In the Matter of New York Charter School Association v. M. Patricia Smith, as Commissioner of Labor / In the Matter of Foundation for a Greater Opportunity v. M. Patricia Smith, as Commissioner of Labor
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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
----------------------------------------------------------------No. 147
In the Matter of New York Charter
School Association et al.,
Respondents,
v.
M. Patricia Smith, as
Commissioner of Labor,
Appellant.
------------------------------In the Matter of Foundation for a
Greater Opportunity et al.,
Respondents,
v.
M. Patricia Smith, as
Commissioner of Labor et al.,
Appellants.
Zainab A. Chaudhry, for appellants.
James J. Barriere, for respondents New York Charter
School Association et al.
Richard M. Zuckerman, for respondents Foundation for a
Greater Opportunity et al.
New York State Building & Construction Trades Council,
AFL-CIO; New York State United Teachers; New York City Charter
School Center, amici curiae.
PIGOTT, J.:
Our State Constitution provides that laborers, workmen
and mechanics engaged in "any public work" cannot "be paid less
than the rate of wages prevailing in the same trade or occupation
in the locality within the state where such public work is to be
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No. 147
situated, erected or used" (NY Const, art. I, § 17).
Labor Law §
220 implements this constitutional requirement, providing in
pertinent part:
"Each contract to which the state or a public
benefit corporation or a municipal
corporation or a commission appointed
pursuant to law is a party, and any contract
for public work entered into by a third party
acting in place of, on behalf of and for the
benefit of such public entity pursuant to any
lease, permit or other agreement between such
third party and the public entity, and which
may involve the employment of laborers,
workers or mechanics shall contain a
stipulation that no laborer, worker or
mechanic in the employ of the contractor,
subcontractor or other person doing or
contracting to do the whole or a part of the
work contemplated by the contract shall be
permitted or required to work more than eight
hours in any one calendar day or more than
five days in any one week except in cases of
extraordinary emergency including fire, flood
or danger to life or property . . . "
This litigation was sparked by an opinion letter dated
August 31, 2007, wherein the New York State Department of Labor
declared that the prevailing wage law mandate of Labor Law § 220
applied to all charter school projects.
Two weeks later, on
September 11, 2007, the Commissioner notified the Charter Schools
Institute and the Commissioner of the State Education Department
that it would begin to enforce prevailing wage laws on all
charter school projects for which the advertising of bids
occurred on or after September 20, 2007.
This determination was in stark contrast to the
position taken by the Department in the previous seven years.
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an opinion letter dated June 29, 2000, the Department then
reasoned that,
"generally speaking, a Charter School is not
a public entity. Therefore, Charter Schools
cannot, as a class, be deemed to be
Departments of Jurisdiction as defined under
Labor Law Article 8, Section 220. And, in
the absence of a contract with a public
entity, the requirement to pay prevailing
hourly wages and supplements to workers,
laborers, and mechanics employed on a project
does not arise."
In response to this change of opinion, petitioners, two
foundations that support the creation of New York charter
schools, the New York Charter School Association and three
charter schools, commenced the instant proceedings, seeking a
judgment declaring that the Commissioner's new position was taken
in excess of her jurisdiction, that the prevailing wage laws do
not apply to charter schools and an order enjoining the
Commissioner from imposing the prevailing wage laws on them.
Supreme Court dismissed the petitions holding that the
charter agreement between the school and the chartering entity is
itself a contract between a public entity and a third party that
may involve the employment of laborers, workers or mechanics
(Foundation for a Greater Opportunity v Smith, 20 Misc 3d 453,
464 [Sup Ct, Albany County 2008]).
Therefore, the court
reasoned, the construction, renovation, repair and maintenance of
charter schools facilities constitute projects for public works
(id. at 467).
The Appellate Division reversed, granted the petitions
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and declared that "petitioners are not subject to the prevailing
wage laws of Labor Law article 8" (New York Charter School Assn v
Smith, 61 AD3d 1091 [3d Dept 2009]).
