ARB CASE NO. 03-059
ALJ CASE NO. 97-SCA-32
DATE: May 28, 2004
In the Matter of:
RASPUTIN, INC. AND
WILLIAM JOHNSON,
RESPONDENTS
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Regarding a dispute over the issues
of back pay, debarment and applicability
of automatic bankruptcy stay.
BEFORE: THE ADMINISTRATIVE REVIEW BOARD
Appearances:
For Petitioner:
Michael Bornstein, Esq., Bornstein Law Offices, Inc., Columbus, Ohio
For Respondent Administrator, Wage and Hour Division:
Leif G. Jorgenson, Esq., Paul L. Frieden, Esq., Steven J. Mandel, Esq., Howard M. Radzely, Esq., Solicitor, U.S. Department of Labor, Washington, D.C.
FINAL DECISION AND ORDER
This matter is before the Administrative Review Board (the Board) pursuant to the statutory authority of the McNamara-O'Hara Service Contract Act of 1965, as amended (SCA or the Act), 41 U.S.C.A. § 351-357 (West 1994).
D. & O. at 13 (transcript citations omitted; emphasis in original). We find that these admissions, alone, demonstrate that Johnson's control over Rasputin's day-to-day operations rises to the level of a "party responsible" according to the language of 29 C.F.R. § 4.187(e).
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Case precedent also clearly supports the ALJ's finding that Johnson was a "party responsible" responsible for the SCA violations in this case, given the extensive level of control Johnson exercised over the day-to-day operation of the guard services contract. See Houston Bldg. Services, Inc. and Jason Yoo, ARB No. 95-041A, ALJ No. 91-SCA-30, slip op. at 3 (ARB Aug. 1, 1996) (individual who signed contract, was responsible for day-to-day operations including job assignments was a "party responsible").
The ALJ acknowledged Stewart's role in the violations, but found that Johnson, nevertheless, remained a "party responsible" as well. After recapping the numerous ways in which Johnson exercised day-to-day control of Rasputin, the ALJ concluded that
[Johnson] relied heavily on Stewart to administer the contract in accordance with a long history of working together. However, … Johnson retained enough de facto responsibility for the administration of the contract and the supervision of the personnel to justify his being treated as a responsible person under DOL regulations.
D. & O. at 13. Accordingly, based on the preponderance of record evidence, we affirm the ALJ's conclusion that Johnson was a "party responsible" for Rasputin's SCA violations.
II. Rasputin violated the SCA when it failed to pay the appropriate collectively bargained prevailing wage and fringe benefit rates to service employees who worked on the contract
Section 4(c) of the SCA applied to Rasputin's contract for guard services. That provision requires that a successor service contractor such as Rasputin pay the wage rates, including prospective increases, contained in a collective bargaining agreement (CBA) negotiated by the predecessor contractor where "substantially the same services are furnished."5 41 U.S.C.A. § 353(c). The record demonstrates that Rasputin was the successor contractor to DGS Services, Inc. (DGS), which provided guard services under contract to the Navy. D. & O. at 15; Ex. R-1. Rasputin's contract included the requirement to perform additional guard services that DGS had previously performed; that second DGS contract was also subject to collectively bargained wages. D. & O. at 15; R-2.
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Johnson argues that Section 4(c) did not apply to Rasputin's service contract because neither of the two CBAs negotiated by DGS was made a part of Rasputin's contract. We reject this contention. Section 4(c) obligations regarding a successor contractor's payment obligations are self-executing. 29 C.F.R. § 4.163(b) specifies that section 4(c) imposes "a direct statutory obligation and requirement ... on the successor contractor ... and is not contingent or dependent upon the issuance or incorporation in the contract of a wage determination based on the predecessor contractor's collective bargaining agreement." The Board has previously adopted this position regarding application of Section 4(c), stating that it "imposes a direct statutory obligation and is self-executing. . . . As expressly provided in Section 4.163(b), it is unnecessary for Section 4(c) coverage to be reflected in the pertinent wage determination." In re General Services Admin., Region 3, ARB No. 97-052, slip op. at 13 (Nov. 21, 1997); see also Houston Bldg. Services, Inc., ARB Case No. 95-041A, slip op. at 5 (Aug. 21, 1996).
Next, Johnson challenges the ALJ's conclusion regarding which of the two CBAs applied to Rasputin's contract. One – the Security Guard CBA - required payment of $6.26 hourly for the classification of "Security Guard." The other (the Guard I/Guard II CBA) established hourly wages of $6.01 and $8.59 for the classifications of Guard I and Guard II, respectively.
The implementing regulations establish the methodology for selecting the proper CBA rates to apply to a contract where, as with Rasputin's contract, two predecessor contracts with two separate CBAs are concerned. The regulations provide that:
where there is more than one predecessor contract to the new or consolidated contract, and where the predecessor contracts involve the same or similar function(s) of work, using substantially the same job classifications, the predecessor contract which covers the greater portion of the work in such function(s) shall be deemed to be the predecessor contract for purposes of section 4(c), and the collectively bargained wages and fringe benefits under that contract, if any, shall be applicable to such functions.
