Date: September 25, 1995
Case No.: 94-SCA-00031
In the Matter of:
THE ADMINISTRATOR, WAGE AND HOUR DIVISION,
EMPLOYMENT STANDARDS ADMINISTRATION,
UNITED STATES DEPARTMENT OF LABOR,
Plaintiff
v.
SUMMITT INVESTIGATIVE SERVICE, INC.,
HAROLD WIGFALL, INDIVIDUALLY AND AS PRESIDENT, AND
MICHAEL B. HOLIDAY, INDIVIDUALLY AND AS VICE-PRESIDENT,
Respondents
DECISION AND ORDER
This action involves alleged violations of the Service
Contract Act, as amended, 41 U.S.C. §351, etseq., and the Contract Work Hours and Safety Standards Act
(CWHSSA), 40 U.S.C. §350, etseq.
The Administrator of the Wage and Hour Division, Employment
Standards Administration, United States Department of Labor (the
Administrator) alleges that Summitt Investigative Service, Inc.
(Summitt), its president, Harold Wigfall, and its vice-president,
Michael B. Holiday (referred to collectively as Respondents) failed
to pay proper prevailing wages, fringe benefits, vacation pay, and
overtime rates to employees working under Summitt's contract with
the Federal Aviation Administration, United States Department of
Transportation (FAA). The Administrator seeks to recover
$62,091.95 in underpayments and the debarment of Respondents from
obtaining federal contracts for a period of three years.
Respondents do not contest many of the Administrator's
allegations. However, Respondents allege that a substantial number
of the violations alleged by the Administrator resulted from
[PAGE 2]
actions taken by the FAA and the Department of Labor. Respondents
further contend that in the event the Administrator establishes
that violations occurred, the "unusual circumstances" created by
the FAA and Department of Labor warrant relief from debarment.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
On February 23, 1993, the FAA awarded Summitt contract number
DTFA03-93-C-000015 in the amount of $383,134.92 to provide security
services for the FAA Technical Center and its associated facilities
located in Atlantic County, New Jersey. (P 1)[1] Several months
prior to the award the FAA had taken over these services from a
private employer and the FAA was paying the security personnel.
The contract initially called for Summitt to provide these security
services from March 1, 1993 through September 30, 1993.
Thereafter, the contract could be extended annually for up to four
years at the rate of $656,802.56 per year.
The contract was subject to the provisions of the Service
Contract Act and the CWHSSA which require employers to pay
prevailing wage rates including overtime, fringe benefits, and
vacation and holiday pay to its employees. See 40 U.S.C.
§276a.
Summitt began its performance under the contract on March 1,
1993 using some of the previous security personnel. On September
8, 1993, the FAA exercised its option to continue the contract for
another year. (P 2) Summitt continued to perform under the
contract until November 1, 1993 when its employees walked off the
job because they had not been paid. (TR 57-58, 74-75, 96, 101, 315)
On November 2, 1993, the FAA declared Summitt in default and
canceled the contract. (P 1, pp. 126-27)
On April 18, 1994, the Administrator filed her Complaint with
the Office of Administrative Law Judges alleging violations of the
Service Contract Act and the CWHSSA. In her Complaint, the
Administrator sought to recover $62,234.09 in wages and benefits
owed to Respondents' employees. On April 30, 1994, Respondents
answered the Complaint. On June 24, 1994, the Administrator
amended the Complaint to include allegations of additional
violations. However, the alleged amounts of underpayments remained
unchanged. The Administrator's Amended Complaint was answered by
Respondents on August 29, 1994. (R 29) The Administrator
subsequently lowered her calculation of wages and benefits due to
[PAGE 3]
a total of $62,091.95. This is the amount currently sought by the
Administrator.
A formal hearing was held before me on April 26 and 27, 1995
in Camden, New Jersey where the parties had full opportunity to
present their witnesses, evidence, and argument.
At the commencement of the formal hearing, the parties
stipulated that the Service Contract Act and the CWHSSA applied to
all employees working under the contract except for Anthony Cortes,
the project manager. (TR 30) The parties also stipulated that
Summitt Investigative Service, Inc., Harry Wigfall, and Michael
Holiday were employers under Section 3(a) of the Service Contract
Act and the CWHSSA during the relevant periods of time. (TR 31)
Following the hearing, the parties submitted additional
evidence and briefs.
This decision is based upon an analysis of the record, the
arguments of the parties, and the applicable law.
II. EVENTS PRECEDING SUMMITT'S DEFAULT
A. Summitt's Costs Increase
1. Classification confusion
When Summitt bid on the contract, the FAA's solicitation
documents called for the following types of employees and hourly
wage rates including fringe benefits:
Employee ClassMonetary Wage -
Fringe Benefits
Security Chief $10.50
Patrol Sergeant $ 9.45
Guard $ 8.49
Console Clerk $ 7.57
Office Clerk $ 7.57
Console Operator $ 8.49
(P 1, p. 24) The FAA listed the following fringe benefits:
vacation based on years of service, ten paid holidays, 5.1 percent
of the hourly rate for health and welfare, and 7 percent of the
hourly rate as a pension payment. (P 1, p. 24) While the contract
stated that these were the wages and benefits being paid to the
guards who were currently working at the FAA technical center under
the employment of the FAA, the solicitation warned, "THIS STATEMENT
[PAGE 4]
IS FOR INFORMATION ONLY: IT IS NOT A WAGE DETERMINATION."
