Did nonresident shareholders working for a corporate public works contractor count under Washington’s employee residency limits in 1965?

Plain-English summary

In 1965, the Washington Attorney General concluded that a corporate public works contractor could not disregard the statutory nonresident employee limits for workers who also owned shares of the corporation. A corporation and its shareholders were separate legal persons, and shareholder workers remained employees for the residency rule. Stock ownership alone created no exception.

The opinion assumed that enough Washington residents were available and that no federal law or regulation displaced the state preference for the project. It identified a separate statutory process for authorizing nonresident workers when resident workers were unavailable, but that process was not the basis of the requested exemption.

Currency note

This opinion was issued in 1965. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Did owning company shares exempt a worker from the residency count?
No. The AG treated shareholder workers as employees of the corporation for the statute.

Did the opinion address a shortage of resident workers?
It assumed no shortage. The statute discussed a notice and written-order process when enough resident workers were unavailable.

Did the AG decide how federal funding rules would affect the result?
No. It assumed no federal law or regulation conflict that would trigger the statute's federal-aid qualification.

Background and statutory framework

RCW 39.16.010 imposed resident-worker percentages on the public works contracts addressed by the opinion. RCW 39.16.020 provided a procedure for limited nonresident hiring if resident labor was unavailable. The AG applied corporate separateness to reject a special exemption for employees who owned shares in the contractor.

Citations and references

• Statutes discussed: RCW 39.16.010; RCW 39.16.020.

Source

• Landing page: https://www.atg.wa.gov/ago-opinions/public-contracts-corporations-contractor-public-works-project-employment-nonresident

Original opinion text

Attorney General John J. O'Connell

PUBLIC CONTRACTS ‑- CORPORATIONS ‑- CONTRACTOR ON PUBLIC WORKS PROJECT ‑- EMPLOYMENT OF NONRESIDENT SHAREHOLDERS ‑- APPLICATION OF STATE RESIDENT EMPLOYEES ON PUBLIC WORKS STATUTE.

A corporation which is a contractor on a public works project for a municipality in the state of Washington may not employ its nonresident shareholders on such work in excess of the percentages of nonresident employees permitted by RCW 39.16.010.

February 26, 1965

Honorable Jack L. Burtch
State Representative, 21st District
Legislative Building
Olympia, Washington

Cite as: AGO 65-66 No. 9

Dear Sir:

By letter previously acknowledged you have requested the opinion of this office on a question which we paraphrase as follows:

May a corporation which is a contractor on a public works project for a municipality in the state of Washington employ its nonresident shareholders on such work in excess of the percentages of nonresident employees permitted by RCW 39.16.010?

We answer your question in the negative as qualified in the analysis.

ANALYSIS

RCW 39.16.010 provides as follows:

"In all contracts let by the state, or any department thereof, or any county, city or town for the erection, construction, alteration, demolition or repair of any public building, structure, bridge, highway, or any other kind of public work or improvement, the contractor, subcontractor, or person in charge thereof, [[Orig. Op. Page 2]] shall employ ninety-five percent or more bona fide Washington residents as employees where more than fifty persons are employed, and ninety percent or more where fifty or less are employed; and shall pay the standard prevailing wages for the specific type of construction as determined by the United States Department of Labor in the city or county where the work is being performed. The term 'resident,' as used in this chapter, shall mean any person who has been a bona fide resident of the state of Washington for a period of ninety days prior to such employment: Provided, That in contracts involving the expenditure of federal aid funds this chapter shall not be enforced in such manner to conflict with or be contrary to the federal statutes, rules and regulations prescribing a labor preference to honorably discharged soldiers, sailors and marines, or prohibiting as unlawful any other preference or discrimination among the citizens of the United States."

Additionally, RCW 39.16.020 provides as follows:

"In the event a sufficient number of Washington residents shall not be available the contractor or subcontractor shall immediately notify the public body with whom the contract has been executed of such facts, and shall state the number of nonresidents needed. The public body shall immediately investigate the facts and if the conditions are as stated the public body shall, by a written order, designate the number of nonresidents and the period for which they may be employed: Provided, That should residents become available within the period, such residents shall be immediately employed and the period shortened consistent with the supply of resident labor."

There is no indication that resident employees are not available in sufficient numbers, or that there is any conflict with federal laws or regulations which would make the proviso of RCW 39.16.010, supra, applicable. The sole question to be decided, therefore, is whether or not an individual who is employed on a public [[Orig. Op. Page 3]] works project by a corporation in which he owns stock should be considered an employee under the quoted statute. There are no cases directly in point on this question in the state of Washington, and our search discloses no pertinent decisions from other states; however, the question can be resolved by resort to general principles of corporation law.

It is fundamental that a corporation is an entity separate and distinct from the persons who own its stock. State of California v. State Tax Commission, 55 Wn. (2d) 155, 157, 346 P. (2d) 1006 (1959). Stockholders can be employed by a corporation and deal at arm's length with the corporation the same as any private individual. See,Robbins v. Huntley Cattle Co., 3 Wn. (2d) 203, 224, 100 P. (2d) 386 (1940).

Therefore, since the statutes in question make no provision for the exemption of employees who are shareholders of a corporation-contractor on public works projects, there is no legal reason for any such distinction on any other grounds.

We trust the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General