The California Attorney General's Office has issued a significant ruling regarding the payment of prevailing wages by private nonprofit organizations that accept public funds for construction projects. This decision, filed under docket number 26-201 on October 13, 2026, clarifies that nonprofits must pay prevailing wages to workers they hire for construction projects, even if those workers are paid with non-public funds. This ruling impacts nonprofits engaged in public works projects across the state.
The ruling stems from a request by Edward J. Kiernan, San Joaquin County Counsel, who sought clarification on the prevailing wage law as it applies to nonprofits using public funds to purchase materials for construction. The Attorney General's opinion emphasizes the importance of ensuring that workers on public projects receive fair compensation, thereby supporting middle-class jobs and skilled labor in California.
California Labor Code section 1771 mandates that all workers on public works projects be paid at least the prevailing wage for similar work in the area. The law aims to maintain construction as a viable occupation for many Californians and to encourage the hiring of skilled workers. The question at hand was whether workers hired by a nonprofit organization for a construction project would be subject to the prevailing wage law if the nonprofit used public funds solely for purchasing materials.
The Attorney General's opinion concluded that the prevailing wage law applies in this scenario. It stated, "when a private nonprofit organization accepts and uses public funds to purchase materials for use on a construction project, the organization is obliged to pay prevailing wages to the workers that it hires onto that same project." This ruling underscores the idea that public funds, even when earmarked for materials, contribute to the overall cost of the construction project.
The opinion further analyzed the definition of public works under California Labor Code section 1720(a)(1), which includes any construction, alteration, demolition, installation, or repair work done under contract and paid for, in whole or in part, with public funds. The Attorney General's office noted that the California Supreme Court has established that the prevailing wage law applies when the work is done under contract and paid for, at least in part, with public funds.
In this case, the nonprofit organization was assumed to receive public funds to purchase flooring materials, which would then be installed by workers hired by the nonprofit. The court ruled that it would be impossible for workers to perform installation labor without first acquiring the necessary materials. Thus, the public funds used for purchasing materials would qualify as payment for part of the construction work.
The Attorney General's opinion also referenced the legislative history of the prevailing wage law, noting that it was amended in 2001 to clarify that public agencies cannot evade coverage of the law through creative earmarking of funds. The ruling emphasized that public agencies must not be allowed to circumvent the prevailing wage law by allocating public funds only for materials while avoiding labor costs.
This ruling has significant implications for nonprofit organizations in California. It ensures that workers on public projects receive fair wages, regardless of how funds are allocated within a project. By reinforcing the prevailing wage law, the Attorney General's opinion aims to protect workers and maintain the integrity of public works projects in the state.
The decision aligns with previous court rulings that have rejected attempts to limit the application of the prevailing wage law through creative funding strategies. For instance, the court in Azusa Land Partners held that public agencies cannot divide projects into publicly and privately financed components to avoid paying prevailing wages. This ruling reinforces the idea that once a project is deemed a public work, the entire project falls under the prevailing wage law.
Looking ahead, this ruling sets a clear precedent for how public funds can be utilized in construction projects involving nonprofit organizations. It emphasizes that all aspects of a project funded in part by public money must comply with prevailing wage requirements. This decision is expected to influence future public works projects and the way nonprofits approach funding and labor practices.
The Attorney General's opinion can potentially be appealed, although specific details about any related cases or pending appeals were not available in the court filing. Nonprofits and public agencies will need to review their funding strategies and labor practices in light of this ruling to ensure compliance with California's prevailing wage law.