Oregon lawmakers sought to have out-of-state modular home fabrication factories pay workers wages as if production were occurring within the state. A national trade group says that is illegal and has sued.
The Modular Building Institute filed suit in federal court Wednesday against Oregon’s labor commissioner. The group represents 708 modular construction companies worldwide.
“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,” Wilson Freeman, an attorney with Pacific Legal Foundation on the filing, said in a statement.
If MBI wins, Oregon’s push to control out-of-state factory wages collapses. If Oregon wins, other states may copy the model.
At issue is Oregon House Bill 2688, signed into law last year amid broader efforts to improve housing affordability. It expanded Oregon’s prevailing-wage rules far beyond construction sites. New York enacted a similar expansion in December 2025, covering off-site custom fabrication of modules, over MBI’s objections.
Unlike Oregon, New York negotiated. Gov. Kathy Hochul signed a follow-up “clean-up” bill narrowing the law’s scope in February 2026, just months after she’d signed the original expansion.
Crossing borders with modular housing
Until this year, Oregon’s wage law stopped at the job site. Contractors on public projects had to pay local prevailing wages, but only for work done at the front line.
That changed under a new rule from the Bureau of Labor and Industries. It took effect July 1, 2026.
Now, any factory making “bespoke” components for an Oregon public project must pay Oregon wages. It doesn’t matter where the factory sits.
A modular housing manufacturer in Portland, Maine, could owe Portland, Oregon, wages.
“The Constitution forbids that result,” the lawsuit states. “A state may not project its regulatory power beyond its borders, discriminate against interstate commerce, or intrude upon the federal government’s exclusive authority over commerce with foreign nations.”
MBI’s complaint leans on three legal theories. First, it says the law discriminates against interstate commerce, violating the dormant Commerce Clause.
Second, it argues Oregon is regulating foreign labor, stepping on federal turf. The Constitution reserves foreign commerce power for Congress alone.
Third, MBI says the rule’s core term, “bespoke,” is hopelessly vague. Manufacturers are not able to discern whether standard designs with tweaks count as covered work.
Guessing wrong is costly. Violators risk back wages, civil penalties, debarment from public contracts, even criminal liability.
Zoning history complicates the fight
This dispute comes amid Oregon’s active push for modular housing. The state opened zoning flexibility for manufactured and prefabricated homes back in 2019, when a new law barred single-family-only zoning statewide.
That law required cities to allow duplexes, fourplexes, and other “middle housing,” including manufactured homes, on land once reserved for single-family houses. Oregon followed up with more middle-housing pushes in 2025, including HB 2138 and HB 2258, to speed up production.
The irony isn’t lost on housing advocates. Oregon eased zoning to let modular and manufactured housing spread. Now its labor rules may push modular manufacturers away from Oregon projects entirely.
The federal ROAD to Housing Act is an altogether different set of rules, but it includes a Modular Housing Production Act provision. It directs HUD to study barriers to modular financing, not state wage rules.
MBI has praised the ROAD Act’s modular provisions. But that federal bill doesn’t override or directly affect Oregon’s HB 2688 dispute. They are unrelated fights in Congress versus Salem.
MBI wants a federal judge to strike down HB 2688’s off-site provisions entirely. The association is asking for a permanent injunction against enforcement.
