A Federal District Court in Texas struck down portions of the Department of Labor’s (DOL) revisions to the Davis-Bacon Act Regulations, effectively reducing the scope of work that will be subject to Davis-Bacon Act wages.

On August 23, 2023, the DOL issued a final rule amending the regulations governing the Davis-Bacon Act (the “DBA”). The final rule became effective October 23, 2023. Included in those rules were provisions that:

1. 1. Eliminate the DOL’s prior 20% threshold for material suppliers, which permitted employees of material suppliers to perform construction related work on a construction site for up to 20% of their time without being subject to the DBA. Under the final rule, that 20% threshold was eliminated and such employees would be covered by the DBA while working on the construction project, subject to a de minimis

1. 2. Apply the requirements of the DBA, including DBA wages, for work done by truck drivers on the site of the work that is essential or incidental to the transportation of materials or supplies to or from the site of the work, such as loading, unloading, or waiting for materials to be loaded or unloaded, but only where the driver’s time spent on the site of the work is not de minimis; and

1. 3. Provide that the DBA contract clauses established by the DOL and applicable wage determinations are effective “by operation of law” and considered to be incorporated into a covered construction contract even when they have been wrongly omitted from that contract.

On June 24, 2024, the United States District Court for the Northern District of Texas (“District Court”) issued a nationwide injunction barring enforcement of these three (3) provisions.

The District Court determined that the changes to the definition of “material supplier” and application of the DBA wage requirements to truck drivers were “arbitrary and capricious”:

The DOL’s material supplier provision, as a practical matter, arbitrarily punishes those contractors that also maintain commercial material supplier operations by making it a competitive disadvantage to them to use their own material supplier services, since such delivery drivers will be subject to the DBA, including its administrative and wage requirements, while delivery drivers employed by other commercial delivery services are not subject to the DBA requirements, even though the work performed by the driver is the same work in each case.

. . .

The DOL’s trucking provision is arbitrary and capricious insofar as it places the contractor in the Hobson’s choice of either (1) treating all time spent on-site by drivers performing delivery services as compensable time under the DBA and maintaining and submitting certified payroll records for such workers, thereby ensuring DBA compliance, but also increasing labor costs which may materially impact success on competitively bid contracts, or (2) ascertaining what constitutes de minimis time, which remains undefined by the DOL, and determining when the driver’s time on the site, aggregated over the day or workweek, exceeds a de minimis period of time.

The District Court then found that the DOL’s changes to the definition of “material supplier,” and elimination of the 20% threshold, were not permitted by the DBA and outside of the DOL’s rulemaking authority:

The Court finds that Plaintiffs are likely to succeed on their claim that the material supplier provisions in Section 5.2 of the Final Rule provision applying the DBA to material suppliers operated by contractors or subcontractors contradicts the DBA.

The DBA applies only to “all mechanics and laborers employed directly on the site of the work.” See 40 U.S.C. §§ 3142(a) and (c). The Final Rule purports to codify DOL’s longstanding subregulatory guidance that the DBA and the vast majority of DBA Related Acts entirely exclude from coverage bona fide “material suppliers.” The Final Rule does so by defining the term “material supplier” and amending the regulatory definitions of contract and contractor to exclude material suppliers from their scope. See 29 C.F.R. § 5.2; Final Rule, 88 Fed. Reg. at 57731-34

However, the Final Rule’s application of the DBA to material suppliers that are operated by contractors or subcontractors ignores the statutory language of the DBA, essentially determining that a bona fide material supplier will be considered covered by the DBA based simply upon its connection to a contractor or subcontractor. The Final Rule in this regard amounts to a fundamental amendment to the DBA, and one which would reclassify employees of bona fide material suppliers as “mechanics and laborers,” in a manner clearly contrary to the plain language of the DBA.

The District Court also found that the DOL’s changes to the definition of “material supplier” to include truck drivers not engaged in de minimis work on the site conflicted with the statutory language of the DBA:

When enacting the DBA, Congress used precise language, and deemed that the DBA applies only to “mechanics and laborers employed directly on the site of the work.” 40 U.S.C. §§ 3141-3148; § 3142(c)(1). This plain language is simple and unambiguous. Under its terms, DBA applies only to mechanics and laborers, and only if they are “employed directly on the site of the work.” Id.

