Court Opinion

ID: 9753549
Source: CourtListenerOpinion
Date Created: 2023-08-28 19:17:44.138937+00
Date Added: 2024-06-11T07:27:37.512689
License: Public Domain

Justice BAER,
dissenting.
I commend the Majority Opinion for its thorough recitation of the history of this case, especially considering the confusing state of the record and the admittedly “questionable aspects of the lease transaction.” Maj. Op. at 274, 33 A.3d at 577. Respectfully, however, I must dissent from its determination that the Prevailing Wage Act does not apply to the construc*275tion of the shell of the charter school building, given the well-established remedial purpose of the Prevailing Wage Act, Act of August 15, 1961, P.L. 987 (as amended 43 P.S. §§ 165-1 to 165-17). See Pennsylvania Nat. Mut. Cas. Ins. Co. v. PWAB., 552 Pa. 385, 715 A.2d 1068, 1072 (1998) (“[T]he primary underlying policy of the [Prevailing Wage Act] is to protect workmen employed on public work projects from substandard pay by ensuring that they receive prevailing minimum wage.”) (“Penn. National I ”).
As noted by the Majority, the Prevailing Wage Act requires that “[n]ot less than the prevailing minimum wages as determined hereunder shall be paid to all workmen employed on public work.” 43 P.S. § 165-5. This Court has considered the statutory definition of “public work” in 43 P.S. § 165-2(5) and concluded that the following four requirements must be met before a project will constitute public work triggering the Prevailing Wage Act:
(1) there must be certain work;
(2) such work must be under contract;
(3) such work must be paid for in whole or in part with public funds; and
(4) the estimated cost of the total project must be in excess of $25,000.
Penn. National I, 715 A.2d at 1074. In this case, all agree that the construction project involved is certain, under contract, and in excess of $25,000. The dispute concerns whether the project is “paid for in whole or in part with public funds.” Id.
In regard to “public funds,” although charter schools are not public bodies utilizing public funds in the traditional sense, it is uncontested that any funds paid by a charter school for construction would be governed by the Prevailing Wage Act because the Charter School Law mandates compliance with the Prevailing Wage Act. 24 P.S. § 17-1715-A(10)(iii) (“Boards of trustees and contractors of charter schools shall be subject to the following statutory requirements governing construction projects and construction-related work: ... (iii) The act of *276August 15, 1961 (P.L. 987, No. 442), known as the ‘Pennsylvania Prevailing Wage Act.’ ” (footnote omitted)). Indeed, as noted by the Majority, the Commonwealth Court has held that the relevant subsection of the Charter School Law “clearly obviates the requirement that the funds for construction connected with charter schools be spent by a ‘public body’ on a ‘public work’; however, we see nothing in that Section, or elsewhere in the Charter School Law, that would obviate any other prerequisite (such as the requirement that expenditures for construction total more than $25,000).” Mosaica Educ. Inc. v. PWAB, 836 A.2d 185, 189-190 (Pa.Cmwlth.2003).
Although the Appellees/Grievants1 in this case initially contended that no part of the construction project was subject to the Prevailing Wage Act, all parties now agree that the funds paid by the charter school for the interior “fit-out” trigger the application of the Act. The dispute thus involves whether the construction of the shell of the building should also be deemed a public work based upon whether it will be “paid for in whole or in part” by the charter school. Penn. National I, 715 A.2d at 1074. I find it unquestionable that had the lease not been amended to separate the funding of the shell from that of the fit-out, the entire project would have been' subject to the Prevailing Wage Act because the entire project would have been “paid ... in part” by the charter school. Id. As found by the Pennsylvania Prevailing Wage Appeals Board (“the Board”), the Appellees/Grievants admitted that the restructuring of the contracts was intended to avoid the application of the Prevailing Wage Act. Final Decision and Order, June 30, 2008, at 19.
