Adams County Interfaith v. Prev. Wage

• Decision Date: 09 July 2009
• Docket Number: No. 662 C.D. 2008.,662 C.D. 2008.
• Citation: 981 A.2d 352
• Parties: ADAMS COUNTY INTERFAITH HOUSING CORPORATION, Petitioner v. PREVAILING WAGE APPEALS BOARD, Respondent.
• Court: Pennsylvania Commonwealth Court

981 A.2d 352

ADAMS COUNTY INTERFAITH HOUSING CORPORATION, Petitioner v. PREVAILING WAGE APPEALS BOARD, Respondent.

No. 662 C.D. 2008.

Commonwealth Court of Pennsylvania.

Submitted April 1, 2009.

Decided July 9, 2009.

Publication Ordered September 29, 2009.

Scott F. Cooper, Philadelphia, for petitioner.

James A. Holzman, Deputy Chief Counsel, Harrisburg, for respondent.

BEFORE: LEADBETTER, President Judge, McGINLEY, Judge, SMITH-RIBNER, Judge, COHN JUBELIRER, Judge, SIMPSON, Judge, LEAVITT, Judge, and BUTLER, Judge.

OPINION BY Judge SMITH-RIBNER

Adams County Interfaith Housing Corporation (ACIHC) petitions for review of the order of the Pennsylvania Prevailing Wage Appeals Board (Board) denying ACIHC's grievance from a refusal by the Secretary of Labor and Industry (Secretary), through the Bureau of Labor Law Compliance (Bureau), to promulgate a wage rate classification for "Residential Construction" under the Pennsylvania Prevailing Wage Act (Act)¹ and apply it to ACIHC's project involving renovation of nine to ten units of residential housing for persons with disabilities (Project). Specifically, ACIHC wants residential construction wage rates under provisions of an act known as the Davis-Bacon Act in 40 U.S.C. § 3142(a) to be applied to the Project based upon legislative intent and the circumstances of this case.

ACIHC raises the following questions. It asks whether the Secretary violated the Act by failing to promulgate residential wage rates; whether his refusal to apply federal residential rates was arbitrary and capricious; whether it violated equal protection where federal residential rates were applied to other projects based on the same guidelines; whether the Davis-Bacon Act and the HOME Investment Partnerships Program (HOME)² pre-empt application of higher Pennsylvania rates; and whether the Board erred in concluding that ACIHC could not file a grievance.

ACIHC is a private, non-profit organization that provides affordable housing to low-income persons in and around Adams County, with funding mainly through programs administered by the United States Department of Housing and Urban Development. ACIHC plans to renovate a building in Gettysburg, Adams County, to provide affordable housing for persons with disabilities. The building, "Anthony's Place," would contain nine to ten units and be less than four stories in height. The Project is financed in part by a $500,000 federal HOME grant. In 2006 ACIHC requested a predetermination of prevailing wage rates that applied to the Project, and on November 28, 2006 the Bureau notified ACIHC that state rates for the classification of "Building Construction" applied. Federal law recognizes four construction classifications (Residential, Building, Heavy and Highway), but Pennsylvania recognizes three (Building, Heavy and Highway).³ Also, federal law requires applying Davis-Bacon residential rates to federally subsidized residential construction containing twelve or more units, but it is silent regarding those projects containing fewer units.

On December 1, 2006, ACIHC objected to the Bureau's prevailing-rate predetermination notice, arguing that the Bureau should apply Davis-Bacon residential rates and noting that in 2000 those rates were applied to non-student housing that is less than four stories high. The Bureau denied ACIHC's objection, and it requested reconsideration. On February 5 and 6, 2007, ACIHC advertized a request for proposals for the Project and asked contractors to submit bids using the state Building Construction rates and the Davis-Bacon residential rates. Using the state rates increased the Project's cost by 40 percent, or $290,664. On February 20, 2007, the Bureau denied reconsideration and stated as follows:

Labor and Industry utilizes federal residential rates only for university housing....

The Bureau has not adopted residential rates for other construction in the Commonwealth. The Bureau does not apply residential rates to other construction according to its wide legal discretion to issue and determine rates....

The Bureau is not bound by the issuance of federal Davis-Bacon residential rates for non-student housing in 2000....

Reproduced Record (R.R.) at 10a (emphasis original).