The applicable prevailing wage rates were included in the
contract under the attached Wage Determination 89-0710 (Rev. 3)
dated 2/6/92. (P 1, p. 110) However, the wage determination listed
only three classes of employees: Court Security Officer,
Guard I, and Guard II. Court Security Officer and
Guard II were to be paid $10.01 per hour plus fringe benefits.
Guard I was to be paid $8.40 per hour plus fringe benefits. The
fringe benefit rate was listed in the wage determination as $2.07
per hour. However, the FAA's solicitation materials advised that
the fringe benefit rate had been increased to $2.23 per hour. (P 1,
p. 5)
Michael B. Holiday, vice-president of Summitt, testified that
this was a "fixed rate" contract meaning that there was no
negotiating regarding the rate to be paid employees. (TR 612, 615)
In addition to each type of employee mentioned in the
contract, Summitt employed corporals who served as sergeants on two
days, dispatchers (called "console operator" in the solicitation)
on two days, and as an ordinary guard on the fifth day of a work
week. Summitt employed a total of approximately 25 employees under
the contract. (P 5; R 28)
On March 11, 1993, less than two weeks after Summitt began
performance on the contract, Holiday wrote to Mario Maccarone, the
FAA's contract administrator assigned to the contract, "to request
clarification and re-consideration of several issues..." (R 2)
Holiday's first request was for permission to bill the FAA twice a
month rather than once a month. Holiday's second request was for
a wage determination for the dispatchers and the clerks. Holiday
advised, "These individuals are currently being paid at the [G]uard
I rate." Holiday further requested that he be allowed to pay the
guards at the Guard II rate rather than the Guard I rate because
"the duties and responsibility far exceed those of [G]uard I."
In a letter dated March 18, 1993, Maccarone informed Summitt
that the FAA would allow bi-monthly billing in exchange for a 1
percent discount if the FAA paid the invoice within 15 days. (R 3)
Maccarone further advised, "A wage determination request has been
forwarded to the Department of Labor for dispatchers and clerks."
Finally, Maccarone stated, "Your request for an increase in
compensation is denied. The solicitation was clear concerning the
duties of the security guards and it is assumed that Summitt bid on
those requirements. To increase the wages at this point would
nullify the integrity of the bidding system and would make the FAA
legally liable for a compromise in that system."
[PAGE 5]
Maccarone testified he recalled that Holiday had requested
clarification about the functional differences between dispatcher,
clerk, Guard I, and Guard II. (TR 561) Maccarone stated that he
queried the Department of Labor and provided the Department of
Labor the "statement of equivalent rates" set forth in the
contract. However, Maccarone did not include a description of the
employees' job duties although he admitted that he understood he
was required to do so by the Department of Labor. (TR 562-63, 565)
Maccarone was also asked about these events during his March
31, 1995 deposition. (R 33) He recalled, "Mr. Holiday was asking
me for an increase in the price of the contract. I just cannot
increase the price of the contract. This is a firm fixed price
contract. It is a fixed price. By compromising the integrity of
the bid, I meant that if I gave him that opportunity, then I would
have to give everybody else, who bid on the contract, that
opportunity as well." (R 33, p. 49)
Approximately two months after Maccarone's incomplete request
for a wage determination for dispatchers and clerks, the Department
of Labor responded by sending a copy of the original wage
determination listing only Court Security Officer, Guard I, and
Guard II. (P 2, TR 621) Even though the contract stated that
clerks had been paid $7.57 per hour by the FAA, Respondents had no
choice but to pay them $8.40 per hour as a Guard I under the wage
determination.
2. Rejection of Summitt's fringe benefits plan
Holiday explained that he had planned to provide the employees
a fringe benefits plan which was less costly than paying employees
the fringe benefit rate "in dollars" as part of their wages.
(TR 643-44) However, sometime during March 1993, the employees
rejected the benefits package offered by Summitt. In an undated
petition addressed to Holiday, the employees stated that they
preferred to be paid at the fringe benefits hourly rate as part of
their wages. (R 28; TR 73, 176) Holiday testified that he had bid
on the contract with the expectation that the employees would take
the benefits plan that he offered and he would not have to pay the
more costly hourly fringe benefit rate. (TR 643)
Holiday testified that he felt he had no choice but to pay the
fringe benefits as part of the employees' wages because an
individual who was Maccarone's "COTR" (Contracting Officer's
Technical Representative), had "strongly suggested" that the
employees be paid the fringe benefits as part of their wages. (TR
644) Holiday explained, "basically what he said to me was, if the
employees aren't happy with the way things are going, then that
[PAGE 6]
makes us unhappy, and then in turn, we have to make you unhappy."
(TR 643) The COTR did not testify, but Maccarone stated he was
aware that the employees did not like the fringe benefits package
that was offered. (R 33, p. 93)
Holiday testified that as a result of the employees' rejection
of the benefits package all other costs associated with payment of
the fringe benefit as part of the employees' wages were increased,
including the costs of workers' compensation insurance, liability
insurance, unemployment insurance, and Social Security payments.
(TR 645) In addition, Summitt began overpaying the fringe benefit
rate of $2.23 per hour because it mistakenly believed it was
required to pay one-and-one-half times that rate for each overtime
hour. The latter circumstance is discussed in greater detail,
infra.
3. Rejection of Summitt's uniforms
Under the contact, Summitt was to furnish its employees with
a suitable uniform "within 30 days after award of contract." (P 1,
p. 5) Section 4.3 provides, "All uniforms must be approved by the
COTR prior to purchase." (P 1, p. 52) Section 4.3.1 states, "The
security uniforms shall be provided by the contractor and will
include the following as a minimum: 1 belt, 1 tie, 3 long-sleeved
shirts, 3 short-sleeved shirts, 3 pair pants, 1 hat, 1 summer jack-
et, 1 winter jacket, 1 pair safety shoes, 1 sweater." (P 1, p. 52)
Although Summitt bid the contract on the assumption that its
stock uniforms would be approved by the COTR, they were not.
