Michigan Advisory Opinions July 09, 2015: AGO 7285 (July 09, 2015)

Advisory Opinion Text

The Honorable Bruce R. Rendon

State Representative

The Capitol

Lansing, MI 48909

The Stille-DeRossett-Hale Single State Construction Code Act, MCL 125.1501 et seq., as amended by 2012 PA 103, expressly requires that a building official be employed by the governmental subdivision for which the building official is administering and enforcing the State Construction Code. MCL 125.1502a(1)(i). The test to be applied in determining whether a building official is an employee of the governmental subdivision is the economic realities test.

The Stille-DeRossett-Hale Single State Construction Code Act, MCL 125.1501 et seq., as amended by 2012 PA 103, which requires that a building official be employed by the governmental subdivision for which building official is administering and enforcing the State Construction Code, also expressly permits the building official to be employed with a private organization that assists governmental subdivisions with State Construction Code administration and enforcement. MCL 125.1502a(1)(i). However, contracts and business transactions involving the building official, the governmental subdivision, and the private organization are subject to applicable conflict of interest provisions. MCL 125.1509(2).

You ask whether the Stille-DeRossett-Hale Single State Construction Code Act (Construction Code Act), 1972 PA 230, MCL 125.1501 et seq., requires a governmental subdivision’s building official to be an employee of the subdivision, or may the building official instead be an employee of the private organization operating the building department by contract.

Information included with your request presents the following scenario. A city has contracted with a private organization to operate the city’s building department. The “building official” that operates the city’s building department is identified in the agreement as an employee of both the city and the private organization retained to operate the building department. The building official, however, is paid by the private organization and no other factors supporting an employee-employer relationship between the city and the building official are identified.

Before addressing your question, it is helpful to provide an overview of the administration and enforcement of the Construction Code Act, and its prior interpretation by this office.

The Construction Code Act establishes the authority of the Director of the Department of Licensing and Regulatory Affairs to prepare and promulgate a State Construction Code. Rakowksi v Sarb , 269 Mich App 619, 628 n 4; 713 NW2d 787 (2006). The Construction Code Act provides that the code shall consist of “rules governing the construction, use, and occupation of buildings and structures.” MCL 125.1504(1). And that the code “shall be divided into sections . . . including . . . building, plumbing, electrical, and mechanical sections.” MCL 125.1504 (4). Pursuant to this authority, a State Construction Code (Code) was promulgated, and is set forth in the Michigan Administrative Code. Mich. Admin Code, R 408.30101 – 408.31194.

A two-tiered method exists for the administration and enforcement of the Code and its various sections—building, electrical, mechanical, and plumbing. The Construction Code Act first grants to the Director of the Department of Licensing and Regulatory Affairs, or the director’s authorized representative, the responsibility for administering and enforcing the Code throughout the State. MCL 125.1508b(1). State authority is exercised through the Bureau of Construction Codes.

Alternatively, a governmental subdivision (a county, city, village, or township) may assume responsibility for these same functions within its jurisdiction by adopting an ordinance. MCL 125.1508b. When a governmental subdivision assumes responsibility for administering and enforcing the Code, it shall designate an “enforcing agency” to discharge the governmental subdivision’s responsibilities. MCL 125.1508b(2). The enforcing agency is defined in the Construction Code Act as the “governmental agency . . . responsible for administration and enforcement of the code within a governmental subdivision.” MCL 125.1502a(1)(t). The enforcing agency is further described as “any official or agent of a governmental subdivision that is registered under the building officials and inspectors registration act . . . qualified by experience or training to perform the duties associated with construction code administration and enforcement.” MCL 125.1508b(3). The governmental subdivision’s registered officials are thereafter responsible for enforcing the various requirements of the Code. MCL 125.1512.

Nearly 40 years ago, Attorney General Frank Kelley was asked if a governmental subdivision may engage the “services of a qualified private firm to provide construction inspection and other related functions, and what, if any, guidelines must be established.” OAG, 1975-1976, No 4885, p 126 (August 15, 1975). Attorney General Kelley’s opinion incorporated three core principles.

First, the Attorney General examined the enforcing agency’s authority.

In my opinion the powers and duties imposed on the designated “enforcing agency” by Sections 10, 11, 12, 13 and 14 of the [State Construction Code Act] must be exercised and performed by a public official or governmental agency . [ Id. , p 127; emphasis added.]

