Labor Code section 2810 protects workers by entitling them to sue the entity that contracted with their employer if their boss doesn’t pay wages owed

This case is good news for employees in farm labor, garment, janitorial, and security industries and for construction workers on prevailing wage jobs, though it was not so great for the construction workers on the private construction jobs that were under review by the court in this case. Labor Code section 2810 protects certain workers by entitling them to sue the entity that contracted with their employer if their boss doesn’t pay wages owed.  The court in this case decided that in determining whether a violation occurred, Section 2810 requires compliance with legal minimums, not with the workers’ regular rate of pay.

Section 2810 went into effect January 1, 2004. It allows construction, farm labor, garment, janitorial and security guard employees to sue a person or entity that contracts with its direct employer for labor or services, "where the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state and federal laws and regulations governing the labor or services to be provided." (Cal. Lab. Code §2810.)

Defendant-Respondent Toll Brothers, Inc., a developer of large-scale residential projects, was sued in two wage and hour class action suits filed by employees of two different framing subcontractors who sought to hold Toll Brothers liable for Labor Code violations of the subs. (Castillo v Toll Bros., Inc., and Hernandez v Toll Bros., Inc., (2011) Cal. App. Lexis 980.) The central issue was what standard to use to determine whether “sufficient” funds, under Section 2810, existed.  Toll Brothers argued “funds sufficient to allow the contractor to comply with all applicable …laws or regulations” means minimum wage. Plaintiffs argued that to comply with Section 2810, the contract must include monies to permit compliance “given the real world market price of labor.” The court sided with Defendants on this point: "Based on these provisions, we conclude the statutory language unambiguously requires the sufficiency of a contract challenged under section 2810 to be measured by the minimum wage cost for the work anticipated ... In the absence of a local, state, or federal law requiring the payment of a wage higher than the legal minimum, a contract cannot be insufficient under section 2810 merely because it does not provide sufficient funds to pay that higher wage, since section 2810 imposes nothing more than compliance with legal requirements."

In addition, because the court determined that the statute was enacted to combat problems in the underground economy, “the use of any measure of wages other than the minimum wage” would be inconsistent with legislative intent. As a practical matter, the court found using the minimum wage to determine contract sufficiency created the ease of a “bright-line” test. However, the court added that required components of the minimum wage, such as payroll taxes, must be added in to determine the actual minimum legal wage.

Regarding whether the entity knew or should have known of the insufficiency, the court determined that when there is no showing that the contracting party knew the contract contained insufficient funds, a plaintiff may show “the contracting party had reason to know, based on the common knowledge of the industry or specific information relevant to the particular contract, that the funds provided in the contract would likely be insufficient to permit the employer to perform the contract while complying with applicable laws.”

The court also rejected arguments by Defendant that Section 2810 was preempted by the National Labor Relations Act, and that the workers were responsible for showing that the insufficient funds caused the wage and hour violations.

Although the court did not discuss the minimum wage on a prevailing wage project, because existing caselaw establishes prevailing wage as the legal minimum wage on a public project in Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc., 102 Cal. App. 4th 765 (2002), it logically follows that on a public works project, a contract that does not contain sufficient funds to pay the prevailing wage would subject a contracting party (general contractor or even public entity) to Section 2810 penalties.

It is yet to be seen how this decision will play out in subsequent wage and hour cases, but employees in the construction, farm labor, garment, janitorial and security guard professions will, at a minimum, have another tool in their belt to enforce California’s wage laws.

Patty Gates & Sharon Seidenstein

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