Nonetheless, the Majority Opinion asserts that “there does not appear to be any reason why parties to a contract or lease cannot modify their relationship to account for legal requirements (such as prevailing wages) which may attach to one, but not another, means of transacting.” Maj. Op. at 264, 33 A.3d at 570. In support, the Majority relies upon precedent involv*277ing tax avoidance. Id. at 264 n. 21, 33 A.3d at 571 n. 21. Respectfully, I conclude that the tax avoidance precedent is inapt. Our Rules of Statutory Construction classify statutes imposing taxes as one of the few categories that must be strictly construed against taxation by courts. 1 Pa.C.S. § 1928(b). This strict construction against the imposition of taxes is entirely consistent with our established national view of taxes. Indeed, the United States Supreme Court noted with approval Learned Hand’s accurate observation:
“[A] transaction, otherwise within an exception of the tax law, does not lose its immunity, because it is actuated by a desire to avoid, or, if one choose, to evade, taxation. Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes. Therefore, if what was done here, was what was intended by [the statute], it is of no consequence that it was all an elaborate scheme to get rid of [estate] taxes, as it certainly was.”
United States v. Carlton, 512 U.S. 26, 35-36, 114 S.Ct. 2018, 129 L.Ed.2d 22 (1994) (quoting Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir.1934)).
The Prevailing Wage Act, however, is not a statute imposing taxation which is to be strictly construed. Instead, it is a remedial statute subject to an opposite rule of statutory construction. It is to be liberally construed to effectuate its objective to protect workers’ rights to adequate pay when engaged in public work projects. 1 Pa.C.S. § 1925(c). Previously, this Court expounded upon the remedial nature of this Act:
As previously stated, this Court has already ascertained the clear intent of the Act: “[T]he primary underlying policy of the Act is to protect work[ers] employed on public work projects from [receiving] substandard pay by ensuring that they receive prevailing minimum wage[s].” [Penn. National I], 715 A.2d at 1072. Indeed, the Act imposes a duty upon every public body (43 P.S. § 165-4), every contractor and subcontractor performing public work (43 P.S. § 165-6), *278and the Secretary of Labor and Industry (43 P.S. § 165-7) to implement by different means the specific mandate of the Act that “[n]ot less than the prevailing minimum wages as determined hereunder shall be paid to all work[ers] employed on public work.” 43 P.S. § 165-5. There could be no clearer mandate from the General Assembly that for all public works projects under contract exceeding $25,000, prevailing wages are to be paid to the workers on those projects....
Borough of Youngwood v. PWAB, 596 Pa. 603, 947 A.2d 724, 730-731 (2008) (emphasis in original). Accordingly, I respectfully reject that the tax case relied upon by the Majority is appropriate precedent to guide the decision herein. Contrarily, under well-established statutory policy, it is improper to permit form to trump substance and allow parties to structure a transaction to avoid the Prevailing Wage Act, as Appellees/Grievants acknowledged they did.
Even assuming arguendo that such transactions are allowable in theory, I must also dissent from my colleagues’ method for determining which leases, including those intentionally structured to avoid the Prevailing Wage Act, are not subject to the Act. In creating its test, the Majority rejects the test utilized by the Board and instead looks to the risks allocated to the owner/mortgagor as a “prominent consideration in assessing the economic reality of a business transaction.” Maj. Op. at 268, 33 A.3d at 573. The Majority describes its analysis as follows:
Therefore, a grievant which presents evidence that it is incurring the risk and obligations of an owner/mortgagor in construction, that there is no public-financing component in the work (or, under, Penn. National I, in the relevant major phase of construction), and that its relationship with the covered entity is as a lessor under a facially legitimate lease, has established a prima facie case that wage regulation is not implicated under the prevailing statute. At such point, we find it appropriate to allocate the burden to the Bureau to go forward with the evidence to establish that the economic reality of the transaction is different from its appear*279anee. Where the Bureau does so sufficiently, the ultimate burden should rest with the grievant.
Id. at 267-70, 33 A.3d at 573-74 (internal footnotes omitted). Interestingly, the Majority does not cite any prevailing wage precedent involving consideration of risk allocation.2
