How Much Public Money Triggers Prevailing Wages?

Construction projects and land acquisitions for development are frequently financed by a mix of private and public funding. As previously outlined, Ohio’s governor has issued a set of “guidelines” for identifying when prevailing wage will be applicable to such a project. The Ohio Supreme Court, however, recently heard arguments in a case that may provide authority and direction with greater legal weight than the guidelines.

In State of Ohio ex rel. Northwestern Ohio Building & Construction Trades Council v. Ottawa County Improvement Corp., Case No. 08-1069, the Court was faced with a challenge to a project undertaken by Fellhauer Mechanical Systems. Fellhauer purchased the land and building which it was leasing and was able to expand this facility. The purchase was made through a combination of private loans and a Community Development Block Grant through the Ottawa County Improvement Corp. In addition, Fellhauer received a revolving loan from the Improvement Corp. for the acquisition of equipment. The renovation of the facility, however, was to be funded entirely through private funds, not the Block Grant or revolving loan.

The Northwestern Ohio Building & Construction Trades Council applied for and obtained a temporary restraining order preventing the renovation project from moving forward. It argued that the renovation was subject to prevailing wages since public money was used in the land purchase and would be used in the acquisition of equipment.

After a full injunction hearing, however, the trial court ruled the project was not a “public improvement” because it does not involve construction “by” or “for” a public authority. Specifically, the relevant regulations indicate that a project is only a “public improvement” where it is undertaken by an “institution” supported in whole or in part by public funds. It determined that Fellhauer was not an “institution” as it was a private, for-profit entity and not an entity organized for any charitable, educational or other beneficial purpose.

This decision was upheld by the Court of Appeals. The Council then appealed to the Ohio Supreme Court.

During oral arguments counsel for the Council conceded that while Fellhauer is a “private institution” the project should nevertheless be subject to prevailing wage for the simple reason that it received public monies. The Council’s pleadings further characterized the project and land purchase financing as a scheme to get around the prevailing wage laws. Counsel for Ottawa County, conversely, stated that case was simply an effort to expand the prevailing wage law beyond the reach of the statute’s language. Fellhauer’s lawyer also noted that applying prevailing wages to private projects that receive some public funding will increase costs and likely cause entrepreneurs to drop projects.

The development and contracting communities will be closely watching for the ruling in this case in light of its potential consequences. It is also worth noting that Ohio’s Department of Labor has convened a task force consisting of all interested parties (i.e. – public/private owners, contractors, and trades organizations) to examine the governor’s guidelines. Thus, there is likely to be some significant developments in this relatively undeveloped area of the law in the coming months.

Stephen Withee

Certain information for this article was obtained from the following March 25, 2009 story by James Nash in the Columbus Dispatch.

Posted by: Stephen P. Withee

Categories: Labor and Employment