The court found that
charter schools are not public entities and, further, that
charter agreements are not contracts involving the employment of
laborers, workers or mechanics (id. at 1094).
This Court granted leave and we now affirm.
I.
In Matter of Erie County Indus. Develop. Agency v
Roberts (94 AD2d 532 [1983] affd 63 NY2d 810 for reasons stated
below), we held that two conditions must be met for the
prevailing wage law to apply:
"(1) the public agency must be a party to a
contract involving the employment of
laborers, workmen, or mechanics, and
(2) the contract must concern a public works
project" (id. at 538).
In order for the prevailing wage laws to apply to
charter schools both prongs of the Erie test must be met.
The Commissioner argues that the first prong, the
contract requirement, is met for three independent reasons.
First, taking the position of Supreme Court, the charter
agreement governing the operation of a charter school is itself a
contract with a public entity that contemplates the employment of
workers on facility projects.
Second, the charter school should
be regarded as a public entity for purposes of the prevailing
wage law.
Finally, the charter school may be regarded as a
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third-party intermediary when it enters into a charter school
facility contract on behalf of or in place of the chartering
entity (usually a school district), pursuant to the charter that
created it.
Taking each of these arguments in order, we hold
that the projects undertaken by charter schools contemplated by
this litigation do not meet the contract prong of the Erie test.
II.
The Commissioner's first argument is easily disposed
of. Labor Law § 220 (2), by its terms, requires that the contract
be particular to the "work contemplated" by the parties.
In
other words, construction or renovation work must be involved
(see e.g. Matter of 60 Mkt. St. Assoc. v Hartnett, 153 AD2d 205
[3d Dept 1990] [lease agreement between county and limited
partnership providing financing for the construction project];
Matter of National R.R. Passenger Corp. v Hartnett, 169 AD2d 127
[3d Dept 1991] [financing and implementation agreements for the
construction]).
A charter agreement is not such a document.
It
is an authorizing agreement under which an agency has determined
that an applicant school is competent to be licensed as an
educational corporation and nothing more (see Education Law §
2852 [2]).
Although the charter agreement must contain certain
information, such as the location of the proposed charter school
(see Education Law § 2851 [2] [j]), it is not a contract for
public work involving the hiring of laborers, workers, or
mechanics within the meaning of § 220.
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III.
As to the Commissioner's second argument, that charter
schools are public entities within the meaning of the prevailing
wage law, we disagree.
Only four public entities are
specifically identified under Labor Law § 220 (2):
the state, a
public benefit corporation, a municipal corporation or a
commission appointed pursuant to law.
By its terms, the statute
does not expressly apply to educational corporations, and that
includes charter schools (see Education Law §§ 216-a [1] [a];
2851 [3]).
We recognize that charters schools possess some
characteristics similar to a public entity.
The Legislature
created charter schools as "independent and autonomous public
school[s]" and granted them powers that "constitute the
performance of essential public purposes and governmental
purposes of this [S]tate" (Education Law § 2853 [1] [c], [d]
[emphasis added]).
At the same time, however, charter schools
are not governed by appointees of the government, but by a
self-selecting board of trustees that has "final authority for
policy and operational decisions of the school" (Education Law §
2853 [1] [f]).
Further, the Legislature made clear that charter
schools are exempt from all other state and local laws, rules,
regulations or policies governing public schools (see Education
Law § 2854 [1] [b]).
When the Legislature intended charter
schools to be subject to particular laws governing public
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entities, it has said so (see e.g. Education Law § 2584 [1][e]).
Thus, the status of charter schools has often been difficult to
define because they may not be easily identified as either a
purely private or public entity (see e.g. New York Charter
Schools Ass'n, Inc. v DiNapoli, 13 NY3d 120 [2009] [holding that
charter schools are not political subdivisions of state, and the
task of auditing charter schools was not incidental to audits of
public school districts]).
