Requiring Government Contractor to Pay Wage Rates Equal to those in Local Collective Bargaining Agreement is Constitutional: Seventh Circuit

Practical Law Legal Update 5-517-7369 (Approx. 4 pages)

Requiring Government Contractor to Pay Wage Rates Equal to those in Local Collective Bargaining Agreement is Constitutional: Seventh Circuit

by PLC Labor & Employment

Key Litigated Issue

On January 31, 2012, the United States Court of Appeals for the Seventh Circuit issued an opinion in Beary Landscaping, Inc. v. Costigan. The key litigated issue was whether it was constitutional for the Illinois Department of Labor (IDOL) to use a local collective bargaining agreement's (CBA) wage rates as a proxy for the prevailing wage rates when setting the minimum wages that contractors must pay their employees who work on local public works projects.

Background

Under the Illinois Prevailing Wage Law, government contractors must pay their workers the local prevailing wage for the type of work (such as plumbing) they perform on non-federal publicly financed projects for all hours they perform that type of work on those projects. The IDOL annually reviews the prevailing wages for various types of construction and demolition work in each county, typically by asking the local union that has a CBA with a contractors' association covering the particular type of work, to certify what rate of pay applies for that work. Typically, the IDOL sets the CBA's wage rate as the prevailing wage rate and publishes it in a wage determination. "Any person affected" by the IDOL's wage determination may challenge it within 30 days after it is published first in agency proceedings and then judicial proceedings (820 Ill. Comp. Stat. 130/2 to 130/4 (2011).) The IDOL has traditionally determined the prevailing wage for landscaping laborers by asking the Laborers Union to certify the current wage under the union's CBA with construction contractors (Laborers' CBA). The Laborers' CBA covers a type of laborer called a "plantsman."

A different landscaping contractor's association has a CBA with non-construction unions covering, among others, a category of workers also called plantsmen (Landscaper's CBA). The Landscapers' CBA sets a lower wage rate for plantsmen than the Laborers' CBA. In an earlier litigation, an Illinois appellate court confirmed a wage determination for plantsmen using the Laborers' CBA. Subsequently, the IDOL used the Laborers' CBA wage rate without requiring a certification by the union or investigating whether the Laborers' CBA still was the prevailing rate for plantsmen work.

The plaintiffs, members of the landcape contractors' association under the Landscapers' CBA obtained contracts for publicly financed projects more than 30 days after the IDOL's more recent wage determination. The IDOL filed a lawsuit against the plaintiffs who refused to pay the effective prevailing wage for plantsmen. The plaintiffs filed a parallel federal court proceeding challenging the constitutionality of the IDOL's more recent wage determination. The plaintiffs allege that the IDOL's determination is an unconstitutional taking of their property, which violates the Constitution's nondelegation doctrine. The district court granted summary judgment for the IDOL.

Outcome

The Seventh Circuit affirmed the district court's decision, holding that the IDOL's prevailing wage determination for plantsmen was constitutional and did not violate the plaintiffs' due process rights as an unlawful delegation of regulatory power. The court:

Found that the Illinois Prevailing Wage Law granted adequate opportunity for persons affected by an IDOL wage determination to challenge whether it accurately reflected the wages prevailing in the local market.
Rejected arguments that:
- the plaintiffs lacked standing to timely challenge the IDOL's wage determination because they were not bidding on, and did not have a current, publicly financed project within the 30 days for "persons affected" to challenge the wage determination. The court reasoned they "were prospectively affected by it as potential bidders on types of work covered by the wage determination."
- a timely challenge would be futile because other contractors were unlikely to join them in the challenge and their complicity would in effect make the prevailing rate, the actual prevailing rate. The court reasoned that the IDOL would be required to investigate and recalculate the wage determination if the plaintiffs' challenge succeeded, regardless of what other contractors did.
Distinguished the IDOL's methods for calculating the prevailing wages from those allegedly used by the New York Department of Labor and challenged in General Electric Co. v. New York State Department of Labor. There the wage rates were set allegedly without state agency discretion to match the terms of a CBA, allegedly negotiated to inflate wages on public work.

Practical Implications

This case is one of the rare constitutional challenges to the ways states set minimum wages for work on publicly financed projects. It is common for state agencies in states that have prevailing wage laws to use CBA rates as a proxy for the local prevailing wage rates. Employers in those states that bid on public work, or may in the future, should become familiar with:

The methods that prevailing rates are set.
Limitations that the state law imposes on challenges to wage determinations.

Constitutional challenges to prevailing wage determinations will not likely succeed where the state law and procedures for setting the prevailing wages are like those of Illinois. However, these challenges may be more successful if the state law and procedures for setting prevailing wages are like those challenged in General Electric.

Requiring Government Contractor to Pay Wage Rates Equal to those in Local Collective Bargaining Agreement is Constitutional: Seventh Circuit | Practical Law