Statutory Penalties for Employer’s Violation of ‘Prevailing Wage’ Statute are Mandatory

When Workers Sue Successfully to Recover Underpaid Wages

Bergman v. Monarch Constr. Co., Slip Opinion No. 2010-Ohio-622.
Butler App. No. CA2008-02-044, 2009-Ohio-551. Judgment of the court of appeals reversed, and cause remanded to the trial court.
Moyer, C.J., and Pfeifer, O'Connor, Lanzinger, and Cupp, JJ., concur.
Lundberg Stratton and O'Donnell, JJ., dissent.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2010/2010-Ohio-622.pdf

(March 2, 2010) The Supreme Court of Ohio ruled today that in an employee-initiated action under the state’s “prevailing wage” statute, when a court finds that a contractor has failed to pay workers the prevailing wage for work on a public improvement project, the court must assess against the employer not only a judgment for the amount of the plaintiffs’ underpaid wages, but also the financial penalties set forth in R.C. 4115.10(A), unless the violation falls under one of two exceptions set forth in R.C. 4115.13(C).

The Court’s 5-2 majority decision, which reversed a ruling by the 12th District Court of Appeals, was authored by Justice Robert R. Cupp.

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 improvements” 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. If workers on a project subject to the prevailing wage law later believe that they were underpaid, they may either file a private lawsuit against their employer or file a complaint with the Ohio Department of Commerce (ODC), which is obliged to investigate and, if the complaint is found valid, recover the underpaid wages on behalf of the workers.

This case involves a private lawsuit pursued by Doug Berman and other masonry workers who were employed on a prevailing wage construction project at Miami University. The university contracted with Monarch Construction Company, a general contractor, for the necessary trades work. Monarch subcontracted masonry work on the project to Don Salyers Masonry, which employed the workers involved in the case. The workers’ complaint alleged that Salyers had not paid them at the prevailing wage rate and sought recovery from the university, Salyers and Monarch. Before trial, the court granted the university’s motion to be dismissed as a defendant. The court entered a default judgment against Salyers, but the company had gone out of business, rendering that judgment uncollectable.

Following a bench trial on the plaintiffs’ claims against Monarch, the court ruled that the employees had been underpaid and found that Monarch, as the general contractor on the project, was liable for their back pay. The court declined, however, to order Monarch to pay the plaintiffs an additional penalty amount equal to 25 percent of their underpaid wages pursuant to R.C. 4115.10(A), or to assess against Monarch a second penalty set forth in the same statute equal to 75 percent of the wage underpayment and payable to the Director of ODC to help finance prevailing wage enforcement activities. The judge held that the language of R.C. 4115.10(A) gives trial courts discretion to either impose or to waive the 25 and 75 percent add-on penalties, and found that because Monarch had cooperated as soon as it was made aware of Salyers’ underpayments to its workers, the circumstances of the case did not warrant imposition of those penalties on Monarch.

The workers appealed. On review, the 12th District Court of Appeals affirmed the trial court’s ruling that the 25 percent add-on penalty payable to underpaid workers and 75 percent penalty payable to the Director of ODC provided in R.C. 4115.10(A) are discretionary rather than mandatory. The workers sought and were granted Supreme Court review of the 12th District’s decision.

In today’s decision, Justice Cupp wrote: “The general rule of the prevailing-wage law is that an employer shall not violate the wage provisions of R.C. Chapter 4115 or require an employee to work for less than the ‘rate of wages so fixed.’ ... If the employer violates this proscription and pays an employee less than the prevailing wage, the employee has several options to recoup his underpayment. The employee can institute an enforcement action under R.C. 4155.10(A) or assign to the director of commerce the right to institute an enforcement action under R.C. 4115.10(B). ... For the employee-initiated enforcement action under R.C. 4115.10(A), the remedy for the underpayment of wages is plainly set forth: the employee is entitled to ‘the difference between the fixed rate of wages and the amount paid to the employee and in addition thereto a sum equal to twenty-five per cent of that difference.’ In addition, the underpaying employer ‘also shall pay a penalty to the director of seventy-five per cent of the difference between the fixed rate of wages and the amount paid to the employee.’