While charter schools are a hybrid of
sorts and operate on different models, they are significantly
less "public" than the entities in those four categories, and
thus, it is clear that these charter schools do not fall within
any of the four categories to which the prevailing wage law
applies.
IV.
Finally, the Commissioner argues that based on a recent
amendment to Labor Law § 220, charter schools now fall within its
ambit.
The argument goes that when the charter schools contract
for renovation work, they are contracting in place of, on behalf
of and for the benefit of the State or Board of Regents.
In 2007, Labor Law § 220 (2) was amended to close what
the bill's sponsor called a "loophole" in the prevailing wage
laws that led to the decision in Pyramid Co. v New York State
Depart. of Labor (223 AD2d 285 [3d Dept 1996]).
In Pyramid, a
private contractor, acting under a state Department of
Transportation (DOT) permit, built a public road on state land to
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The court
found that, although the highway project was a "public works
project", prevailing wage laws did not apply because "DOT was not
a party to any contract involving the construction of the
project" (id. at 287).
The purpose of this amendment was to enforce prevailing
wage laws on jobs, like the one in Pyramid, in which private
parties are carrying out public work projects on behalf of public
owners.
Neither the amendment nor any of the supporting
legislative history suggest that the prevailing wage laws would
therefore extend to charter schools.
Indeed, the Charter Schools Act itself provides to the
contrary:
"[n]either the local school district, the
charter entity nor the state shall be liable
for the debts or financial obligations of a
charter school or any person or corporate
entity who operates a charter school"
(Education Law § 2853 [1] [g]).
A charter school must secure and maintain, on its own,
the facilities where it conducts its educational mission whether by raising private funds to build a school, renting
existing facilities, arranging to have a donor provide facilities
or other appropriate means.
When an education corporation enters
into a facilities contract for a charter school, it typically
does so on its own behalf, in its own name, and at its own risk.
Thus, unlike in Pyramid, where the private entity was clearly
acting to benefit the State, a renovation contract by a charter
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school is only for the benefit of the charter school itself.
Our holding today should not be read to mean that every
facilities contract in which a charter school is a party is
exempt from the prevailing wage laws.
There may be contracts
where a charter school is acting in place of, on behalf of and
for the benefit of a public entity, where the prevailing wage law
may apply.
We need not address the application of section 220 to
those situations because the facilities contracts contemplated by
this litigation involve projects in which the Foundation or the
charter school owns the building and all construction,
renovation, repair and maintenance of the building are the
responsibility of the charter school.
V.
In sum, we hold that the first prong of the Erie County
test, the contract requirement, has not been met in these cases.
Thus, the blanket ruling of the Commissioner, based on the
arguments set forth, is in error.
In light of our holding, we
need not consider whether charter school projects are public
works under the second prong of the prevailing wage law test.
Accordingly, the order of the Appellate Division should
be affirmed, with costs.
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Matter of New York Charter School Association et al. v Smith
Matter of Foundation for a Greater Opportunity et al. v Smith et
al.
No. 147
LIPPMAN, Chief Judge (dissenting):
Charter schools provide alternative educational
opportunities in our communities.
With the use of innovative
teaching techniques and environments, these schools are designed
to improve the quality of our children's education.
However,
charter schools are, in essence, public schools performing a
vital public service and should be treated as such for purposes
of the prevailing wage rate requirement.
Accordingly, I
respectfully dissent.
The State Constitution provides that the "[l]abor of
human beings is not a commodity nor an article of commerce and
shall never be so considered or construed" (NY Const, art I, §
17).
To that end, the Constitution states that "[n]o laborer,
worker or mechanic, in the employ of a contractor or subcontractor engaged in the performance of any public work . . .
[shall] be paid less than the rate of wages prevailing in the
same trade or occupation in the locality within the state where
such public work is to be situated, erected or used" (NY Const,
art I, § 17).
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These requirements are implemented by article 8 of the
Labor Law.
