Cinema West:  Developers Cannot Accept Public Subsidies and Later Reject Them to Avoid Paying Prevailing Wages

In a victory for prevailing wage advocates, the California Court of Appeals recently ruled in Cinema West, LLC v. Christine Baker, No. A144265 (Cal. Ct. App. June 30, 2017) that developers are not allowed to accept public subsidies and later reject them to avoid paying prevailing wages.

The Court of Appeal ruled that allowing developers to avoid prevailing wages in this way “would seriously undermine the [prevailing wage law]” by “incentiviz[ing] gamesmanship on the part of local government bodies and developers.”  For example, a developer could accept a subsidy, and then if prevailing wage violations were later discovered, avoid paying wages and penalties by rejecting the subsidy.  Or a developer could choose to keep a subsidy because it was worth more than paying the prevailing wages owed, and then by the time the developer paid the back wages, the workers could be long gone.   The Court of Appeal declared “[t]his cannot have been the Legislature’s intent.”

In Cinema West, the Court of Appeal also ruled that the evidence showed the construction of a parking lot adjacent to a movie theater were together a “complete integrated object,” and therefore a unified project on which prevailing wages were required.  City staff reports and the development agreements consistently described the parking lot as “for the theater,” “necessary to serve” the theater and a “necessary” part of the development.  The Court of Appeal criticized the developer’s “attempt to segment the development into separate components.”

Cinema West serves as a strong reminder of the different ways in which private developments subsidized by public funds require payment of prevailing wages, and the courts’ continuing skepticism of gamesmanship by local government bodies and developers to avoid those obligations.

For more information, contact your labor law counsel.

By Minsu Longiaru | August 2, 2017

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