(TR 758) Holiday testified, "I was informed that they were only
going to approve their style of uniform, and that FAA had done some
study, and this was the [FAA's] style of uniform that they were
only going to accept." Holiday described the uniforms he intended
to use as "dark blue pants, a maroon stripe, light blue, 100
percent polyester shirt with military crease." (TR 758) Holiday
testified, "When they refused to allow us to use our uniforms, we
had to go out and purchase uniforms, which was a cost that we had
not considered in bidding on this contract." Holiday estimated
that it cost $12,000.00 to purchase uniforms that met the COTR's
approval. (TR 618)
The record is sparse regarding the FAA's position on this
point. However, Maccarone offered the explanation during his
deposition, "I think the striping was incorrect on the pants or on
the jacket." (R 33, pp. 140)
As a result of having to purchase new uniforms to outfit the
[PAGE 7]
guards, Summitt imposed a $150 uniform deposit on each employee.
The deposit was to be deducted from each employee's paycheck at the
rate of $25.00 per paycheck until the full $150.00 was reached. (TR
43, 110, 145, 619; P 5)
One of the employees who testified, Scott V. Rivera, recalled
being told by Cortes, "they were going to be deducting a uniform as
like a safety deposit on it so we wouldn't take off with the
uniforms so to speak." (TR 146)
B. Cash-flow problems; the Department of Labor
investigates
Even with the bi-weekly invoicing, the financial pressures
created by the increased financial obligations imposed on Summitt
by the unexpected wage, fringe benefit, and uniform costs quickly
began to take its toll. Maccarone testified that he learned that
there were insufficient funds in Summitt's bank account to cover
the paychecks of several employees. As a result, Maccarone issued
a "cure notice" to Summitt to correct the problem within ten days
or face default. In a letter dated April 1, 1993, Holiday assured
Maccarone that the problem had been addressed by securing a "cash
reserve" and by using bi-monthly billing with timely-payment
discounts. (R 5)
The "cash reserve" secured by Summitt was in reality a line of
credit with a firm named Capital Resources Funding (Capital). As
Holiday explained, "the way it works is when we have an invoice, we
forward it to...Capital..., and they will fund us 80 percent of
that invoice upon a certification from the FAA." (TR 625) The
remaining 20 percent would be paid by Capital to Summitt after the
invoice was paid to Capital by the FAA. However, Capital charged
Summitt a fee of 3 percent.
Patrick Reilly, who investigated this matter on behalf of the
Administrator, testified that he was contacted in mid-April by the
FAA and several employees regarding their bounced checks and the
uniform deposit. (TR 259) Reilly testified that he confirmed that
the Service Contract Act applied and that a wage determination had
been issued. (TR 259)
Reilly stated that in mid-May he contacted Harry Wigfall,
Summitt's president, and ordered him to stop making the deductions
for the uniform deposit. (TR 269) Reilly further ordered Wigfall
to return the money that had been deducted to the employees.
Reilly's telephonic order was followed by a letter dated May
13, 1993 signed by Dominick J. Denato, the Administrator's
[PAGE 8]
Assistant District Director. (P 13) Denato wrote that the uniform
deduction was improper under the wage determination and the
regulations found at 29 C.F.R. Part 4. In conjunction with
Denato's letter a copy of the 29 C.F.R. Part 4 regulations were
sent to Summitt. (TR 275; P 9)
In addition to the matter of the uniform deposit, Reilly
discovered that Respondents were not paying the fringe benefit rate
on overtime hours. (TR 382) As a result, Reilly ordered
Respondents to start paying the fringe benefit rate on overtime
hours.
Reilly also ordered Respondents to offer employees paid
vacations based on their length of service, including time worked
for the FAA. (TR 654)
The parties are in agreement that Respondents were only
required to pay the $2.23 per hour fringe benefit rate for each
overtime hour worked. (TR 81, 280) Apparently Respondents
misunderstood Reilly's directive to pay the fringe benefit rate on
overtime hours. Rather than paying the fringe benefit rate of
$2.23 an hour for each overtime hour worked, Respondents began
paying one-and-one-half times the fringe benefit rate for each hour
worked on overtime. (TR 843, 849)
On May 18, 1993, Wigfall sent Summitt's "payroll register" to
Reilly by facsimile. (P 5) In his cover letter Wigfall explained,
"The first (3) three pay periods overtime does not include overtime
on the $2.23 health & welfare portion of the salary." Wigfall
promised to reimburse the underpayment in the next paycheck. The
uniform deposits were reimbursed over the next several pay dates.
(TR 117, 118-120)
After resolving the uniform and fringe benefits issues, Reilly
turned his attention to the misclassification issue. (TR 282)
Reilly testified that he conducted interviews with employees in
person and by telephone to determine what job duties they were
performing. (TR 282) During his investigation, Reilly had
discovered what Maccarone and the Department of Labor had failed to
understand. As Reilly explained, "there were duties being
performed by people the company classified as dispatchers,
sergeants, and corporals that were above and beyond my reading of
the guard I position description contained in the Service
Contract Act Directory of Occupations." (TR 283; P 10)
Reilly's discovery was not a surprise to Holiday. (TR 621) As
noted earlier, Holiday had identified this problem and called it to
the attention of Maccarone within eleven days after Summitt began
[PAGE 9]
performing under the contract. (R 2)
Reilly explained how he interpreted the relevant portions of
the Service Contract Act Directory of Occupations. (TR 285-
91) The most important distinction between the Guard I and Guard
II position, as understood by Reilly, is the ability to exercise
independent judgment. Reilly's conclusion is supported by the
testimony of the eleven employees who testified. Those acting as
guards universally testified that in the event of an unusual
circumstance they would contact their superior -- usually a
sergeant, sometimes a corporal. (TR 93, 108, 126, 142, 163, 181,
219, 237) Those employed as sergeants and corporals also testified
that they were responsible for supervising other employees and
exercising independent judgment.
