Texas Court Issues Nationwide Preliminary Injunction Enjoining Enforcement of Certain New Davis Bacon Federal Regulations
June 25, 2024
In this edition of the Surety Today: The Blog, we provide an update on the status of the legal challenges to the new Davis Bacon Act (“DBA”) regulations implemented by the Department of Labor (“DOL”) and which became effective on October 23, 2024. If you have been following along, you know that on October 31, 2023, our Surety Today Blog post addressed the new DBA regulations and their impact on sureties. On November 14, 2023, our Blog post discussed the construction industries response to the new DBA regulations. On November 7, 2023, the Associated General Contractors of America (“AGC”) and others filed suit in the United States District Court for the Northern District of Texas, Case No. 5:23-cv-00272-C, seeking to overturn the new DBA regulations. On April 30, 2024, we provided a blog post updating the status of that litigation.
Yesterday, on June 24, 2024, after conducting an evidentiary hearing, the Northern District of Texas in the AGC case issued a nationwide preliminary injunction enjoining the DOL from enforcing certain of the new DBA regulations. The injunction is to remain in place pending a final resolution of the merits of the case or until a further order is issued.
The court held that the challenged final rule provisions at issue must be set aside because DOL impermissibly exercised its authority in a manner inconsistent with the administrative structure that Congress enacted into the Davis Bacon Act by using regulations to change the clear language of the Act. The court stated:
Defendants engaged in egregious violations of Article II, section 3 of the Constitution, because rather than taking care to faithfully execute the DBA, Defendants instead usurped Congress’ law-making power and attempted substantive amendments to the DBA. Presidents and their agencies act ultra vires and do violence to the Constitution when they attempt to unilaterally amend Acts of Congress to suit their policy choices. Under Article I, section I of the Constitution, Presidents and their agencies cannot amend by executive fiat acts of Congress. Doing so violates the Constitution, and this preliminary injunction shall issue to prevent this blatantly unlawful action.
The court further found that the challenged regulations were arbitrary and capricious and violated the Regulatory Flexibility Act, which imposes a procedural requirement on agencies to engage in a “‘reasonable, good-faith effort” to carry out a statute’s mandate. Specifically, the court held that DOL failed to properly address the impact of the new regulations on small businesses, failed to perform the required compliance cost analysis and failed to attempt to estimate the number of small entities that will be impacted by the changes.
The specific new regulations that are subject to the injunction are:
- 5.2 – Specifically the definition of “Construction, prosecution, completion, or repair” set forth at subsection (iv)(D) and which provides “Covered Transportation,” defined as any of the following activities: “Onsite activities essential or incidental to offsite transportation,” defined as activities conducted by a truck driver or truck driver’s assistant on the site of the work that are essential or incidental to the transportation of materials or supplies to or from the site of the work, such as loading, unloading, or waiting for materials to be loaded or unloaded, but only where the driver or driver’s assistant’s time spent on the site of the work is not de minimis.”
- 5.2 – Specifically the definition of “Material supplier” set forth at subsection (2) which provides “If an entity, in addition to being engaged in the activities specified in paragraph (1)(i) of this definition, also engages in other construction, prosecution, completion, or repair work at the site of the work, it is not a material supplier.”; and
- 5.5(e), which provides for “lncorporation by Operation of Law” of the Davis Bacon Act even if the DBA is not specifically identified in the contract.
Obviously, this ruling just came down, so the impact of the decision is unknown. We do not know if the DOL will appeal or how they will enforce the injunction with respect to the remaining aspects of the new regulations that were not challenged. Recall that recently in response to an adverse court ruling, the SBA decided to suspended its 8(a) program and began implementing requirements to satisfy the court ruling. See our February 13, 2024 blog post. There is also another case filed by the Associated Builders and Contractors Association and others in the United States District Court for the Eastern District of Texas, Case No. 1:23-cv-00396, which also seeks an injunction against enforcement of the new DBA regulations. It remains to be seen how this ruling will impact that case. In the ABC Litigation an Amended Complaint was filed on February 21, 2024 and on March 20, 2024, the government filed a partial Motion to Dismiss asserting a lack of jurisdiction and standing. The ABC has opposed the Motion and it remains pending. While the ABC Amended Complaint seeks injunctive relief, the ABC has not filed an injunction motion as of this date.
In our prior blog posts we detailed the many aspects of the new DBA regulations that directly impacted and affected the surety industry. To my knowledge the surety industry has not filed any legal challenges to those aspects of the DBA regulations. The findings and holdings of the court in the AGC case would seem to suggest that a surety industry challenge would likely meet with success.
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321/mstover@wcslaw.com) or any member of the Surety and Fidelity Practice Group.