As addressed in our June 1, 2016 Alert , Assembly Bill 219, codified as Labor Code section 1720, expands the definition of "public works" to include ready-mixed concrete drivers for the purposes of enforcing California prevailing wage law, effective for contracts awarded on or after July 1, 2016. Specifically, the statute added to the definition of public works, "the hauling and delivery of ready-mixed concrete to carry out a public works contract."

Legal Challenge to AB 219

On June 30, 2016, a group of ready-mix companies (that manufacture and deliver ready-mixed concrete directly to construction sites using their own drivers) filed a lawsuit in U.S. District Court in Los Angeles seeking injunctive relief against the Department of Industrial Relations and the Division of Labor Standards Enforcement. The Plaintiffs focused on two primary arguments, namely that the new statute violated the Equal Protection Clause of the Fourteenth Amendment of the U.S. Constitution, or, alternatively, was preempted by the Federal Aviation Administration Authorization Act ("FAAAA"). Plaintiffs argued that the statute violated the Equal Protection Clause because the statute was arbitrarily applicable to ready-mixed concrete suppliers and not to other materials suppliers. Further, the FAAAA preempted the statute because the FAAAA prohibits the enactment of state laws that are "related to price, route, or service of any motor carrier… or any motor private carrier, broker, or freight forwarder with respect to the transportation of property. 49 U.S.C. section 14501(c)(1).

On October 18, 2016, U.S. District Judge R. Gary Klausner of the Central District of California granted the preliminary injunction. As the court noted, the purpose of AB 219 was to close a purported loophole in California’s Prevailing Wage Law, to provide "uniformity and a fair application of the prevailing wage law to deliveries of ready mix [concrete] and not about expanding prevailing wage to all material drivers." (Originally the bill was to include asphalt deliveries as well, but that was dropped before the Governor signed it into law.) Prior to AB 219, ready-mixed concrete drivers were only covered under the prevailing wage law if they were hired as contractors on a public works project, or if the ready-mixed concrete they hauled was manufactured at a plant established solely for a public works project.

The court analyzed the Plaintiffs’ request for preliminary injunction using the sliding scale test outlined in Alliance For the Wild Rockies v. Cottrell 632 F.3d 1127, 1131 (9th Cir. 2011). These four factors required plaintiffs to demonstrate that (1) there are serious questions going to the merits, (2) the balance of hardships tips sharply toward the plaintiffs, (3) there is a likelihood of irreparable injury, and (4) an injunction is in the public interest.

As to the first argument, i.e., violation of the Equal Protection Clause, the court noted that ready-mixed concrete manufacturers are not a suspect class and therefore the "rational basis review" is appropriate. A statute will be upheld if it is "rationally related to a legitimate governmental purpose." Stormans, Inc. v. Selecky, 586 F.3d 1109, 1137 (9th Cir. 2009). The court agreed that ready-mixed concrete drivers were essentially singled out, leaving all other construction materials suppliers free from the new provisions. Although there are differences between ready-mixed concrete and other materials (method of delivery, ability to stockpile, uses), those differences were irrelevant for the purpose of applying prevailing wage laws. Munoz v. Sullivan, 930 F.2d 1400, 1406 (9th Cir. 1991). Therefore, the court agreed with Plaintiffs that AB 219 raised serious questions on the merits of the Equal Protection claim.

Judge Klausner also agreed that the Plaintiffs had shown that AB 219 impacted their businesses by increasing costs associated with sales, ordering, dispatching and routing drivers, monitoring deliveries, payroll, accounting and human resources. The court found that the balance of hardships tipped sharply in Plaintiffs’ favor. The court also found that there was a likelihood of irreparable harm without an injunction, in part because of the serious questions raised regarding the constitutionality of the statute.

Finally, the court agreed with Plaintiffs that the injunction was in the public interest. On the one hand, an injunction would reduce the wages to be received by ready-mixed drivers since they would not be paid (higher) prevailing wage rates. However, not only was there a serious concern regarding the Equal Protection argument, there was also the interest that the public had keeping costs down for public works projects while the issues were adjudicated.

The court therefore granted the preliminary injunction. Notably, the court did not address the FAAAA preemption argument.

What Does This Mean for Ready-Mixed Companies and Other California Employers and Industries Affected by the Efforts to Expand Prevailing Wage to Private Industry?

While the injunction currently prohibits the DLSE from enforcing AB 219, the court will now proceed to the "merits" phase, and the decision is already being appealed. The decision places in legal perspective efforts by labor to expand prevailing wage law’s scope to private nonpublic industry and manufacturing, including off-site manufacturing. As with the decision in, Sheet Metal Workers et. al. v. Duncan (Russ Will Mechanical, Inc.) (2014) 229 Cal.App.4th 192., employers should be encouraged by the federal court’s consideration of the legal flaws in result-oriented spot legislation such as that at issue in this case.