Public Funding Does Not Necessarily Trigger Application of Ohio Prevailing Wage Law

July 10, 2009

The Ohio Supreme Court unanimously ruled last week that Ohio's prevailing wage law did not apply to a private construction project, even though some public funds were used to acquire the land and facility for the project and to purchase equipment being installed in the newly constructed facility.  Northwestern Ohio Building & Construction Trades Council v. Ottawa County Improvement Corp., 2009-Ohio-2957.

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 improvement projects must be paid at prevailing rates – a wage scale that approximates the hourly rates received by union workers doing similar work in that area of the state.

The Supreme Court relied upon the statutory definition of "public improvement" to limit the application of Ohio prevailing wage law to those situations where a public authority spends money on construction that is performed by the public authority or for the benefit of the public authority. 

In Northwestern, a private contractor, Fellhauer Mechanical Systems, decided to expand its operations and renovate its existing facility. Fellhauer received public money from development programs offered through Ottawa County. Fellhauer used this money to finance the purchase of the land, building, and new equipment, but it privately financed the actual construction. 

A building trades council that represented unions in the area, filed suit to enjoin the construction.  The council contended that all work performed on the Fellhauer project was subject to prevailing wage law because the work involved the expenditure of public funds on a construction project.

The Court rejected the council's argument because it "would unjustifiably expand the scope of prevailing wage to include projects that are not public improvements." Justice Evelyn Lundberg Stratton reasoned for the unanimous Court: "(J)ust as with any other public authority, an institution's expenditure of public funds triggers the prevailing-wage requirement only when the project meets the statutory criteria for determining the applicability of prevailing wage, i.e., where a public authority using public funds contracts to construct a public improvement."

Applying that legal analysis to the Fellhauer project, the Court held the project was not a "public improvement" because none of the project was destined to be used by or for any public authority. The only "construction" for the project was for Fellhauer alone and was done by Fellhauer, using private funds. "Because no public funds were used to finance any actual construction of a public improvement that benefited a public authority, the prevailing-wage requirement did not apply to the Fellhauer project."

The Supreme Court's ruling significantly undercuts recent guidance issued by the Ohio Department of Commerce, which enforces Ohio's prevailing wage law. In September 2008, the Department issued guidelines stating that even on an otherwise privately financed construction project, workers must be paid prevailing wages whenever a public entity contributes funding or other direct support to the project. Click here to see Frost Brown Todd's Legal Update distributed September 18, 2008.

Contrary to these guidelines, the Ohio Supreme Court clearly stated in Northwestern that the mere expenditure of public money does not trigger Ohio's prevailing wage law.

If you have any questions about this decision or have other prevailing wage questions, please contact Raymond Neusch, David Olson, Eugene Droder or any other attorney in the Frost Brown Todd Labor and Employment or Construction Law Practice Groups.