Argument Report: Illinois Supreme Court Debates Status of Water Facility Contractor

When does an independent contractor become a public utility? That's the question the Illinois Supreme Court debated during the September term in People ex rel. Department of Labor v. E.R.H. Enterprises, Inc. Based upon the heavy questioning of both sides, the Justices of the Court appear to be conflicted.

The Labor Department issued defendants a subpoena for product of certain employment records in 2008. The subpoena stated that the Department was investigating whether the defendant's repair work on certain water mains for the Village of Bement had been done in compliance with the Prevailing Wage Act. Several months later, the Department filed a complaint seeking to have defendant held in civil contempt for failing to comply with the subpoena. The defendant defended on the grounds that it was a public utility and therefore exempt from the Prevailing Wage Act.   The trial court twice rejected the company's position, holding that defendant was not a public utility. However, the Appellate Court reversed, holding that defendant satisfied the definition of a public utility from the Public Utilities Act, which it imported into the Prevailing Wage Act.

Counsel for the Illinois Department of Labor began by sketching the factual background of the case. Justice Freeman asked whether defendant was obligated to provide water services to the residents. Counsel responded that defendant was obligated to assist the village in providing water services. Justice Freeman asked whether that would indicate that defendant was operating the facility for public use. Counsel responded that it would not pursuant to the Court's own precedent in Mississippi River Fuel Corp. v. Illinois Commerce Commission, where the Court defined public use as occurring where the company held itself out as the one providing the service. Defendant can walk away from its contract with the village in five years, counsel argued; a public utility can't do that. Counsel argued that under Public Utilities Code Section 3-105, if a facility is municipally owned, it could not be a public utility, even if it was operated by a lessee or agent.   Part of the purpose of the Public Utilities Act is to get records and reports from the company, counsel argued. One doesn't have that need when a municipality like the village owned the facility. Justice Burke asked whether defendant provided water to every resident, and counsel responded that the Department would say that the defendant helps the village do so. Justice Garman stated that the Prevailing Wage Act doesn't apply to public utilities, and counsel confirmed that. Justice Garman pointed out that the Act doesn't expressly incorporate the definition of a "utility" from the Public Utilities Act, and wondered why the Court should do so. Counsel argued that the legislature had adopted the Prevailing Wage Act in 1941 against a backdrop of the Public Utilities Act, which was enacted years earlier. Justice Burke asked whether the Court should look to the conduct of the parties - wasn't the welfare of the entire community dependent on the conduct of the defendant in providing the water? Surely the village was intimately involved, working hand-in-hand with the defendant, then? Counsel conceded that there was a significant public benefit from the services defendant provides. The statute requires more, however; under Mississippi River Fuel Co., the company has to be holding itself out to the public as the entity providing the service. Justice Karmeier suggested that if the Court didn't look to the Public Utilities Act, why shouldn't it look to Black's Law Dictionary for the definition of a utility, as the Appellate Court did? Counsel responded that the statutory exception which excluded a government-owned facility was a long-standing one, forming the law of the period which the legislature would have legislated against. It makes sense, counsel argued, to exclude public utilities if rates were subject to regulation by the Illinois Commerce Commission because otherwise, two agencies would be pulling in opposite direction. Here, the defendant is not regulated by the ICC. Justice Karmeier asked whether, if the village was doing exactly what the defendant was doing, the village would be subject to the statute. Counsel responded that government entities are never subject to the statute. Justice Karmeier clarified that counsel meant government entities were exempt whether they were technically public utilities or not, and counsel explained that government had once been classified as regulated utilities, but the Court struck that statute down in the early 1960s.

Counsel for the defendant began by pointing out that his client operates water and sewer systems for twenty different municipalities. Justice Thomas asked why the public utilities exception to the Prevailing Wage Act would be meant to apply to one who provides services not to the public, but to municipalities. Counsel responded that Bement was a small village; there was nobody else to operate the plant. The defendant didn't assist the village in providing service; the defendant itself provides the service. If they don't, service just doesn't happen. Counsel argued that if the Prevailing Wage Act is applied to companies like the defendant, older, smaller cities may not be able to pay their contractors to run their systems anymore. Justice Karmeier wondered why Section 3-105(b) doesn't take the defendant out of the definition of a public utility. Counsel responded that to accept the Department's argument, one must shift from talking about companies in subsection (a) to talking about pipes, a plant and a delivery system in subsection (b). Justice Thomas asked whether the concept of the defendant being a public utility is based on the job it's performing at a particular time -- if the defendant walks away in five years at the end of its contract, is it no longer a public utility? Is the defendant a public utility for one facility and not another? Counsel responded that the defendant's relationships tend to be long term; its business relationship with the village was lasted approximately twenty-six years. Justice Thomas asked whether the defendant is barred from work that would clearly not be that of a public utility. Counsel responded that defendant was not; from time to time, it did public works, and it bid and paid prevailing wages when it did. Justice Thomas proposed a hypothetical: what about a company that spent 90% of its time doing public works and ten percent as a public utility - was it still a public utility? Counsel said yes; the status went with what the defendant's expertise and primary function is.  Justice Thomas asked if the defendant were filling out an application and it asked are you a public utility, would the company say "sometimes"? Counsel suggested that the defendant would say "primarily." Justice Garman asked whether, if the system was operated entirely by the village, it would qualify as a public utility. Counsel repeated that in that case, the system would be exempt from the Prevailing Wage Act pursuant to the Court's former decisions.

In rebuttal, counsel for the Department argued that if the village owned the system, it would not be a public utility. The legislature made the decision to apply a different rule on these facts in order to protect the defendant's workers, counsel argued. Justice Garman asked whether the issue was one of statutory interpretation, and equitable considerations didn't inform the decision. Counsel responded that it was primarily a statutory question, and the policy issues had already been taken into account by the legislature. The fact that the Illinois Commerce Commission had no contact with the defendant and didn't regulate it was significant, counsel argued.

 

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