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Court of Appeal:
Developer Cannot Avoid Wage Laws by Partnering With City
Opinion Says Rule Allowing Charter Cities to Exempt Themselves From Labor Code Provisions Relating to ‘Municipal Affairs’ Does Not Apply to Construction Project Mostly Owned, Controlled by Private Party
By a MetNews Staff Writer
Div. One of the Fourth District Court of Appeal has held that a real estate development company is not entitled to rely on “home rule”—which allows charter cities to exempt themselves from prevailing wage laws and pay workers less than is otherwise required on “municipal affairs” projects—simply because such a locality has invested heavily in the project and owns a portion of the property.
Article XI, §5(a) of the California Constitution establishes “home rule,” providing:
“It shall be competent in any city charter to provide that the city governed thereunder may make and enforce all ordinances and regulations in respect to municipal affairs….City charters…with respect to municipal affairs shall supersede all laws inconsistent therewith.”
In Friday’s opinion, authored by Justice David M. Rubin, the court declared:
“As an issue of first impression, we must decide whether a construction project is a ‘municipal affair’ of a charter city pursuant to Section 5(a) if charter city contributes local funds for the construction of public improvements within a private development….We hold that where the charter city contributes money to a private development project, that undertaking does not necessarily transform the project into a municipal affair.”
City Ordinance
The question arose after the chartered city of Palm Springs enacted an ordinance in 2002, which specifies:
“Contracts for public projects, as defined in Section 1720 of the Labor Code, shall not be subject to prevailing wage law.”
Labor Code §1720 defines “public works” as “[c]onstruction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds.”
In 2010, the city entered into an agreement with a private developer, Palm Springs Plaza (“PSP”), allowing for the renovation of a dilapidated shopping mall into a new multipurpose center, which the municipality said would bring much-needed vitality to the area.
Pursuant to the agreement, the city invested $51.4 million in municipal funds in the project, which included the purchase of a parcel from the developer that would be used to construct subterranean parking and an above-ground public events center. All contractors for the development were hired and managed by PSP.
Performance Trust Deed
A performance trust deed was executed for the property in favor of the city, allowing the municipality to “control the ultimate disposition of the property and the project” if PSP defaulted.
In 2017, the Center for Contract Compliance, a nonprofit labor management committee, filed a request with the Department of Industrial Relations, asking the agency to decide whether the redevelopment project was subject to the “home rule” exception. The department found that the exception did not apply and that the project was subject to the prevailing wage laws.
After an unsuccessful administrative appeal, PSP filed a writ of mandate petition in the Riverside Superior Court, challenging the determination. Judge Eric A. Keen agreed with the department’s findings; PSP appealed.
Presiding Justice Judith McConnell and Justice Jose S. Castillo joined in Friday’s opinion, which affirms the judgment.
Home-Rule Authority
Rubin cited the 2012 California Supreme Court decision in California v. City of Vista, in which the court announced an analytical framework for determining whether a matter falls within the “home rule” authority of charter cities. Under the test, judges are to first determine if the “the city ordinance at issue regulates an activity that can be characterized as a ‘municipal affair.’ ”
The City of Vista court concluded that “the construction of a city-operated facility for the benefit of a city’s inhabitants is quintessentially a municipal affair, as is the control over the expenditure of a city’s own funds.”
PSP argued that because Palm Springs contributed tax dollars and retained control over how construction funds were spent, the project qualifies as a “municipal affair.” Rejecting that assertion, the jurist wrote:
“We do not agree…that the City ‘retained fiscal control over how all construction monies were spent,’….Although the City’s contribution of funds for the Project was not insignificant (i.e., about $51.36 million…), PSP contributed almost three times that amount (i.e., $143 million). PSP also selected the contractors and entered into the construction contracts for the Project, and alone bore the risk of any cost overruns for redevelopment of the Private Improvements….These facts support the inference that it was PSP, and not the City, that retained substantial control over how its ‘construction monies’ were spent.”
Side Benefit
He continued:
“Although the City also received a benefit—eliminating blight in the downtown area and increasing the City’s sales and property tax revenues—the facts do not support PSP’s contention that ‘the entire project was built as to enhance the value of the City’s public improvements and its public investment in the project.’ (Italics added.) Rather, we find the facts demonstrate the converse is true: the Project was primarily built to enhance the value of PSP’s Private Improvements (it owned and managed postconstruction concerns, including retail shops, restaurants, cafes, and public gathering spaces) and its private investment.”
Under these circumstances, he opined:
“Based on the totality of the record, we…conclude PSP’s project was not a municipal affair which would allow PSP to ‘step into the shoes’ of the City to take advantage of the home rule doctrine….To hold otherwise would unnecessarily expand the concept of ‘municipal affairs’ to include the ‘internal business affairs’ of a private party…and undermine the important goals of the [prevailing wage law].”
Palm Springs Promenade LLC v. Department of Industrial Relations, 2025 S.O.S. 1664.
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