Next, the Attorney General acknowledged the authority of a governmental subdivision to contract with a private firm.

In my view, the governmental units may contract with private organizations in accordance with the requirements of their local ordinances for inspection or other technical assistance which would assist the enforcing agency in the administration and enforcement of the Act and Code. [ Id .]

Finally, the Attorney General addressed the enforcing agency’s police powers.

Any formal action on the basis of such inspections or other technical services should be made by the designated enforcing agency and not by the private individual performing the inspections or other technical services. [ Id. ; emphasis added.]

The last statement is consistent with the proposition that enforcement of the Construction Code Act is a police power that cannot be abridged, bargained away, or impaired by contract. See Marquette County v Bd of Control of Northern Michigan, 111 Mich App 521, 524; 314 NW2d 678 (1981); Petz v Detroit, 95 Mich 169, 180; 54 NW 644 (1893). See also Detroit v Mich Bell Telephone Co, 374 Mich 543, 552; 132 NW2d 660 (1965).

In 1986, the Legislature enacted the Building Officials and Inspectors Registration Act (BOIRA), 1986 PA 54, MCL 338.2301 et seq. Subsection 6(1), MCL 338.2306(1), of the BOIRA instituted an application and registration requirement for “a building official, plan reviewer, or inspector.” See also OAG, 1989-1990, No 6576-A, p 72, 76 (March 10, 1989) (this legislation “imposes a duty upon the State Construction Code Commission to register and regulate building officials, plan reviewers and inspectors”). The legislation prescribes the process for registering those who perform inspection and plan review activities. It is designed to improve the competence of building officials, inspectors, and plan reviewers. See MCL 338.2304(1). And it accomplishes this objective through the establishment of minimum training and experience standards, qualifications, and classifications of responsibility applicable to persons engaged in the enforcement of codes and plan reviews. See MCL 338.2304(2)(a).

The BOIRA included a definition of “building official” that focuses on the tasks the individual performed, not on the official’s employment status with a governmental subdivision:

“Building official” means a construction code enforcement person working as an inspector, or plan reviewer, or actively engaged in the administration and enforcement of adopted building, electrical, mechanical, or plumbing codes, or any combination of these codes. [MCL 338.2302(d).]

Relying on OAG No 4885 and the definition of “building official” in the BOIRA, some governmental subdivisions hired independent contractors to serve as building officials. Others contracted with private organizations for assistance in administering and enforcing the Construction Code Act and the Code; including appointing a firm’s employee as the governmental subdivision’s building official.

But in 2012, the Legislature enacted Public Act 103, which made several amendments to the Construction Code Act relevant to your question. According to legislative analysis, the purpose of the amendments was to codify the ability of governmental subdivisions to contract with private organizations to assist in the administration and enforcement of the code within their communities, consistent with OAG No 4885, to clarify that a building official must be an employee of the governmental subdivision, and to enumerate what responsibilities may be delegated to the private organizations to perform. House Fiscal Analysis, HB 5011, November 29, 2011, pp 1-2.

A “building official” is now defined in the Construction Code Act as:

[A]n individual who is employed by a governmental subdivision and is charged with the administration and enforcement of the code and who is registered in compliance with the building officials and inspectors registration act, 1986 PA 54, MCL 338.2301 to 338.2313. This individual may also be an employee of a private organization. [MCL 125.1502a(1)(i); emphasis added.]

And a private organization may contract with a governmental subdivision to do the following work, some of which is expressly subject to approval by the building official:

(1) A governmental subdivision may contract with a private organization to do 1 or more of the following on behalf of the enforcing agency:

(a) Receive applications for building permits.

(b) Receive payments of fees and fines on behalf of the governmental subdivision.

(c) erform plan reviews using plan reviewers registered under the building officials and inspectors registration act, 1986 PA 54, MCL 338.2301 to 338.2313.

(d) Perform inspections using inspectors registered under the building officials and inspectors registration act, 1986 PA 54, MCL 338.2301 to 338.2313.

(e) Approve temporary service utilities.

(f) Make determinations that structures or equipment are unsafe.

(g) Process and deliver correction notices.

(h) In emergency situations, issue orders to connect or disconnect utilities.