29 C.F.R. § 4.163(g) (emphasis added). However, Rasputin failed to follow this regulatory directive and chose to pay the wage rates contained in the Guard I/Guard II CBA "based, in part, on reference to the work requirements described in the contract." D. & O. at 19.
During the performance of its contract, Rasputin sought clarification of this ambiguous situation from the Wage and Hour Division. D. & O. at 18. Applying 29 C.F.R. § 4.163(g), the Wage and Hour Division's investigator determined that the Security Guard CBA covered the larger portion of the similar work performed under the predecessor contracts. This result obtained whether using the number of employees working on the predecessor contracts or the dollar amount of those contracts. TR II at 70-73. Yet, in spite of this direct guidance, Rasputin (and, being in "de facto control," Johnson) used the lower wage rate from the Guard I/Guard II CBA. We agree with the ALJ's conclusion regarding Rasputin's and Johnson's decision to ignore the investigator's advice. "At their peril, Respondents ignored the guidance provided by the regional office as to the proper method for determining the applicable wage rates." Id. at 19.
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Johnson further argues that even if Section 4(c) governed Rasputin's contract and the Security Guard CBA was otherwise applicable, a regulatory exemption from the requirements of Section 4(c) relieves Rasputin and him of liability. Johnson bases this argument on the regulation, which provides, in pertinent part:
Section 4(c) will be operative only if the employees who worked on the predecessor contract were actually paid in accordance with the wage and fringe benefit provisions of a predecessor contractor's collective bargaining agreement. Thus, for example, section 4(c) would not apply if the predecessor contractor entered into a collective bargaining agreement for the first time, which did not become effective until after the expiration of the predecessor contract.
29 C.F.R. § 4.163(f) (emphasis added). Johnson contends that Section 4(c) did not apply because 1) DGS did not actually pay its employees pursuant to the Security Guard CBA and 2) DGS's prospective wage increases under the CBA deemed applicable (pursuant to 29 C.F.R. § 4.163(g)) did not go into effect during the term of the predecessor's contract.
The ALJ concluded that Johnson failed to demonstrate that the requirements for any exemption from Section 4(c) had been met. D. & O. at 17. In the first place, the record contains evidence that the applicable CBA wage rates were paid during the predecessor contract. Id. Secondly, the fact that the prospective wage increases became effective after the end of the predecessor contract is not relevant. One of Section 4(c)'s requirements, after all, is that a successor contractor must pay the prospective wage increases contained in an otherwise applicable CBA negotiated by the predecessor contractor. 41 U.S.C.A. § 353(c). Here, the preponderance of the evidence demonstrates that DGS negotiated and paid collectively bargained wage rates during the term of its contract and had also negotiated prospective wage increases which were to take effect on October 1, 1995, after the conclusion of DGS's contract.
In summary, a preponderance of the evidence supports the ALJ's findings that Section 4(c) applied to Rasputin's contract; that the Security Guard CBA was applicable to Rasputin's SCA contract; that Rasputin failed to pay the required hourly wages and fringe benefits; and that Johnson failed to demonstrate the applicability of any exemption from Section 4(c) requirements. Accordingly, we affirm the ALJ's ruling that Rasputin committed SCA violations in the amount of $280,079.62.
III.The SCA's Debarment Sanction and the Absence of "Unusual Circumstances" on this Record
We also conclude that Johnson has failed to demonstrate that the SCA violations were the result of "unusual circumstances," such as would be sufficient to relieve Johnson from the sanction of debarment. Accordingly, we affirm the ALJ's order that William Johnson be debarred from receiving contracts from the United States for a period of three years.
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The SCA requires debarment – ineligibility to receive Federal contracts for a period of three years – of responsible parties for any SCA violation unless the service contractor demonstrates that "unusual circumstances" were present. 41 U.S.C.A. § 354(a). Although not defined in the Act, the Administrator, Wage and Hour Division, has promulgated a regulatory standard for determining the existence of "unusual circumstances" at 29 C.F.R. § 4.188(b). The regulations at 29 C.F.R. § 4.188(b)(1) and (2) provide a three-stage test for determining whether or not "unusual circumstances" exist.
Under the first stage, "where the violations are the result of culpable conduct such as culpable neglect to ascertain whether practices are in violation, culpable disregard of whether they were in violation or not, … relief from the debarment sanction cannot be in order." 29 C.F.R. § 4.188(b)(3)(i) (emphasis added). Here, the ALJ concluded that "by requesting a new wage determination from the Department of Labor (R-1), [Johnson] avoided the charge that they ‘culpably disregarded' their obligations under the law." We reverse the ALJ's conclusion of law that Johnson did not culpably disregard his obligations because it is not supported by a preponderance of the evidence.
