New Labor Regulations Could Have Implications for Renewables Developers

Developers of renewable energy projects generally haven’t concerned themselves with the Davis-Bacon Act, the Great Depression-era federal law that mandates the paying of prevailing wages to laborers on public works projects. However, if the Department of Labor (DOL) gets its way, that might soon change.

On August 23, 2023, DOL published new Davis-Bacon and Related Acts regulations that contain provisions aimed at expanding its reach into renewable energy, using the Inflation Reduction Act (IRA) as a kind of regulatory trojan horse to introduce greater control over the wage structure of new renewable energy projects that have received IRA funding.

One of more concerning aspects of the new regulations is DOL’s attempt to redefine by regulatory fiat the scope of its remit. It offers an updated definition of “development statute” that is intended to cover any congressionally enacted statute “that requires payment of prevailing wages under the Davis-Bacon labor standards to all laborers and mechanics employed in the development of a project and for which the administrator determines that the statute’s language and/or legislative history reflected clear congressional intent to apply a coverage standard different from the Davis-Bacon Act itself.” 

In other words, this new definition essentially provides the administrator of DOL’s Wage and Hour Division with quasi-legislative authority in the absence of an express congressional delegation of authority to determine which federal statutes “should” be covered by the new final regulations, even if Congress itself did not expressly say so.

The most likely application of DOL’s self-granted authority will be in the context of the Inflation Reduction Act (IRA). The IRA merely states that if an owner or developer wants the maximum tax credits under the statute,

the taxpayer shall ensure that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor . . . shall be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such facility is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of title 40, United States Code.

As worded, the IRA only requires that taxpayers pay prevailing rates, but the IRA expressly does not incorporate the Davis-Bacon Act or otherwise expressly create any Related Acts-type regulatory scheme. This is likely because Congress granted the Treasury Department—not DOL—enforcement authority over prevailing wage aspects of the IRA.

Despite this, DOL published a webpage regarding Davis-Bacon and Related Acts enforcement for IRA-covered projects months prior to adopting its new final rules. The agency has otherwise given every indication that it intends to unilaterally apply its new Davis-Bacon and Related Acts regulations to IRA-covered projects absent clear congressional intent or delegation of authority to do so. And, if DOL can do this based on its new definition of “development statute,” then it remains to be seen how far DOL will attempt to push out Related Acts coverage over other existing or future statutes that do not expressly incorporate Davis-Bacon and Related Acts principles.

This instance of regulatory expansion is not isolated. For instance, the new regulations expand upon an older definition of “contract” to add: “With the exception of work performed under a development statute, the terms contract and subcontract do not include agreements with employers that meet the definition of a material supplier” (emphasis added). As this new addition is phrased, DOL clearly intends to include material supplier contracts under development statutes (such as the IRA) as “contracts” subject to Davis-Bacon and Related Acts regulations.

Additionally, “development statute” language features in the new regulations’ treatment of “construction, prosecution, completion or repair,” which expand the definition to cover “all types of work done. . . [i]n the construction or development of a project under a development statute.” 

The definition is also expanded to include “covered transportation,” which is further defined to include (a) transportation that takes place entirely at the “site of the work;” (b) transportation between a “secondary construction site” and a “primary construction site”; and (c) any transportation activities performed by laborers and mechanics—whether on or off the site of the work—under a development statute.

Each of these are attempts by DOL to expand the reach of the Davis-Bacon Act to ever greater situations involving transportation and not directly construction or repair, as the plain language of the statute would suggest and as DOL has traditionally interpreted the statute’s coverage. More importantly, by these definitions virtually all onsite and offsite transportation incidental to a development statute will be subject to the new Davis-Bacon Act regulations. This greatly expands the reach of the Davis-Bacon Act, and owners/developers of IRA projects should be particularly vigilant as to how DOL interprets and applies these new sweeping definitions.

One notable development since DOL’s publication of its new regulations concerns the Treasury Department’s formal proposed rules, announced on August 29, regarding “increased credit or deduction amounts available for taxpayers satisfying prevailing wage and registered apprenticeship (collectively, PWA) requirements established by the Inflation Reduction Act of 2022 (IRA).” The proposed rules “encourage” project developers to strike pre-hire collective bargaining agreements, where a failure to do so could result in severe penalties, including a $5,000 penalty per laborer or mechanic not paid the prevailing wage and a 3% interest charge on the underpayment amount.

Written or electronic comments and requests for a public hearing must be received no later than 60 days after the date of publication in the Federal Register, which is anticipated on August 30, 2023. A public hearing on Treasury’s proposed regulations is scheduled to be held on November 21, 2023, at 10 a.m. ET.

While the IRA was a significant move by the federal government to assist renewable energy project developers in bringing more green energy online, it is also proving to be the source of much concern as the government begins to pull more vigorously on the strings attached to the legislation.

For more information on the new Bacon-Davis and Related Acts regulations, please see our recently published guide.

—Michael Schrier is an attorney at Husch and Blackwell. In a diverse array of matters including Construction Litigation and Labor & Employment, Michael is a tenacious advocate for government contractors. He has extensive experience advising and litigating employment-related matters for federal contractors including Davis-Bacon Act, Service Contract Act, federal contractor Paid Sick Leave, federal contractor minimum wage, and OFCCP matters.