines

Inc., 463 U.S. 85, 90 (1983). Congress also intended to

safeguard employers’ interests by “eliminating the threat

of conflicting and inconsistent State and local regulation

of employee benefit plans.” Id. at 91. To ensure unifor-

mity, ERISA includes “one of the broadest preemption

clauses ever enacted by Congress.” PM Group Life Ins. v.

Western Growers Assur. Trust, 953 F.2d 543, 545 (9th Cir.

33a

1992). The threshold question in a preemption inquiry is

whether the state law “relates to” an employee welfare

benefit plan, i.e. “has a connection with or reference to

such a plan.” Shaw, 463 U.S. at 97. If so, it is preempted

even if it was “not specifically designed to affect such [a]

plan{], or the effect is only indirect.” Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133 (1990). On the other hand, the

law does not “relate to” ERISA plans if its effect on such

plans is “tenuous, remote, or peripheral.” Shaw, 463°U.S.

at 100 n.21. In determining whether a state law “relates

to” an ERISA plan, the following factors must be consid-

ered:

(1) whether the state law regulates the types of

benefits of ERISA employee welfare benefit

plans (Shaw, 463 U.S. at 96-97 (state law requir-

ing pregnancy benefits “relates to” ERISA plan);

Standard Oil Co. v. Agsalud, 633 F.2d 760, 766 (9th

Cir. 1980), aff'd mem., 454 U.S. 801 (1981) (state

law requiring alcohol and drug abuse treatment

benefits “relates to” ERISA employee benefit

plan)); (2) whether the state law requires the

establishment of a separate employee benefit

plan to comply with the law (Fort Halifax, 482

U.S. at 12-13 (state law requiring companies to

make a onetime, lump-sum severance payment

when closing plants does not “relate to” an

ERISA plan, since the law does not require

establishment or maintenance of a plan)); (3)

whether the state law imposes reporting, dis-

closure, funding, or vesting requirements for

ERISA plans [citation omitted]; and (4) whether

the state law regulates certain ERISA relation-

ships, including the relationships between an

ERISA plan and employer and, to the extent an

employee benefit plan is involved, between the

34a

employer and employee (General Am. Life Ins.

Co. v. Castonguay, 984 F.2d 1518, 1521-22 (9th Cir.

1993) (statute subjecting trustees to personal lia-

bility for actions performed while discharging

their responsibility to trust is preempted by

ERISA as applied to contract entered into by

trustees for ERISA trust)).

12 F.3d at 1504. Applying that test to the Hawaii statute,

the court held it did “relate to” ERISA plans. The statute

would require the plaintiff employer either to modify its

existing health benefit plan to pay for medical examina-

tions mandated by federal law, or to create a separate

plan to provide for such benefits. Thus the statute either

(1) regulated the benefits in the existing plan or (2)

required the creation of a separate plan. Furthermore, the

statute also (3) imposed reporting requirements to show

that the obligation was met. Finally, the statute (4) regu-

lated the relationship between the employer and its

employee benefit plan and between the employer and

employees mandated to have medical examinations.

Accordingly, the statute directly affected and thus related

to the ERISA plan. Furthermore, it did not represent a

regulation of traditional state authority. Therefore, it was

preempted.

Applying the Aloha test to the instant prevailing

wage statute and enforcement scheme, no ERISA preemp-

tion can be found. The statute does not (1) regulate the

types of benefits in ERISA plans, or (2) require the cre-

ation or maintenance of a separate benefit plan, inasmuch

as a contractor may comply with the law without having

a plan at all, simply by paying cash wages in the amount

designated as the prevailing wage. As long as the

ee ee ee eee

35a

employer chooses the latter option, the statute (3)

imposes no requirements on a benefit plan and (4) does

not regulate the relationship between the employer and a

benefit plan or regulate the relationship between the

employer and employee with respect to a benefit plan.

Furthermore, even if the employer chooses to have

an ERISA plan, the statute does not regulate the types or

amounts of the benefits in the plan or the relationship

between the employer and employee with respect to the

benefit plan, nor does it impose any requirements on the

plan itself. At most, the statute may have an indirect

effect on the amount of benefits by discouraging payment

of higher than prevailing rates of benefits among those

employers who seek to comply precisely and not exceed

compliance with the statute. However, the choice of the

amount of benefits remains fully with the private parties.

If the employer seeks credit against the full prevailing

wage for benefit payments. The statute requires mainte-

nance of records demonstrating compliance, but that

obligation falls on the employer, not the ERISA plan, and

any effect on the plan is too tenuous, remote or periph-

eral to support preemption. Finally, the sole purpose and

primary effect of the statute is to set a floor for total

compensation and for cash wages, which is a traditional

exercise of state authority.

The Ninth Circuit has recently restated the essence of

its ERISA preemption analysis in a very simple test. In

Employee Staffing Services Inc. v. Aubry, 20 F.3d 1038 (9th

Cir. 1994), deciding that a workers compensation statute

was not preempted by ERISA, the court posed the issue

as follows:

36a

Is the state telling employers how to write their

ERISA plans, or conditioning some requirement

on how they write their ERISA plans? Or is it

telling them that regardless of how they write

their ERISA plans, they must do something else

outside and independently of the ERISA plans?

If the latter, as here, there is no preemption.

20 F.3d at 1041. In the instant prevailing wage laws, the

state of California is telling employers that regardless of

how they write their ERISA plans, or even whether they

have ERISA plans, they must pay prevailing cash wages

and prevailing total compensation. Accordingly, there is

no preemption.

The Court notes that the system Plaintiffs concede

would not be preempted, the “total package” system,

when combined with minimum wage laws, which Plain-

tiffs do not and cannot argue are preempted by ERISA, is

legally and logically no different from the “two tier”

scheme challenged here. The minimum wage laws also

set a floor for cash wages, and thus would discourage

payment of benefits exceeding the difference between the

total prevailing wage and the minimum wage. The chal-

lenged second tier of the instant statute merely raises that

minimum wage higher than the cash wages Plaintiffs

wish to pay.

In addition, Plaintiffs’ argument for preemption is

that their ERISA plans are affected in that the statute

creates a disincentive for them to maintain the benefits at

their current level. However, an ordinary prevailing wage

statute which does not involve any credit for benefits

paid, and which Plaintiffs concede would not be pre-

empted, creates a greater disincentive than that of which

37a

Plaintiffs complain. Thus, Plaintiffs’ argument would

sweep far too broadly if given its full effect.