“The appellate court’s rationale that the R.C. 4115.10(A) penalties were discretionary was based on its interpretation that the phrase ‘may recover’ gives the trial court discretion to deny recovery to the employee,” wrote Justice Cupp. “ ... However, the appellate court misread R.C. 4115.10(A). The phrase ‘may recover’ within R.C. 4115.10(A) pertains to the choice the underpaid employee has to enforce his or her right to recover the underpayment. It vests with the employee the discretion of whether to commence an action for restitution of the underpayment. Correspondingly, if the employee chooses to enforce his or her statutory right to recover the unpaid wages, and proves the case, then the statutory penalties follow as a matter of course and are mandatory. ... This interpretation reflects the legislative intent of R.C. Chapter 4115 ... and gives force and effect to the basic rule contained in R.C. 4115.10(A): an employer shall not violate the prevailing-wage laws or pay an employee ‘less than the rate of wages so fixed.’

“To deny an underpaid employee the additional 25 percent penalty is contrary to the language of R.C. 4115.10(A). ... The statute is also clear in its direction with regard to the 75 percent penalty: it shall be paid to the director of commerce, and it is used for enforcement of the prevailing-wage laws. ... In this case, the ‘clear and unequivocal legislative intent’ as expressed in the statute is that the 75 percent penalty is to be paid whenever the director of commerce determines that there has been a prevailing-wage underpayment and the determination becomes final.”

“Finally, within the prevailing-wage legislation, there is only one exception to the payment of the penalties. According to R.C. 4115.13(C), when the director of commerce finds that a wage underpayment is the result of a misinterpretation of the prevailing-wage statutes or an erroneous preparation of the payroll documents, provided restitution of the underpayment is made, no further proceedings will occur and no penalties are assessed. Because this provision does not apply to Monarch in this case, there is no authority for the mandatory penalty to be waived.”

Justice Cupp’s opinion was joined by Chief Justice Thomas J. Moyer and Justices Paul E. Pfeifer, Maureen O’Connor and Judith Ann Lanzinger.

Justice Evelyn Lundberg Stratton entered a dissent, joined by Justice Terrence O’Donnell, stating that in her view the 12th District correctly interpreted R.C. 4111.15(A) as granting trial courts discretion either to impose or to waive the 25 percent add-on penalty set forth in that code section. She wrote: “The sentence at issue in R.C. 4115.10(A) provides that an employee who is paid less than the applicable fixed rate of wages on the project ‘may recover ... the difference between the fixed rate of wages and the amount paid to the employee and in addition thereto a sum equal to twenty-five per cent of that difference.’ (Emphasis added.) ... The majority rejects the appellate court’s plain reading of the statute in favor of an interpretation that ‘may recover’ ‘pertains to the choice the underpaid employee has to enforce his right to recover the underpayment.’

“I agree that an employee does have a choice either to file suit to recover for a prevailing-wage violation, R.C. 4115.10(A), or to assign the claim to the Department of Commerce to file, R.C. 4115.10(B),” Justice Stratton wrote. “ The employer also may do nothing, in which case the department may bring legal action to collect the wages. R.C. 4115.10(C). However, there is no language in the statute that supports the majority’s interpretation that ‘may recover’ pertains only to the employee’s choice of methods to recover wages, which is addressed later in the statute. ... The General Assembly’s use of the word ‘may’ before the word ‘recover’ indicates that recovery is discretionary. Also, ‘may recover’ must be read in the context of the entire sentence, which pertains to what the employee may recover, not how to recover. ... Consequently, I respectfully dissent and would affirm the judgment of the court of appeals.”

Contacts
Joseph M. D’Angelo, 419.224.8989, for Doug Bergman and other plaintiff workers.

Gregory P. Rogers, 513.381.2838, for Monarch Construction Company.

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