Will Mass. Avoid the Big Apple's Big Mess with Prevailing Wage Expansion?

There’s a big mess in the Big Apple. A new law extends the prevailing wage law to offsite prefabrication shops – including those overseas.

Ignoring the U.S. Constitution’s Commerce Clause, the State of New York is dictating wage rates in other states and other nations. A European supplier, to comply with the New York law, would have to violate European Union privacy laws to provide the employee information in required certified payroll records.

So, what if foreign and out-of-state suppliers stop doing business in New York? There are no major elevator manufacturers in the United States. Where will New York City get elevators if overseas suppliers refuse to follow a state law?

The New York law is unconstitutional and unworkable, so naturally, some want to do the same thing in Massachusetts. Legislation in the Senate Ways and Means Committee, S. 1318, has the same fatal flaws as the New York statute, which are outlined in a recent lawsuit, Associated General Contractors of New York State, LLC, et al vs. Governor Kathy Hochul et al.

“This action challenges an unprecedented and unconstitutional expansion of the prevailing wage law in the recently enacted N.Y. Labor Law § 220(3)(f) (the ‘Amendment’). The Amendment, which goes into effect on June 18, 2026, is a misguided, experimental attempt to map the prevailing wage framework for the very first time to off-site fabrication facilities that manufacture products not just for one specific public project, but for many public and private projects across the State and beyond,” states the complaint, Associated General Contractors of New York State, LLC, et al vs. Governor Kathy Hochul et al.

Key Points:

• This legal challenge is brought by both union and merit shop contractors.  While expansion of prevailing wage to offsite shops is promoted by labor unions, union contractors oppose it.

• Extending prevailing wage to offsite prefabrication is unprecedented in New York and Massachusetts. Prevailing Wage has always applied to the jobsite and nearby staging areas. These measures would extend a state’s prevailing wage law to prefab shops out of state and out of the country.

• Like S.1318, the New York statute applies prevailing wage to “custom” rather than “stocked or readily available” products, but the definitions are so vague, no one can give a straight answer on what is covered and what is not – including the New York state agency that will enforce the new law.

• In New York, contractors are already leaving the public construction market and warn out-of-state fabricators will stop supplying the state.

• Some products are not made in the United States. If foreign companies refuse to comply with New York law, will public projects go without items such as elevators? (There are no major elevator manufacturers in the U.S., according to the lawsuit.)

• Prevailing wage laws require reporting personal information of workers. A prefab shop in Europe faces violating European Union privacy laws in order to comply with New York State. In all likelihood, those shops will stop doing business with New York

The Arguments Are the Same in NY and Mass.

In the 74-page lawsuit, the New York plaintiffs make the very same arguments that MCA and others have made to Massachusetts lawmakers. The following are excerpts from the lawsuit:

• New York’s enactment of the Amendment was an ultra vires act because New York lacked the power to enact the Amendment under the Commerce Clause, which gives Congress exclusive jurisdiction over regulating foreign commerce and prohibits States from discriminating against interstate commerce. Defendant Governor Kathy Hochul had no authority to sign the Amendment into law. The Amendment is, therefore, void ab initio and unenforceable.

• Even if New York had the power to pass the Amendment, the Amendment violates the foreign Commerce Clause by regulating international commerce. The Amendment does this by mandating that public owners, GCs, and subcontractors make its requirements a “condition of the contract” regardless of whether the fabrication occurs in New York or “in another jurisdiction.” The Amendment thereby imposes New York’s prevailing wage regime on manufacturers operating in Germany, Mexico, Canada, and other countries for work performed entirely on foreign soil. This impairs the federal government’s ability to speak with one voice and creates a substantial risk of provoking retaliatory action by foreign governments.

• The Amendment also violates the dormant Commerce Clause by reaching over state lines and forcing out-of-state fabricators to subject themselves to the entire regulatory apparatus of the NYSDOL to continue supplying products to New York public projects. That is particularly impractical and unreasonable for companies who perform only a small amount of New York public work because they are focused and located elsewhere, and who have their own state’s or country’s regulations to comply with.

• In addition to unconstitutionally targeting out-of-state fabricators, the Amendment is unfeasible and will devastate New York’s public construction industry. Because fabrication workers never set foot on the project site, coverage under the Amendment cannot rely on the same simple locational test (i.e., was the work performed on a prevailing wage project site that day) that has historically applied. The Amendment instead creates a fundamentally unworkable substitute from legislators with no apparent understanding of how the industry works.