Expanding the DBA to apply to trucking impermissibly conflicts with the statute, which defines its coverage and is limited to “construction, alteration, or repair, including painting and decorating, of public buildings and public works . . . .” 40 U.S.C. § 3142(a). Truck drivers are not de facto “mechanics and laborers employed directly on the site of the work.” Id. § 3142(c)(1). The DBA applies based on the nature of the function a worker performs, i.e., whether the worker is performing duties of a laborer or mechanic on site as statutorily required.

The amendment is neither a clarification nor an updating of the Act that a President or his agencies can lawfully undertake. It is a fundamental change to the Act by adding “transportation” as a category of work covered by DBA, contrary to the congressional limitations of DBA to covering only mechanics and laborers employed directly on the site of work.

The District Court also found that the “operation by law” provisions of the final rule exceeded the authority granted to the DOL. The District Court first found that the “operation by law” provision harmed potential contractors:

The DOL’s operation of law provision creates undue uncertainty for bidders on competitively bid contracts, as to what the contract terms are and whether the DBA requirements apply, which invariably leads to discrepancies in bid submissions among contractors that interpret the potential application of the DBA differently. This is particularly a real-world concern as demonstrated by state and local public agencies that receive federal funds triggering the DBA requirements but fail to include the DBA requirements in the contract documents, causing the contractor expense and time to ensure compliance by the contractor and subcontractors with the DBA after the project is completed.

The District Court determined that the DBA may only be applied to those construction contracts that expressly incorporate the DBA through contract provisions. The District Court relied on 40 U.S.C. § 3142(a), stating:

The DBA expressly requires that public federal bid advertisement specification and contracts contain specified provisions concerning the minimum wages to be paid to the laborers and mechanics employed directly on the site of the work by contractors and subcontractors. The wages to be paid must be “computed at wage rates not less than those stated in the advertised specifications.” 40 U.S.C. § 3142(c)(1). Specifically, 40 U.S.C. § 3142(a) requires that: “The advertised specifications for every contract in excess of $2,000, to which the Federal Government or the District of Columbia is a party, for construction, alteration, or repair, including painting and decorating, of public buildings and public works of the Government or the District of Columbia that are located in a State or the District of Columbia and which requires or involves the employment of mechanics or laborers shall contain a provision stating the minimum wages to be paid various classes of laborers and mechanics.” See 40 U.S.C. § 3142(a) (emphasis added).

Based on this statutory language, the District Court concluded that the DOL’s “operation by law” provision in the final rule exceeded its rulemaking authority:

DOL lacks authority under the DBA statute to impose section 5.5(e) [the operation by law provision], as the statute explicitly requires the contracting agency to include the DBA requirements. Given this statutory language, DOL as a regulatory agency does not have the power to make any determination that the DBA requirements are applicable by operation of law, and that contractors are liable for violations, where not included by the contracting agency as requirements.

Defendants engaged in egregious violations of Article II, section 3 of the Constitution, because rather than taking care to faithfully execute the DBA, Defendants instead usurped Congress’ law-making power and attempted substantive amendments to the DBA. Presidents and their agencies act ultra vires and do violence to the Constitution when they attempt to unilaterally amend Acts of Congress to suit their policy choices, Under Article I, section 1 of the Constitution, Presidents and their agencies cannot amend by executive fiat acts of Congress. Doing so violates the Constitution, and this preliminary injunction shall issue to prevent this blatantly unlawful action. The District Court also found that contractors would not receive due process if a contract subjected them to the DBA without a clause explicitly applying the DBA to the work: “The operation-of-law provisions do not give contractors sufficient notice of the applicability of DBA requirements, and this lack of notice is not consistent with basic contract and procedural due process principles. See 29 C.F.R. $ 5.5(e); Final Rule, 88 Fed. Reg. at 57739.” Id., p. 28.

In addition to finding that these provisions of the final rule exceeded the DOL’s statutory authority, the District Court also found that the DOL violated the Regulatory Flexibility Act (“RFA”) when developing the final rule. The District Court viewed the RFA as requiring the DOL to:

ensure that the Final Rule addresses the costs imposed on the numerous small businesses directly impacted by the Final Rule. Nat’l Tel. Co-op., 563 F.3d at 540 (RFA “makes the interests of small businesses a ‘relevant factor’” and the APA together with the RFA requires “that a rule’s impact on small businesses be reasonable and reasonably explained”).

The District Court found that the DOL had failed to consider the additional administrative burdens and costs that the final rule would impose on small businesses:

Defendants did not challenge Plaintiffs’ evidence that although a contractor might be later reimbursed for the cost of paying a prevailing wage, there are significant administrative costs in complying with the record keeping obligations under the DBA, including producing certified wage reports. These costs are compounded if a contractor has to attempt to recreate such reports after the fact. Defendants’ failure to even acknowledge these unreimbursed costs in the Final Rule makes it invalid under the RFA.

