Labor Code section 2810 states that "[a] person or entity may not enter into a contract or agreement for labor or services with a construction, farm labor, garment, janitorial, or security guard contractor, 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 or regulations governing the labor or services to be provided." Section 2810 is a fairly new statute, and one that had not been the subject of any Court of Appeal decision. But in Castillo v. Toll Brothers, Inc. (July 28, 2011), that changed. I could tell you that this very exciting opportunity to read an opinion in a truly novel area of law prompted my review of the case. But, in truth, it was just the defendant's name that caught my eye.
In any event, the trial court, dealing with summary judgment motions and lots of supplemental briefing, evidently had its hands full with a large number of arguments intersecting Labor Code section 2810. The Court of Appeal commended the trial court's diligent efforts:
The order is a masterful synthesis of a sprawling factual record, reflecting the court's careful work with the parties over the course of several months. We recount the decision in some detail because it forms the foundation for our own ruling.
Slip op., at 6.
A key legal issue addressed in the appeal was determination of whether minimum wage or local prevailing wage sets the standard for insufficiency. The Court also clarified that actual labor cost, and not the base wage, sets the correct standard.
As to the standard for insufficiency, the Court held that the "minimum wage" sets the standard:
Plaintiffs' position is untenable because there is 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. 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.
Slip op., at 14. (Note: Earlier in the opinion the Court clarified that "minimum wage" would depend upon the industry and wage order at issue in a particular case.) While this soundbite quote seems clear enough, the opinion goes on for pages, reviewing legislative history and addressing, in detail, the contentions of the plaintiffs regarding the correct measure of sufficiency of funding.
On the second issue, the Court observed that compliance with all laws sets the standard for compliance, which requires analysis of total labor cost, not just the wage that would be paid to employees:
Because an employer is required to pay all of these costs to comply with applicable laws when employing a laborer, it is appropriate to use the total labor cost, rather than the worker‘s wage, in determining sufficiency under section 2810.
Slip op., at 7.
The second half of the opinion addresses (1) the sufficiency of evidence for summary judgement purposes on the issue of whether specific contracts were sufficiently funded, and (2) some over-reaching pre-emption arguments by Toll Brothers. If that stuff floats your boat, this is a page turner.