Labor Code section 2810 was enacted by the California Legislature in 2004. The primary provision of section 2810 prohibits a party such as an employer from contracting for certain types of services, including construction services if that party knows or should know the contract “does not include funds sufficient to allow the contractor to comply with all applicable local, state and federal laws or regulations governing the labor or services to be provided.” It also provides a private cause of action in favor of employees “aggrieved” by any violations.
Section 2810 was enacted to address “wide spread subminimum wages and working conditions” that existed primarily in construction, janitorial, security and garment industries at the time. In Castillo v. Toll Bros., Inc. (decided July 28, 2011), a California appellate court addressed the provisions of section 2810 for apparently the first time. Toll Bros. was the general contractor on several construction projects and was later sued by employees of subcontractors alleging violations of wage and hour laws, including section 2810. The employees argued that Toll Bros., in bidding the projects, did not include sufficient funds to the subcontractors that resulted in the claimed wage and hour violations.
Toll Bros. moved for summary judgment in both class actions arguing that under section 2810, it only had to ensure that the employees of the subcontractors were being paid a minimum wage. The plaintiff employees on the other hand, argued that, because employees in construction services are typically paid at rates higher than minimum wage, the contracts entered into by Toll Bros. should have included funds sufficient to pay the local prevailing wages for this labor.
In affirming summary judgment in Toll Bros.’ favor on some of the claims, the California appellate court held that the clear language of section 2810 “unambiguously requires the sufficiency of a contract challenged under section 2810 to be measured by the minimum wage cost for the work anticipated.” The Court found it significant that there was “no general law requiring an employer to pay its workers the average local wage for a particular skill or trade if that average wage is higher than the legal minimum.” “Merely to pay less than the prevailing wage therefore violates no law” and could not form the basis for a section 2810 violation.
Thus, the Court held that a contract violates section 2810 only if the funds paid will not allow the subcontractor to comply with applicable laws or regulations in performing the contract, one of those applicable laws being the minimum wage law. The Court also rejected the plaintiffs’ argument that they should be treated differently given that the construction industry regularly pays higher wages than the legal minimum wage. The Court found that the California legislature did not express an intent to distinguish between the various industries in enacting section 2810.
Therefore, employers who are entering into contracts with subcontractors should analyze whether the contract for services allows the subcontractor to pay its employees at least minimum wages for the work anticipated to avoid a possible violation of section 2810.