The conflicting authority does not persuade this

Court otherwise. The case of General Electric v. Dept. of

Labor, 891 F.2d 25 (2nd Cir. 1989) involved a prevailing

wage statute very similar to the “line by line” scheme

that Judge Vukasin held preempted. The majority held

the statute was preempted by ERISA under the teachings

of Alessi v. Raybestos-Manhattan Inc., 451 U.S. 504, 511

(1981) (state statute prohibiting ERISA pension plans

from reducing pension benefits by amount of workers’

compensation award preempted by ERISA; ERISA leaves

to the private parties, not the Government, the deter-

mination of the level of benefits to be paid). A state law

relates to a benefit plan if it prescribes either (1) the type

and amount of an employer’s contributions to a plan, (2)

the rules and regulations under which a plan operates, or

(3) the nature and amount of benefits provided under a

plan. The majority held that this prevailing wage law

intruded into all three of these preempted areas as fol-

lows: (1) employers must either bring their plans into

conformity with the prevailing plans or make up the

difference in cash payments; (2) employers must make

records demonstrating compliance available to the state;

and (3) the employee may be required to accept cash

payments which may be of lesser value than the unpaid

benefits would have been.

Circuit Judge George C. Pratt wrote a well-reasoned

dissent, opining that ERISA preemption is not so broad as

to invalidate a state law which neither purports to regu-

late employee benefits plans nor affects a plan’s primary

administrative functions. The types of statutes properly

38a

held preempted are those that provide an alternative

cause of action to employees to collect benefits protected

by ERISA, refer specifically and apply solely to ERISA

plans, or interfere with the calculation of benefits owed to

an employee. Laws of general application and traditional

exercises of state power, whose economic and administra-

tive effects on benefits plans are incidental to their pri-

mary objectives, are generally not preempted. The

challenged prevailing wage law did not interfere with

any of the primary administrative functions of ERISA

plans, affect the structure or administration of benefit

plans, determine an employee's eligibility for benefits, or

control the type or level of benefits provided. Rather, it

sought to equalize the minimum labor costs for

employers bidding on public works contracts, a valid

exercise of the state’s traditional regulatory authority.

fudge Pratt stated:

[W]here a law claimed to be superseded by

ERISA “is an exercise of a State’s police

powers,” the law should not be held preempted

“unless this conclusion is unavoidable.” Rebaldo

v. Cuomo, 749 F.2d 133, 138 (2nd Cir. 1984), cert.

denied, 472 U.S. 1008 (1985). While preemption

may be an unavoidable conclusion where a state

law explicitly singles out ERISA plans for differ-

ent treatment, [citation omitted] or directly

alters the calculation or payment of benefits

under ERISA-covered pension plans, see

Alessi ..., or creates a cause of action to enforce

a right granted by ERISA, [citation omitted], no

such problem is presented by the statute before

us. The fact that employers may choose to com-

ply with the law by providing a different bene-

fits plan or a combination of benefits and cash

—

39a

rather than simply paying the additional costs

as wages, does not render the statute pre-

empted. See Shaw v. Delta Air Lines Inc, 463 U.S.

85, 108 (1983) (while a state may not require

employers to alter their ERISA plans, it is not

preempted from giving them that option as a

means of complying with state law).

891 F.2d at 30-31. While the prevailing wage law requires

an employer to satisfy certain administrative respon-

sibilities such as making its records available for inspec-

tion, and this may increase the cost of operating the

benefit plan, this is “merely incidental” to the law’s pri-

mary goal of equalizing labor costs. In short, “New York's

prevailing wage statute is a law of general application

whose tangential effects on employee benefit plans are

negligible and wholly incidental to the law’s primary

purpose” and therefore is not preempted by ERISA. Id. at

31.

The Court finds the reasoning of the dissent in Gen-

eral Electric more persuasive than that of the majority. The

majority fails to take into account the difference between

regulating benefit plans and regulating wages in such a

way that the employer has the choice of complying either

through its ERISA benefit plan or in some other way. In

Shaw v. Delta AirLines, the Supreme Court held that an

employer’s choice to provide a benefit plan cannot

deprive the state of enforcement authority it would other-

wise have. At issue there was a state disability law and an

ERISA plan which contained disability benefits but did

not comply with the state law. ERISA expressly exempts

“any employee benefit plan . . . maintained solely for the

40a

purpose of complying with applicable disability insur-

ance laws.” The employer argued, however, that by

choosing to provide disability insurance benefits in its

ERISA plan and not in a separate plan, it could deprive

the state of its traditional authority. The Supreme Court

disagreed, stating as follows:

Congress surely did not intend, at the same time

it preserved the role of state disability laws, to

make enforcement of those laws impossible. A

State may require an employer to maintain a

disability plan complying with state law as a

separate administrative unit... . The fact that

state law permits employers to meet their state-

law obligations by including disability insur-

ance benefits in a multi-benefit ERISA plan .. .

does not make the state law wholly unenforce-

able as to employers who choose that option. In

other words, while the State may not require an

employer to alter its ERISA plan, it may force

the employer to choose between providing dis-

ability benefits in a separately administered

plan and including the state-mandated benefits

in its ERISA plan.

463 U.S. at 108. This analysis applies equally to state

prevailing wage laws.

The Northern District of California has split on

whether to follow the majority or the dissent in General

Electric. Judge Charles A. Legge followed the majority in

Associated Builders & Contractors v. Baca, 769 F. Supp. 1537

(N.D.Cal. 1991), holding that a county ordinance which

required in private contracts the payment of prevailing

wages, as defined by Labor Code § 1773 ... was pre-

empted both by the NLRA, because it impermissibly

4la

interfered in the collective bargaining process between

private parties, and by ERISA. However, this case is

distinguishable because there the ordinance applied to

private rather than state-funded contracts, thus eliminat-

ing the important factor of the state’s traditional exercise

of the authority to set wages for state-funded projects.

The reasoning of the General Electric majority was

expressly rejected by Judge Fern M. Smith in Associated

Builders and Contractors v. Curry, 797 F.Supp. 1528

(N.D.Cal. 1992). In holding that California’s prevailing

wage law was not preempted by ERISA as applied to

trainee employees employed by public works contractors,

Judge Smith started with the presumption that in enact-

ing ERISA, “Congress did not intend to preempt areas of

traditional regulation.” Martori Bros. Distributors v. James-

Massengale, 791 F.2d 799 (9th Cir.), cert. denied 479 U.S.

