Construction, Employment Law, Publications

The Illinois Prevailing Wage Act Adds Teeth

January 1, 2013

Recent changes to the Illinois Prevailing Wage Act (“IPWA”) and the law interpreting it have broadened its reach and toughened the requirements and penalties such that contractors and governmental bodies must become aware of these changes.  The IPWA was designed to ensure that laborers on public works projects were paid as much as the local prevailing wage.  The IPWA provides for criminal and civil penalties for contractors and public bodies that violate the act.  Amendments to and interpretations of the IPWA over the last several years have expanded its reach, imposed new notice requirements, and toughened penalties for noncompliance.

Prevailing wage requirements on federally funded construction projects have been in effect since 1931 under the Davis-Bacon Act.  Area-wide standards establish the prevailing wage and apply to federal and federally assisted contracts exceeding $2,000.  The Davis-Bacon Act was designed to protect local wage standards by preventing contractors from basing their bids on wages lower than those in the prevailing area.  It was also designed to help level the playing field by giving local contractors a fair opportunity to participate in projects.

Currently, 32 states have prevailing wage laws or as they are known “Little Davis-Bacon Acts.” Illinois enacted its own prevailing wage in 1941.  The IPWA requires contractors and subcontractors to pay laborers, mechanics, and other workers employed on any public works project no less than the general prevailing local hourly wages for similar work. The Illinois Department of Labor establishes what the prevailing wage rate is for particular work in a particular region.  Rates consist of hourly wages plus fringe benefits.

The IPWA was amended three years ago to require public bodies awarding public works contracts to provide a contractor with written notice that a project is subject to the IPWA, even when the project is awarded without a public bid, contract or bid specification.  Public bodies were already required to insert a prevailing wage stipulation and project specifications and contract documents.  The IPWA also provides that public bodies that fail to properly notify a contractor are responsible for any interest, penalties or fines that would have been owed by the contractor if proper written notice had been provided.  Similarly, contractors that fail to provide proper written notification to their subcontractors are responsible for any interest, penalties or fines.  Contractors are still liable for any back wages owed to workers regardless of proper notification being provided.  The notice amendment went into effect on Jan. 1, 2010.  The Illinois Department of Labor’s website offers sample notice language that public bodies or contractors may wish to use.

When is a private contractor a “public body” subject to the IPWA?  This question isn’t answered in recent legislation, but recent case law clarifies what a “public body” is for IPWA coverage purposes.   Section II of the IPWA includes as a public body “any institution supported in whole or in part by public funds.”  In 2010, the Illinois Appellate Court for the Third District held that the language found in the phrase “any institution supported in whole or in part by public funds” was broad enough to allow a private developer to be classified as a “public body” under the IPWA.  The work in that case was being performed for a private developer who received public funds from a city for development and construction costs.  Shortly thereafter, the Illinois Appellate Court for the Fourth District held that the language of the 2008 IPWA, coupled with its legislative history, made clear that a private entity that receives public financing under one of the enumerated statutes is a “public body” under the IPWA.  The project was funded through private donations but received financing for construction that came in part from tax-free bonds issued by the Illinois Finance Authority.

Thus, a private contractor working on a publically financed project will probably be covered by the IPWA.  Developers and contractors must be aware of all sources of financing on a project to determine whether they meet IPWA requirements. The public body should also be aware that providing financial assistance to an otherwise private project may trigger IPWA coverage.  Projects owned by a private entity but paid for in part with public funds or with the assistance of a public financing mechanism are covered by the IPWA pursuant to the Jan. 1, 2010, amendments to the act.  The act specifically states that all projects financed in whole or in part through bonds, grants, loans or other funds made available by or through the state or any of its political subdivisions are considered “public works” under the IPWA.       Carefully reviewing contracts to determine funding sources will help reduce unintentional violations.

Demolition projects were also added to the scope of the IPWA under the Jan. 1, 2010,  amendments.  Any demolition project by a public body is covered, regardless of whether it is conjunction with a subsequent public works construction project.  The public bodies and private entities receiving public funds must now be mindful that demolition work they perform will be subject to the IPWA.

Amendments, which took effect on Jan. 1, 2012, impose new criminal penalties on contractors and public bodies for IPWA violations. Contractors or subcontractors who knowingly file false certified payrolls can be guilty of a Class A misdemeanor. Likewise, any contractor or subcontractor whose duty it is to file certified payrolls who willfully fails to file, or files a materially false certified payroll, will also be guilty of a Class A misdemeanor. The law allows state, local, and federal law enforcement agencies and prosecutors to obtain relevant documents from contractors and subcontractors and makes any contractor or subcontractor who willfully fails to create, keep, and maintain or produce required documents guilty of a Class A misdemeanor.  It also makes public bodies guilty of a Class A misdemeanor if they willfully fail to comply with any provision of the IPWA.

Public bodies, contractors and subcontractors must make sure to apprise and monitor their officers, employees and others who maintain certified payrolls and are responsible for IPWA compliance.  Public bodies and contractors and subcontractors must also ensure that proper record keeping is maintained.  Failure of an employer agent to comply with these amendments could result in the contractors or subcontractors’ debarment as the amendment to the act provides for automatic debarment and immediate prohibition from participating in any public work project for four years with no right to a hearing.  Debarment could force a contractor who relies heavily on public works’ contracts into bankruptcy, if not a complete shutdown, since it would not be able to participate in any public works projects for four years.  As of the writing of this article there have been no appellate court level due process challenges to the “no right to a hearing” provision of the 2012 Amendments.

Ultimately, it is important for public bodies, contractors and subcontractors to understand the amendments to the IPWA as tougher penalties make violations costly.

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