California Legislature Essentially Eliminates Public Works “De Minimis” Exception

On September 30, 2020, Governor Newsom signed into law AB 2231, which limits the “de minimis” exception to California prevailing wage laws to all but the smallest projects.  Specifically, the new law limits the de minimis contribution of a public entity to an amount less than $600,000 and less than 2% of the total project cost.  The law will take effect on July 1, 2021.

California prevailing wage laws generally require the payment of prevailing wages to workers employed on public works projects.  Public works projects include construction, alteration, demolition, installation, repair work and other work paid for in whole or in part from public funds.  However, the law has historically included an exception from the prevailing wage requirements where the contribution of a public agency to the project was de minimis “in the context of the project.”  The exact meaning of that de minimis exemption was not statutorily defined and was therefore left to interpretation by the Department of Industrial Relations (DIR).  For example, in 2015, the DIR determined that a $500,000 contribution for lab equipment on a hospital construction project was de minimis where the project as a whole was $77 million dollars.  Generally, under existing law a subsidy of about 1.75% is considered relatively safe.

The new definition of the de minimis exception represents yet another step taken by the California legislature to ensure that California’s prevailing wage laws apply to more projects. 

While the 2% threshold for the de minimis exemption enacted by the legislation is consistent with previous DIR decisions, the adding of the $600,000 limit may convert many otherwise private projects to public works.  Any project over $30 million can anticipate having the ceiling of $600,000 present a challenge.  The type of projects that could take advantage of the de minimus exemption have mostly been mixed-use residential and commercial developments. Given the development and land costs in California, these projects are generally larger-scale developments.  This change to the de minimis exemption essentially makes the exemption meaningless in practice.  Because the law does not go into effect until July 2021, developers and commercial builders have until then to get projects approved while the current law applies.  

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.