Labor Law § 220 sets limitations on the number of
hours and the length of the work week for workers on public works
contracts, and requires payment of the prevailing wage rate for
"[e]ach contract to which the state or a public benefit
corporation or a municipal corporation or a commission appointed
pursuant to law is a party, and any contract for public work
entered into by a third party acting in place of and for the
benefit of such public entity pursuant to any lease, permit or
other agreement between such third party and the public entity,
and which may involve the employment of laborers, workers or
mechanics" (Labor Law § 220 [2], [3][a]).
This Court has held that Labor Law section "220 must be
construed with the liberality needed to carry out its beneficent
purposes . . . [The] statute is an attempt by the State to hold
its territorial subdivisions to a standard of social justice in
their dealings with laborers, workmen and mechanics.
It is to be
interpreted with the degree of liberality essential to the
attainment of the end in view" (Bucci v Village of Port Chester,
22 NY2d 195, 201 [1968] [internal quotation marks and citation
omitted]).
The long-standing test for determining whether the
prevailing wage rate is applicable to a given project is found in
Matter of Erie County Indus. Dev. Agency v Roberts (94 AD2d 532
[4th Dept 1983], affd 63 NY2d 810 [1984]).
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The Court developed a
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two-part test that needed be satisfied before the prevailing wage
rate requirement had to be observed: "(1) the public agency must
be a party to a contract involving the employment of laborers,
workmen, or mechanics, and (2) the contract must concern a public
works project" (Erie Co., 94 AD2d at 537).
The Appellate
Division based its determination that the prevailing wage rate
does not apply to charter schools only on the first prong -- the
contract prong -- of the Erie Co. test.
As noted above, Labor Law § 220 (2) contains a clause
allowing a contract entered into by or on behalf of a third party
to qualify as a "contract" within the meaning of the statute.
That provision was added in 2007, in response to the decision in
Matter of Pyramid Co. of Onondaga v New York State Dept. of Labor
(223 AD2d 285 [3d Dept 1996]).
In Pyramid, the owner of a mall
obtained highway work permits from the Department of
Transportation (DOT), allowing roads to be constructed on State
land, connecting the mall to the nearby interstate highway.
The
mall owner then contracted with a third party to perform the
work.
The Court found it clear that the project would qualify as
a "public works project," but found that the contract requirement
was not satisfied, in part because DOT was not a party to any
contract -- the sole contract being between the mall owner and
the third party (see Pyramid, 223 AD2d at 287-288).
The Court
therefore found that the project was not subject to the
prevailing wage law.
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The legislative history demonstrates that the 2007
amendments were intended to overrule the holding in Pyramid.
"The narrow court interpretations of the term 'agreement' created
an unwarranted loophole that has prevented the application of
prevailing wage rules to public work projects that should be
subject to those rules, and this bill properly closes that
loophole in the law" (L 2007, ch 678, Bill Jacket, Governor's
Approval Memo).
In addition, the amendment was intended to
enforce the prevailing wage rate "where the involvement of a
third party obviates the existence of a direct contractual
relationship between the public owner and the contractor
performing the work" (L 2007, ch 678, Bill Jacket, Senate
Introducer's Memo).
The legislative history does not explicitly
mention charter schools.
In order to determine whether charter schools are
subject to prevailing wage rates, some background information is
helpful.
An application to establish a charter school must be
submitted to a "charter entity" for approval (see Education Law §
2851 [3]).
Charter entities include the Board of Regents, the
board of trustees of SUNY or the board of education of the local
school district (or chancellor of the city school district) (see
Education Law § 2851 [3]).
The charter application must contain
a variety of information, including "[i]nformation regarding the
facilities to be used by the school, including the location of
the school, if known" (Education Law § 2851 [2][j]).
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The schools
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can be located in existing public school buildings or other
public buildings, private work sites or other suitable locations
(see Education Law § 2853 [3][a]).
