Prevailing Wage Violation Invites Unsuccessful Bidder’s Tort Claim

Failing to pay prevailing wages on a public works project can have consequences beyond labor code penalties and claims for unpaid wages.  Contractors who “unlawfully deflate their labor costs” by intentionally violating prevailing wage laws in order to win contracts are also subject to tort claims by the second lowest bidder for interference with prospective economic advantage.  Traditionally, the disappointed second bidder’s only recourse has been to challenge the bid process or the bid itself for irregularities via a bid protest.  But under the tort theory of interference, the runner-up can seek tort damages from the winning bidder if it can establish that the winning bid was the result of the contractor’s manipulation of the bidding process.

The recent case of Roy Allan Slurry Seal, et al. v American Asphalt South, Inc. (2/20/2015) 2015 Cal App Lexis 164, illustrates this point.  In Roy Allan, two slurry seal contractors brought five separate actions against a third contractor after finishing second on 23 public works road sealing projects involving almost $15 million in contract work in five counties in Southern California.  Plaintiffs filed complaints in each county, alleging that they would have been awarded the contract as the lowest bidder in each instance had the defendant’s bids included labor costs based on paying the prevailing wage.  They asserted a tort cause of action for intentional interference with prospective economic advantage, as well as claims for defendant’s alleged violations of California’s Unfair Practices Act (“”UPA”) and Unfair Competition Law (“UCL”).

Defendant challenged the each of the complaints, and after some initially conflicting trial court rulings in three different counties, all five actions were consolidated for trial and appellate purposes. In this consolidated appeal, the Court assumed that the plaintiffs’ allegations were true, and then analyzed whether they would support the asserted causes of action. After an extensive review of precedent from California and other states, a majority of the three-justice appellate panel concluded that:

Plaintiffs do not seek to enforce the prevailing wage laws; they seek to enforce their right to compete for public works contracts free of unlawful manipulation by their competitors. The duty [defendant] allegedly breached was the duty to not interfere with plaintiffs’ prospective economic advantage by violating the prevailing wage laws in order to make it appear as if [defendant] were the lowest bidder. Finally, if, as alleged, plaintiffs submitted the true lowest bids and [defendant] was able to misrepresent itself as the lowest bidder by violating the prevailing wage laws, then that misconduct was the proximate cause of the public works contracts being awarded to [defendant] instead of plaintiffs. [Citation omitted.]

Roy Allan, supra, at p. 11/19.

Thus, plaintiffs’ tort claim was allowed to proceed, over a vigorous dissent, while all three justices agreed that the UPA and UCL claims should be summarily dismissed.

One subtle but important takeaway from the case is that, for disappointed bidders to win a case like this one, they must eventually prove the defendant’s intent not to pay prevailing wages at the time of submitting its bid. Because of Roy Allan’s procedural context, the appellate court assumed the necessary factual predicate of an unlawful intent “in order to obtain contracts under false pretenses” at the time of bid, so the opinion doesn’t reach the issue of what proof will be needed to sustain such a claim. However, absent compelling facts like those alleged in Roy Allan (i.e., where the defendant apparently had a long history of skirting prevailing wage laws), proving the defendant’s intent might be difficult.

By Robert C. Hendrickson and Ronald E. Ruma