At the Intersection of Indemnity and Prevailing Wages

In a case that I’m frankly surprised I don’t see more of, the 2nd District Court of Appeal of California examined an indemnity claim by a subcontractor against a general contractor and public entity who mistakenly believed that a construction project did not require the payment of prevailing wages.

The Nabors Case

In Nabors Corporate Services, Inc. v. City of Long Beach, 108 Cal.App 540 (2025), subcontractor Nabors Corporate Services, Inc. sued general contractor Tidelands Oil Production Company and the City of Long Beach after it was found liable in a class action lawsuit for failing to pay prevailing wages to its employees. Nabors’ contract with Tidelands did not require the payment of prevailing wages and neither Tidelands nor the City believed that the project, which involved “oil well plug and abandonment” work, required the payment of prevailing wages.

Between 2012 and 2014, Nabors performed the oil well plug and abandonment work at a project located near a project known as the Gerald Desmond Bridge Replacement Project. Prior to the work being performed, the City and Tidelands discussed whether the work should be considered a “public work” and concluded that it was not, and that prevailing wages were not required. Thus, when Tidelands subcontracted with Nabors, the subcontract did not require that Nabors pay its workers prevailing wages.

In 2015, after Nabors completed its work, two of its employees filed a class action lawsuit in state court claiming that they should have been paid prevailing wages. Nabors transferred the case from state court to federal court. After the case was transferred, a number of Nabors’ employees filed demands for arbitration of the prevailing wage claims. Three of those arbitrations proceeded to hearing. At the hearings, the arbitrators found that the work performed by the employees constituted “public work” and that prevailing wages should have been paid. The arbitrators in the three cases awarded damages in favor of the three employees in the amount of $443,150. The federal district later confirmed the awards as judgments.

In May 2021, Nabors filed a lawsuit against Tidelands and the City seeking indemnity under Labor Code sections 1781 and 1784. Labor Code section 1781, which applies to public entities, provides in pertinent part:

(a) (1) Notwithstanding any other provision of law, a contractor may, subject to paragraphs (2) and (3), bring an action in a court of competent jurisdiction to recover from the body awarding a contract for a public work or otherwise undertaking any public work any increased costs incurred by the contractor as a result of any decision by the body, the Department of Industrial Relations, or a court that classifies, after the time at which the body accepts the contractor’s bid or awards the contractor a contract in circumstances where no bid is solicited, the work covered by the bid or contract as a “public work,” as defined in this chapter, to which Section 1771 applies, if that body, before the bid opening or awarding of the contract, failed to identify as a “public work,” as defined in this chapter, in the bid specification or in the contract documents that portion of the work that the decision classifies as a “public work.”

Labor Code section 1784, which applies to hiring parties, provides in pertinent part:

(a) Notwithstanding any other law, a contractor may bring an action in a court of competent jurisdiction to recover from the hiring party that the contractor directly contracts with, any increased costs attributable solely to the provisions of this chapter, including, but not limited to, the difference between the wages actually paid to an employee and the wages that were required to be paid to an employee under this chapter, any penalties or other sums required to be paid under this chapter, and costs and attorney’s fees for the action incurred by the contractor as a result of any decision by the Department of Industrial Relations, the Labor and Workforce Development Agency, or a court that classifies, after the time at which the hiring party accepts the contractor’s bid, awards the contractor a contract under circumstances when no bid is solicited, or otherwise allows construction by the contractor to proceed, the work covered by the project, or any portion thereof, as a “public work,” as defined in this chapter, except to the extent that either of the following is true:(1) The owner or developer or its agent expressly advised the contractor that the work to be covered by the contract would be a “public work,” as defined in this chapter, or is otherwise subject to the payment of prevailing wages.(2) The hiring party expressly advised the contractor that the work subject to the contract would be a “public work,” as defined in this chapter, or is otherwise subject to the payment of prevailing wages.

After Nabors filed its lawsuit both Tidelands and the City filed demurrers to the complaint. In Tideland’s demurrer, it argued that Nabors’ Labor Code section 1784 claim failed as a matter of law because it did become effective until January 1, 2015, a year after Nabors completed its work on the Project. At the hearing on the demurrers, the trial court sustained the City’s demurrer with leave to amend. As to Tideland’s demurrer, the trial court sustained its demurrer without leave to amend, finding that “[Nabors’] cause of action improperly calls for a retroactive application of section 1784.

After Nabors’ filed its first amended complaint against the City, the City filed a second demurrer arguing that: (1) an arbitrator’s award finding that work performed by an employees is public work does not qualify under Labor Code section 1781 as a decision by a court classifying work as public work; (2) the federal court’s order confirming the arbitration award was not a decision by a court because the federal court’s confirmation did not involve a determination on ht merits; and (3) the legislative history of Section 1781 evinced an intent to exclude decisions by arbitrators.

At the hearing on the demurrer, the trial court sustained the City’s demurrer without leave to amend. Nabors then appealed the trial court’s decisions on both demurrers.

The Appeal

The 2nd District Court of Appeal reviewed the appeal de novo noting that “[I]n reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. `We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation].”

Because the issues on appeal involved the interpretation of Labor Code sections 1781 and 1784 the Court of Appeal stated:

“When we interpret a statute, `[o]ur fundamental task … is to determine the Legislature’s intent so as to effectuate the law’s purpose. We first examine the statutory language, giving it a plain and commonsense meaning. We do not examine that language in isolation, but in the context of the statutory framework as a whole in order to determine its scope and purpose and to harmonize the various parts of the enactment. If the language is clear, courts must generally follow its plain meaning unless a literal interpretation would result in absurd consequences the Legislature did not intend. If the statutory language permits more than one reasonable interpretation, courts may consider other aids, such as the statute’s purpose, legislative history, and public policy.’ [Citation.]”