949, 1018 (1986), quoting Metropolitan Life Ins. v. Massa-

chusetts, 471 U.S. 724 (1985). The statute at issue fell into

such an area:

The manifest purpose of § 1771 is to guarantee

that public works contractors pay prevailing

wages to their employees and do not compete in

bidding on public works projects based on

lower-than-prevailing wage rates. §§ 1773 and

1773.1 are designed to level the playing field

among bidders on public works projects by

counting payments for prevailing benefits

toward the determination of prevailing wages. If

only straight-time pay counted towards prevail-

ing wages, bidders who paid prevailing benefits

would be placed at a competitive disadvantage

in bidding . . . vis-a-vis bidders who offered no

benefits. On the other hand, by including the

value of prevailing “employer payments” for

42a

benefits, the statutes do not mandate that bid-

ders provide such benefits, only that they pro-

vide the value thereof.

797 F.Supp. at 1536-1537. Judge Smith rejected the reason-

ing that incorporation of prevailing benefits into deter-

mination of prevailing wages “relates to” employee

benefit plans, finding the reasoning of the dissent in

General Electric more persuasive.

As set forth in ABC v. Curry, the statute challenged

here is clearly within the traditional exercise of the ~tate’s

authority and should be held preempted only if that

conclusion is inescapable. It is not. The fact that

employers can comply fully with the statute without hav-

ing an ERISA plan at all is enough to demonstrate that

the statute does not relate to ERISA plans. The

employer’s choice to have such a plan and to take a credit

based on the plan under the statute cannot deprive the

state of its traditional authority. Shaw, 463 U.S. at 108.

The opposite result is not dictated by District of

Columbia v. Washington Board of Trade, 113 S.Ct. 580 (1992),

in which the Supreme Court ruled that ERISA preempted

a District of Columbia mandate that employers which

provide health coverage to employees extend equivalent

coverage to employees receiving workers compensation.

There an employer’s obligation to provide workers com-

pensation benefits was computed by reference to that

employer’s obligations under its own ERISA plan. The

state was not telling the employer to provide workers

compensation “outside and independently” of its ERISA

plan, but by direct reference to its ERISA plan. The stat-

ute was not of general applicability to all employers, but

only to those employers who had ERISA plans. Here, in

Ea errr ree

43a

contrast, the law is of equal applicability to employers

with and without ERISA plans. Further, the statutory

reference is not to the employer’s own ERISA plan, but to

the prevailing level of benefits in the area. The Supreme

Court has specified that the preemption language

“related to any employee benefit plan” is intended to

distinguish between relating to a benefit plan and other-

wise relating to benefits. Fort Halifax Packing Co. v. Coyne,

482 U.S. 1 (1987).

The cases relied on by Plaintiffs to overcome the

argument that prevailing wage laws are a traditional

exercise of state power are inapposite since both involve

attempts directly to regulate ERISA plans. Local Union

598, Plumbers & Pipefitters Industry Journeymen and

Apprentices Training Fund v. ].A.Jones Construction Com-

pany, 846 F.2d 1213 (9th Cir. 1988), aff'd summ., 488 U.S.

881 (1988) (statute requiring contributions to employee

benefit plans at or above the prevailing level preempted

by ERISA); Hydrostorage Inc. v. Northern California Boiler.

makers, 891 F.2d 719 (9th Cir. 1989), cert. denied 498 US.

822 (1990) (statute requiring contributions to apprentice-

ship program plans preempted by ERISA).

Plaintiffs mistakenly assert that this statute, as it is

currently enforced, “restricts” the amount of benefits an

employer may pay and requires employers to “vary

the[ir] benefit plans to fit State-mandated criteria.” If this

were true, the statute might be preempted by ERISA.

However, it is not. The statute compels only the payment

of wages, not the restriction of benefits. Whether to offer

any benefits, which benefits to offer, and at what level to

fund the benefits remain fully private choices.

44a

Plaintiffs also argue that the statute discriminates

against ERISA plans which pay higher than prevailing

benefit levels. They analogize to cases involving prevail-

ing wage laws which mandate higher wages for ap-

prentices enrolled in non-state approved ERISA

apprenticeship programs than for apprentices enrolled in

state-approved programs. The difference is apparent. A

state may not treat employers differently based on their

choice of ERISA apprenticeship plans, requiring them to

pay different wages, in an attempt to regulate ERISA

apprenticeship~ plans and coerce participation in those

approved by the state. Here, however, the statute treats

all employers the same, regardless of whether they have

ERISA plans at all and regardless of the terms of such

plans, by requiring all employers to pay the same wages |

(or more if they choose), at least the prevailing cash wage |

and at least the prevailing full compensation.

Therefore, this Court holds that the prevailing wage

statute, as enforced by the “two tier scheme,” is not

preempted by ERISA. It is therefore unnecessary to

address Defendants’ argument that ERISA preemption

should not apply to publics works at all, except to state

that the argument lacks merit. Building and Construction

Trades Council v. Associated Builders and Contractors, 113

S.Ct. 1190 (1993) is inapplicable to the instant case. There

the Supreme Court held only that a bid specification is

generally a proprietary, not a regulatory, action. How-

ever, statutes and implementing regulations clearly are

regulatory. Defendants make much of the public policies

effectuated by the prevailing wage statutes; their contra-

dictory argument that the statutes constitute no more

iia aaa a

45a

than the acts of a party in the marketplace are wholly

unpersuasive.

E. Attorneys’ Fees

Plaintiffs move for interim attorneys’ fees on the

grounds that they were prevailing parties on appeal,

arguing that this action was a “catalyst” for the state’s

change from the “line by line” to the “two tier” system.

Defendants oppose the motion on the grounds, inter alia,

that Judge Vukasin correctly held that, even as prevailing

parties, Plaintiffs were not entitled to fees under ERISA

§ 1132(g) because they are not participants, beneficiaries

nor fiduciaries of an ERISA plan.

Plaintiffs have attempted no showing here that they

are participants, beneficiaries or fiduciaries of an ERISA

plan, and under the statutory definitions of ERISA, they

clearly are not. See 29 U.S.C. §§ 1002(a) (7), (8), (14), (16),

(21). Plaintiffs argue that their action benefitted partici-

pants, but the statute limits its scope to actions brought

by participants, beneficiaries or fiduciaries, and Plaintiffs

cite no authority that an action brought by another party

which may benefit a participant meets this statutory

requirement.

Plaintiffs further seem to argue that they are entitled

to attorneys’ fees under 42 U.S.C. § 1988, despite the

court’s rejection of their § 1983 equal protection claim,

because they prevailed on their ERISA claim. It is appar-

ent that § 1988 was not intended to provide for attorneys’

fees in all federal question litigation, and Plaintiffs have

articulated no more limited theory supporting their

46a

motion. Accordingly, Plaintiffs have not demonstrated

entitlement to attorneys’ fees.

F. Conclusion

Therefore, for the foregoing reasons, Plaintiffs,

motion for summary judgment is DENIED in its entirety.