Similarly, Defendants did not consider the additional interest costs that contractors would have to pay on restitution wages. This is a cost that would be improperly borne by the contractors and not accounted for by Defendants in the Final Rule. Failure to consider this significant cost also violates the RFA.

The District Court also found that the DOL incorrectly asserted or believed that its final rule would not substantially broaden the scope and coverage of the DBA, and that this failure was another violation of the RFA:

Thus, Defendants summarily and incorrectly concluded that the Department does not anticipate that it will substantially broaden coverage to entities not previously covered. Because Defendants (1) incorrectly assumed that the Final Rule did not expand coverage of workers under the DBA; (2) failed to perform the required compliance cost analysis pertaining to this expanded class of workers; and (3) failed to even attempt to estimate the number of small entities that will be impacted by these changes, the Final Rule violates the RFA.

After determining that the plaintiffs established a substantial threat of irreparable harm and that the balance of hardships favored the plaintiffs, the District Court determined that a nationwide injunction barring enforcement of these three (3) provisions was appropriate:

First, a nationwide injunction is proper because this case presents a facial challenge that maintains DOL’s challenged Final Rule provisions are invalid because, among other reasons, they are inconsistent with the DBA and exceed the DOL’s authority. Where a party brings a facial challenge alleging that agency action violated APA procedures, a nationwide injunction is appropriate. See, e.g., Nat’l Mining Ass ‘n v. U.S. Army Corps of Eng’rs, 145 F.3d 399, 1407-08, 1409 (D.C. Cir. 1998) (invalidating rule and enjoining Army Corps from nationwide application); Harmon v. Thornburgh, 878 F.2d 484, 495 n.21 (D.C. Cir. 1989) (“When a reviewing court determines that agency regulations are unlawful, the ordinary result is that the rules are vacated not that their application to the individual petitioners is proscribed.”).                In addition, Plaintiff AGC of America has shown that it is a nationwide organization which has members in all 50 states and Washington D.C. and Puerto Rico. . . AGC of America’s members would be subject to DOL’s challenged Final Rule provisions in every jurisdiction. Given the breadth of AGC’s membership and the fact that the Final Rule applies to impacted members located all over the country, limiting the relief to only those before the Court would prove unwieldly and would only cause more confusion.

Because the scope of the irreparable injury is national, and because the DOL’s challenged Final Rule provisions are facially invalid, the injunction should be nationwide in scope.

As such, the District Court issued an injunction barring the DOL from enforcing, nationwide, the following provisions of the final rule:

The United States Department of Labor, its agencies, officers, agents and employees, including Julie Su, Acting Secretary of the United States Department of Labor, are hereby enjoined on a national basis from implementing and enforcing:

• • • 5.2 (specifically the definition of “Construction, prosecution, completion, or repair” set forth at subsection (iv)(D) and which provides [“Covered Transportation,” defined as any of the following activities:] “Onsite activities essential or incidental to offsite transportation,” defined as activities conducted by a truck driver or truck driver’s assistant on the site of the work that are essential or incidental to the transportation of materials or supplies to or from the site of the work, such as loading, unloading, or waiting for materials to be loaded or unloaded, but only where the driver or driver’s assistant’s time spent on the site of the work is not de minimis.”)
    • 5.2 (specifically the definition of “Material supplier” set forth at subsection (2) which provides “If an entity, in addition to being engaged in the activities specified in paragraph (1)(i) of this definition, also engages in other construction, prosecution, completion, or repair work at the site of the work, it is not a material supplier.”); and
    • 5.5(e), (which provides “Incorporation by operation of law. The contract clauses set forth in this section (or their equivalent under the Federal Acquisition Regulation), along with the correct wage determinations, will be considered to be a part of every prime contract required by the applicable statutes referenced by § 5.1 to include such clauses, and will be effective by operation of law, whether or not they are included or incorporated by reference into such contract, unless the Administrator grants a variance, tolerance, or exemption from the application of this paragraph. Where the clauses and applicable wage determinations are effective by operation of law under this paragraph, the prime contractor must be compensated for any resulting increase in wages in accordance with applicable law.”)

This ruling impacts construction contractors and other employers subject to the Davis-Bacon Act, who may now have employees that are no longer required to be paid Davis-Bacon Act wages.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.