On May 17, 2016, the Michigan Supreme Court ruled in Associated Builders and Contractors v City of Lansing that local municipalities have the right to adopt local ordinances that govern the wages paid to third-party employees working on municipal construction contracts. The Court’s ruling overturned a nearly 100 year old case which had been used to argue that such local ordinances were impermissible.

The facts of the Associated Builders case are fairly straightforward. In 1992, the City of Lansing (“the City”) enacted an ordinance requiring contractors working on city construction contracts to pay employees a prevailing wage. In 2012, the Associated Builders and Contractors union (“the Union”) sued in the Lansing Circuit Court, arguing that local prevailing wage ordinances are unconstitutional because municipalities do not have the authority to adopt laws regulating the wages paid by the parties with whom they contract, even when the contract covers work done for the municipality and is paid for with municipal funds. The Union’s argument relied on a case decided in 1923 which relied on Michigan’s 1908 Constitution.

The Union won the case at the trial court when the judge determined that prevailing wage was a state (and not local) issue, so the local municipality could not impose a local ordinance on that issue. In May, 2014, two members of the three-judge Court of Appeals panel reversed the trial court, holding that local municipalities could adopt their own prevailing wage ordinances. The majority opinion determined that the legal landscape had changed significantly since 1923 – including the State’s adoption of a new constitution in 1963 – which rendered the earlier Supreme Court case irrelevant to the case.

Earlier this week, the Michigan Supreme Court issued an opinion that vacated the Court of Appeals’ decision for procedural reasons (holding that the Court of Appeals doesn’t have the right or ability to ignore the earlier Supreme Court decision), but nevertheless agreed with the Court of Appeals’ decision that changes in the legal landscape required reversing the 1923 decision, and recognizing that local communities can adopt and enforce their own prevailing wage laws.

So, What Is Next For Prevailing Wages in Michigan?

For now, Michigan law is settled.  Local municipalities have the right to adopt ordinances requiring anyone who contracts with those municipalities to pay prevailing wages to their employees.

However, a group known as “Protecting Michigan’s Taxpayers” is trying to repeal Michigan’s 50-year-old prevailing wage law, which requires union-scale wages and benefits be paid on state (as opposed to local) building projects. “Protecting Michigan’s Taxpayers” claims that the state’s prevailing wage law artificially inflates the cost of projects, while opponents of the effort to abolish the state’s prevailing wage law (including a group known as “Protecting Michigan Jobs”) argue that repealing that law would pull down wages and jeopardize funding for training and apprenticeship programs.

Under state law, ballot committees need approximately 250,000 valid signatures from registered Michigan voters to petition the Legislature. “Protecting Michigan’s Taxpayers” is in the process of gathering petition signatures, having previously submitted (but then withdrawn) a petition after it discovered that its prior effort included duplicate (and therefore invalid) signatures.

If a valid petition is presented, lawmakers can either approve the legislation or place it on the ballot. In 2015, Michigan’s House and Senate introduced legislation to repeal the State’s prevailing wage law; the Senate approved its version of the bills last May, and is likely to do the same if presented with a valid petition on the issue. Either way, Gov. Rick Snyder — a vocal opponent of repealing prevailing wage — could not veto it.

Since the proposed ballot initiative is specifically limited to repealing the state prevailing wage law, it would not impact a local municipality’s ability to demand prevailing wages on its jobs. Whether the Legislature or ballot proponents would then turn their attention to local initiatives remains to be seen, but the Associated Builders and Contractors v City of Lansing decision indicates that – absent further change in state law and potentially an amendment to the state constitution – local prevailing wage ordinances are valid and enforceable.

Rhoades McKee will be tracking this issue and keep you informed.

More Legal Alerts