Charter Schools Generally Not Subject To Labor Law Section 220

In New York Charter School Ass'n v. Smith (Slip Op. 07375, Decided: October 19, 2010), the New York Court of Appeals ruled that charter schools are not public entities for purposes of Labor Law Section 220. The statute requires the payment of prevailing wages and prevailing supplemental benefits to workers on New York State public works projects.

The litigation arose from a change in the position of the New York State Department of Labor (the "NYSDOL") concerning charter schools. Prior to 2007, the NYSDOL had opined that charter schools were not public entities, and therefore not subject to Labor Law Section 220. However, the NYSDOL later changed its position and determined that the statute applied to all charter school projects.

In a 5-2 decision, the court held that while a charter school is a "hybrid of sorts," it is not a public entity. In so holding, the court stated: "Only four public entities are specifically identified under Labor Law [Section] 220(2): the state, a public benefit corporation, a municipal corporation or a commission appointed pursuant to law. By its terms, the statute does not expressly apply to educational corporations, and that includes charter schools." The court went on to state that a "charter agreement" is merely "an authorizing agreement under which an agency has determined that an applicant school is competent to be licensed as an educational corporation and nothing more ... [I]t is not a contract for public work involving the hiring of laborers, workers, or mechanics within the meaning of [Section] 220."

In making its determination, the court referenced its prior holding in Erie County Industrial Development Agency v. Roberts, 63 N.Y.2d 810 (1984), wherein a two pronged test was articulated for application of Labor Law Section 220; specifically: (1) the public agency must be a party to a contract involving the employment of laborers, workers or mechanics; and (2) the contract must concern a public works project. That test was not satisfied in the New York Charter School Ass'n case. Also, the court noted that charter schools are not governed by government appointees, are exempt from all state and local laws governing public schools under the Education Law, and that the Charter Schools Act expressly exempts a local school district and the state from liability for the debts or financial obligations of a charter school or its operators. All of these factors militated against a finding of public entity status.

Interestingly, at the end of its opinion, the court stated that Labor Law Section 220 could apply in a situation where a charter school acts in the place and stead of a public entity that is required to pay prevailing wages and prevailing supplemental benefits. Plainly, there's an exception to every rule.