Montana Attorney General Opinion 16-246

Opinion No. 246. State Highway Commission-Lab or- Prevailing Rate of Wages-Highway and Bridges--Contractors. HELD: 1. It is incumbent upon the State Highway Commission to penalize contractors who fail to pay the prevailing rate of wages to work- men employed on highway construc- tion, maintenance and repair. 2. "Prevailing rate of wages" is defined and a method suggested for facilitating the determination of that rate by the State Highway Commis- sion. February 3, 1936. Mr. D. A. McKinnon State Highway Engineer The Capitol In regard to the requirement of Section 1, Chapter 102, Laws of Mon- tana, 1931, that contracts let by the State Highway Commission for the construction, maintenance and repair of highways must contain a provision to the effect that the contractor must pay "the standard prevailing rate of wages in effect as paid in the county seat of the county in which the work is being performed," you have asked us to advise you "as to the method by which the standard prevailing rate of wages in effect, as paid in the county seat of any county may be determined, and, likewise, under what authority such determination is to be made, at what time and by whom the same is to be made." Section 3 of the Act provides: "If any person, firm or corporation shall fail to comply wIth the proviSions of this Act the state, county, municipal or school officers who have executed the contract shall retain five hundred dollars ($500.00) of the contract price as liquidated damages for the viola- tion of the terms of the contract and said money shall be credited to the proper funds of the state, county, mu- nicipal or school districts. In all con- tracts entered into under the provi- sions of this Act at least five hundred dollars ($500.00) of the contract price shall be withheld at all times until the termination of the contract." Under this section, it is clear that the State Highway Commissioners, being the state officers who have ex- ecuted the contract, must determine what the standard prevailing rate of wages in the county seat is during the time that the contract is being performed and if the highway com- mission finds that the contractor has not paid what it finds to be the stand- ard prevailing rate of wages, it is mandatory upon the commission to retain $500 of the contract price as liquidated damages. (Ryan v. City of New York, 177 N. Y. 271, 278, 69 N. E. 599; Wright v. State of New York, 223 N. Y. 44, 119 N. Y. 83; Morse v. Delaney, 218 N. Y. S. 571, 128 Misc. Rep. 317.) How is the standard prevailing: rate of wages in effect as paid in the county seat of the county in which the work is being performed to be determined? It must be determined upon the facts which it is incumbent upon the State Highway Commission, as an administrative board, to inves- tigate. All that this office may do is suggest certain legal principles for the commission's guidance and which will assist in properly determining the matter. The term "prevailing rate of wages" has come to have a definite connota- tion, or, as Mr. Justice Cardozo once said: "One finds it hard to believe that a cliche so inveterate is devoid of meaning altogether." (Campbell v. New York City, 244 N. Y. 317, 155 N. E. 628, reported in 50 A. L. R. 1474 and there annotated.) It is equally true, however, that wages, particularly those of such numerous classes as laborers, workmen and me- chanics tend to uniformity and sta- bility and so to an average or ordinary rate, which varies somewhat from place to place and which Adam Smith speaks of (Wealth of Nations, Chap- ter VII) as the "natural rates in wages" at the time and place in which they commonly prevail. (Ruark v. International Union of Operating Engineers (1929), 157 Md. 587, 146 AU. 801.) Accordingly, I think you will be well within both the letter and the spirit of the statute if you insist that OPINIONS OF THE ATTORNEY GENERAL 257 the contractor pay his employees at a rate equal to the charge for or valua- tion of the daily toil of a laborer, workman or mechanic, as the case may be, at a given labor, in a given industry, according to the scale or standard of money compensation gen- erally received' or establishpd hy ~om­ mon consent or estimation in the county seat in which the work is per- formed, at the time of its perform- ance. (Ruark v. International Union, supra.) The fact that this charge or valua- tion fluctuates does not make the de- finition given less operative. The courts have held that labor has its market value, and that market is subject to economic pressures just like the market for commodities. The rise or fall in these markets is one of the risks which the contractor takes when he submits his bid. As the Maryland Court of Appeals put it, in the Ruark case, supra: "It is not unreasonable to impute to a con- tractor the knowledge which the na- ture of his business, and its prose- cution, require him to possess, or which might have been obtained by reasonable investigation." Section 220 of the 1921 Labor Law of New York is similar to our Chap- ter 102, Laws of Montana, 1931. In order to assist ·your commission in determining this matter and to make it easier for you to arrive at decisions that are reasonable and within the spirit and letter of the law, we re- commend that you insert in your con- tracts a provision similar to that used in the State of New York, and ap- proved by the courts of that state. '(Campbell v. City of New York, supra.) Such a provision might read as follows: "It is distinctly understood and agreed, as one of the principal mov- ing considerations to the said High- way Commission for entering into this contract that the contractor shall