However, since the Court finds that the challenged statu-

tory scheme is not preempted by ERISA, Defendants’

motion for summary judgment is hereby GRANTED.

IT IS SO ORDERED.

Dated: Aug. 11, 1994

/s/ Claudia Wilken

CLAUDIA WILKEN

UNITED STATES

DISTRICT JUDGE

Copies mailed to counsel

as noted on the following page

ee ee

su Net tt

47a

APPENDIX D

TITLE 29. LABOR

CHAPTER 18. EMPLOYEE RETIREMENT INCOME

SECURITY PROGRAM

PROTECTION OF EMPLOYEE BENEFIT RIGHTS

REGULATORY PROVISIONS

Administration and Enforcement

29 USCS § 1144 (1996)

§ 1144. Other laws

(a) Supersedure; effective date. Except as provided

in subsection (b) of this section, the provisions of this title

and title IV shall supersede any and all State laws insofar

as they may now or hereafter relate to any employee

benefit plan described in section 4(a) [29 USCS § 1003(a)]

and not exempt under section 4(b) [29 USCS § 1003(b)].

This section shall take effect on January 1, 1975.

(1) The term “State law” includes all laws, deci-

sions, rules, regulations, or other State action having the

effect of law, of any State. A law of the United States

applicable only to the District of Columbia shall be

treated as a State law rather than a law of the United

States.

(2) The term “State” includes a State, any political

subdivisions thereof, or any agency or instrumentality of

either, which purports to regulate, directly or indirectly,

the terms and conditions of employee benefit plans cov-

ered by this title.

(d) Alteration, amendment, modification, invalida-

tion, impairment, or supersedure of any law of the United

48a

States prohibited. Nothing in this title shall be construed

to alter, amend, modify, invalidate, impair, or supersede

any law of the United States (except as provided in

sections 111 and 507(b) [29 USCS §§ 1031, 1137(b)]}) or any

rule or regulation issued under any such law.

LABOR CODE

DIVISION 2. Employment Regulation and Supervision

PART 7. PUBLIC WORKS AND PUBLIC AGENCIES

CHAPTER 1. Public Works

ARTICLE 2. Wages

California Labor Code § 1771 (1996)

§ 1771. Requirement of prevailing local rate for work

under contract

Except for public works projects of one thousand

dollars ($ 1,000) or less, not less than the general prevail-

ing rate of per diem wages for work of a similar character

in the locality in which the public work is performed, and

not less than the general prevailing rate of per diem

wages for holiday and overtime work fixed as provided

in this chapter, shall be paid to all workers employed on

public works.

This section is applicable only to work performed

under contract, and is not applicable to work carried out

by a public agency with its own forces. This section is

applicable to contracts let for maintenance work.

49a

California Labor Code § 1773 (1996)

§ 1773. Ascertainment of prevailing rate; Data consid-

ered

The body awarding any contract for public work, or

otherwise undertaking any public work, shall obtain the

general prevailing rate of per diem wages and the general

prevailing rate for holiday and overtime work in the

locality in which the public work is to be performed for

each craft, classification or type of workman needed to

execute the contract from the Director of the Department

of Industrial Relations. The holidays upon which such

rates shall be paid need not be specified by the awarding

body, but shall be all holidays recognized in the collective

bargaining agreement applicable to the particular craft,

classification or type of workman employed on the pro-

ject.

In determining such rates, the Director of the Depart-

ment of Industrial Relations shall ascertain and consider

the applicable wage rates established by collective bar-

gaining agreements and such rates as may have been

predetermined for federal public works, within the

locality and in the nearest labor market area. Where such

rates do not constitute the rates actually prevailing in the

locality, the director shall obtain and consider further

data from the labor organizations and employers or

employer associations concerned, including the recog-

nized collective bargaining representatives for the partic-

ular craft, classification or type of work involved. The

rate fixed for each craft, classification or type of work

shall be not less than the prevailing rate paid in such

craft, classification or type of work.

50a

If the director determines that the rate of prevailing

wage for any craft, classification or type of workman is

the rate established by a collective bargaining agreement,

the director may adopt such rate by reference as provided

for in such agreement and such determination shall be

effective for the life of such agreement or until the direc-

tor determines that another rate should be adopted.

California Labor Code § 1773.1 (1996)

§ 1773.1. Payments included in “per diem wages”;

Requirement that copies of collective bargaining agree-

ments be filed

Per diem wages shall be deemed to include employer

payments fer health and welfare, pension, vacation,

travel time, and subsistence pay as provided in Section

1773.8, apprenticeship or other training programs autho-

rized by Section 3093, and similar purposes, when the

term “per diem wages” is used in this chapter or in any

other statute applicable to public works.

For the purpose of determining such per diem wages

for contracts entered into with the state, the representa-

tive of any craft, classification or type of workman

needed to execute the contracts entered into with the

state shall file with the Department of Industrial Rela-

tions fully executed copies of the collective bargaining

agreements for the particular craft, classification or type

of work involved. Such agreements shall be filed within

10 days after their execution and thereafter may be taken

into consideration pursuant to Section 1773 whenever

filed 30 days prior to the call for bids.

5la

California Labor Code § 1775 (1996)

§ 1775. Forfeiture for paying less than prevailing rate;

Rights of workers; Stipulation in contract; Action for

recovery by Division of Labor Standards Enforcement

The contractor shall, as a penalty to the state or

political subdivision on whose behalf the contract is

made or awarded, forfeit not more than fifty dollars

($ 50) for each calendar day, or portion thereof, for each

worker paid less than the prevailing rates as determined

by the director for the work or craft in which the worker

is employed for any public work done under the contract

by him or her or by any subcontractor under him or her.

The amount of this penalty shall be determined by the

Labor Commissioner and shall be based on consideration

of the contractor’s mistake, inadvertence, or neglect in

failing to pay the correct rate of prevailing wages, or the

previous record of the contractor in meeting his or her

prevailing wage obligations, or a contractor’s willful fail-

ure to pay the correct rates of prevailing wages. A mis-

take, inadvertence, or neglect in failing to pay the correct

rate of prevailing wages is not excusable if the contractor

had knowledge of his or her obligations under this part.

The difference between the prevailing wage rates and the

amount paid to each worker for each calendar day or

portion thereof for which each worker was paid less than

the prevailing wage rate shall be paid to each worker by

the contractor, and the body awarding the contract shall

cause to be inserted in the contract a stipulation that this

section will be complied with.

