Quick Hits

• The Superior Court of Arizona ruled Arizona municipalities cannot set prevailing wage ordinances.
• The court struck down prevailing wage ordinances enacted by Phoenix and Tucson affecting construction contractors.

On June 21, 2024, the Superior Court of Arizona Maricopa County ruled in favor of three trade associations challenging the Phoenix and Tucson prevailing wage ordinances. The court found the state’s 2006 Minimum Wage Act did not effectively repeal the state’s existing prevailing wage law, which prohibits local ordinances from setting prevailing wage rates for public works contracts.

The court stated the Minimum Wage Act, which allows Arizona cities to set a higher minimum wage than Arizona, does not address the term prevailing wage, noting minimum wage laws and prevailing wage laws have fundamentally different policy goals and can coexist.

“Unlike minimum wage laws, [prevailing wage laws] set entire schedules of pay rates for specific industries. Moreover, these schedules are highly variable, and they represent an average wage based on a particular trade and locality, not an across-the-board floor,” the court stated.

Background

On January 23, 2024, the Associated Minority Contractors of Arizona, the Arizona chapter of the Associated General Contractors of America, and the Arizona Builders Alliance sued Phoenix after the city passed a prevailing wage ordinance on January 9, 2024.

The ordinance required businesses contracting with the city for construction projects costing $4 million or more to pay their employees prevailing wages and benefits, as defined by the city engineer and the U.S. Department of Labor (DOL). Tucson passed a similar ordinance applicable to construction contracts costing $2 million or more. Both ordinances also included recordkeeping requirements. The ordinances were scheduled to take effect July 1, 2024.

The Phoenix ordinance also authorized the city engineer to impose penalties for violations, including wage restitution, liquidated damages up to three times the wages owed, and a directive to the applicable city department to withhold any payments due under a public works contract. It did not apply to work outside the construction industry.

In passing the ordinances, the cities had relied on a June 15, 2023, opinion from Arizona Attorney General Kris Mayes, stating a city’s authority to set minimum wage “includes the ability to require that employees of contractors on local public works projects be paid not less than the prevailing wage.”

The three trade associations challenging the ordinances argued state law prohibits cities from enacting prevailing wage rules. The two cities argued the state’s 2006 Minimum Wage Act repealed the state’s Prevailing Wage Statute.

Prevailing Wage Versus Minimum Wage

The court rejected the municipalities’ arguments that the state Minimum Wage Act, which was enacted after a voter-approved initiative, effectively repealed the state’s prior law pertaining to local contractor prevailing wages. The prevailing wage law bans cities from requiring contractors on public works projects to follow detailed wage requirements based on locality, occupation, and market conditions as a requirement for contracting with the city.

The court noted that sometimes the prevailing wage for a particular worker may be the minimum wage, but on other occasions it may be higher. The minimum wage and prevailing wage laws, when read together, dictate that the prevailing wage cannot be less than the minimum wage. The two laws can be harmonized, the court stated.

Next Steps

The Arizona Superior Court ruling applies to construction contractors doing business with city governments in Arizona. Construction firms might want to review their pay structures to ensure that they pay the applicable state minimum wage to workers. However, the ruling means they do not have to pay the prevailing wage in Phoenix and Tucson that would have been required under the ordinances that were set to take effect on July 1. 

Arizona’s minimum wage is $14.35 per hour. A ballot measure could come before voters in November to increase the state minimum wage to $18.00 per hour, if enough signatures are submitted to validate the ballot measure proposal.