N.Y.: Workers can enforce Housing Act wage contract
New York’s highest court held that employees of New York City contractors may sue as third-party beneficiaries to enforce the contractors’ promise to pay prevailing wages under the U.S. Housing Act. Cox v. Nap Construction Co., --- N.E.2d, 2008 WL 2276160 (N.Y. Jun. 5, 2008).
The court held that a third-party beneficiary claim was available, since the wages provision had been inserted in the contracts “for the very purpose of” benefitting the plaintiffs. It further held that such a claim was not preempted by the Housing Act or the Davis-Bacon Act (DBA). Finally, the court held that the possibility of administrative enforcement by a government agency was not sufficient to preclude plaintiffs’ claims. This decision exemplifies a sound approach to the relationship between federal statutory guarantees and third-party contract claims .
The defendants had contracted with the City Housing Authority (CHA) for construction work on public housing projects. Each contract stated that the defendant “shall pay to all laborers and mechanics employed in the Work not less than the wages prevailing in the locality of the Project,” as determined under the DBA, 40 U.S.C. § 276a et seq. The Housing Act requires that all public housing contracts contain such a provision. 42 U.S.C. § 1437j.
The court held that if this case had involved “ordinary private contracts, there could be no doubt about plaintiffs' right to sue on them.” Moreover, “as a matter of New York law, the fact that the contractual provisions at issue were inserted in order to comply with statutes does not alter plaintiffs' status as third-party beneficiaries.” The court noted older New York decisions that held enforceable contractual provisions mandated by state or federal law.
The court stated that “no implied federal private right of action exists, under either the DBA or the Housing Act, for workers who are paid less than the wages those statutes require.” The court rejected its own prior decision to the contrary in light of the intervening decision in Cort v. Ash, 422 U.S. 66 (1975) (stating restrictive test for implied rights of action).
Nevertheless, the court rejected the argument that a third-party beneficiary claim was “an impermissible end run” around these federal statutes. “To say that Congress, in enacting the DBA, did not intend to create a federal right of action is not to say that Congress intended to prohibit, or preempt, state claims.” The court stated that under U.S. Supreme Court precedent “the default assumption, absent a showing to the contrary, is that Congress intended neither to create a new federal right of action nor to preempt existing state ones.”
The court noted that the Housing Act “is completely silent” as to remedies for underpaying workers, and “does not regulate the subject at all.” The court said the preemption issue “might be closer if this were a case to which the DBA applied not through the Housing Act, but directly.” The DBA provides that a federal agency may withhold money from contractors who violate its terms, and that workers may sue in federal court to recover on the contractors’ federal bond. In a case involving a federal contract, “the plaintiffs could invoke their statutory right to recover on the federally-required bond, and the defendants might argue that that was the plaintiffs' exclusive remedy.” But that was not the case here: “In arguing preemption, defendants are arguing in effect that Congress intended the workers to have no remedy in any court, state or federal. We see nothing to support the unlikely supposition that Congress had any such intention.”
The court further rejected the argument that the plaintiffs had not exhausted their administrative remedies. “The answer to this argument is simple: plaintiffs do not have any administrative remedies they can exhaust.” Even if the administrative process in the DBA regulations applied to a non-federal contract – which was not clear – those regulations “give no rights to workers to initiate or take part in any enforcement proceedings.” Thus, “the only way for workers to get the benefit of the regulations is to call violations of law to an agency's attention and hope for the best-a course plaintiffs have already pursued, with very little success.” The simple fact that a government agency might itself seek to enforce the contract was, standing alone, no reason to bar any remedy for employees.