Addressing the City’s demurrer first, the Court noted that to state a claim under Labor Code section 1781 a claimant is required to allege that:

1. The City, as the body awarding a contract for a public work, failed to identify the work as a public work in the bid specification or in the contract documents before the bid opening or awarding of the contract;

2. “[A] court” made a decision, after the time the bid was accepted, that the work was a public work; and

3. Nabors incurred increased costs in the form of wages and penalties as a result of that decision.

The Court of Appeal, disagreeing with the conclusion reached by the trial court, stated that “the trial court’s ruling is contrary to the plain meaning of section 1781, which references ‘any decision by … a court that classifies … the work … as a `public work.'” A “decision,” explained the Court of Appeal citing to its dictionary definition, is “the act or process of deciding” or “a determination arrived at after consideration” or “a report of a conclusion.” (Merriam-Webster’s Online Dict. [as of Jan. 26, 2025], archived at .)” and ‘[t]he order and judgment confirming the arbitrator’s award is plainly a “decision.”

The Court of Appeal further explained that when the State Legislature chose the term “a court” to modify the type of “decision,” “it did not provide further specification, qualification, or limitation—such as, for example, designating a California state trial court, a federal trial court, or a sister-state trial court as the decision maker. Thus, a federal district court is “a court” within the meaning of section 1781.” And, held the Court of Appeal, “[a] to whether the federal district court’s order ‘classifie[d] … the work … as a public work,’ we conclude that it did, as the award confirmed by the district court included a finding that the work was a public work.

Moving to Tideland’s demurrer, the Court of Appeal explained:

A statute is considered retroactive in effect if it implicates existing rights or imposes new duties. “As [our California Supreme Court] said more than 50 years ago, a retroactive or retrospective law “is one which affects rights, obligations, acts, transactions and conditions which are performed or exist prior to the adoption of the statute.”; [Citation.] Similarly, the United States Supreme Court has stated: “[E]very statute, which takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability, in respect to transactions or considerations already past, must be deemed retrospective.”‘ [Citation.] Phrased another way, a statute that operates to `increase a party’s liability for past conduct’ is retroactive. [Citations.]”“Whether a statute operates prospectively or retroactively is, at least in the first instance, a matter of legislative intent. When the Legislature has not made its intent on the matter clear with respect to a particular statute, the Legislature’s generally applicable declaration in [Civil Code] section 3 provides the default rule: `No part of [the Penal Code] is retroactive, unless expressly so declared.’ [The California Supreme Court has] described section 3, and its identical counterparts in other codes (e.g., Civ. Code, § 3; Code Civ. Proc., § 3), as codifying `the time-honored principle … that in the absence of an express retroactivity provision, a statute will not be applied retroactively unless it is very clear from extrinsic sources that the Legislature … must have intended a retroactive application.’ [Citations.] In applying this principle, [the court has] been cautious not to infer retroactive intent from vague phrases and broad, general language in statutes. [Citations.] Consequently, `”a statute that is ambiguous with respect to retroactive application is construed … to be unambiguously prospective.”‘ [Citation.]”

The Court of Appeal disagreed with Nabors, finding that Labor Code section 1784 “is not a new duty, but rather a different remedy for their violations of preexisting duties under sections 1774 and 1775.” Labor Code sections 1774, explained the Court, requires that contractors and subcontractor are required to pay prevailing wages when required, “not that a contractor must pay prevailing wages to a subcontractor’s employees.”

Further, explained the Court, Labor Code section 1775 authorizes the Labor Commissioner to impose administrative penalties for a contractor or a subcontractor’s failure to pay prevailing wages when required and specifically provides that a contractor is not subject to penalties for a subcontractor’s failure to pay prevailing wages unless the contractor was aware of that failure or otherwise did not comply certain other enumerated duties. Thus, held the Court of Appeal, “although section 1775 imposes certain statutory duties on contractors to comply with prevailing wage laws, it does not require that contractors who fail to comply with those duties indemnify subcontractors found liable for their own failure to pay prevailing wages.”

Section 1784 in contrast, held the Court of Appeal, creates a civil right of action between private parties that was not available to subcontractors, such as Nabors, prior to its January 1, 2015 effective date”:

Thus, when Tidelands accepted Nabors’s bid proposal in 2012, it had no civil liability for failing to disclose to parties with whom it directly contracted that the work covered by the bid was public work. At the time, liability for such nondisclosures was limited to the public entity under section 1781. We therefore conclude that section 1784 does not merely clarify preexisting rights or expand remedies based on preexisting duties; it creates new rights to indemnity based on conduct by hiring parties that did not support them prior to its enactment.

Conclusion

The Nabors case provides two take-aways.

First, an arbitration award confirmed by a court, whether a federal court or a state court, satisfies the requirements of Labor Code section 1781 for holding a public entity liable for increased costs incurred by a contractor or subcontractor for the public entity’s erroneous believe that prevailing wages do not apply to a project.

And second, in the absence of explicit statutory language, when construing whether newly enacted statutes will apply retroactively, courts will examine whether the newly enacted statute merely codifies existing rights, obligations, acts, transactions and conditions. If they do, then the statute will be applied retroactively. But if they do not, then the statute will not be applied retroactively.