In addition to the FLSA and New York Department of Labor’s (NYSDOL) Wage Orders, both of which contain minimum wage and overtime requirements, pursuant to Article 8 of the New York Labor Law, employers in New York may be required to pay “prevailing wage” to workers employed on public works projects, (There is a separate prevailing wage provision applicable to covered Building Service employees.) This obligation is triggered where a “public agency [is] party to a contract involving the employment of laborers, workmen, or mechanics, and the contract . . . concern[s] a public works project." Matter of Erie County Indus. Develop. Agency v Roberts, 94 AD2d 532, 465 N.Y.S.2d 301 (1983) affd 63 NY2d 810, 472 N.E.2d 43, 482 N.Y.S.2d 267. Rejecting a recent opinion letter from the NYSDOL, New York’s highest court recently held that charter schools do not satisfy the necessary prerequisite for application of the statute – requirement that a public agency be party to contract involving employment of laborers, workmen, or mechanics. Matter of New York Charter School Assn. v Smith, 2010 NY Slip Op 7375 (N.Y. Oct. 19, 2010).

Smith resulted from an August 31, 2007 NYSDOL opinion letter in which the Department reversed its position taken seven years prior and stated that  “the prevailing wage law mandate of Labor Law § 220 applie[s] to all charter school projects.” Following issuance of the 2007 opinion, the Commissioner of Labor immediately provided notice to charter school organizations of the Department’s intention to enforce the new policy interpretation. Litigation commenced immediately.

In its opinion, the Court of Appeals considered and rejected three separate bases put forward by the Commissioner of Labor for finding that charter schools, by their nature, are “public agencies party to a contract involving the employment” of construction workers:

1)      the charter agreement governing the operation of a charter school is itself a contract with a public entity that contemplates the employment of workers on facility projects;

2)      the charter school itself should be regarded as a public entity for purposes of the prevailing wage law; and

3)      charter schools may be regarded as a third-party intermediary when it enters into a charter school facility contract on behalf of or in place of the chartering entity (usually a school district), pursuant to the charter that created it.

Id. at * 3. 

As to the first argument, the court observed that a charter agreement in New York is “an authorizing agreement under which an agency has determined that an applicant school is competent to be licensed as an educational corporation and nothing more.” Id. at * 4. Thus, the charter agreement is not itself a contract involving the employment of covered workers. In rejecting the second argument, the Court noted that the Labor Law itself defines the four categories of public entity covered by the law: the state; a public benefit corporation; a municipal corporation; or a commission appointed pursuant to law – and that educational corporations were expressly excluded. Id.  Finally, the Court noted that while the Labor Law recently was amended to ensure prevailing wage coverage where “private parties are carrying out public work projects on behalf of public owners,” the amendment was not intended to extend to charter schools. Id. 

Smith highlights both the intricate nature of prevailing wage coverage analysis and, separately, how a modification of position by a state department of labor can cast uncertainty into an entire industry. Employers and counsel must stay abreast of these types of developments to ensure and appropriate and timely response is made.