A preponderance of the evidence does show that Johnson was guilty of "culpable disregard" of his SCA obligations. The preponderance of the evidence demonstrates that the Wage and Hour Division's investigator informed Rasputin of how to comply with the SCA but Johnson, who was in de factocontrol of all payroll decisions, "disregard[ed] … whether they were in violation or not…. 29 C.F.R. § 4.188(b)(3)(i).
Johnson set Rasputin's entire contracting scheme in motion by purporting to be Rasputin's president in order to obtain the Navy contract. D. & O. at 13. Johnson decided to accept the contract over Stewart's objections that the Rasputin contract was extremely underbid. Id. Johnson was an experienced Federal service contractor (having performed over 200 contracts). Id. Yet, as the de factomanager of Rasputin's operations, he chose to ignore the Wage and Hour Division investigator's compliance guidance concerning the applicable CBA. Id. at 12. Johnson obtained the contract for Rasputin under the false pretense of being its president and was in de factocontrol of its operations for most of the contract's term. Moreover, when Johnson officially took over as Rasputin's president in August 1996, he continued his culpable disregard of SCA obligations to employees by failing to ensure restitution of back wages.
The preponderance of the evidence supports the conclusion of law that Johnson was guilty of culpable disregard of his SCA obligations because he was in de factocontrol of Rasputin throughout the entire term of the contract and he was the "party responsible" for the SCA wage violations. In a matter where the service contractor committed SCA violations after receiving the Wage and Hour Division's guidance on proper payment, our predecessor, the Board of Service Contract Appeals held:
that the preponderance of evidence in the record supports the conclusion that the holiday pay violations were committed either willfully or through culpable neglect. We have previously held that commission of SCA violations after specific notice that a particular practice is in violation, constitutes – at the very least – culpable neglect. … Violations which are committed more than once -after proper notice - can also be seen as intentional, deliberate and willful.
Given this analysis, we conclude that the so-called "aggravated" factors (under 29 C.F.R. 4.188(b)(3)(i)) are clear: under the circumstances present here, Respondents' holiday pay violations were at least due to culpable neglect or culpable disregard of its SCA obligations. We also believe they rise to the level of having been committed willfully or deliberately, in the absence of any contrary showing by Respondents.
Nationwide Bldg. Maint., Inc. and William W. Johnson, BSCA No. 92-04, slip op. at 12 (Oct. 30, 1992).
1 Rasputin did not file an answer to the complaint initiating this administrative proceeding and, on July 18, 2001, the ALJ issued a Decision and Order and ordered Rasputin to pay the balance of back wages due. The ALJ further ordered that Rasputin be debarred for a period of three years for violating the SCA.
2 From July 1992 until May 3, 1996, our predecessor, the Board of Service Contract Appeals rendered final agency decisions pursuant to the SCA. Under Secretary's Order 2-96, 61 Fed. Reg. 19,978 (May 3, 1996), the Secretary of Labor established the Administrative Review Board and delegated to this Board jurisdiction to hear and decide administrative appeals arising under, inter alia, the SCA. Subsequent orders amending and updating the provisions relevant to the composition of the Board and its jurisdiction have superceded SO 2-96; however, the delegation with respect to the Act is essentially unchanged. The current delegation of authority is set forth in SO 1-2002.
3 The ALJ also found that Johnson owned no stock in Rasputin until August 1996, when Rasputin had already defaulted on the contract. D. & O. at 12.
4 In the final analysis, but for Johnson's false representation to the Navy that he was its president, the Navy never would have awarded Rasputin the contract in the first place. As Johnson testified that in preparing to bid on the Navy contract, he told Benton to "just put yourself as title [sic] as Vice-President and bid the job. I knew that he would not qualify reference wise or anything else, so we listed me as the president of Rasputin, and Wayne Benton as the Vice-President." TR II 164. Johnson even attended a preaward meeting where he purported to be Rasputin's president. See Ex.G-2 at 3 (Standard Form 1405 Preaward Survey of Prospective Contractor): "Representing the contractor were: William Johnson, President, and Wayne Benton, Vice President of Security."
5 Section 4(c) is subject to two exceptions: where 1) the negotiated wages are found to be at "substantial variance" from actual locally prevailing wages; and 2) the collective bargaining agreement is found not to have been entered into as a result of "arms-length" negotiations. Parties must request the Administrator for a hearing to determine these questions. See 29 C.F.R. § 4.6(d)(2). Neither Rasputin nor Johnson requested hearings; therefore Rasputin's contract was subject to Section 4(c).
6 Johnson's argument that he should not be debarred because of his bankruptcy and purported inability to pay is unavailing. Debarment is the required sanction for "any violation" of the SCA; whether a violator can or cannot make restitution is not a consideration in the debarment question under the SCA or the "unusual circumstances" regulations.
7 In his D. & O., the ALJ cited to an earlier version of the Code in which the exemption for governmental police and regulatory actions and proceedings was treated in two separate subsections ((4) and (5)) of Section 362(b). The two subsections were consolidated as one Subsection 4 without substantive change in 1998.