Rather than utilizing the Majority’s test relying upon risk allocation and a “facially legitimate lease,” I would adopt the multi-factor Phoenix Field Office Test3 utilized by the Board to determine whether a long-term lease is in reality a construction contract for a public work in disguise. I view this test, detailed below, as appropriately looking to the totality of the circumstances surrounding the lease, with an eye to considering whether the transaction is an attempt to avoid the remedial purpose of the Prevailing Wage Act. Accordingly, I see no reason not to afford the Board’s adoption of the Phoenix Field Office Test the substantial deference generally accorded to agencies in areas under their expertise. See Penn. National I, 715 A.2d at 1073 n. 8 (“[Jjudicial deference is to be given to interpretations of statutes by those charged with the administration and enforcement of such laws”).
The factors of the Phoenix Field Office Test set forth in the Board’s decision are (1) the length of the lease; (2) the extent of government involvement in the construction project, such as whether the building is being built to government specifications and whether the government has the right to inspect the progress of the work; (3) the extent to which construction will be used for private rather than public purposes; (4) the extent to which the costs of construction will be fully paid for by the lease payments; and (5) whether the contract is written as a *280lease to evade the requirements of the Prevailing Wage Act. Final Decision and Order, June 30,2008, at 12-13.
Applying the Phoenix Field Office Test to the facts of this case, the Board concluded that the factors weighed in favor of application of the Prevailing Wage Act. In regard to the length of the lease, the Board observed that the lease was for a period of almost twenty-four years, with an option granted to the charter school to purchase the real property after five years, which weighed in favor of the application of the Act as “long-term leases of custom built facilities are a common technique used by enterprises (including governments) to acquire new buildings.” Id. at 14. Turning to the second factor concerning the extent of government involvement in the construction project, the Board opined that the evidence presented did not favor either position clearly, but noted that the burden of proof was on the Appellees/Grievants to demonstrate that the project was not a custom built facility. Id. at 15-17 (citing 34 Pa.Code § 213.8(j)).
As to the third factor, the Board considered the extent to which the construction would be used for private rather than public use. It observed that the charter school would be the sole tenant, which favored the conclusion that the building is for public rather than private use. Id. at 18. The Board noted that the fourth factor also weighed in favor of application of the Act because the lease payments would pay off the costs of construction within a mere six years, while the useful life of the building was at least the twenty-four year length of the lease. Id. at 19. Finally, the Board found that the Appellees/Grievants “conceded at argument that it was a fair assessment that the contract was split into separate contracts to avoid application of the Act, or more accurately to minimize the Act’s application to the ‘fit-out’ or custom work.” Id. at 19. The Board found this to constitute evidence of an intent to evade the requirements of the Act for purposes of the fifth factor. Id. at 20.
Accordingly, after considering all five factors, the Board concluded that the Prevailing Wage Act applied to the construction of the shell of the charter school building. Given the *281remedial purpose of the Prevailing Wage Act and the deference that should be given to the determination of the Board, I would affirm the Board’s assessment that the construction project was subject to the Prevailing Wage Act.
Justice McCAFFERY joins this opinion.

. Appellees/Grievants in this case are the developer of the property, 500 James Hance Court, L.P., and the contractor, Knauer and Gorman Construction Co., Inc.

. I note that risk allocation was raised by a party in Pennsylvania State Building and Construction Trades Council, AFL-CIO v. PWAB, 570 Pa. 96, 808 A.2d 881, 887 (2002) (“Penn. National II"), and mentioned by the dissenting opinion in that case, id. at 892 (Saylor, J., dissenting), but not utilized by the majority in that decision.

. As noted by the Majority, the Phoenix Field Office Test was employed by the United States Labor Department's Administrative Review Board to determine if a lease was a contract for public work subject to the federal prevailing wage regulation in In re Phoenix Field Office, Bureau of Land Mgmt., ARB Case No. 01-010, 2001 WL 944696 (June 29, 2001).