The Modular Building Institute (MBI), which represents the off-site and modular construction industry, has filed a lawsuit challenging an Oregon law that requires out-of-state manufacturers to comply with Oregon wage rules for work performed entirely outside the state.

MBI alleges that House Bill 2688 violates its members’ constitutional rights by allowing Oregon to regulate labor practices at manufacturing facilities in other states and countries when the finished products are ultimately used on Oregon public projects.

Oregon Law Extends Wage Rules to Off-Site Fabrication

Modular construction companies manufacture building components and complete modules in controlled factory environments before transporting them to project sites for final assembly. The approach can reduce construction timelines, material waste and project costs for housing, schools and other buildings.

Oregon expanded its prevailing wage requirements in 2025 to cover off-site fabrication performed outside the state when the finished product is destined for an Oregon public project.

MBI argues that the expansion creates compliance requirements for manufacturers based on where their products will eventually be used rather than where the work is actually performed.

Lawsuit Challenges State Authority Beyond Oregon Borders

The lawsuit challenges Oregon’s application of its prevailing wage law under the Commerce Clause, arguing that the state cannot impose its labor regulations on businesses operating beyond its borders.

“Oregon cannot reach across state lines and dictate how businesses operate in other states simply because a finished product is later used on an Oregon public project,” said Wilson Freeman, an attorney with Pacific Legal Foundation. “The Constitution protects a national economy where businesses can compete under predictable rules—not a system where every state can export its regulations nationwide. Modular builders deserve the freedom to work without unconstitutional burdens.”

MBI also challenges the law’s lack of clarity, arguing that its requirements are sufficiently vague that businesses cannot determine what work is subject to Oregon’s prevailing wage rules until the state seeks to enforce the law.

Ruling Could Affect Off-Site Construction Nationwide

The case could have implications beyond Oregon by determining how far a state can extend its labor regulations into interstate manufacturing and supply chains.

MBI contends that a favorable ruling would protect modular manufacturers from what it considers unconstitutional state overreach and reinforce the principle that states can regulate business activity within their borders without imposing their rules on work performed elsewhere.

For modular builders, the case also highlights a broader regulatory issue as off-site manufacturing becomes more common in public construction. Manufacturers increasingly serve projects across state lines, making consistent and predictable rules an important consideration when bidding and producing components for public-sector work.

Read the Pacific Legal Foundation's case page at pacificlegal.org/case/modular-building-institute-oregon-dormant-commerce.