pay the standard prevailing rate of wages in effect in the city of , being the county seat of the county in which the work is being performed. It is further so understood and agreed between the parties of this contract that the said 'standard prevailing rate of wage' shall be that rate paid to a majority of the laborers, workmen or mechan- ics engaged in the same trade or oc- cupation in the city of . In the event that there is not a major- ity in the same trade or occupation in the city of paid at the same rate, then the rate paid to the greater number of such trade or oc- cupation in the city of shall be the prevailing rate, provided that such greater number constitute at least 40 per centum of the laborers, workmen, or mechanics engaged in such trade or occupation in the city of ; in the event that there is less than 40 per centum of the laborers, workmen, or mechanics en- gaged in the same trade or occupa- tion in the city of paid the same rate, then the average rate paid to such laborers, workmen, or mechanics in the same trade or oc- cupation, shall be the prevailing rate. For the purpose of determining the number of laborers, workmen, or me- chanics engaged in any such trade or occupation, all the laborers, work- men, or mechanics engaged in the performance of work under this con- tract and all other laborers, work- men, or mechanics in the city of ---- engaged on similar work to that required under this contract, whether highway construction or otherwise, shall be included in such total number. The contractor here- by, as one of the inducements to the State Highway Commission to enter into this contract, particularly agrees to the provisions of this ar- ticle with respect to the 'standard prevailing rate of wages' for the purposes of this contract, and shall not make or have any claim that any of the provisions of this article are void or ultra vires in any respect or for any purpose." In this era of trade unionism and collective bargaining, such a provision in the contract would have this prac- tical effect: 1. In those county seats where most, if not all, of the men employed in a given trade or occupation are members of a trade union, the "union scale" would then be "the standard prevailing rate of wages." 2. Even in those county seats where the members of trade unions do not constitute a majority of the persons 258 OPINIONS OF THE ATTORNEY GENERAL employed at a given trade neverthe- less the "union scale" may still be the "prevailing rate," especially if those members constitute as much as 40% of the total. 3. In those county seats where there are no unions or where the members of such unions constitute only a small number of the total em- ployed at a given trade, then the "av- erage rate" shall be the "prevailing rate." That such a solution is both legal and practicable is fully sustained by the decision in Morse v. Delaney, supra, wherein the Supreme Court of New York said: "If industrial groups, both of labor and capital, which have established wage agreements, largely dominate their particular industry, the probable effect will be that a ma- jority of all the workmen in that particular line of endeavor will be paid the rate fixed by the group conven- tion, even though only a minority be- long to the trade union which has succeeded in bringing about such wage agreement. But, if the organ- ized groups are not sufficiently con- trolling to influence a rate that will serve the majority they may still constitute such a large factor in the industry as to entitle their scale to be regarded as the prevailing rate; and this would certainly be true if the proportion controlled by such fac- tor constituted as high a number as 40 per cent of the total. Finally, if there are no group agreements in the particular locality in relation to wages, or the workers within such agreement compose only a small por- tion of the working body, an average can be struck between the various rates paid, and such average may constitute the fair market rate or the prevailing rate." As the Supreme Court of Califor- nia said in a recent case construing a similar statute: "There may be, as there usually is in charter provisions and ordinances affecting the matter before us, rough edges and inconsis- tencies and irregularities which can be composed or ironed out by the ex- ercise of co-operative efforts on the part of all persons upon whom the law may operate. * * * The questions of law being settled, there should be no trouble in applying it in such man- ner as to accomplish the manifest· purpose of the charter." (Hague v. Cleary, 48 Pac. (2d) 5.) Chapter 102 of the Laws of Mon- tana, 1931, is not in its concept the sudden creation of our lawmaking body but the manifestation of an economic movement extending over many years. Progressive legislatures throughout the world have come to realize that the state should be the first to prevent the exploitation of human labor, the first to insure the toiler a decent standard of living, and the first to give an example to pri- vate employers. Our legislature has dealt realistically with the problem in Chapter 102, and in doing so, Mon- tana marches abreast with at least five other states that we know of· where the same high standards have been raised for public contracts. In addition to the authorities cited above, we have considered Atkin v. Kansas, 191 U. S. 207; Connally v. General Construction Company, 269 U. S. 385; Hague v. Cleary, 39 Pac. (2) 219; State v. Anklam, 31 Pac. (2) 888; In re Rate of Wages, 160 Atl. 408; State v. Blaser, 26 Pac. (2) 593; Dunphy and Hannan v. State, 264 N. Y. 429; McCaffrey v. State, 259 N. Y. 159; Carder Realty Corporation v. Perkins, 261 N. Y. S. 819.