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N.Y.'s Prevailing Wage Law Amended to Expand Its Scope and the Obligations It Imposes
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November 5, 2007
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By Charles Fastenberg
Thelen Reid Brown Raysman & Steiner LLP
New York's prevailing wage law, Labor Law §220, was amended recently to significantly expand the scope of the law and the obligations it imposes. One amendment requires contractors and subcontractors to notify workers of their rights under the prevailing wage law, and the other expands the category of contracts subject to the prevailing wage law.
Overview of §220
Under New York Labor Law §220, laborers and workers on public projects must be paid "prevailing wages" - i.e., wages and benefits equivalent to those paid to laborers and workmen performing the same types of work on private projects. Labor Law §§(3), (5) (a). The prevailing wage for a job classification at a particular time is determined by the designated financial officer for the relevant municipal entity (e.g., the Comptroller of the City of New York) and is required to be made a part of public contracts let by that municipal entity. Labor Law §220 (3-a). Determination of the prevailing wage typically is based on labor union rates for comparable job classifications and frequently is adjusted as the union rates change. Labor Law §220 (5) (a).
The consequences of a contractor's (or subcontractor's) failure to pay prevailing wages can be severe - in addition to making up the underlying underpayment itself, the statute authorizes assessment of a civil penalty of up to 25 percent together with interest at the current rate against the contractor. The interest rate assessed by the Comptroller of the City of New York has been as high as 16 percent. Labor Law §220 (8). In addition, the statute provides that if a violation is a second willful violation or if the violation involves falsification of records, the contractor must be debarred from bidding for public work in New York for five years. Labor Law §220-b (3) (b).
New Notification Requirements
Effective February 24, 2008, §220 (3-a) expands employers' obligation to notify workers that public projects are covered under the prevailing wage laws and of workers' rights under those laws. Before the amendment, a contractor's §220 notification obligation consisted chiefly of incorporating prevailing wage schedules and requirements into contracts into which it entered, of posting conspicuous notices at the jobsite that the project was a "prevailing wage" project and of conspicuously posting the applicable prevailing wage schedule.
Now, contractors and subcontractors must individually notify each worker of the particular prevailing wage for his or her job classification. In fact, such notification must appear "on" each pay stub. In addition, the first paycheck given to workers at a project and, thereafter, the first paycheck given to workers at the project after each successive July 1 must be accompanied by a notice identifying the public body that has jurisdiction over the project for prevailing wage purposes and the contact information for that public body. Such notice also must inform workers of their right to contact the designated public body if prevailing wages are not paid.
Under the amended Subsection 3-a, failure to comply with the statutory notification requirements may result in a civil penalty ranging from $50 to $500, depending on a number of factors, including whether the non-compliance was a good faith oversight and whether there has been a history of such non-compliance. However, it is unclear whether a simultaneous failure to notify multiple employees of the required information will be considered a single non-compliance or multiple non-compliances for each employee involved.
The new notification requirements should be taken seriously and steps taken to assure compliance, even if the financial penalties for non-compliance are not considered to be substantial. A contractor that fails to provide the required notifications to employees may be inviting scrutiny of its payroll practices in general and, moreover, may be creating evidence of non-compliance, or even willful non-compliance, with far more serious ramifications later on if a question of underpayments is raised.
Expanded Scope of Covered Contracts
Another amendment, effective for five years starting on October 27, 2007, expands the category of "contracts" that are covered by the statute. The statutory definition of covered contract now is expanded to include "any contract for public work entered into by a third party acting in place of, on behalf of and for the benefit of such public entity pursuant to any lease, permit or other agreement between such third party and the public entity.." Labor Law §220 (2) [emphasis added]. 1/
The amendment closes a loophole occurring when public entities do not enter into public works contracts directly with contractors but request private intermediaries to do so on their behalf - for example, a construction manager acting on behalf of a municipal entity. In such cases, coverage of the construction work under Labor Law §220 has been drawn into question, if not precluded altogether, by the absence of a direct contractual relationship between the public entity and the contractor actually performing the work. Thus, before the amendment, the class of contracts covered by the statute was limited to contracts involving the employment of workers to which the municipal entity "is a party." Consequently, a contract for public works, if such contract was entered into by a person other than the municipality itself, arguably was not subject to the prevailing wage law. Labor Law §220(2).
The loophole that the new and expanded definition of "contracts" seeks to overcome is illustrated by the Third Department's holding in Matter of Pyramid Co. v. New York State Department of Labor, 223 A.D.2d 285, 645 N.Y.S.2d 633 (3d Dept.1996). There, the New York State Department of Transportation issued two highway work permits to the private owner of a shopping mall authorizing the construction of access routes from the shopping mall to a public highway. The work largely was constructed on land owned by the state and was performed by a contractor that entered into a contract with the mall owner rather than with the state. Although the project in Pyramid was held to be a "public work," the Third Department found that the project was not subject to Labor Law §220 because the state itself "was not a party to any contract involving the construction of the project .." As the Third Department wrote:
It is well settled that two conditions must be met before the prevailing wage provisions of Labor Law 220 will be applied to a particular project: "(1) the public entity agency must. be a party to a contract involving the employment of laborers, workmen, or mechanics, and (2) the contract must concern a public works project.." Here, it is undisputed that DOT was not a party to any contract involving the construction of the project.." 2/
The expanded definition of "contracts" is significant in view of the current practice by some public entities of engaging construction managers or other private entities to enter into contracts with contractors on their behalf. Compare, 24 CFR 5.108 (b) and (c) [construction manager may award a construction contract to a government contractor on behalf of a grantee of the U.S. Department of Housing and Urban Development].
Conclusion
The amendments to Labor Law §220 should be understood not only as calling for corresponding changes in the employment and payroll practices that are used on New York public works but also as possible indicators of an even stricter enforcement of the prevailing wage laws in the near future. It is advisable for contractors, subcontractors and all others who may be subject to §220 to carefully review the amendments, to modify their payroll and related practices as may be needed, and generally to take all necessary steps to pay prevailing wages.
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For more information about the issues covered in this report, please contact Charles Fastenberg in our New York office at 212-895-2870 or at cfastenberg@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
ENDNOTES
| 1/ | Although on its face Subparagraph (2) of §220 pertains to the number of hours permitted in a workday, the definitions under it generally are referred to in the subparagraphs that pertain to wages paid. In any event, Subparagraph (3) of §220, which pertains to wages and supplements to be paid to workers, was similarly amended to expand the class of covered "contracts" to include "any public work performed under a lease, permit or other agreement pursuant to which the department of jurisdiction grants the responsibility of contracting for such public work to any third party.."
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| 2/ | But see Bridgestone/Firestone, Inc. v. Hartnett, 175 A.D.2d 495, 497, 572 N.Y.S.2d 770, 770 (3d Dept. 1991) ["we reject petitioners' contention that because the State was not a named party to the sales contract.respondent is precluded from applying Labor Law §220.."]; 60 Market Street Associates v. Hartnett, 153 A.D.2d 205, 207, 551 N.Y.S.2d 346 (3d Dept.), aff'd 76 N.Y.2d 993, 564 N.Y.S.2d 713 (1990) [although a lease agreement between the municipality and a private entity was not itself the construction contract, the lease agreement met the "contract" requirement because it "necessarily involved the employment of workers.."]
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©2007 Thelen Reid Brown Raysman & Steiner LLP
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