Highlights: Prevailing wage issues in Ohio are taking center stage in 2009 with no less than three cases coming before the Ohio Supreme Court. The first of these opinions was rendered in Sheet Metal Workers’ International Association, Local Union No. 33 v. Gene’s Refrigeration, Heating & Air Conditioning, Inc., 2009 Ohio 2747, on June 17, 2009. The second opinion, in Northwestern Ohio Building & Constr. Trades Council v. Ottawa Cty. Improvement Corp., 2009 Ohio 2957, arrived less than two weeks later on June 30, 2009. The remainder of the prevailing wage cases have yet to be decided as of the time this is written.

Gene’s Refrigeration

The Court’s decision in Gene’s Refrigeration reversed the lower appellate court, concluding that: 1) a labor union only has standing to file a prevailing wage complaint on behalf of persons who specifically authorize the action; and 2) prevailing wages only have to be paid to persons whose work is performed directly on the site of a public construction project.

In Sheet Metal, Gene’s Refrigeration (the “Contractor”) was awarded a contract as part of the construction of a public fire station in Medina, Ohio. The contract at issue involved both on-site construction work and the off-site fabrication of ductwork. During the construction process, the Contractor paid its on-site workers prevailing wage rates and its off-site workers the normal non-prevailing wage rates.

Based upon the pay discrepancy between on-site and off-site workers, a local union filed an administrative prevailing wage complaint against the Contractor on behalf of all employees that worked on the public project. The union alleged that it had standing as an “interested party” based solely upon the written authorization of a single employee of the Contractor who worked at the Contractor’s off-site fabrication shop.

When more than 60 days elapsed without a ruling on the administrative complaint by the Director of the Ohio Department of Commerce, the union filed a complaint in the common pleas court alleging violations of Ohio prevailing wage law.

At the trial court level, dueling motions for summary judgments were filed. The focus of the motions were whether: 1) the union had standing to sue on behalf of all employees of the Contractor; and 2) Ohio’s prevailing wage law applies to employees working off-site. A magistrate granted the Contractor’s motion, concluding that: 1) the union only had standing on behalf of the single employee that signed a written authorization; and 2) work performed off-site was not subject to the prevailing wage law. The trial court adopted the magistrate’s ruling, and the union appealed.

At the appellate court level, the trial court’s decision was reversed. The appellate court accepted the union’s standing argument, and focused on the Ohio Supreme Court’s 1934 decision in Clymer v. Zane to conclude that off-site workers were entitled to the payment of prevailing wages. The Clymer v. Zane decision held that the prevailing wage law only applies to work directly performed on the construction site.

The appellate court, however, concluded that this decision had been superseded by the legislature in 1935 (i.e. the language that prevailing wage must be paid to “laborers, workmen, or mechanics upon any material to be used upon or in connection with a public work.”) The court provided further support for its decision by citing the underlying purpose of the prevailing wage law – to “support the integrity of the collective bargaining process by preventing the undercutting of employee wages in the private construction sector.” The Contractor filed a discretionary appeal

to the Ohio Supreme Court, which accepted the case for review. The Court reversed the lower appellate court’s ruling on both the standing and prevailing wage issues, thereby reinstating the trial court’s decision.

The first question tackled by the Court involved the standing issue. Focusing on the “interested person” language in R.C. 4115.03(F), the Court explained that the definition specifically includes a union “authorized to represent employees.” The Court emphasized the use of the word “authorized” to conclude that an interested party only has the power to act on behalf of an employee who “expressly authorized the union to act.”

Interestingly, the Court was able to distinguish its prior decision in Sheet Metal Workers’ International Association, Local Union No. 33 v. Mowhawk Mech., Inc., 86 Ohio St.3d 611, which allowed a union to represent all employees on the public construction project despite the written authorization of only three employees. The Court distinguished the case on the basis that the case involved employees working directly on the site of the public improvement. Thus, the outcome of the standing question could have been much different had the employee who authorized the union’s complaint worked on the job site.