(i) In emergency situations, issue orders to vacate premises.

(j) Process and deliver any of the following after its issuance has been approved by the building official :

( i ) In nonemergency situations, orders to connect or disconnect utilities.

( ii ) In nonemergency situations, orders to vacate premises.

( iii ) Building permits.

( iv ) Temporary or permanent certificates of use and occupancy.

( v ) Orders to suspend, revoke, or cancel a building permit or certificate of occupancy.

( vi ) Violation notices.

( vii ) Notices to appear or show cause.

( viii ) Stop work orders.

( ix ) Orders to remedy noncompliance. [MCL 125.1509(1)(a)-(j)(ix); emphasis added.]

In light of the requirement that a building official be an employee of the governmental subdivision, but may also be an employee of a private company that performs code enforcement services, you ask whether the governmental subdivision “must employ the building official . . . as the concept of employment has traditionally been defined by Michigan law, or whether the building official may instead be an employee of the private organization operating the [subdivision’s] building department.”

Your question is based on the agreement described above between the city and the private organization for code administration and enforcement that identifies the building official as a “co-employee” of the city, but the private organization is responsible for paying the building official. This question will be addressed in two parts.

I. A building official must be employed by the governmental subdivision for which the official provides State Construction Code administration and enforcement services.

Under well-established rules of statutory construction, every statute is to be enforced according to its plain meaning. Roberts v Mecosta County Gen Hosp , 466 Mich 57, 63; 642 NW2d 663 (2002). And “[e]ach word of a statute is presumed to be used for a purpose.” Levy v Martin , 463 Mich 478, 493-494; 620 NW2d 292 (2001), quoting Robinson v Detroit , 462 Mich 439, 459; 613 NW2d 307 (2000). Effect must be given to “every word, phrase, and clause in a statute” so as to “avoid an interpretation that would render any part of the statute surplusage or nugatory.” State Farm Fire and Cas Co v Old Republic Ins Co, 466 Mich 142, 146; 644 NW2d 715 (2002).

Here, the amendments to the Construction Code Act made plain that the “building official” must be “employed” by the “governmental subdivision” for which the building official provides State Construction Code administration and enforcement services. MCL 125.1502a(1)(i).

In Michigan, the economic realities test is the most common tool for determining whether an employee-employer relationship exists. Buckley v Professional Plaza Clinic Corp, 281 Mich App 224, 234; 761 NW2d 284 (2008). (“Although primarily applied in the context of remedial legislation . . . courts have found the test instructive in other contexts as well.”) The factors to be considered under the economic realities test are (1) control of a worker’s duties; (2) payment of wages; (3) right to hire, fire, and discipline; and (4) performance of the duties as an integral part of the employer’s business toward achieving a common goal. Clark v United Technologies Automotive, Inc , 459 Mich 681, 688; 594 NW2d 447 (1999); Mantei v Michigan Public School Employees Retirement System, 256 Mich App 64, 78-79; 663 NW2d 486 (2003). “This test considers the totality of the circumstances surrounding the work performed. No single factor is controlling and, indeed, the list of factors is nonexclusive and other factors may be considered as each individual case requires.” Id. at 78-79 . (Citations omitted.)

Application of the economic realities test and the determination of whether there is an employer-employee relationship between the city and the building official under the agreement provided to this office is fact-intensive and beyond the scope of the opinions process, which is generally reserved for addressing questions of law. MCL 14.32; see, e.g., Michigan Beer & Wine Wholesalers Ass’n v Attorney General , 142 Mich App 294, 300-301; 370 NW2d 328 (1985). This office, therefore, cannot opine with respect to the status of the relationship between the building official and the city.

However, a cursory review of the agreement reveals that (1) the private organization assumes full responsibility “for training, overseeing, and managing the building official,” which suggests that the private organization has control over the building office; (2) the private organization is solely responsible for “all compensation, fringe benefits, including retirement programs and insurance” for the building official; (3) the private organization has the authority to hire the candidate for building official, or hire or retain the current building official, and is responsible for addressing complaints against its employees; and (4) the agreement describes the services to be provided by the private organization to the city as those supplied by an “independent contractor,” and disavows the creation of any employer-employee relationship (although it does describe the building official as a “co-employee”). These factors tend to weigh against the existence of an employer-employee relationship between the city and the building official.