To the extent that there is insufficient money due a

contractor to cover all penalties and amounts due in

52a

accordance with this section, or in accordance with Sec-

tion 1813, and in all cases where the contract does not

provide for a money payment by the awarding body to

the contractor, the awarding body shall notify the Divi-

sion of Labor Standards Enforcement of the violation and

the Division of Labor Standards Enforcement, if neces-

sary with the assistance of the awarding body, may main-

tain an action in any court of competent jurisdiction to

recover the penalties and the amounts due provided in

this section. This action shall be commenced not later

than 90 days after the filing of a valid notice of comple-

tion in the office of the county recorder in each county in

which the public work or some part thereof was per-

formed, or not later than 90 days after acceptance of the

public work, whichever last occurs. No issue other than

that of the liability of the contractor for the penalties

allegedly forfeited and amounts due shall be determined

in the action, and the burden shall be upon the contractor

to establish that the penalties and amounts demanded in

the action are not due. Out of any money withheld,

recovered, or both, there shall first be paid the amount

due each worker, and if insufficient funds are withheld,

recovered, or both, to pay each worker in full, the money

shall be prorated among all workers.

California Labor Code § 1777.1 (1996)

§ 1777.1. Penalties for willful violations of chapter;

Notice; Hearing

(a) Whenever any contractor or subcontractor per-

forming a public works project pursuant to this chapter is

53a

found by the Labor Commissioner to be in violation of

this chapter with intent to defraud, except Section 1777.5,

the contractor or subcontractor or any firm, corporation,

partnership, or association in which the contractor or

subcontractor has a substantial interest shall be ineligible

to bid on or to receive any public works contract for a

period of not less thar. one year or more than three years.

The period of debarment shall run from the date the

determination of the violation is made by the Labor Com-

missioner.

(b) Whenever any contractor or subcontractor per-

forming a public works project pursuant to this chapter is

found by the Labor Commissioner to be in willful viola-

tion of this chapter, except Section 1777.5, the contractor

or subcontractor or any firm, corporation, partnership, or

association in which the contractor or subcontractor has a

substantial interest shall be ineligible to bid on or to

receive any public works contract for a period up to three

years for each second and subsequent violation occurring

within three years of a separate and previous willful

violation of this chapter. These periods of debarment

shall run from the date the determination of the violation

is made by the Labor Commissioner.

shall be made after a full investigation by the Labor

Commissioner and a fair and impartial hearing and rea-

sonable notice.

(d) A willful violation occurs when the contractor

or subcontractor knew or reasonably should have known

of his or her obligations under the public works law and

deliberately fails or refuses to comply with its provisions.

54a

(e) The Labor Commissioner shall promulgate rules

and regulations for the administration and enforcement

of this section, the definition of terms, and appropriate

penalties.

California Labor Code § 1777.5 (1996)

§ 1777.5. Employment of apprentices on public works

Nothing in this chapter shall prevent the employ-

ment of properly registered apprentices upon public

works.

Every such apprentice shall be paid the standard

wage paid to apprentices under the regulations of the

craft or trade at which he or she is employed, and shall be

employed oniy at the work of the craft or trade to which

he or she is registered.

Only apprentices, as defined in Section 3077, who are

in training under apprenticeship standards and written

apprentice agreements under Chapter 4 (commencing

with Section 3070) of Division 3, are eligible to be

employed on public works. The employment and training

of each apprentice shall be in accordance with the

apprenticeship standards and apprentice agreements

under which he or she is training.

When the contractor to whom the contract is

awarded by the state or any political subdivision, or any

subcontractor under him or her, in performing any of the

work under the contract or subcontract, employs workers

in any apprenticeable craft or trade, the contractor and

55a

subcontractor shall apply to the joint apprenticeship com-

mittee administering the apprenticeship standards of the

craft or trade in the area of the site of the public work for

a certificate approving the contractor or subcontractor

under the apprenticeship standards for the employment

and training of apprentices in the area or industry

affected. However, approval as established by the joint

apprenticeship committee or committees shall be subject

to the approval of the Administrator of Apprenticeship.

The joint apprenticeship committee or committees, subse-

quent to approving the subject contractor or subcontrac-

tor, shall arrange for the dispatch of apprentices to the

contractor or subcontractor in order to comply with this

section. Every contractor and subcontractor shall submit

contract award information to the applicable joint

apprenticeship committee which shall include an estimate

of journeyman hours to be performed under the contract,

the number of apprentices to be employed, and the

approximate dates the apprentices will be employed.

There shall be an affirmative duty upon the joint appren-

ticeship committee or committees administering the

apprenticeship standards of the craft or trade in the area

of the site of the public work to ensure equal employment

and affirmative action in apprenticeship for women and

minorities. Contractors or subcontractors shall not be

required to submit individual applications for approval

to local joint apprenticeship committees provided they

are already covered by the local apprenticeship stan-

dards. The ratio of work performed by apprentices to

journeymen who shall be employed in the craft or trade

on the public work may be the ratio stipulated in the

56a

apprenticeship standards under which the joint appren-

ticeship committee operates, but, except as otherwise pro-

vided in this section, in no case shall the ratio be less than

one hour of apprentices work for every five hours of

labor performed by a journeyman. However, the mini-

mum ratio for the land surveyor classification shall not be

less than one apprentice for each five journeymen.

Any ratio shall apply during any day or portion of a

day when any journeyman, or the higher standard stipu-

lated by the joint apprenticeship committee, is employed

at the job site and shall be computed on the basis of the

hours worked during the day by journeymen so

employed, except for the land surveyor classification. The

contractor shall employ apprentices for the number of

hours computed as above before the end of the contract.

However, the contractor shall endeavor, to the greatest

extent possible, to employ apprentices during the same

time period that the journeymen in the same craft or

trade are employed at the job site. Where an hourly

apprenticeship ratio is not feasible for a particular craft or

trade, the Division of Apprenticeship Standards, upon

application of a joint apprenticeship committee, may

order a minimum ratio of not less than one apprentice for

each five journeymen in a craft or trade classification.

The contractor or subcontractor, if he or she is cov-

ered by this section, upon the issuance of the approval

certificate, or if he or she has been previously approved

in the craft or trade, shall employ the number of appren-

tices or the ratio of apprentices to journeymen stipulated

in the apprenticeship standards. Upon proper showing by

the contractor that he or she employs apprentices in the

craft or trade in the state on all of his or her contracts on

57a

an annual average of not less than one hour of apprentice

work for every five hours of labor performed by a jour-

neyman, or in the land surveyor classification, one

apprentice for each five journeymen, the Division of

Apprenticeship Standards may grant a certificate exempt-

ing the contractor from the 1-to-5 hourly ratio as set forth

in this section. This section shall not apply to contracts of

general contractors or to contracts of specialty contractors

not bidding for work through a general or prime contrac-

tor, when the contracts of general contractors or those

specialty contractors involve less than thirty thousand

dollars ($ 30,000) or 20 working days. Any work per-

formed by a journeyman in excess of eight hours per day

or 40 hours per week, shall not be used to calculate the

hourly ratio required by this section.