 ‘Complicated, Cost-Prohibitive Nightmare’

The lawsuit offers a clear description of how prefabrication shops work and how the attempt to apply the prevailing wage law is unworkable for the prefab shops and unfair to the general contractors who are vicariously liable for wage violations.

Off-site fabrication facilities are factories that process many orders for many clients at one time. Employees move between projects, tasks, and materials throughout the same shift. The very same production line often processes public and private work, in-state and out-of-state work, and work destined for different New York counties.

These employees are paid hourly wages based on seniority and skill according to local market rates and collective bargaining agreements (“CBAs”). The shops are not set up to track who worked on what, for how many minutes, whether the product was stock or custom, whether it was destined for a transportation or affordable housing public project, or what county the public project was located in. Tracking the level of detail required by the Amendment will be a complicated, cost-prohibitive, nightmare, and in many cases, objectively impossible.

Predictable compensation will be a thing of the past. Fabricators will be forced to calculate and pay amalgamated hourly rates that change by the minute based on the location of the public projects rolling through a factory.

The impact on morale and teamwork will be immediate and incurable. Disputes will break out on shop floors about who gets assigned to public work from “high value” New York counties and grievances and litigation will follow.

The issues are even more acute for fabricators in rural areas, where market rates for fabricator wages are less than half the prevailing wage rates in large metropolitan centers that those fabricators will need to pay if they supply to a public project located there.

Prevailing Wages Historically Tied to Construction Jobsites

“Prevailing wage classifications were also developed for nearly a century with only on-site workers in mind. Certain employees, particularly those performing unskilled or support work on the factory floor, do not have on-site equivalents that are recognized in prevailing wage schedules for fabricators to pull from. Those workers will need to be paid under a classification inconsistent with their skill level and training, or more likely, terminated and replaced with workers who do have that skill level and training. If those higher-skill workers cannot be found, employers must choose between gross-overpayment and understaffing. “

Confusion: What Does Custom Mean?

"[T]he Amendment applies to a non-exhaustive list of products including “wall panel systems, woodwork, electrical plumbing, heating, cooling, ventilation or exhaust duct systems, rebar cages, and mechanical insulation ….” These categories are broad, undefined, and imprecise. GCs, subcontractors, and fabricators do not know what products are covered."

Impacts of the New York Statute

Excerpts from the lawsuit:

• The Amendment’s extraterritorial burden will increase costs to New York taxpayers and undermine public infrastructure delivery.

• The Amendment is already forcing companies to exit the public market. This will bloat the price of public construction to cost-prohibitive levels; constrain the supply chain for New York public projects, thereby depriving these projects of the out-of-state inputs they need to move forward; render certain tradespeople unemployable or encourage their replacement with machines; and augment the shortage New York already faces of workers in the skilled trades by eliminating opportunities for apprenticeship programs. Destroying companies, supply chains, public projects, and opportunities means fewer jobs and fewer hours for most workers.

• Some of these products do not have any alternatives that are manufactured in New York or even in the United States. For example, there are no major elevator manufacturers in the United States. Specialized custom flue and chimney assemblies, life safety devices, and air handling equipment and diffusers are made in Canada and Mexico. The Amendment threatens to render these products unavailable for public projects the people of New York need built.

• Even if out-of-country fabricators want to comply, New York’s certified payroll process will require the disclosure of sensitive personal information, including social security numbers. Workers in foreign countries may not possess social security numbers or any equivalent. Worse, the European Union’s General Data Protection Regulation (“GDPR”) restricts the transfer of personal data including employee names, addresses, wage information, and identification numbers to third countries.

• GDPR generally requires a lawful basis for processing employee personal data, and compliance with a foreign state’s labor law may not constitute a lawful basis under EU law. GDPR further mandates data minimization, requiring that personal data collection be limited to what is necessary for the processing purpose. Submitting granular, employee-level payroll data to a foreign government regulatory agency for work performed entirely within the EU raises significant data minimization and cross-border transfer concerns under GDPR. Violations carry fines of up to €20 million or four percent of global annual revenue, whichever is higher.

• The Amendment provides no mechanism for foreign fabricators to comply with these requirements or others like them, yet purports to subject those foreign fabricators to the full force of New York’s prevailing wage enforcement apparatus, including criminal penalties, creating intractable conflicts, the only apparent solution for which is market exit.