Key Takeaways:

  • The United States Department of Labor's (DOL) new final rule interpreting the federal Davis-Bacon Act is expected to result in increased prevailing wage rates for construction workers on federally funded public works projects across the country,particularly in predominantly non-unionized geographical localities.
  • The new rule also adds more worker protections, such as enhanced anti-retaliation provisions and greater record-keeping retention requirements.
  • The effect of the DOL's new rule will extend beyond federally funded public works projects, as prevailing wage rate sheets issued under the Davis-Bacon Act apply to wind, solar, hydrogen, electric vehicle, carbon capture and the many other clean energy and climate projects eligible for the extended and expanded tax credits and deductions made available by the Inflation Reduction Act.

On August 8, 2023, the United States Department of Labor (DOL) issued a final rule interpreting the federal Davis-Bacon Act, the federal law governing payment of wages to construction workers working on federally funded public works projects. Among other things, the final rule alters how the DOL sets the prevailing wage rate for workers that work in geographic regions where the majority of workers do not receive a single wage rate. The DOL notes that this change will affect an estimated $217 billion in federal and federally-assisted construction projects and approximately 1.2 million construction workers across the country. The new rule goes into effect 60 days after it is formally published in the Federal Register.

Old Rule

Generally, the Davis-Bacon Act establishes a "minimum wage" for all construction workers working on federally funded public works projects, comprehensive of an hourly base wage rate and fringe benefit rate. The DOL's Wage and Hour Division analyzes wage data across worker classifications and geographical regions to determine the applicable prevailing wage rate for each public works project. Previously, where a majority of workers in a particular geographic region were not paid a single wage rate (e.g., a locality in which the majority of workers are unionized and their rates are set by a collective bargaining agreement), the DOL set the applicable prevailing wage rate using the "weighted average method," or the rate that equals the total hourly wages paid divided by the number of workers.

New Rule

Instead of the weighted average method, the final rule provides that the DOL will set prevailing wage rates for such workers using the "30% rule," or the wage paid to at least 30% of workers of a particular classification in the applicable geographical region. Under the new rule, the expectation is that prevailing wages will rise to mirror the rates in applicable collective bargaining agreements where 30% or more of the workers in a particular locality are unionized.

Other Changes

In addition, the final rule clarifies that the provisions of the Davis-Bacon Act apply to federally funded renewable energy projects (e.g., solar, hydrogen, electric vehicle, and other clean energy projects financed with federal dollars). The final rule also expands the data the DOL may consider in setting prevailing wage rates, heightens the protection from retaliation for workers who raise concerns about their employers' payment practices, and introduces new recordkeeping requirements for employers. With respect to an employer's record retention obligations, the new rule requires employers to maintain payroll records, employee phone numbers, and employee e-mail addresses for at least three years after the work is completed. Moreover, the new rule augments liability for "upper-tier" subcontractors, or those subcontractors who directly contract with federal contractors, for back wages due to workers of "lower-tier" subcontractors if the "upper-tier" subcontractors acted with knowledge or recklessness in violating the provisions of the Davis-Bacon Act.

Effects on Projects Under Inflation Reduction Act

Beyond federally funded public works projects, the new rule will impact private developers seeking to take advantage of the tax credits and deductions afforded to them under the Inflation Reduction Act. As we described in greater detail here, the Inflation Reduction Act amended the Internal Revenue Code to provide increased tax deductions and credits to taxpayers constructing and installing renewable energy projects if those taxpayers ensured workers on those projects are paid the applicable prevailing wage rate set by the DOL under the Davis-Bacon Act. These renewable energy projects include but are not limited to solar, hydrogen, electric vehicle, carbon capture, and other clean energy and climate projects. The new 30% rule is expected to increase the wages paid to workers on such projects, and in turn will raise the costs of developers seeking to take advantage of the Inflation Reduction Act's tax credits and deductions.

To better understand the legal and economic impacts of the DOL's new final rule to your business, you may contact Foley Hoag's Labor and Employment, Energy and Climate, and Tax groups for more information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.