“Apprenticeable craft or trade,” as used in this sec-

tion, means a craft or trade determined as an apprentice-

able occupation in accordance with rules and regulations

prescribed by the Apprenticeship Council. The joint

apprenticeship committee shall have the discretion to

grant a certificate, which shall be subject to the approval

of the Administrator of Apprenticeship, exempting a con-

tractor from the 1-to-5 ratio set forth in this section when

it finds that any one of the following conditions is met:

(a) Unemployment for the previous three-month

period in the area exceeds an average of 15 percent.

(b) The number of apprentices in training in such

area exceeds a ratio of 1 to 5.

58a

or trade is replacing at least one-thirtieth of its journey-

men annually through apprenticeship training, either on

a statewide basis, or on a local basis.

(d) Assignment of an apprentice to any work per-

formed under a public works contract would create a

condition which would jeopardize his or her life or the

life, safety, or property of fellow employees or the public

at large or if the specific task to which the apprentice is to

be assigned is of such a natuye that training cannot be

provided by a journeyman.

When exemptions are granted to an organization

which represents contractors in a specific trade from the

1-to-5 ratio on a local or statewide basis the member

contractors will not be required to submit individual

applications for approval to local joint apprenticeship

committees, if they are already covered by the local

apprenticeship standards.

A contractor to whom the contract is awarded, or any

subcontractor under him or her, who, in performing any

of the work under the contract, employs journeymen or

apprentices in any apprenticeable craft or trade and who

is not contributing to a fund or funds to administer and

conduct the apprenticeship program in any craft or trade

in the area of the site of the public work, to which fund or

funds other contractors in the area of the site of the

public work are contributing, shall contribute to the fund

or funds in each craft or trade in which he or she employs

journeymen or apprentices on the public work in the

same amount or upon the same basis and in the same

manner as the other contractors do, but where the trust

59a

fund administrators are unable to accept the funds, con-

tractors not signatory to the trust agreement shall pay a

like amount to the California Apprenticeship Council.

The contractor or subcontractor may add the amount of

the contributions in computing his or her bid for the

contract. The Division of Labor Standards Enforcement is

authorized to enforce the payment of the contributions to

the fund or funds as set forth in Section 227.

The body awarding the contract shall cause to be

inserted in the contract stipulations to effectuate this

section. The stipulations shall fix the responsibility of

compliance with this section for all apprenticeable occu-

pations with the prime contractor.

All decisions of the joint apprenticeship committee

under this section are subject to Section 3081.

TITLE 8. INDUSTRIAL RELATIONS

DIVISION 1. DEPARTMENT OF INDUSTRIAL

RELATIONS

CHAPTER 2. CALIFORNIA APPRENTICESHIP

COUNCIL

SUBCHAPTER 1. APPRENTICESHIP

ARTICLE 10. REQUIRED APPRENTICES ON PUBLIC

WORKS CONTRACTS

8 California Code of Regulations § 230.1 (1996)

§ 230.1. Employment of Apprentices on Public Works

(a) Contractors shall employ registered appren-

tice(s), as defined by Labor Code Section 3077, during the

performance of a public work project in accordance with

60a

the required 1:5 ratio of apprentice to journeymen hours,

unless covered by one of the exemptions enumerated in

Labor Code Section 1777.5. Registered apprentices can

only be obtained from the Apprenticeship Committee of

the craft or trade in the area of the site of the public work.

A contractor must request the dispatch of required

apprentices frem one of the applicable Apprenticeship

Committees by giving the committee actual notice of at

least 48 hours (excluding Saturdays, Sundays and holi-

days) before the date on which one or more apprentices

are required. However, if a non-signatory contractor

declines to abide by and comply with the terms of a local

committee’s standards, the Apprenticeship Committee

shall not be required to dispatch apprentices to such

contractor. Conversely, if an Apprenticeship Committee

does not dispatch an apprentice to a contractor who has

agreed to employ and train apprentices in accordance

with either the Apprenticeship Committee’s Standards or

these regulations within 48 hours of such notice (exclud-

ing Saturdays, Sundays and holidays) the contractor shall

be excused from the obligation to employ apprentices for

the remainder of the project.

(b) Apprentices employed on public works shall be

paid the applicable apprentice prevailing per diem wage

rate, available from DAS, and derived from the Director’s

survey of wages paid on public works in the geographic

area of the craft or trade. DAS shall refer all complaints

alleging a contractor’s failure to pay proper apprentice

wages to the Division of Labor Standards Enforcement

for investigation and appropriate action.

be assigned to perform work of the craft or trade to

6la

which the apprentice is registered. Work of the craft or

trade consists of job duties normally assigned to journey-

men in the apprenticeable occupation.

(d) Contractors who have bid or have been awarded

public works projects prior to December 31, 1989 and

contractors who have bid prior to December 31, 1989 and

have been awarded public works projects after January 1,

1990 shall comply with the provisions of Labor Code

Section 1777.5 in effect prior to January 1, 1990.

8 California Code of Regulations § 230.2 (1996)

§ 230.2. Payment of Apprenticeship Training Contribu-

tions to the Council

(a) Contractors who are neither required nor wish

to make apprenticeship training contributions to the

applicable local training trust fund shall make their train-

ing contributions to the Council. Contractors may refer to

the Director of the Department of Industrial Relations

applicable prevailing wage determination for the amount

owed for each hour of work performed by journeymen

and apprentices in each apprenticeable occupation.

(b) Training contributions to the Council are due

and payable on the 15th day of each month for work

performed during the preceding month.

paid by check and shall be accompanied by a completed

CAC-2 Form, Training Fund Contributions, (Rev. 10/91),

or the following information:

62a

(1) The name, address, and telephone number of the

contractor making the contribution.

(2) The contractor’s license number.

(3) The name and address of the public agency that

awarded the contract.

(4) The jobsite location, including the county where

the work was performed.

(5) The contract or project number.

(6) The time period covered by the enclosed contri-

butions.

(7) The contribution rate and total hours worked by

apprenticeable occupation.

