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Staffing Company Not Entitled to Make a Claim Against a Payment Bond and Attorneys’ Fees on State Public Works Payment Bonds


Dario Shevtsava CC0

It’s not quite Baskin Robbin’s “31 Flavors” but the panoply of statutory construction payment remedies available to contractors, subcontractor and material suppliers in California, from mechanics liens to stop payment notices to payment bond claims, can be tempting to reach for when you are not paid. However, some flavors are more readily available than others, as a staffing agency discovered in K  & S Staffing Solutions, Inc. v. The Western Surety Company, Case Nos. C096705 and C097987 (January 2, 2024).


The K & S Staffing Case


The California Department of Transportation awarded VSS International, Inc. two public works construction contracts for road maintenance. Each involved an expenditure of over $25,000 and VSSI obtained a payment bond from Western Surety Company.

Titan DVBE Inc. was a subcontractor on both projects. For most years, Titan employed its own workers. However, when it learned that its insurance carrier would no longer be offering workers’ compensation insurance in California it switched to K & S Staffing Solutions, Inc. to fulfill its staffing needs.


Under its contract K & S Staffing, K &S was responsible for paying wages, payroll taxes, vacation and sick pay, and unemployment insurance, and Titan was responsible for supervising the workers supplied by K & S Staffing as well, of course, as paying a fee to K & S Staffing. Over time, however, those fees cut into Titan’s profitability, eventually leading to Titan being unable to pay K & S Staffing for all of the fees owed including fees owed for work performed on the two CalTrans projects.


K & S Staffing later sued VSSI and Western Surety under the payment bonds on the two projects. However, in the course of litigation, the trial court found that K & S Staffing was not a “laborer” as defined under Civil Code section 8024 and, therefore, did not have standing to pursue a claim against the two payment bonds.


Civil Code section 8024 defines a “laborer” as a “a person who, acting as an employee, performs labor upon, or bestows skills or other necessary services on, a work of improvement.” And, here, the trial court found that K & S Staffing was not a “laborer” because it failed to show employer of the laborers , noting that K & S Staffing had failed to show that it hired, trained, or supervised the workers.


After judgment was entered against K & S Staffing, VSSI and Western Surety filed a motion for attorneys’ fees under Civil Code section 9564, which provides that on a claim against a payment bond the prevailing party is to be awarded its reasonable attorneys’ fees. K & S Staffing opposed the motion, making a three-fold argument that the payment bonds were not in fact payment bonds because: (1) Civil Code section 8030 defines a payment bond as a bond given under Civil Code section 9550; (2) Civil Code section 9550 does not apply to public works contracts with a state entity; and (3) CalTrans is a state agency.


The trial court rejected K & S Staffing’s argument and awarded attorneys fees to VSSI and Western Surety.


K & S Staffing appealed.


The Appeal


On appeal, K & S Staffing argued that it was a “laborer” under Civil Code section 8024 because it took on the legal responsibilities of an employer for those who worked for Titan (i.e., paying wages, payroll taxes, vacation and sick pay, and unemployment insurance). Titan and Western States countered that this was not enough to fall within the definition of a “laborer” under Section 8024 and that K & S Staffing needed to furnish workers on the project, which it did not.


The 3rd District Court of Appeal found that they were both wrong. Civil Code section 9100, explained the Court of Appeal, states that among those who are entitled to assert a claim against payment bond are a “laborer,” and that Section 8024 defines a laborer as a “person who, acting as an employee, performs labor upon, or bestows skills or other necessary services on, a work of improvement.” Thus, held the Court of Appeal, contrary to the arguments of both K & S Staffing and Titan, as well for that matter as the trial court, a “laborer” is not an “employer,” but rather an “employee,” and K & S Staffing “is not a person who was ‘acting as an employee’ in any capacity, nor does it even allege as much.” In short, because K & S did not furnish labor as an employee of Titan, it was not a “laborer” as defined under Section 8024, and was therefore not entitled to make a claim against the payment bond under Section 9100.


As to the award of attorneys’ fees under Civil Code section 9564, the Court of Appeal acknowledged that the statute applies to claims against a “payment bond,” but that a payment bond is not mandated on state public works projects exceeding $25,000 under Civil Code section 9550:


Considering the text of these statutes alone, we acknowledge that K&S’s position has some persuasive force. A “payment bond,” after all, is defined to mean a bond required under section 9550 (§ 8030, subd. (b)), and section 9550 did not itself require a bond for the contracts here. Public Contract Code section 7103 instead imposed this requirement, as these contracts were with a state entity, Caltrans, covered in this statute rather than section 9550. (Pub. Contract Code, § 7103, subds. (a), (d); see § 9550, subd. (e).) It thus follows, the argument goes, that the payment bonds here are not “payment bonds” within the meaning of the mechanics’ lien law, and so the attorney fee provision in section 9564 for actions to enforce the liability on a payment bond is inapplicable—as are all or part of the 15 other statutes in the relevant portion of the mechanics’ lien law that reference or concern a payment bond. (See §§ 9100, 9300-9306, 9414, 9452, 9550-9564.

Nevertheless, held the Court of Appeal, practice and conformity with the overall purpose of the construction payment remedy statues, supports a finding that attorneys’ fees are to be awarded in favor of a prevailing party on a claim against a payment bond irrespective of whether the payment bond was issued on a state public works project or on a local public works project:

Taking all these considerations together, we conclude that title 3’s general payment bond requirements—including the attorney fee provision in section 9564—apply both to state projects that require a bond under Public Contract Code section 7103 and other “public entity” projects that require a bond under section 9550. Our conclusion in this respect is consistent with a prominent practice guide on the mechanics’ lien law, California Mechanics’ Liens and Related Construction Remedies (Cont.Ed.Bar 4th ed. 2022). That guide explains that payment bonds for public works contracts are required by section 9550, Public Contract Code section 7103, and the State Contract Act, and, without distinguishing between these payment bonds, states that “[p]ayment bonds for public works are governed by [Civil Code] §§ 9550-9566.” (Cal. Mechanics’ Liens and Related Construction Remedies (Cont.Ed.Bar 4th ed. 2022) § 10.18.) We need not address whether this holds true for payment bonds required under the State Contract Act, a topic not covered in the parties’ briefing. But we agree title 3’s general requirements for payment bonds apply for bonds required under both section 9550 and Public Contract Code section 7103. In reaching this conclusion, we again acknowledge that our reading strays from the plain language of section 8030’s definition of “payment bond.” But for the reasons covered, we find this to be one of those rare cases where it is necessary to depart from a statute’s plain language. (See California School Employees Assn. v. Governing Board, supra, 8 Cal.4th at pp. 335-336, 346 [construing a statute establishing a holiday for “every day appointed by the President . . . for a public fast, thanksgiving or holiday” to mean every day so appointed and intended to be treated as a federal holiday].)

Conclusion

So there you have it.  Staffing firms are not “laborers” under a Civil Code section 8024 and are not entitled to make a claim against a payment bond and the prevailing party on a claim against a payment bond is entitled to recover its reasonable attorneys’ fees irrespective of whether the payment bond was issued on a state public works project or local public works project.


Further, while this case involved a claim against a public works payment bond, I believe that the holding would also bar claims by staffing companies under the mechanics lien statute, stop payment notice statute, and private payment bonds.

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