On July 7, 1993, Reilly held a meeting at the FAA technical
center to resolve the misclassification issue. (TR 300, 647) In
attendance were Wigfall, Holiday, Maccarone, and two of the FAA's
COTRs. (TR 300, 648) Reilly testified that he placed two items on
the agenda. (TR 301) The first item on the agenda was the uniform
issue and the second item was the misclassification issue. With
respect to the uniform issue, Reilly testified that by the time of
this meeting the uniform issue had been resolved. (TR 303) With
respect to the misclassification issue, Reilly testified that he
explained his understanding of the Guard I and Guard II
classifications. (TR 471) Reilly recalled that Respondents "didn't
agree to that but said that they would take that under
consideration based on their follow-up meeting with FAA people."
(TR 303) Reilly testified that he ended his portion of the meeting
with the understanding that Respondents and the FAA were going to
discuss how to rework the contract to resolve the misclassification
issue. (TR 475, 501)
At the time of the July 7 meeting Reilly knew that Respondents
were paying one-and-one-half times the fringe benefit rate on all
overtime hours but did not consider it to be his duty to correct
Respondents' misunderstanding of his directive. Reilly offered the
following example:
[a]nother law that my agency enforces is the minimum wage
law, and the federal minimum wage is $4.25 per hour. If
I went into a business and saw that someone was being
paid at $10 per hour, I am not, in my analysis of what my
job is supposed to be, I'm not there to tell the employer
that he's allowed to pay less than $10 per hour.
(TR 459-60) Reilly took this position even though he acknowledged
[PAGE 10]
that he "knew in some respects that they [Respondents] did not
understand what the law requires." (TR 377)
Reilly's on-site visit was followed by a letter dated August
13, 1993 from the Assistant District Director to Wigfall addressing
the uniform and misclassification questions. (P 3) With regard to
misclassification, the letter states:
The second violation resulted from improperly classifying
employees identified as Sergeants, Corporals and Dis-
patchers, as Guard I, when their duties more accurately
should have been classified as Guard II.
The Assistant District Director demanded immediate compliance with
his determination.
Following the Assistant District Director's letter, Wigfall
called Reilly for clarification. (TR 466) In his notes of that
telephone call Reilly wrote:
Tele[phone] con[ference], Harry Wigfall 8/20/93. He's
not done anything. Wants another letter describing the
violation, but was referred to the 8/13 letter. He
thinks FAA is in violation of SCA because he was advised
to pay the lower rate. He says sounds like from our
letter that he is willfully violating the law. Wants
cooperation from us and FAA. Told him to talk with the
FAA. We would have to withhold. He's still not thinking
seriously about this and is in no hurry to move.
(R 20; TR 466)
On August 23, 1993, Wigfall provided Reilly with documentation
that the uniform deposits had been refunded. (P 4; TR 304) With
respect to the misclassification issue, Wigfall wrote:
I did not receive any documentation to support your
findings. Therefore, would you please forward me a copy
of the report resulting from your visit at FAA, which
should detail your reason for the visit, your findings
resulting thereof, and the basis for the new wage
determination. You seem to suggest in your letter dated
August 13, 1993, that Summitt withheld wages that was
(sic) intended for the employees. Since this is not the
case, the letter I am requesting is most crucial to our
record.
Wigfall testified without contradiction that he never received a
[PAGE 11]
response from Reilly regarding this request. (TR 857)
C. Summitt attempts to comply but employees are not
paid
Sometime during the month of August 1993 Respondents began to
pay back wages to the employees and increased the wages of several
employees to the Guard II rate, despite the fact that the FAA had
not paid any additional moneys to aid Summitt in coping with its
additional costs caused by the misclassification, uniform,
vacation, and fringe benefits problems. (TR 77, 475, 661) It was
not until August 31, 1993, almost two months after Reilly's visit,
that the FAA paid Summitt an extra $13,918.96 to cover some
additional wages at the Guard II rate. (P 1, pp. 119-20) Maccarone
had resisted adding funds to the contract for months after
Holiday's March 11 letter asking for reconsideration of the wage
rates. Maccarone's sole explanation of why he resisted paying
additional moneys but eventually did so, was:
It was only after negotiations with Summitt that we
realized that they were Guard II's, and we gave them
money for Guard II in that modification dated in August.
(TR 548)
Maccarone's modification was too little and too late for
Respondents. The financial strain created by the uniform, fringe
benefit, vacation, and misclassification problems overwhelmed
Respondents' slender resources. As Holiday explained, "the
contract being a firm, fixed contract, the low bid, your margins
are very, very thin, sometimes as low as three percent." (TR 655-
56)
Summitt had simply ran out of money. After providing for the
discount that had been demanded by the FAA for bi-monthly billing
and the charges paid to Capital to turn the invoices into cash more
quickly (1 percent and 3 percent, respectively), Summitt was unable
to continue to absorb the requirements being imposed by the
Department of Labor and the FAA. At this point Holiday explained
Summitt's situation as being, "Flowing red [ink]." (TR 683)
Not surprisingly, there were insufficient funds to cover all
the employees' paychecks. For the pay date of October 8, 1993,
many checks were returned marked "insufficient funds." Several
checks were ultimately cashed, but eight were never honored.
