Preemption of State Law Claims By the Service Contract Act Is Not Dead
Irony became the head that bit its tail and then there is no way out.”
– Alejandro Gonzalez Inarritu
In public contracts cases, the issue of federal preemption comes up frequently. In certain areas, the federal laws supersede state law on account of the “Supremacy Clause” of the US Constitution. As a result, there are certain areas where the state laws and federal laws come into conflict and the federal laws overrides the state laws. This is called preemption. There are two main types of preemption; express and implied. Express preemption occurs when Congress makes its intention for federal law to preempt state law in the language of the statute. Implied preemption occurs where it is impossible to comply with both the federal law and the state law, or the federal law is so expansive that there is no place left for state regulation.
This supremacy issue was the focus in the recent case of Mayes v. Excelsior Ambulance Service, Inc., 2019 WL 1261248 at *1 (D.S.C. March 19, 2019). In Mayes, the plaintiffs who provide ambulance services were improperly classified and the DOL sued for back pay. However, the issue in the case is not whether the plaintiffs are misclassified, or the amount due. Instead, the plaintiffs attempted to bring a private right of action against the employer for back wages allegedly due under state law. The contract, however, was subject to federal law – specifically the Service contract Act (“SCA”), which provides for an exclusive remedy for back wage violations that is enforced only by the U.S. Department of Labor (“DOL”), and doesn’t allow a private cause of action in court. The court spent the bulk of its time discussing the private right of action and its relationship to the SCA. Ultimately, the court decided that the SCA did not give rise to an express or implied private right of action, and the state claim was preempted by the SCA.
The court first considered the private right of action under the SCA. They quickly came to the conclusion that there was no implied right based off of the language of the SCA giving only the Secretary or an authorized representative the right to investigate and make findings under the SCA. The court also observed that the SCA does not expressly grant a private right of action.
Later the court wrote that this was a case of implied preemption, where the State claim under the South Carolina Payment of Wages Act was preempted because the SCA showed an intent by congress to regulate the entire field of public contracts subject to the SCA. Since the state law claim is based on unpaid wages governed by the SCA and only the secretary or an authorized representative has the authority to enforce the SCA, the state law claim is preempted. This is a major blow to the plaintiff’s case because the state law claim had statutory treble damages for unpaid wages.
While the case at hand discusses whether the SCA preempts the liquidated damages portion of the local state wage claim, the majority rule is that the SCA does not preempt all state wage laws. In Lebron Diaz v. General Security Services Corp., 93 F.Supp.2d 129 (D.P.R.2000), the court analyzed the wording of the act which stated that the contractor needs to observe the wage and benefit laws of the locality which it is working in. To the court in Lebron, this constituted congressional intent for the SCA not to preempt the local laws. See also Garcia v. Skanska USA Bldg., Inc., 324 F. Supp. 3d 76 (D.D.C. 2018); Perez v. OWL, Inc., 2018 WL 1806057 (M.D. Fla., Mar. 29, 2018); Menocal v. GEO Group Inc., 113 F.Supp.3d 1125, 1134 (D. Col. 2015); Moodie v. Kiawah Island Inn Co., LLC, 124 F. Supp. 3d 711, 724 (D.S.C. 2015); ICP Northwest, LLC v. U.S., 98 Fed. Cl. 29 (2011); Inkrote v. Protection Strategies Inc., 2009 WL 3295042 (N.D. W.Va. 2009); and Cox v. NAP Const. Co., 837 N.Y.S.2d 612 (2007).
If courts have interpreted the SCA to contain clear congressional intent to allow state federal minimum wage and benefit laws, how do we reconcile that with Mayes? The devil is in the details, and the difference between the decisions can be ascribed to the SCA provision for own administrative remedy for violations of the act. While the SCA incorporates state wage an hour laws, it provides its own remedy. When a plaintiff attempts to skirt the SCA’s administrative remedy by bringing a RICO case or a state law claim with treble damages the courts will point to the administrative remedy already provided by Congress. Although, some states have held that the SCA does not preempt certain types of claims, such as additional compensation for meal and rest periods, failure to provide records, and failure to pay in a timely manner. See Naranjo v. Spectrum Security Services, 172 Cal.App.4th 654 (2009).
Naranjo illustrates how the preemption issue is still in play. The modern trend is to not preempt state law claims. But those cases are often thinly reasoned and there is a divergence of authority on the subject. The way the SCA works in relation to state law rights of actions is still unsettled. In many scenarios, the plaintiffs have been able to bring a state law statutory or common law claim, like breach of an employment contract, to recover back pay notwithstanding the amount of the wages is based on the SCA prevailing wage requirement. But here in Mayes, the DOL seized unpaid wages from the employer and had already distributed the proceeds to the plaintiffs before this action commenced. As a result, any breach of contract claim would have been moot. That left a private cause of action under state law for the treble damages as the residual claim. And the court closed that avenue by a preemption analysis.