Next, the Court analyzed the applicability of the prevailing wage law to work performed off-site. The center point of the analysis was ORC 4115.05, which the Court deemed ambiguous for failing to expressly state whether off-site work triggers the payment of prevailing wage. Based upon this ambiguity, the Court engaged in an analysis of the legislative history of the prevailing wage law, and attempted to uncover the legislative intent behind ORC 4115.05, including the fact that the General Assembly did not indicate that the statute was intended to overrule the Clymer v. Zane decision.

The Court then looked at the other provisions in the prevailing wage statutes and determined that ORC 4115.05 does not require prevailing wages to be paid to persons working off-site, “even if they are working on materials to be used on or in connection with the project.”

To bolster its conclusion, the Court noted that the construction industry has continued to follow the Clymer v. Zane decision for the past 70 years. This has established industry standards and practices that run contrary to the lower appellate court’s ruling. Furthermore, from a policy standpoint, the Court noted that the rule crafted by the appellate court is unworkable in practice, and that the proper forum for addressing the payment of prevailing wages to off-site workers is the legislature.

In a dissenting opinion, Justice Pfeiffer disagreed with the majority’s decision on both counts. Initially, the dissent noted that no statute limits a union’s representation to employees who authorize such representation, and that the union itself (rather than the represented employees) is the plaintiff. As the plaintiff, the union actually files the complaint on its own behalf and clearly has standing to represent all employees.

Continuing on, the dissent contended that ORC 4115.05 is not ambiguous, and provides for the payment of prevailing wages for offsite work in some situations. The dissent also noted that the Clymer v. Zane decision may still be good law, but only for a statute no longer in existence.

Northwestern Ohio

The Court’s decision in Northwestern Ohio affirmed the judgments from both the trial court and lower appellate court that the prevailing wage law only applies when a public authority spends public funds to construct a public improvement (i.e. structures built by, or for the benefit of, the state or a political subdivision.)

In Northwestern Ohio, Fellhauer, a private contractor and retail business, decided to purchase real property, the building on that property, and office equipment in the building. Fellhauer also renovated the existing building on the property, and obtained both public and private financing.

Public funding came from two grants/loans to finance the purchase of the real property, building, and office equipment. The remainder of the financing involved Fellhauer’s own money and other private funding. As the Court succinctly explained, “Fellhauer used public and private funds to finance the purchase of the real property, a building, and office equipment, but used only private funds to finance the renovation of the building.”

Upon learning of the renovation project, a taxpayer and construction trade group instituted a taxpayer suit alleging that Fellhauer’s renovation project was subject to Ohio’s prevailing wage law. The lawsuit sought compliance with the prevailing wage law and an injunction against the award of any contracts in connection with the renovation project until prevailing wages were paid.

Although the trial court acknowledged the receipt of public funds by Fellhauer, the trial court concluded that the prevailing wage law was not triggered because: 1) Fellhauer’s project was not a public improvement; and 2) the use of the public funds was not by a public owner or for the benefit of a public owner, only Fellhauer’s private corporation.

At the appellate court level, the trial court’s decision was affirmed on different grounds. The appellate court reasoned that the prevailing wage law was not triggered because: 1) no public “institution” as defined in the prevailing wage statutes had expended funds on the Fellhauer renovation project; and 2) even if such an “institution” had done so, no public funds were spent on construction activities.

The Contractor filed a discretionary appeal to the Ohio Supreme Court, which accepted the case for review. The Court affirmed the decisions of both lower courts.

The Court first provided a brief overview of the prevailing wage law, emphasizing that it only applies to the construction of public improvements by a public authority or for the benefit of a public authority. In doing so, the Court rejected the trade group’s argument that the prevailing wage law is triggered as soon as public funds are spent, “regardless of whether the project involves actual construction of a ‘public improvement.’” To do otherwise would “unjustifiably expand the scope of prevailing wage to include projects that are not public improvements, that are not constructed by a public authority, or that do not benefit a public authority.”

Applying this discussion to the Fellhauer renovation project, the Court concluded that the project was not subject to the prevailing wage law. Not only did the project not qualify as a public improvement, but public funds were not used for any construction activities, only to purchase the real estate, building, and office equipment.

Stay tuned for the Supreme Court’s decision in State ex rel. Associated Builders & Contractors of Central Ohio v. Franklin County Board of Commissioners, which is expected later in 2009.