(TR 51-53, 99-100, 111-12, 115, 171, 313; P 17)
Reilly testified that he received telephone calls from
[PAGE 12]
employees informing him that the paychecks were not being honored.
(TR 309) Reilly stated, "I recall specifically that the company
was incommunicado during this whole period of bounced checks."
Reilly further testified, "They didn't return my calls, either Mr.
Wigfall or Mr. Holiday." (TR 314, 462-463)
Maccarone also learned about the bad checks. (TR 540) On
October 21, 1993, Maccarone issued another cure notice to Summitt
which warned that if the checks were not honored the contract would
be in default. (TR 540) Maccarone testified, "I received a call
the next day from Mr. Holiday. He contacted me and stated that he
could not comply with the cure notice. He said it was impossible
for him to do so...because he was having a problem with cash flow,
and that he [had] underbid the contract." (TR 540)
The situation with respect to the checks that were issued for
the Friday, October 22, 1993 pay date was worse. Sixteen of the
approximately twenty-one checks issued for that pay date were not
honored. (TR 313) This problem was due, in part, to confusion over
the American Banking Association code numbers that were needed to
electronically transfer the funds from the FAA to Capital. (TR 549)
As a result of the delay caused by the confusion, Capital's fees
increased and it refused to release the 20 percent of the invoice
payment it was holding. (TR 683, 783)
On the following Tuesday, October 26, 1993, Maccarone and
Holiday met to discuss the paycheck problem. (TR 541, 591, 594,
604, 673) Maccarone testified, "I offered him a no-cost termina-
tion, and that's different from a default. A no-cost termination
means, pay the employees, and we'll let you go with a modification
that states at no cost." (TR 541) Maccarone continued:
I told Mr. Holiday that I would put [moneys for] the two
invoices that he had into the contract, ... $56,000, to
be exact. The money was made available the 2[9]th of
October, which Mr. Holiday promised that he would pay the
employees at that time..."
(TR 542, 595) Maccarone added:
Normally, it would take a couple of days. [for the
invoice to clear] I don't know the exact time, but in
this particular case, I personally hand-delivered those
invoices to the Department of Treasury...and they were
wired directly to Capital Resources. I know for a fact
that that money was in.
(TR 596)
[PAGE 13]
The employees continued to work but the promised paychecks
never arrived. (TR 54, 55, 591, 594) Finally, on Monday, November
1, 1993, many of the employees refused to work and walked off the
job. (TR 57-59, 74-75) Edward Erdman, a dispatcher, testified,
"because we weren't being paid, we decided that we weren't going to
work and not be paid." (TR 59)
Although the last day of performance under the contract was
November 1, 1993, employees were owed paychecks on November 5 and
19. But these checks were never issued. (TR 54) Many employees
worked seven to ten weeks without being paid. (TR 54, 171, 247,
250, 253)
Maccarone testified that he asked Holiday about the
missing paychecks. (TR 542-43, 590) Maccarone recalled, "He said
that he had used the money someplace else, that he did not have the
money for payroll, and that is when the employees walked off the
job." (TR 543)
Holiday asked Maccarone for additional money to meet the
payroll. (TR 544) Maccarone refused:
We had an agreement prior to the default that he was
going to pay his employees. He did not. If I gave him
that money, I had no guarantees he was going to pay the
employees, and I just did not want to release that money
for fear of that being spent someplace else.
(TR 545)
Holiday testified that he intended to pay the employees but
after the charges imposed by Capital, "it just didn't leave enough
operating capital to cover all the checks." (TR 783)
Shortly after Summitt's default, Reilly requested the FAA to
withhold approximately $70,000 from the contract to cover the
employees' salaries. (TR 541) Reilly testified that there was no
time to explore alternative means before taking this step because,
"Payout of the contract funds was imminent. I needed to lock up
the money to protect the employees' rights." (TR 451)
Following Summitt's default, a new contractor began providing
security services for the FAA and the instant action commenced.
(TR 315)
III. DISCUSSION [PAGE 14]
A. Respondents' violations
1. Misclassification of employees
Respondents argue that there has never been a valid wage
determination issued under this contract. Respondents base this
allegation on Reilly's testimony that in some instances the
contract and wage determination must be sent to the main office of
the Wage and Hour division for a "conformance." (TR 263, 389, 397)
Respondents also allege that during this conformance procedure, the
Department of Labor could have supplemented its wage determination
with additional information drawn from the Dictionary of Occupa-
tional Titles. (R 32) Instead, Reilly relied on the more
limited classifications of Guard I and Guard II found in the
Service Contract Act Directory of Occupations. (R 31; P 10)
Respondents argue that as a result of an invalid wage determi-
nation, they are required to pay only the Fair Labor Standards Act
minimum wage of $4.25 per hour. Respondents have offered no legal
basis to support their contentions. Reilly's conclusion that the
sergeants, corporals, and their dispatchers were performing the
duties of a Guard II is supported by the testimony of the employees
who testified.[2] Moreover, Holiday himself recognized this fact
in his unsuccessful March 11, 1993 request to the FAA that these
employees be paid at the Guard II rate. Therefore, I find that
Respondents violated the Service Contract Act and the CWHSSA by
misclassifying Summitt's employees and failing to pay them the
appropriate wage rate. The contributions of the FAA and the
Department of Labor to Respondents' inability to comply with the
Act will be considered under "Debarment," infra.
