Recently the U.S. Department of Labor (DOL) issued a final rule that provides, among many other things (the rule is more than 700 pages long), (1) an update to the formula DOL uses to set “prevailing wages” under the Davis-Bacon Act and related regulations, (2) enforcement options for DOL to penalize employers for retaliation, and (3) the codification of annualizing bona fide and unfunded fringe benefits. Davis-Bacon applies to federal contractors and subcontractors performing on contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works. The new rule is estimated to impact more than 1 million construction workers.

Federal contractors, specifically those in the construction area, should take note.

“Prevailing Wages” Formula

Currently, DOL identifies a wage rate as prevailing in the area if it is paid to a majority of workers in a classification on the wage survey (i.e., more than 50%). If there is no majority, DOL uses a weighted average.

In its new rule, DOL adds an intermediate option for a three-step method. If there is no majority, if at least 30% of workers in the classification are paid a certain rate, that rate is the prevailing wage (the “30 Percent Rule”). If there is no prevailing wage under the 30 Percent Rule, DOL will use the weighted average rate.

Federal contractors should be aware that this three-step method will more than likely require the payment of higher wages to employees.

New Enforcement Mechanisms for Retaliatory Conduct

Under the current rules, the DOL could debar contractors for violations but could not order relief to employees who were retaliated against for complaining about violations. To rectify this, the final rule adds new anti-retaliation provisions to enhance Davis-Bacon enforcement. Specifically, the new anti-retaliation provisions aim to discourage contractors, responsible officers, and any other persons from engaging in — or causing others to engage in — business practices that may chill worker participation in the Wage and Hour Division’s investigations or other compliance actions. To more fully deter potential retaliation, the final rule provides the following remedies to make a person “whole” for any violation of the anti-retaliation provisions:

• Employment;
• Reinstatement;
• Front pay in lieu of reinstatement;
• Back pay and interest;
• Compensatory damages;
• Restoration of the terms, conditions, and privileges of the worker’s employment or former employment;
• The expungement of warnings, reprimands, or derogatory references;
• The provision of a neutral employment reference; and
• The posting of a notice to workers that the contractor or subcontractor agrees to along with the Davis-Bacon and related acts anti-retaliation requirements.

Adding Fringe Benefit Annualization Requirements

The final rule adds a new paragraph that codifies the long-existing principle of annualization. Annualization is the principle that “prohibits contractors from using fringe benefit plan contributions attributable to work on private projects to meet their prevailing wage obligation” for Davis-Bacon and related regulations-type work. As this is now specifically in the rule, be sure to pay attention.

Conclusion

The final rule is expected to be published in the Federal Register soon and will go into effect 60 days from publication. There are many updates for construction employers to note.

• The prevailing wage rate incorporated in your contract governs. DOL will be looking at these under these new rules so do not be surprised if they change.
• Adoption of the “three-step” method will more than likely result in higher prevailing wage rates going forward.
• The new anti-retaliation provisions now call for “make-whole” relief and remedial actions, so there could be relief such as back pay and reinstatement.

If you are a federal contractor or subcontractor working on public buildings or works, you should immediately review your policies and procedures to ensure you are following the appropriate Davis-Bacon regulations. Be sure to reach out to your favorite employment or government contracts lawyer with questions.