TITLE 8. INDUSTRIAL RELATIONS

DIVISION 1. DEPARTMENT OF INDUSTRIAL

RELATIONS

CHAPTER 8. OFFICE OF THE DIRECTOR

SUBCHAPTER 3. PAYMENT OF PREVAILING WAGES

UPON PUBLIC WORKS

ARTICLE 1. DEFINITIONS

8 California Code of Regulations § 16000 (1996)

§ 16000. Definitions

The following terms are defined for general use in

these regulations within Group 3, Payment of Prevailing

Wages Upon Public Works and Group 4, Awarding Body

Labor Compliance Programs:

63a

Area of Determination. The area of determining the

prevailing wage is the “locality” and/or the “nearest

labor market area” as determined by the Director. In

determining the area, the mobility of each craft, classifica-

tion and type of work will be considered.

Awarding body. Any state or local government

agency, department, board, commission, bureau, district,

office, authority, political subdivision, regional district

officer, employee, or agent awarding/letting a contract/

purchase order for public works.

Bid. Any proposal submitted to an awarding body in

competitive bidding for the construction, alteration,

demolition, repair, maintenance, or improvement of any

structure, building, road, property, or other improvement

of any kind.

Certified. The affirmation of a person with the

authority to so affirm, under the penalty of perjury that

the records are originals or are full, true and correct

copies of the original and depict truly, fully and correctly

the craft or type of work performed, hours and days

worked, and the amounts by category listed, disbursed

by way of cash, check, or in whatever form or manner to

each person by job classification and/or skill pursuant to

a public works contract.

Chief of DAS. Chief of Division of Apprenticeship

Standards or a duly authorized representative.

Chief of DLSE/Labor Commissioner. Chief of the

Division of Labor Standards Enforcement or a duly

authorized representative.

64a

Chief of DLSR. Chief of the Division of Labor Statis-

tics and Research or a duly authorized representative.

Coverage. This means being subject to the require-

ments of Part 7, Chapter 1 of the Labor Code as a “public

work.” This includes all formal coverage determinations

issued by the Director of Industrial Relations.

DAS. Division of Apprenticeship Standards.

Date of Notice or Call for Bids. The date the first

notice inviting bids was published in a newspaper of

genera: circulation or promulgated in a legally sufficient

manner which results in a contract being awarded with or

without competitive bidding. This may also be referred to

as the Bid Advertisement Date.

Days. Unless otherwise specified means calendar

days.

DLSE. The Division of Labor Standards Enforcement.

DLSR. The Division of Labor Statistics and Research.

Director. The Director of the Department of Indus-

trial Relations or his/her duly authorized representative.

Duly Authorized Representative. An employee of the

Department of Industrial Relations.

Effective Date. The date upon which the determina-

tions of the Director go into effect. This date is ten days

after the issue date of the determination.

Employer Payments. Includes:

(1) The rate of contribution irrevocably made by a

contractor or subcontractor to a trustee or to a third

65a

person pursuant to a fund, plan, or program for the

benefit of employees, their families and dependents, or

retirees;

(2) The rate of costs to the contractor or subcontrac-

tor which may be reasonably anticipated in providing

benefits to employees, their families and dependents or to

retirees pursuant to an enforceable commitment or agree-

ment to carry out a financially responsible plan or pro-

gram which was communicated in writing to the workers

affected; and

(3) The rate of contribution irrevocably made by the

contractor or subcontractor for apprenticeship or other

training programs authorized by Section 3071 and/or

3093 of the Labor Code.

Expiration Date. The date upon which the determina-

tions of the Director are subject to change.

General Prevailing Rate of Per Diem Wages. Includes:

(1) The prevailing basic straight-time hourly rate of

pay; and

(2) The prevailing rate for holiday and overtime

work; and

(3) The prevailing rate of employer payments for

any or all programs or benefits for employees, their fami-

lies and dependents, and retirees which are of the types

enumerated below:

(A) medical and hospital care, prescription drugs,

dental care, vision care, diagnostic services, and other

health and welfare benefits;

66a

(B) retirement plan benefits;

ments in lieu thereof;

(D) compensation for injuries or illnesses resulting

from occupational activity;

(E) life, accidental death and dismemberment, and

disability or sickness and accident insurance;

(F) supplemental unemployment benefits;

(G) thrift, security savings, supplemental trust, and

beneficial trust funds otherwise designated, provided all

of the money except that used for reasonable administra-

tive expenses is returned to the employees;

(H) occupational health and safety research, safety

training, monitoring job hazards, and the like, as speci-

fied in the applicable collective bargaining agreement;

(I) See definition of “Employer Payments,” (3).

(J) other bonafide benefits for employees, their fam-

ilies and dependents, or retirees as the Director may

determine; and

(4) travel time and subsistence pay as provided for

in Labor Code Section 1773.8.

(b) The term “general prevailing rate of per diem

wages” does not include any employer payments for:

(1) Job related expenses other than travel time and

subsistence pay;

(2) Contract administration, operation of hiring

halls, grievance processing, or similar purposes except

67a

for those amounts specifically earmarked and actually

used for administration of those types of employee or

retiree benefit plans enumerated above;

(3) Union, organizational, professional or other

dues except as they may be included in and withheld

from the basic taxable hourly wage rate;

(4) Industry or trade promotion;

(5) Political contributions or activities;

(6) Any benefit for employees, their families and

dependents, or retirees including any benefit enumerated

above where the contractor or subcontractor is required

by Federal, State, or local law to provide such benefit; or

(7) Such other payments as the Director may deter-

mine to exclude. Interested Party. When used with refer-

ence to a particular prevailing wage determination made

by the Director, includes:

(1) Any contractor or subcontractor, or any organi-

zation, association, or other representative of any contrac-

tor or subcontractor likely to bid on or to perform a

contract for public work which is subject to the particular

prevailing wage determinations, and/or

(2) Any worker in the particular craft, classification,

or type of work, who may be employed on a public work

project subject to the particular prevailing wage deter-

mination, or any labor organization or other representa-

tive of such a person, including the recognized collective

bargaining representative for the particular craft, classi-

fication, or type of work; and/or

68a

(3) Any awarding body or association or other rep-

resentative of awarding bodies concerned with the

administration of a pubic works contract or proposed

contract, which is subject to the particular prevailing

wage determination.

Helper. Any subjourneyman classification tradi-

tionally used to assist a journeyman. Under no circum-

stance may the Helper classification be used to replace

statutorily required Apprentices.

Identify or Give Notice of Identity. This means to

state the name, job title, address and current telephone

number of a person or entity.

Interim Determination. Those determinations of the

Director issued between the quarterly updates.

Issue Date-Issuance. The date upon which copies of

the determination of the Director are deposited in the

mail.

LCP. A labor compliance program initiated and

enforced by an awarding body in accordance with these

regulations.

Locality. See Labor Code Section 1724.