Upon closure or dissolution,
the assets of the charter school are given either to the local
school district or to another charter school within the district
(Education Law § 2851 [2][t]).
Once the board of regents approves the charter school,
it is incorporated as an education corporation.
"A charter
school shall be deemed an independent and autonomous public
school, except as otherwise provided in this article.
The
charter entity and the board of regents shall be deemed to be the
public agents authorized to supervise and oversee the charter
school" (Education Law § 2853 [1][c]).
Moreover, "[t]he powers
granted to the charter school under this article constitute the
performance of essential public purposes and governmental
purposes of this state" (Education Law § 2853 [1][d]).*
Given the role that charter schools play, it is
apparent that the present situation is precisely the type of
scenario the third party amendment to section 220 was designed to
address.
It is clear that if a private school were constructing
*
Charter schools are treated as public schools for certain
purposes, but not for others. For example, charter schools are
required to "meet the same health and safety, civil rights, and
student assessment requirements applicable to other public
schools, except as otherwise specifically provided in this
article" (Education Law § 2854 [1][b]). However, they are
generally exempt from other state and local laws pertaining to
public and private schools (see Education Law § 2854 [1][b]).
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No. 147
its own facility, the public wage rate would not, and should not,
apply.
If, on the other hand, the chartering entity had
contracted for such work on its own, that work would undoubtedly
be subject to the prevailing wage requirement (see e.g. Brian
Hoxie's Painting Co. v Cato-Meridian Cent. School Dist., 76 NY2d
207 [1990]).
The charter school, performing an essential public
and governmental service pursuant to Education Law § 2853 (1)(d),
as authorized by the chartering entity, should be subject to the
prevailing wage rate.
In this context, the charter school
essentially acts as a stand-in for the chartering entity.
The majority opinion rejects the applicability of the
third party amendment, in part, on the basis of a statutory debt
provision (see majority op. at 8).
That provision makes clear
that only a charter school will be liable for its financial
obligations, but has nothing to do with the issue of whether
prevailing wages must be paid to workers.
Where the money comes
from for a construction or renovation project -- whether that
source be public or private -- is not dispositive of the
prevailing wage question.
The statute makes clear that it
pertains to third parties "acting in place of ... and for the
benefit of" public entities (Labor Law § 220 [2]).
Finally, it
is simply not the case that a contract for the renovation of a
charter school inures solely to the benefit of the charter school
itself.
Such facilities provide benefits for students and the
public similar to those provided by public school facilities.
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Given the State's strong public policy in favor of adequate wages
on public works projects and that Labor Law § 220 is subject to
liberal construction, the Department of Labor's interpretation of
the statute finding charter schools subject to the prevailing
wage rate should be upheld.
In addition, the charter agreement itself can be
considered the contract to which a public entity is a party,
without resort to the third party amendment.
The majority finds
that the charter is not a contract involving the employment of
laborers because the charter determines "nothing more" than that
the applicant can be licensed as an educational corporation
(majority op. at 5).
However, the language of the statute itself
requires only that the contract "may involve the employment of
laborers" (Labor Law § 220 [2]).
The Erie Co. test likewise
characterizes the contract as "involving" such employment (94
AD2d at 537).
Since the contract itself does not need to be
strictly a construction contract, the charter, having the
chartering entity as a party and contemplating that construction
or renovation work will be necessary in order to obtain adequate
facilities, would satisfy this contract requirement.
Although making charter schools adhere to prevailing
wage requirements may impose additional costs in providing their
valuable public service, the state's public policy and statutory
framework, as well as the essentially public nature of charter
schools make clear that the prevailing wage rate applies to the
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construction and renovation of charter schools.
Accordingly, I
would reverse the order of the Appellate Division.
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Order affirmed, with costs. Opinion by Judge Pigott. Judges
Graffeo, Read, Smith and Jones concur. Chief Judge Lippman
dissents and votes to reverse in an opinion in which Judge
Ciparick concurs.
Decided October 19, 2010
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