Prevailing Wage Law Applies Only When Public Funds Used for Construction of ‘Public Improvement’
2008-1069. Northwestern Ohio Bldg. & Constr. Trades Council v. Ottawa Cty. Improvement Corp., Slip Opinion No. 2009-Ohio-2957.
Ottawa App. No. OT-07-017, 2008-Ohio-1852. Judgment affirmed.
Moyer, C.J., and Pfeifer, Lundberg Stratton, O'Connor, O'Donnell, Lanzinger, and Cupp, JJ., concur.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2009/2009-Ohio-2957.pdf 
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(June 30, 2009) The Supreme Court of Ohio ruled today that the state’s prevailing wage law applies only to work performed in the construction of a “public improvement” by or for the benefit of a public authority, and does not apply to work performed on a private development project that was partially funded by state and county economic development grants.
The Court’s 7-0 decision, authored by Justice Evelyn Lundberg Stratton, affirmed a ruling of the 6th District Court of Appeals.
Ohio’s prevailing wage law, set forth in Ohio Revised Code Sections 4115.03 through 4115.16, generally requires that workers employed in the construction of government buildings and other public improvement projects must be paid according to a wage scale that approximates the hourly rates received by union workers doing similar work in that area of the state.
Fellhauer Mechanical Systems is a private, for-profit company in Port Clinton that provides plumbing, heating and electrical services and also sells audio-visual and security systems. The company, which operated its business out of a leased facility, had an opportunity in 2006 to purchase and renovate that facility and expand its operations by adding an audio-visual products showroom. Fellhauer applied to Ottawa County for a loan from a block grant program administered by the Ohio Department of Development that makes federal dollars available to communities across the state to support local economic development projects. A $305,000 loan was approved, with the specification that all of the loan proceeds would be used for acquisition of the land and building.
Fellhauer also applied for a loan from the Ottawa County Improvement Corporation (OCIC), a local economic development program funded by the county through the conveyance fees it collects from property owners when real estate transfers are recorded. OCIC approved a loan for $36,750, which was designated as further financing for the purchase of the land and building and the acquisition of new equipment.
When the loan approvals and plans for the project were announced, the Northwestern Ohio Building Trades Council sought and obtained a temporary restraining order to prevent Fellhauer from moving forward with the project. The council, which represents area building trades unions, claimed that all work performed as part of the Fellhauer project should be subject to the prevailing wage law, because it involved the expenditure of public funds on a construction project. In a subsequent court action, the Ottawa County Court of Common Pleas denied an injunction requiring that bid specifications and other elements of the project be conducted under the requirements of the prevailing wage law. The court ruled that the prevailing wage statute was applicable only to the construction of “public improvements,” and the Fellhauer project did not fall under the statutory definition of a public improvement because it did not represent construction “by” or “for” a public authority.
The Building Trades Council appealed. On review, the 6th District Court of Appeals affirmed the action of the trial court, but on a different legal basis. The court of appeals held that, because all of the money provided to Fellhauer through its block grant and OCIC loans was earmarked either for purchase of the land and property or for procurement of new equipment, and none of those funds were authorized to be spent on “construction,” the project did not qualify as a construction project partially or fully funded by a public authority -- and therefore did not fall within the provisions of the prevailing wage law. The Council sought and was granted Supreme Court review of the lower court decisions.
Writing for the Court in today’s decision, Justice Stratton cited a 1991 ruling in which the Supreme Court held that the prevailing wage statute: “applies to ‘construction projects that are “public improvements” as defined in R.C. 4115.03(C): “Public improvement” includes all buildings, roads, streets, alleys, sewers, ditches, sewage disposal plants, water works, and all other structures or works constructed by a public authority of the state or any political subdivision thereof or by any person who, pursuant to a contract with a public authority, constructs any structure for a public authority of the state or political subdivision thereof.’ ... To qualify as a public improvement, the project must be constructed by a public authority or must benefit a public authority.”
“Northwestern argues that prevailing wage is triggered merely upon an institution’s expenditure of public funds to finance a project, regardless of whether the project involves actual construction of a ‘public improvement’ as defined in R.C. 4115.03(C),” wrote Justice Stratton. “We disagree. ... Northwestern’s argument that any spending of public funds by an ‘institution’ would require payment of the prevailing wage would unjustifiably expand the scope of prevailing wage to include projects that are not public improvements, that are not constructed by a public authority, or that do not benefit a public authority. ... (J)ust as with any other public authority, an institution’s expenditure of public funds triggers the prevailing-wage requirement only when the project meets the statutory criteria for determining the applicability of prevailing wage, i.e., where a public authority using public funds contracts to construct a public improvement.”
Applying that legal analysis to the Fellhauer project, Justice Stratton wrote that the project is not a “public improvement” because it is not a structure or work “constructed by a public authority of the state or a political subdivision” or constructed by a contractor on behalf of a public authority or political subdivision. She noted further that “The only portion of the project that can possibly be “constructed” is the renovation portion, and that is being done by Fellhauer, using private funds. And none of the project, in fact, is destined to be used by or for any public authority. The entire project is for Fellhauer alone. The simple fact is that the Fellhauer project is not a ‘construction’ of a ‘public improvement’ by or for a public authority. Consequently, because no public funds were used to finance any actual construction of a public improvement that benefits a public authority, the prevailing-wage requirement does not apply to the Fellhauer project.”
Contacts
Joseph M. D’Angelo, 419.244.8989, for Northwestern Ohio Building and Construction Trades Council.
Vincent Atriano, 614.365.2783, for County Improvement Corp. and Ottawa County Bd. of Commissioners.
Alan G. Ross, 216.447.1551, for Fellhauer Mechanical Systems, Inc.