Maintenance. Includes:

(1) Routine, recurring and usual work for the pre-

servation, protection and keeping of any publicly owned

or publicly operated facility (plant, building, structure,

ground facility, utility system or any real property) for its

intended purposes in a safe and continually usable condi-

tion for which it has been designed, improved, con-

structed, altered or repaired.

69a

(2) Carpentry, electrical, plumbing, glazing, [touch-

up painting,] and other craft work designed to preserve

the publicly owned or publicly operated facility in a safe,

efficient and continuously usable condition for which it

was intended, including repairs, cleaning and other oper-

ations on machinery and other equipment permanently

attached to the building or realty as fixtures.

EXCEPTION: 1: Janitorial or custodial services of a

routine, recurring or usual nature is excluded.

EXCEPTION: 2: Protection of the sort provided by

guards, watchmen, or other security forces is excluded.

(3) Landscape maintenance. See Public Contract

Code Section 21002.

EXCEPTION: Landscape maintenance work by “shel-

tered workshops” is excluded.

Mistake, Inadvertence, or Neglect. Mistake, inadver-

tence, or neglect in failing to pay the correct general rate

of per diem wages means the lack of knowledge that any

reasonable person would also be expected to have under

the same or similar circumstances.

Nearest labor market Area. The nearest geographical

area from which workers of the crafts, classifications, and

types to be used in the performance and execution of the

public work can be drawn for employment upon such

public work.

Payroll Records. All time cards, cancelled checks,

cash receipts, trust fund forms, books, documents, sched-

ules, forms, reports, receipts or other evidences which

reflect job assignments, work schedules by days and

hours, and the disbursement by way of cash, check, or in

70a

whatever form or manner, of funds to a person(s) by job

classification and/or skill pursuant to a public works

project.

Person. Any individual [or legal entity, including a]

partnership, corporation, association, or any local, state,

regional, national or international organization, public or

private, or any awarding body, or any agent or officer

thereof, authorized to act for or on behalf of any of the

foregoing.

Political Subdivision. See Labor Code Section 1721.

Predetermined Changes. Definite changes to the

basic hourly wage rate, overtime, holiday pay rates, and

employer payments which are known and enumerated in

the applicable collective bargaining agreement at the time

of the bid advertisement date and which are referenced in

the general prevailing rate of per diem wages as defined

in Section 16000 of these regulations. Contractors are

obligated to pay up to the amount that was predeter-

mined if these changes are modified prior to their effec-

tive date. Predetermined changes which are rescinded

prior to their effective date shall not be enforced.

Prevailing Rate. Includes:

(1) The basic hourly rate being paid to a majority of

workers engaged in the particular craft, classification or

type of work within the locality and in the nearest labor

market area, if a majority of such workers is paid at a

single rate; if there is no single rate being paid to a

majority, then the single rate (modal rate) being paid to

the greater number of workers is prevailing. If there is no

modal rate, then an alternate rate will be established by

7la

considering the appropriate collective bargaining agree-

ments, Federal rates, or other data such as wage survey

data, including the nearest labor market area or expanded

survey as provided in Article 4 of these regulations.

(2) Other employer payments as defined in Section

16000 of these regulations and as included as part of the

total hourly wage rate from which the prevailing basic

hourly wage rate was derived. In the event the total

hourly wage rate does not include any employer pay-

ments, then the Director may establish a prevailing

employer payment rate by the same procedure outlined

in subsection (1) above.

(3) The rate for holiday or overtime work shall be

those rates specified in the collective bargaining agree-

ment when the basic hourly rate is based on a collective

bargaining agreement rate. In the event the basic hourly

rate is not based on a collective bargaining agreement,

holidays and overtime (if any) included with the prevail-

ing basic hourly rate of pay shall be prevailing.

Public Entity. For the purpose of processing requests

for inspection of payroll records or furnishing certified

copies thereof, “public entity” includes: the body award-

ing the contracts; the Division of Apprenticeship Stan-

dards (DAS), or the Division of Labor Standards

Enforcement (DLSE).

Public Funds. Includes state, local and/or federal

monies. Note: Public funds do not include money loaned

to a private entity where work is to be performed under

private contract, and where no portion of the work is

supervised, owned, utilized, or managed by an awarding

body.

72a

Public Works. See Sections 1720, 1720.2, 1720.3, and

1771 of the Labor Code.

Service upon a Contractor or Subcontractor. This is

the process defined in Title 8, California Code of Regula-

tions, (CCR) Section 16801(a)(2)(A).

Serve upon the Labor Commissioner. Delivery of all

documents including legal process to the Headquarters of

the Labor Commissioner.

Sheltered workshop. A nonprofit organization

licensed by the Chief of DLSE employing mentally and/

or physically handicapped workers.

Wage Survey. An investigation conducted pursuant

to Labor Code Sections 1773 and/or 1773.4 to determine

the general prevailing rate of per diem wages for the

crafts/classifications in the county(ies) for which the sur-

vey questionnaire was designed.

Willful. See Labor Code Section 1777.1(d).

Worker. See Labor Code Sections 1723 and 1772.

73a

TITLE 8. INDUSTRIAL RELATIONS

DIVISION 1. DEPARTMENT OF INDUSTRIAL

RELATIONS

CHAPTER 8. OFFICE OF THE DIRECTOR

SUBCHAPTER 3. PAYMENT OF PREVAILING WAGES

UPON PUBLIC WORKS

ARTICLE 4. WAGE DETERMINATIONS

8 California Code of Regulations § 16200 (1996)

§ 16200. General; Basis for Determining Prevailing Wage

Rate

The Director shall follow those procedures specified

in Sections 1773 and 1777.5 of the Labor Code and in

these regulations when making a prevailing wage deter-

mination. :

(a) Collective Bargaining Agreements or Wage Sur-

veys.

(1) Filing of collective bargaining agreements.

(A) To enable the Director to ascertain and consider

the applicable wage rates established by collective bar-

gaining agreements when making prevailing wage deter-

minations, the representatives of any crafts,

classifications, or types of workers needed to execute any

public works contracts shall file with the Department of

Industrial Relations fully executed copies of all their col-

lective bargaining agreements, including any and all

addenda which modify the agreements, within 10 days of

their execution and shall be considered as the basis for a

prevailing wage determination whenever on file 30 days

before the call for bids on a project. :

(B) Copies of collective bargaining agreements filed

with the Department of Industrial Relations pursuant to

74a

Sections 1773.1 and 1773 8 of the Labor Code, and Section

16200(a)(1)(A) of these regulations shall be addressed to:

Chief, Division of Labor Statistics and Research, P.O. Box

420603, San Francisco, CA 94142.

Division of Labor Statistics and Research must be accom-

panied by a signed statement which is certified as true

and correct to the best of the knowledge and belief of the

per

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