ACIHC timely filed a grievance with the Board, which it denied. The Board first determined that "qualitative challenges to wage rates" had to be filed as an appeal under Section 8 of the Act, 43 P.S. § 165-8, and that ACIHC waived its right to object to the predetermination by filing a grievance under Section 2.2(e) of the Act, added by Section 3 of the Act of August 9, 1963, P.L. 653, 43 P.S. § 165-2.2(e). It found no discriminatory effect or evidence of a discriminatory purpose. Moreover, ACIHC's involvement in the Project was insufficient to establish that it is "similarly situated to others who may be involved in state-wide college residential housing construction for purposes of setting prevailing wage rates." Board's Opinion, p. 11. As to the claim that the Bureau's failure to issue residential rates under 34 Pa.Code § 9.105(d)⁴ was arbitrary and capricious, the Board stated in relevant part as follows:

[T]he courts have held that the Secretary has broad discretion under 34 Pa. Code § 9.105 in promulgating wage rates. "The determination of prevailing wages is an act largely committed to the Secretary's legislative[ly] authorized discretion.... The Secretary's exercise of discretion is not subject to reversal, absent proof of fraud, bad faith or a blatant abuse of discretion." [IBEW, Local Union No. 98 v. Department of Labor and Industry, 816 A.2d 1220, 1223 (Pa. Cmwlth.2003)]....

As there is no indication of a flagrant abuse of discretion, fraud, or bad faith in failing to issue separate residential rates, it is not up to us to substitute our own discretion for that of the Secretary or the Bureau....

Board's Opinion, p. 13. The Board found no clear legislative intent to preempt the state wage rates and that the state and federal acts complemented each other.⁵

I

ACIHC argues that the Bureau violated the Act and 34 Pa.Code § 9.105(d) by failing to issue a prevailing wage rate for Residential Construction.⁶ Under 34 Pa.Code § 9.105(d), the Bureau must determine wage rates "for varying types of projects within the entire range of work performed by the building and construction industry." ACIHC maintains that because residential construction is "within the entire range of work performed" by the industry, the Secretary's refusal to issue residential rates is a per se violation of 34 Pa.Code § 9.105(d).

ACIHC next argues that the Secretary's refusal to act was arbitrary and capricious inasmuch as the Project is federally funded and the applicable wage rates therefore cannot exceed Davis-Bacon residential rates. In Pennsylvania State Building and Construction Trades Council, AFL-CIO v. Prevailing Wage Appeals Board, 722 A.2d 1139 (Pa.Cmwlth.1999) (State Trades Council), the Court held that the Secretary abused his discretion and violated 34 Pa.Code § 9.105(d) when he excluded all public work projects from a statewide prevailing wage survey. ACIHC asserts that the Secretary's refusal to act here lacked any rational basis and that the unreasonableness of the predetermined rate is demonstrated by the fact that it would increase Project costs by 40 percent.

ACIHC also claims an equal protection violation. Citing Fitzgerald v. Racing Ass'n of Central Iowa, 539 U.S. 103, 123 S.Ct. 2156, 156 L.Ed.2d 97 (2003), ACIHC submits that the principles of equal protection are not met when no plausible policy reason exists for the classification or the relationship of the classification to its goal is arbitrary or irrational. Noting that the Bureau applies Davis-Bacon rates to married-student housing, ACIHC submits that no legal basis can exist to treat the poor and disabled less favorably than the married students. The 1978 United States Department of Labor Memorandum No. 130 recommended that Davis-Bacon residential rates be applied to married-student housing as well as to a small-scale apartment building.

On the issue of preemption, ACIHC argues that the federal housing policy preempts the Secretary's decision. Citing Gade v. Nat. Solid Wastes Mgmt. Ass'n, 505 U.S. 88, 102, 112 S.Ct. 2374, 120 L.Ed.2d 73 (1992), ACIHC submits that any state law interfering with federal law must yield and that a state law conflicts with federal law when "the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Although Davis-Bacon rates are not required for federally subsidized residential projects containing fewer than twelve units, ACIHC asserts that the purpose of this so-called "small project" exception is to reduce, not increase, costs in order to help small contractors gain experience on smaller projects to allow them to become more competitive for larger projects; applying higher state rates to the projects falling under the exception would run counter to the federal policy. Further, the Secretary's decision is barred under 24 C.F.R. § 965.101, which provides that state rates that are higher than federal rates in the same geographical area are to be deemed inflated and preempted.

The Bureau responds that according to Borough of Youngwood v. Pennsylvania Prevailing Wage Appeals Board, 596 Pa. 603, 947 A.2d 724 (2008), the stated purpose of the Act is to protect workers on public work projects from substandard pay by assuring that they receive prevailing minimum wages and that any exceptions to prevailing wage coverage are narrowly construed. The Bureau points out that the Davis-Bacon rates are not required because the Project contains fewer than twelve units. It contends that the Secretary has discretion to determine wage rates and does not have to promulgate specific regulations for the Project. Also, under 34 Pa.Code § 9.105 and IBEW, Local Union No. 98, the Secretary is not required to consider...