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Prevailing Wage Calculation Method Challenged and Determined to Be Unconstitutional



Public works contractors must pay prevailing wages as required by state law. RCW 39.12.010. Twice a year, the industrial statistician for the Department of Labor and Industry (L&I) sets the prevailing wages that are used to determine the wages for employees on public works projects. How the prevailing wage is calculated is the question the legislature addressed when it stopped using county by county statistical models and instead determined the prevailing wages for a county solely based on collective bargaining agreements (CBAs) for that trade. If a trade had more than one CBA in a county, the highest wage rate would prevail. See Substitute Senate Bill 5493.

In 2018, SSB 5493 required the Labor & Industries statistician to adopt the wage rate from a CBA in a county, or the highest wage rate if more than one CBA in a county existed. The legislature made these amendments to save money and to make the process of establishing prevailing wages more efficient. S.B. REP. ON SUBSTITUTE S.B. 5493, at 2, 65th Leg., Reg. Sess. (Wash. 2018). This resulted in the possibility of prevailing wage rates being set by CBAs not yet in existence, unsigned or expired CBAs, and pre-hire CBAs, as well as the concern for potential collusion with limited or no procedural safeguards.

This change significantly increased the wages public contractors were required to pay because it created the potential for wage rates to be set based on the most generous CBAs existing in that county, even if it represented only a minority of hours worked in a county. The court cited an example:

“For example, a local agreement made by Seattle operators reaches part of Grant County. Prior to SSB 5493, the Seattle rates never prevailed in Grant County because the vast majority of the work was covered under a different CBA with much lower rates. Now, Seattle rates will prevail in Grant County as the prevailing wage rate because the Seattle rates are higher. Similarly, if a CBA only covers one percent of the hours worked in a given county but has the highest wage rate for the occupation in that county, the industrial statistician will have to adopt that rate.”

The Associated General Contractors (and its related industry organizations) filed a lawsuit to challenge the constitutionality of this statute on the grounds it violates the non-delegation doctrine. AGC had standing because it frequently negotiates CBAs with trade unions on behalf of contractors and subcontractors.

Delegation by the legislature, as explained by the court, is proper if two elements are met: “[f]irst, the legislature must provide standards or guidelines which indicate in general terms what is to be done and the administrative body which is to do it.” Barry & Barry, Inc. v. Dep’t of Motor Vehicles, 81 Wn.2d 155, 163, 500 P.2d 540 (1972). “Second, adequate procedural safeguards must be provided, in regard to the procedure for promulgation of the rules and for testing the constitutionality of the rules after promulgation.” Barry & Barry, 81 Wn.2d at 164.

The Appeals Court found the statute did not meet this test. It violated the non-delegation doctrine because it mandates the use of scheduled wage rates negotiated in the CBAs after its enactment to establish prevailing wages. The court held that the proposed standard, guidelines, and procedural safeguards must already exist rather than be created sometime in the future.

Based on this analysis, the court reversed the superior court’s order granting summary judgment to the State and sent the case back to the superior court to revise its ruling. Associated General Contractors of Washington, et al. v. State of Washington, Slip. Op. 54465-2-II (Aug. 31, 2021). As a result of this lawsuit, the prevailing wage rates will once again be set based on the majority or the average wage rates for each county or at least until the appeals process is completed. According to AGC, this will result in the prevailing wage rates more accurately representing the majority of hours worked in each county.

Because the Court of Appeals invalidated the statute on constitutional grounds, look for the State of Washington to seek appeal to the Washington Supreme Court for the final word on this issue. Meanwhile, it will be challenging for contractors to anticipate the proper wage rates to prepare bids on public contracts. The most conservative bidders will assume the higher wage rate reflected in an applicable CBA will apply and therefore use that standard until the issue is settled.

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