2. Uniform deduction
The Administrator alleges that Respondents committed two
violations by deducting money for a uniform deposit from the
employees' paychecks. First, the Administrator alleges that the
uniform deduction reduced the employees' wages below the rate set
by the wage determination. Second, the Administrator alleges that
the wage determination and the regulations prohibit charging
employees for the cost of furnishing their own uniforms. Respon-
dents argue that Summitt was only required to pay the FLSA minimum
wage because of the "invalid" wage determination, and therefore the
uniform deduction did not drop the wages below the required rate.
Respondents also allege that uniform deductions are a common
industry practice.
[PAGE 15]
The regulation set forth at 29 C.F.R. §4.168(b) governs
uniform deductions:
If the employees are required to wear uniforms either by
the employer, the nature of the job, or the Government
contract, then the cost of furnishing and maintaining the
uniforms is deemed to be a business expense of the
employer and such cost may not be borne by the employee
to the extent that to do so would reduce the employees'
compensation below that required by the Act.
This requirement was also incorporated in the wage determination
and the contract. (P 1)
I have already rejected Respondents' contention that Summitt
was required to pay only the FLSA minimum wage. Furthermore, there
is no support for Respondents' contention that a common industry
practice can circumvent the regulations, the wage determination,
and the contract. Therefore, I find that Respondents' uniform
deduction reduced the employees' compensation below that required
by the Service Contract Act and the CWHSSA and violates these
statutes.
3. Failure to pay employees
Finally, the Administrator alleges that Respondents violated
the Service Contract Act and the CWHSSA when they failed to issue
valid paychecks to Summitt's employees.
It is undisputed that Respondents failed to issue valid
paychecks to eight employees for the October 8, 1993 pay day and to
sixteen employees for the October 22, 1993 pay day. Finally, it is
undisputed that Respondents failed to issue paychecks for work
performed to any of Summitt's employees on either November 5 or 19,
1993.
Failure to pay employees no less than the prevailing wage for
all hours worked is a violation of the Service Contract Act. 41
U.S.C. §351(b)(1). Similarly, failure to pay employees no
less than the prevailing wage for overtime hours is a violation of
the CWHSSA. 40 U.S.C. §328(a)(1). In the instant case, it has
been established that Respondents failed to pay regular and
overtime wages to some, and then all, of their employees for work
performed during October and November 1993. Therefore, I find that
Respondents violated the Service Contract Act and the CWHSSA by
failing to pay their employees.
[PAGE 16]
C. Calculation of wages owed
Reilly explained how he calculated that the total amount due
to the employees was $62,091.25. (TR 348, 357-64, 693) Reilly's
calculations are set forth on a Form WH-55 that lists wages owed to
27 employees in amounts ranging between $658.19 and $3,885.87.
(P 7)
The parties are in agreement that Summitt's former employees
are due a minimum of $53,616.37. However, Respondent contends that
an additional $7,091.96 in vacation benefits are not due. Respon-
dents also seek credit for ,383.62 in fringe benefits payments it
alleges it did not have to make. Respondents do not otherwise take
issue with Reilly's calculations.
1. Respondents are liable for paying vacation
benefits
Prior to Summitt's first day of performance on the contract,
March 1, 1993, approximately seven of the guards had been employed
for approximately two months by the FAA because the previous
contractor had defaulted. (TR 20, 60-61; R 36 at 122; R 27) Under
the regulations at 29 C.F.R. §4.173(a)(3), "prior service as
a Federal employee is not counted toward an employee's eligibility
for vacation benefits under fringe benefit determination issued
pursuant to the Act." However, the contract states that the
service of these employees with the FAA would not be considered to
be a break in service.
Respondents argue that the Administrator's calculation of
money owed the employees should be reduced by $7,091.86 because the
guard's period of Federal employment with the FAA should be
considered a break in service.
In determining whether to view an event as a break in service,
the regulations and the Board of Service Contract Appeals consider
the reasons why an employee is absent from the work site. In the
instant case, it is undisputed that the employees continuously
worked at the FAA Technical Center under the previous contractor,
the FAA (standing in the shoes of the defaulted contractor), and
then Summitt.
The regulations contain several examples of circumstances that
are not considered a break in service. The most pertinent example
is found at 29 C.F.R. §4.173(b)(1)(iii):
An interim period of three months between contracts
caused delays in the procurement process during which
[PAGE 17]
time personnel hired directly by the Government performed
the necessary services. However, the successor contrac-
tor in this case was not held liable for vacation bene-
fits for those employees who had anniversary dates of
employment during the interim period because no employ-
ment relationship existed during such period.
The instant case differs from the exception in the example because
the employees in question had their anniversary dates vest during
the time Summitt was the contractor. (TR 20) Therefore, the
exception found in the second sentence of this example is not
applicable.
The employees in the instant case were employed by the
Government only for a short period of time for reasons that were
beyond their control. At all times, they were "at the same
location providing the same services to the same clientele." 29
C.F.R. §4.173(a); seeIndustrial Maintenance
Service, Inc. and J.P. Holloman, BSCA Case No. 92-22 (April 5,
1993)(no break in service when length of time devoted to absence
from work site not within the control of employees). Therefore, I
conclude that the employees are entitled to be paid for vacation
benefits due to them, as calculated by Reilly, based upon their
continuous service with the previous contractor, the FAA, and
Summitt.
Respondents' contention that it should be relieved of
liability for vacation benefits because Summitt was unable to
determine the exact number of employees involved from the bid
package must also fail. Under 29 C.F.R. §4.173(d)(2), "a
contractor is not relieved from any obligation to provide vacation
benefits because of any difficulty in obtaining [employee] data."