It is my opinion, therefore, that the Construction Code Act , as amended by 2012 PA 103, expressly requires that a building official be employed by the governmental subdivision for which the building official is administering and enforcing the State Construction Code. MCL 125.1502a(1)(i). The test to be used in determining whether a building official is an employee of the governmental subdivision is the economic realities test.

II. A building official may also be employed by a private organization that assists governmental subdivisions with State Construction Code administration and enforcement services but is subject to conflict of interest principles.

In addition to requiring that the building official be employed by the governmental subdivision for which the official is providing administrative and enforcement services, Public Act 103 confirmed in subsection 2a(1)(i), MCL 125.1502a(1)(i), that the building official “may also be an employee of a private organization.” Thus, the building official may be a dual employee.

Your request specifically raises the issue of whether a building official may be an employee of the private organization that has been contracted to assist with code administration and enforcement under subsection 9(1), MCL 125.1509(1), of the Construction Code Act.

The Legislature contemplated that such a scenario may arise because it added a subsection regarding conflicts of interest at the same time it amended the definition of “building official” to specify that this official may be a dual employee:

Unless the governmental subdivision has a conflict of interest ordinance that applies to a contract under subsection (1), such a contract entered into or renewed after the effective date of the amendatory act that added this subsection shall include or incorporate by reference conflict of interest provisions. [MCL 125.1509(2).]

Public officials and employees are expected to act in the best interests of the public entities they serve. “A public office is a public trust, and the courts have imposed a fiduciary standard upon public officials that requires disinterested conduct.” OAG, 2003-2004, No 7125, pp 10, 11 (February 20, 2003) (citing OAG, 1997-1998, No 6931, p 5 (February 3, 1997), citing Wilson v Highland Park City Council , 284 Mich 96, 104; 278 NW 778 (1938)). In general, a public officer or employee cannot act contrary to the interests of the public:

[M]ay not use his or her official power to further his or her own interest and is not permitted to place herself or himself in a position that will subject him or her to conflicting duties—that is in a position where his or her private interest conflicts with his or her public duty—or cause him or her to act, or expose him or her to the temptation of acting, in any manner other than in the best interests of the public. . . . A conflict of interest arises when the public official has an interest not shared in common with the other members of the public. . . . When conflicts of interest arise between an office holder’s private interests and public duties, it is proper that the office holder recuse himself or herself from the matter in which the conflict arises. [63C Am Jur 2d, Public Officers and Employees, § 246.]

With respect to state law, the Public Servants’ Conflict of Interest Act, 1968 PA 317, MCL 15.321 through MCL 15.330, establishes conflict of interest provisions regarding contracts involving public servants and public entities, which would include buildings officials and the governmental subdivision with which the building official is employed.

MCL 15.322 provides, in part:

(1) Except as provided in sections 3 and 3a, a public servant shall not be a party, directly or indirectly, to any contract between himself . . . and the public entity of which he . . . is an officer or employee.

(2). . . a public servant shall not directly or indirectly solicit any contract between the public entity of which he or she is an officer or employee and any of the following:

(a) Him or herself.

(b) Any firm, meaning a co-partnership or other unincorporated association, of which he or she is a partner, member, or employee.

* * *

(3) In regard to a contract described in subsection (2), a public servant shall not do either of the following:

(a) Take any part in the negotiations for such a contract or the renegotiation or amendment of the contract, or in the approval of the contract.

(b) Represent either party in the transaction.

This Act generally prohibits a public servant from being directly or indirectly interested in a contract between the public servant and the public entity of which he or she is an employee, or from directly or indirectly soliciting or negotiating such contracts. MCL 15.322(1)-(3). Any person who violates these provisions is “guilty of a misdemeanor.” MCL 15.327.

Because the Construction Code Act expressly provides that a building official may be an employee of a private organization, and does not otherwise provide that the private organization cannot be the same organization that has contracted with the building official’s governmental subdivision, such dual employment is not prohibited by the Construction Code Act. United Parcel Service, Inc v Bureau of Safety and Regulation , 277 Mich App 192, 202; 745 NW2d 125 (2007) (A court “may not read into a statute or rule that which is not within the manifest intention of the Legislature as gathered from the statute itself.”). Although not statutorily precluded, such dual employment may raise conflict of interest concerns with respect to any contract, which concerns warrant review under the Public Servants’ Conflict of Interest Act and any other applicable conflicts of interest provisions.

