By Alex J. Reganata and Lauren Parris Watts

Seyfarth Synopsis: In an en banc decision, the Washington Supreme Court struck down a recent challenge of the state’s prevailing wage rate law. A 2018 amendment to the law provides that when a county has at least one collective bargaining agreement (“CBA”) for a trade or occupation, the highest rate in any CBA in that county becomes the prevailing wage countywide. Contractor and builder associations challenged the amendment arguing that requiring the industrial statistician to use the wages from CBAs constitutes an unconstitutional delegation of legislative authority. The Supreme Court disagreed.

Government contractors and subcontractors in the state of Washington must pay a “prevailing wage” to all workers for work done on “public works and maintenance contracts.” A prevailing rate of wage includes the “hourly wage, usual benefits, and overtime paid” for a specific county. A 2018 amendment to the law requires that the prevailing wage rate for a trade in a county be set at either the highest rate set by a CBA in that county or, in the absence of a CBA in that county, by statistical estimation. The result of this change – the prevailing wage rate is set at the highest rate allowed in a CBA in the county, regardless of the number of employees covered by said CBA.

The Challenge – Who Decides The Prevailing Wage?

The prevailing wage rate prior to 2018 was set only after a collection of local data and analysis checking for accuracy and removing outliers or data that “raised questions.” The data collected included wage survey responses from businesses engaged in work in Washington State as well as CBAs. The industrial statistician posts the prevailing wage rate twice a year.

In 2018, the legislature modified the above system. Instead of conducting data collection and systemic analysis to set the prevailing wage, the industrial statistician is required to look at all CBAs in the county and simply set the prevailing wage at the highest rate. Only in the absence of a CBA will the industrial statistician perform the previous method of wage surveys and analysis. In counties where a CBA includes a prevailing wage, the new amendment does not require the industrial statistician to conduct any analysis or collect any data, and only requires that the industrial statistician review the applicable CBAs and identify the highest wage. Contractors brought numerous challenges against the new law.

One of the challenges was that this law violated the nondelegation doctrine. The legislature has constraints on how it may delegate its authority to pass laws, as under the Washington constitution “it is unconstitutional for the Legislature to abdicate or transfer its legislative function to others.” Brower v. State, 137 Wn.2d 44, 54, 969 P.2d 42 (1998). While the legislature cannot transfer its legislative function, it does have the power to choose the amount of discretion it grants an administrative agency when carrying out legislative duties. In a 1972 case (Barry & Barry), the Court adopted a two-part test for the constitutionality of delegating legislative authority to an administrative agency of the state. To constitutionally delegate a duty, the legislature must provide: (1) adequate standards and guidelines which indicate in general terms what is to be done, and the administrative body which is to do it; and (2) procedural safeguards that control arbitrary administrative action and any administrative abuse of discretionary power.

The Ruling – It Isn’t The Parties Negotiating The CBA!

Before we get to (1) and (2) of the Barry & Barry test, there is actually a (0.5) consideration – whether the legislation conferred the ability to make the legislative determination on what the prevailing wage should be not to an administrative agency, but instead to private parties (the negotiators of the CBAs). First the Court held that the amendment delegates duties to the industrial statistician, not to private parties. The Court reasoned that the legislature has “exercised its discretion in fixing the standards for determining the prevailing wage,” and made a policy decision to delegate authority to set the prevailing wage rate to the industrial statistician – that authority is merely to consult the CBAs negotiated by private parties.

When challenging the first prong of the Barry & Barry test — adequate standards and guidelines — the contractors argued that in the amendment the legislature did not set standards but instead delegated to a private party the ability to make future determinations of standards. However, the Court held that the first prong was met, reasoning, again, that the legislature did not delegate any authority to private parties and that the industrial statistician is using independent facts to determine the highest wage: “The standards found in SSB 5493 are clear: the industrial statistician will establish the prevailing wage as the highest CBA wage rate in [the] county.”

When challenging the second prong of the Barry & Barry test — procedural safeguards — the contractors argued there was a risk of collusive action which could result in an arbitrarily inflated wage rate for public contracts, and there was not sufficient safeguards in place to protect against this. The Supreme Court held the second prong was met because there are procedures which allow for the arbitration of disputes as to prevailing wages and civil penalties for filing false statements. Additionally, the Court reasoned that “CBAs inherently involve procedural protections because of the bargaining process and are governed by the NLRA (National Labor Relations Act of 1935).

The challenge to the new prevailing wage law fell short – but all hope is not lost for Washington contractors. While they lost their challenge on the nondelegation doctrine, there were multiple other issues that have not yet been decided on appeal. Employers, stay tuned for updates on this important challenge.