2. Respondents are not entitled to a credit for
overpaid fringe benefits
Respondents have established that after they were informed by
Reilly that Summitt was required to pay the fringe benefits portion
of the wage for overtime hours worked, they paid one-and-one-half
times the fringe benefit rate on all overtime hours. By Respon-
dents calculations, Summitt paid ,383.62 in fringe benefits that
it was not required to pay under the CWHSSA.
When asked during his deposition about Respondents' confusion,
Reilly stated that it was not his job to advise Respondents. (R 34,
p. 78) He explained, "It was not a violation of the Service
Contract Act. So, I would not have advised him of anything if it
looked all right." (R 34, p. 78)
[PAGE 18]
While Reilly's attitude contributed to Respondents' difficulty
in understanding and complying with the law, Respondents have
neither identified any statutory basis for the credit they seek nor
offered any compelling reason for such a credit. It would be
difficult to fashion a rule that would allow a credit for overpay-
ments that were allegedly made in error because of a misunderstand-
ing of the law. Moreover, I find that the Administrator's position
that Respondents must reimburse the employees only for the minimum
wages required under the Service Contract Act and the CWHSSA is not
inconsistent with her position that Respondents are not entitled to
a credit for any overpayments made. Therefore, I find that
Respondents are not entitled to a credit for any wages it overpaid
prior to its default.
Based on the foregoing I find that the Administrator has
established that $62,091.25 of the amount withheld from the
contract is owed to and should be released to the employees.
D. Debarment
Having found that Respondents have violated the Service
Contract Act and the CWHSSA, I must next consider the issue of
debarment.
The Service Contract Act, the regulations, and case law
interpreting the Act all recognize a general rule of debarment.
The Act states that relief from debarment shall occur only where
there are "unusual circumstances." 41 U.S.C. §354(a). The
regulation at 29 C.F.R. §4.188(b)(1) addresses this point:
The term unusual circumstances is not defined in
the Act. Accordingly, the determination must be made on
a case-by-case basis in accordance with the particular
facts present. It is clear, however, that the effect of
the 1972 Amendments is to limit the Secretary's discre-
tion to relieve violators from the debarred list (H.
Rept. 92-1251, 92d Cong. 2d Sess. 5; S. Rept. 92-1131,
92d Cong., 2d Sess. 3-4) and that the violator of the Act
has the burden of establishing the existence of unusual
circumstances to warrant relief from the debarment
sanction. Ventilation and Cleaning Engineers,
Inc., SCA-176 (ALJ, Aug. 23, 1973; Asst.
Sec'y, May 22, 1974; Sec'y, Oct. 2, 1974).
[PAGE 19]
See alsoViligantes, Inc. v. Administrator, 968 F.2d
1412, 1418 (1st Cir. 1992).
In Viligantes, the court considered the regulations
that determine where "unusual circumstances" exist and warrant
relief from debarment. Id. The court held that the
regulations impose a "three part test." Id. Contrary to the
Administrator's contention, I find that all three mitigating
factors are present in the instant case.
The first part of the three part test requires Respondents to
establish that their actions did not involve conduct of a "willful,
deliberate or of an aggravated nature or where the violations are
a result of a culpable conduct to ascertain whether practices are
in violation, culpable disregard of whether they are in violation
or not, or culpable failure to comply with record keeping require-
ments..." 29 C.F.R. §4.188(b)(3)(i). I find that at all times
Respondents expressed a desire to comply with the law and that the
violations established here are not the result of any "willful,
deliberate or...aggravated" conduct on the part of Respondents.
Summitt's responsibilities under the contract were highly
confusing due to the differences among the classifications listed
in the contract, those contained in the wage determination and
those actually employed by the predecessor contractor, the FAA
itself and, ultimately, by Summitt. Further difficulties were
caused by the fringe benefits and uniform situations. Respondents
repeatedly asked the FAA and the Department of Labor for assistance
in clarifying Respondents' responsibilities under the contract.
These requests were largely ignored by the FAA and the Department
of Labor. Therefore, I disagree with the contentions of the FAA
and the Administrator that Respondents were "uncooperative" and
"not thinking seriously."
The second part of the three part test requires Respondents to
establish -
A good compliance history, cooperation in the investiga-
tion, repayment of moneys due, and sufficient assurances
of future compliance...
§4.188(b)(3)(ii).
In the instant case, Holiday offered uncontradicted testimony
that this was Summitt's first investigation for Service Contract
Act violations. (TR 733) Although, in Reilly's opinion, Summitt
did not cooperate in the investigation, I find that the testimony
[PAGE 20]
of Holiday and Wigfall that Summitt tried to fully cooperate at all
times is supported by the record. (TR 672, 851-52) Reilly conceded
that Respondents made the employees and its payroll records
available to him, and none of the employees who testified stated
that they felt that they would be retaliated against by Respondents
if they cooperated with the government. With respect to Reilly's
contention that respondents were "incommunicado" during the month
of October, Reilly testified that he based this opinion on phone
calls that he placed to Respondents but were not returned. (TR 314,
401-402, 462-463) However, Reilly conceded that he failed to
provide Respondents with the requested written explanation during
this time. Moreover, Holiday testified that during this time he
was trying to work with Maccarone to resolve the cash-flow problem.