This interpretation is consistent with the statutory language and the intent of the Legislature in enacting PA 103. The Legislature was aware that governmental subdivisions commonly contracted out code administration and enforcement services. See House Fiscal Analysis, HB 5011, November 29, 2011, pp 1-2. The Legislature expressly provided for such contracts and permitted a building official to be an employee of a private organization who provides such services subject to conflict of interest rules. Indeed, not every dual employment situation will present a conflict of interest.

For example, a building official that is an employee of the private organization that serves the building official’s governmental subdivision might only provide services as an employee to other governmental subdivisions. In other words, the building official for city “A” works as an employee of the private organization but the official only provides code enforcement and administration services to city “B” as an employee of the organization. Circumstances such as these are unlikely to raise conflict of interest concerns. However, where the building official intends to provide services to city “A,” a conflict of interest is more likely. At a minimum, the building official has an indirect financial interest in any contract between the private organization and the city because of the building official’s status as an employee of the private organization. See, e.g., Detroit Area Agency on Aging v Office of Services to the Aging , 210 Mich App 708, 717; 534 NW2d 229 (1995), lv den 451 Mich 897 (1996). This is because the private organization would benefit financially from the contract with the city, and in theory so would its employees.

And aside from having a financial interest in the contract, providing services to the city as the employee of the private organization may result in the building official acting other than in the best interests of the city. 63C Am Jur 2d, Public Officers and Employees, § 246. For instance, the building official may be required to review or approve services he or she provided as the employee of the private organization. Absent particular facts, it cannot be determined whether any situation violates conflict of interest principles, but each arrangement requires careful review by the city and the private organization as dual employers of the building official-employee.

It is my opinion, therefore, that the Construction Code Act, which requires that a building official be employed by the governmental subdivision for which the building official is administering and enforcing the State Construction Code, also expressly permits the building official to be employed with a private organization that assists governmental subdivisions with code administration and enforcement. MCL 125.1502a(1)(i). However, contracts and business transactions involving the building official, the governmental subdivision, and the private organization are subject to applicable conflict of interest provisions. MCL 125.1509(2).

BILL SCHUETTE, Attorney General.

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Notes:

See, e.g., Giera v City of Belleville, unpublished opinion per curiam of the Court of Appeals, decided June 19, 2012 (Docket No. 294959) (reviewing whether building official was an employee or independent contractor).

See, e.g., Nguyen v Professional Code Inspections of Michigan, Inc , unpublished opinion per curiam of the Court of Appeals, decided July 15, 2004 (Docket No. 247584), rev’d in part 472 Mich 885 (2005), reconsideration den 473 Mich 886 (2005) (discussing application of governmental immunity to building official appointed by private firm).

See n1, Giera v City of Belleville, (discussing whether building official was an independent contractor or employee).

Notably, Public Act 103’s requirement that the building official be an employee of the governmental subdivision applies prospectively, and thus would not apply to contracts or agreements pre-existing the Act’s April 24, 2012, effective date. See, e. g., Seaton v Wayne Co Prosecutor (On Second Remand) , 233 Mich App 313, 316; 590 NW2d 598 (1998) (“Under Michigan law, the general rule of statutory construction is that a new or amended statute applies prospectively . . . .”). However, any contracts or agreements entered into or renewed after that date are subject to the Act.

Section 1(a), MCL 15.321(1)(a), provides that “[p]ublic servant” includes “all persons serving any public entity.” And section 1(b), MCL 15.321(1)(b), provides that a “[p]ublic entity” means “the state including all agencies thereof, any public body corporate within the state, including all agencies thereof, or any non-incorporated public body within the state of whatever nature, including all agencies thereof.”

In addition, it is a crime at Michigan common law for a public official to engage in misconduct in office. See People v Perkins , 468 Mich 448, 456; 662 NW2d 727 (2003). And MCL 750.478 makes it a crime for a public officer to engage in willful neglect of duty.

See www.legislature.mi.gov/documents/2011-2012/billanalysis/House/pdf/2011-HLA-5011-3.pdf (accessed April 10, 2014).

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