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In 2014, San Marcos Unified School District awarded Lusardi Construction Company a contract to construct the San Marcos K-8 School Project. Lusardi subcontracted with Pro Works to install the iron reinforcing work for the Project..

In 2015, Division of Labor Standards Enforcement (DLSE) opened an investigation into a complaint that Pro Works violated former Labor Code section 1777.5 by failing to: (1) provide contract award information; (2) request dispatch of apprentices from applicable apprentice committees; (3) employ registered apprentices in compliance with a required apprentice to journeyperson ratio; and (4) make certain required training fund contributions to an approved apprenticeship program.

Deputy Labor Commissioner Kari Anderson served several documents on Lusardi and Pro Works including a “notice of investigation” and a request that the forward certain listed documents. The entities responded differently to Anderson’s documents request.

Anderson issued a “Penalty Review” summarizing her findings. She concluded that in February 2015, Pro Works violated the statutes and regulations relating to apprenticeships by failing to submit compliant DAS 140 and 142 forms and other required information. Anderson found that Pro Works “failed to hire any apprentices.” She also concluded Pro Works had a “history” of apprentice violations, and specifically listed their dates and descriptions. Anderson concluded the penalty should be assessed based on Pro Works’s failure to comply with four out of the five factors set forth in former Labor Code section 1777.7, subdivision (f). Penalties were assessed in the amount of $30,800, consisting of $200 per each of 154 days of section 1777.5 violations.

Lusardi timely filed a request for review of Anderson’s decision with the Director. Before the review hearing started, the hearing officer ruled the 2014 version of the relevant Labor Code provisions and regulations would apply, based on the Project’s bid advertisement date. He also ruled regarding the burden of proof that “DLSE will have to come forward with sufficient evidence to provide prima facie support for the penalty assessment.” If this is done, “Lusardi will have . . . the burden of proof set forth in [California Code of Regulations, title 8, section] 232.50[, subdivision] (b).”

On the first day of the hearing, Lusardi’s counsel initially stated three of its representatives as well as Senior Deputy Labor Commissioner Michael Nagtalon who had reviewed and approved the “Penalty Review” would be called to testify. But Nagtalon was not available. DLSE’s sole witness, Anderson, was the only person who testified that day.

On the second and last day of the hearing, Lusardi’s counsel sought the testimony of Nagtalon, who was under subpoena. DLSE’s counsel explained Nagtalon was unavailable as he was outside of the country, but he offered to produce Nagtalon for a rescheduled hearing. However, Lusardi elected not to request a continuance to obtain Nagtalon’s testimony or to put on its case. Instead, its counsel stated, “Lusardi will rest without presenting any further evidence and will not move any of Lusardi’s exhibits into evidence in this matter.” Counsel explained: “We are not going to present any evidence because we feel very strongly the Labor Commissioner has failed to meet its burden in this matter.”

Lusardi’s administrative appeal was unsuccessful and the Director affirmed the hearing officer’s findings, concluding DLSE met its burden to present evidence showing prima facie support for the penalty assessment, including that Lusardi knew of Pro Works’s violations and was liable for the penalties. Lusardi filed a petition for writ of administrative mandamus under Code of Civil Procedure section 1094.5, which the superior court denied. The Court of Appeal affirmed the Director in the published case of Lusardi Construction Co. v. Dept. of Industrial Relations – D081704 (June 2024.)

On appeal, among other issues Lusardi contended the court erroneously adopted the Director’s “interpretation and unprecedented application of the two prongs of [former] Labor Code section 1777.7, subdivision (d)(1)-(4).”

Former section 1777.7, subdivision (d) provided: “If a subcontractor is found to have violated Section 1777.5, the prime contractor of the project is not liable for any penalties under subdivision (a), unless the prime contractor had knowledge of the subcontractor’s failure to comply with the provisions of Section 1777.5 (and the second prong in this case) or unless the prime contractor fails to comply with any of the following requirements” and four additional requirements are listed in this law.

The superior court denied Lusardi’s writ petition, interpreting former section 1777.7 subdivision (d) in the disjunctive: “Based on the plain language of the statute, the [c]ourt believes that the Legislature intended for the [Director] to have the burden of establishing that petitioner had knowledge of the subcontractor’s failure to comply with [former section] 1777.5 or that petitioner failed to comply with any [of] the requirements set forth in [former section 1777.7 subdivision] (d)(1)-(4). [¶] . . . [¶] The Director focused on the first prong of [former section] 1777.7[,subdivision] (d), and made a finding that Lusardi had knowledge of the subcontractor’s apprentice violations.”

The Court of Appeal noted that “Statutory construction is a question of law we decide de novo. [Citation.] Our primary objective in interpreting a statute is to determine and give effect to the underlying legislative intent. [Citation.] ”

In interpreting the disjunctive parts of former section 1777.7, subdivision (d), The Court turned to one court’s discussion of the challenges in interpreting the conjunction “or”: “The fact is that there is nothing very plain about the use of the connective “or” in legal drafting.’ [Citation.] “Sometimes it joins alternatives; sometimes it doesn’t. Sometimes or means and; sometimes it doesn’t[ ].” [Citation.] “Additionally, if ‘or’ is a disjunctive connector, sometimes it connects words in the inclusive sense (i.e., A or B, or both); other times, it connects words in the exclusive sense (i.e., A or B, but not both). [Citation.] Thus, the potential ambiguity created by ‘or’ is not one dimensional.”

The Court of Appeal concluded that “the court did not err in interpreting former section 1777.7, subdivision (d). The statute’s plain language provides two inclusive and alternative ways for imposing liability on a prime contractor for penalties resulting from the subcontractor’s violations of former section 1777.5. Specifically, first, the prime contractor is not liable for the penalties ‘unless [it] had knowledge of the subcontractor’s failure to comply’ with the statute; or, second, it is not liable for the penalties ‘unless the prime contractor fails to comply with any of the’ requirements set forth in the remainder of section (d).”