(TR 686) Therefore, I find that Respondents cooperated in the
investigation to the best of their ability and did not attempt to
impede the investigation in any way. Finally, Respondents have
offered assurances of future compliance by taking "preemptive
steps" including "retaining Counsel who has extensive experience in
understanding the SCA, no longer does business with Capital
Financial and has hired a new financing company...and [intends to]
bid...on government contracts that are confined to the Metropolitan
Washington area." (Respondents Post-hearing brief, p. 39)
The third part of the three part test provides:
a variety of factors must still be considered, including
whether the contractor has committed record keeping
violations which impeded the investigation, whether
liability was dependent upon resolution of a bona fide
legal issue of doubtful certainty, the contractor's
efforts to ensure compliance, the nature, extent, and
seriousness of any past and present violations, including
the impact of violation on unpaid employees, and whether
the sums due were promptly paid.
§4.188(b)(3)(iii).
With respect to the first factor of the third part of the
test, I note that the Administrator withdrew all her initial
allegations of record-keeping violations. (TR 694)
I find that the second factor weighs heavily in favor of
Respondents. Just eleven days after starting to perform the
contact, Holiday requested that the FAA reconsider the classifica-
tion of the employees. This request was summarily denied.
However, the FAA requested a wage determination from the Department
of Labor for clerks and dispatchers. Two months later the
[PAGE 21]
identical wage determination was returned to Respondents. Although
clerks had been paid less when they were employed by the FAA,
Respondents had no choice but to pay these employees at the higher
Guard I rate without being provided additional moneys by the FAA.
The FAA also forced Respondents to absorb unforeseen costs of paid
vacations and the purchase of new uniforms. Less than one month
later, Respondents found themselves in the middle of a Department
of Labor investigation for misclassifying their employees. The FAA
and Department of Labor continually undermined Respondents' efforts
to obtain clarification of the requirements of the contract and to
add additional funds to the contract. It was only after Respon-
dents started to pay back wages to the misclassified guards that
the FAA finally relented and added additional funds to the
contract. (No funds were ever added for the possibly overpaid
clerks.) By then it was too late. Respondents became so finan-
cially strained that paychecks issued to the employees could not be
paid.
As Maccarone explained, Respondents were awarded the contract
as part of a small business set-aside. (TR 530) As a small
business, Respondents had a limited ability to absorb the unilater-
al conditions imposed by the FAA and the Department of Labor. The
result was bad checks and unpaid employees.
Finally, although there was a tremendous impact on the
employees who were not paid, fault for this must be shared by the
FAA and the Department of Labor, as well as the Respondents.
Moreover, from the moment it defaulted on the contract and
throughout the course of this litigation, Respondents offered to
agree to the release of undisputed sums to the employees. See
e.g., (R 24: letter dated November 30, 1993 "Summitt again
wishes to emphasize our intention to pay all employees all wages
due..."); (R 21: letter dated December 3, 1993 "Summitt wishes to
emphasis (sic) our intention to pay all wages due...")
Therefore, I find that Respondents have tried, to the best of their
limited ability, to see that the employees are made whole.
The Administrator mischaracterizes Respondents' defense when
she argues that financial circumstances are no defense to a
debarment. The situation in this case is more complicated and
unusual than a simple cash-flow problem. As the Board of Service
Contract Appeals has stated, "29 C.F.R. [§]4.188(b)(3) is an
objective, fact-driven test." Industrial Maintenance Service,
Inc. and J.P. Holloman, BSCA Case No. 92-22 (April 5, 1993).
Although Respondents' inexperience, lack of knowledge and inade-
quate capital all played a role in the violations and the ultimate
inability of Summitt to meet the payroll, the failings of the FAA
and the
[PAGE 22]
Department of Labor substantially contributed to these outcomes.
Based on the foregoing, I find Respondents have established
that unusual circumstances existed with regard to Summitt's
contract that warrant relief from debarment.
ORDER
It is hereby ORDERED that the Administrator release or cause
to be released the sum of $62,091.25 being withheld by the United
States Department of Transportation, Federal Aviation Administra-
tion under contract DTFA03-93-C-000015 and that the former
employees of Summitt Investigative Service, Inc. be reimbursed as
follows:
Name Amount
Andalia, E. $2,261.59
Arlan, H. ,525.48
Babule, J. ,480.99
Bailey, W. ,722.52
Bodine, T. $3,152.91
Cartmell, J. $ 658.19
Cortes, A. ,744.72
Denny, B. $3,056.49
Doherty, J. $2,847.36
Erdman, E. $3,885.87
Ford, K. $2,277.66
Hadfield, J. $2,485.28
Hartman, L. $3,402.78
Kachonick, P. $2,163.42
Kinkade, L. $2,205.80
Linney, Dan $3,458.21
Linney, Deb $2,255.30
McGaffney, K. ,170.08
Michelotti, R. $2,085.74
Myers, J. $2,992.11
Rad, S. $2,192.38
Rollins, J. $2,711.88
Rivera, S. ,670.73
Titus, M. $2,322.51
White, C. ,610.00
Woodfall, J. ,342.80
Woods, D. $3,409.15
Total: $62,091.95
It is further ORDERED, despite the finding that Respondents
have violated the Service Contract Act and the Contract Work Hours
and Safety Standards Act, that the Administrator's request for
debarment is DENIED.
________________________
ROBERT D. KAPLAN
Administrative Law Judge
Camden, New Jersey
[ENDNOTES]
[1] The following references will be used herein: "P" for
Plaintiff's exhibits, "R" for Respondent's exhibits, and "TR" for
the hearing transcript.
[2] The Administrator has not alleged that Respondents violated
the Act when they paid the clerks at the Guard I rate. But the
Administrator has never explained what rate the clerks should
have been paid and how Respondents were ever to know this under
the two identical wage determinations that were issued listing
only Guard I and Guard II employees.
