Important but unsettled prevailing wage issue sent over to the New York Court of Appeals

Under New York Labor Law, no worker performing certain work on public works projects can be paid less than the prevailing rate of wages. Courts hold that a worker can sue to recover prevailing wages on a third-party beneficiary breach of contract theory. In this case, the plaintiffs worked as fire alarm testers and inspectors for a private entity, Comfort Systems, which did not pay them the prevailing wage. That tees up a number of important issues guiding these claims, and one of those issues lands at the doorstep of the New York Court of Appeals, which will resolve that question so the Second Circuit can further proceed with the case.

The case is Walton v. Comfort Systems USA, issued in September 9. The defendant contracts with public entities in New York for fire alarm testing and inspection, including school districts, community colleges, and the like. Its contracts with these public entities shortens the statute of limitations for a claim against Comfort Systems for one year. Some contracts even state that Comfort Systems is not required to pay the prevailing wage under local, state or federal law. The entire case got dismissed in the Northern District of York, but the Court of Appeals brings it back, holding as follows:

1. The work performed by plaintiffs is covered under the Labor Law, defined as "construction, maintenance or repair work." Testing and inspecting fire alarms qualifies under this statute. The New York Department of Labor has already decreed as such, and the court defers to the DOL due to its expertise on labor matters. The DOL has said that state contracts related to fire system maintenance treat "maintenance services" as including "testing, inspection and monitoring." If it's good enough for DOL, then it's good enough for the Court of Appeals.

2. The Second Circuit is unable to decide whether Plaintiffs can vindicate their right to enforce the Labor Law through a civil claim against Comfort Systems for breach of contract based on a  third-party beneficiary theory. Reviewing state court rulings and legal principles on this issue, the Circuit says the cases and rules are all over the place on this point, and the New York Court of Appeals has never resolved this issue, either. Policy justifications for and against allowing plaintiffs to bring a third-party beneficiary action also point in different directions.Here is the dilemma:

On the one hand, the New York Legislature’s requirement that public works contracts specifically include a prevailing wage commitment suggests it intended to give workers a private contract claim to enforce the prevailing wage right—especially given the lack of any other enforcement mechanism at the time. And it would be incongruous to allow a public contractor to avoid that potential  liability by simply ignoring its statutory obligation and omitting the required language from the public works contract. A strong argument can be made that by virtue of § 220(3)(a), every public works contract includes the required prevailing wage provision, whether or not it expressly says  so, and without regard to the contracting parties’ intent to allow a third-party beneficiary claim. 

On the other hand, under ordinary common law principles in New York, that’s not how third-party beneficiary claims usually work. And Comfort Systems makes a fair point that Plaintiffs chose to pursue a third-party beneficiary breach of contract claim rather than to pursue administrative claims.

Once the New York Court of Appeals resolves this issue, the case will return to the Second Circuit to apply the new legal principle to this case.

3. What about the reduced statute of limitations? We have a six-year statute of limitations for ordinary third-party beneficiary breach of contract claims. The contract used by defendant in this case only gives you one year. While parties to a contract may stipulate to a shorter statute of limitations, and a one-year limitations period is generally reasonable. In addition, under New York law, third-party beneficiaries are generally bound by the terms of the contracts to which they sue, including reduced statutes of limitations. Under these principles, "there is a reasonable probability that the Court of Appeals of New York would conclude . . . that Plaintiffs' claims are time-barred." But, what complicates this issue is "the recognition that New York courts do not appear to apply standard third-party beneficiary common law principles when assessing claims by workers to enforce their rights" under the Labor Law. Cases go either way on this issue. That issue is now for the New York Court of Appeals, as well.

Certification to the New York Court of Appeals will delay resolution of this appeal by another year. You have to comply with a new briefing schedule and then oral argument, which will take place in 2026. Since these are new issues for the New York Court of Appeals, it will take time for that court to settle this issue. Then the case returns to the Second Circuit to follow-up on the State Court of Appeals' resolution of this issue. We will get a final ruling on this appeal by late 2026 or 2027.