Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

AGO 1965 No. 9 -
Attorney General John J. O'Connell


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.

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                                                                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.


            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,

Attorney General