California Supreme Court Rules that an Allegation that the Winning Bidder on Public Works Contract Failed to Pay the Appropriate Prevailing Wage is Insufficient to Support the Second Place Bidders’ Cause of Action for Intentional Interference with Prospective Economic Advantage

California Supreme Court Rules that an Allegation that the Winning Bidder on Public Works Contract Failed to Pay the Appropriate Prevailing Wage is Insufficient to Support the Second Place Bidders’ Cause of Action for Intentional Interference with Prospective Economic Advantage

by Jarred S. Lieber, Esq.

To prove the tort of intentional interference with prospective economic advantage, a plaintiff must establish “the existence of an economic relationship with some third party that contains the probability of future economic benefit to the plaintiff.”  In Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 388 P.3d 800 the defendant outbid the plaintiffs on twenty-three public works contracts to apply a slurry seal coating on various roadways in California. The plaintiffs jointly sued defendant in five counties for intentional interference with prospective economic advantage alleging that they were the second lowest bidders on said projects and that their bids would have been accepted but for the defendant’s wrongful conduct (alleged failure to pay the appropriate prevailing wage). The trial court sustained the defendant’s demurrer to the entire cause of action. The appellate court reversed as to the tortious interference claim, determining that the plaintiffs’ pleading was adequate.

The Supreme Court, focusing its analysis on the time when the defendant’s wrongdoing took place (during the bidding process), reversed the appellate court. The Court concluded that, at the time the parties submitted their bids, the plaintiffs did not yet have a relationship with the public entities at issue. Further, because the public entities retained discretion to reject all bids, even if the plaintiffs were the lowest bidders, they never had more than a speculative chance at winning the contract. Thus, the Court concluded that the plaintiffs had at most a hope for an economic relationship and a desire for future benefit as opposed to the existing economic relationship and a probability of future economic benefit required to maintain a cause of action for tortious interference.

This is a significant victory for public works contractors, who are already heavily targeted by their employees and the Division of Labor Standards Enforcement for alleged prevailing wage violations. If the decision had gone the other way, public works contractors likely would have seen a considerable increase in lawsuits.