CCASE:
KEVIN BITHER
DDATE:
19910528
TTEXT:
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[1] U.S. DEPARTMENT OF LABOR
DEPUTY SECRETARY OF LABOR
WASHINGTON, D.C.
20210
DATE: May 28, 1991
CASE NO. 87-SCA-16
IN THE MATTER OF
KEVIN BITHER AND BARRY BITHER,
INDIVIDUALLY AND DOING BUSINESS
AS K.B. BITHER, INC., FORMERLY
K.B. BITHER TRUCKING COMPANY,
RESPONDENTS.
BEFORE: THE DEPUTY SECRETARY OF LABOR /FN1/
FINAL DECISION AND ORDER
This matter is before me pursuant to the McNamara-O'Hara
Service Contract Act (MOSCA or the Act), 41 U.S.C. [secs] 351-358
(1988), and regulations promulgated thereunder at 29 C.F.R. Parts
4, 6, and 8 (1990). This case was initiated by a complaint filed
on behalf of the Wage and Hour Administrator on October 17, 1986,
alleging minimum wage and recordkeeping violations and also seeking
debarment under Section 5(a) of the Act. 41 U.S.C. [sec] 354(a).
The complaint was amended on December 30, 1988, for additional
alleged violations disclosed during a second investigation.
On May 10, 1989, a hearing was held by Administrative Law
Judge (ALJ) Thomas Schneider with both sides represented by [1]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
/FN1/ The Deputy Secretary has been designated by the Secretary to
perform the functions of the Board of Service Contract Appeals
pending the appointment of a duly constituted Board. 29 C.F.R.
[sec] 8.0 (1990). [1]
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[2] counsel. Having settled the back wage issues resulting from
Respondents' violations of the Act, the only issue to be resolved
at the hearing was whether Respondents should be debarred from
bidding on government contracts. The ALJ's July 31, 1989, decision
recommended relief from debarment. The Wage and Hour Administrator
filed a Petition for Review (Petition) with the Deputy Secretary
pursuant to 29 C.F.R. [sec] 8.7(a), arguing that the ALJ erred in
finding that "unusual circumstances" exist to relieve Respondents
from the ineligible list provisions of the Act. Respondents filed
a Statement in Response to Administrator's Petition (Respondents'
Statement).
The Wage and Hour investigations covered eleven contracts, of
which all but one began between June 1984 and April 1985.
Stipulation of facts (Stipulation) at 2. Respondents were awarded
two mail hauling contracts prior to 1984 and employed one driver.
Transcript (T.) at 18-19. In May 1984 Respondents bid on ten
"emergency" mail-haul contracts, expecting to be awarded one or two
at the most. However, they were awarded eight contracts, requiring
an immediate increase in staff and equipment T. at 22. The
contracts set wage rates which varied depending on the localities
covered by the contracts and whether an employee drove a "bobtail"
truck or a "tractor/trailer". Id. at 28. The parties stipulated
that the required minimum wage rates and fringe benefits initially
ranged from $10.45 to $11.65 per hour. Stipulation at 3. However,
all employees working on the eight new contracts acquired in 1984
were paid a flat rate of [2]
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[3] $9.00 per hour with no additional pay for fringe benefits. T. at
29, 44, 45, 51, 122. /FN2/ This investigation, covering a period
approximately between May 1984 and June 1985, resulted in agreement by
Respondents to pay $13,813.71 in backwages and fringe benefits to 13
employees.
The second investigation covered a period between March 1986
and January 1988. On April 17, 1989, less than a month before the
hearing in the case, Respondents authorized payment of $7,112.64 to
43 employees. Settlement of Back Wage Liability at 1-2. These
violations resulted from Respondents' failure to increase
employees' wage rates on the dates required by the contracts,
electing instead to delay paying employees the increased amounts
until the Postal Service granted the company's request for a
compensation adjustment, usually a month or two after the pay
increases were due. T. at 133.
Section S(a) of MOSCA provides that
[t]he Comptroller General is directed to distribute a
list to all agencies of the Government giving the names
of persons or firms that . . . have been found to have
violated the Act. Unless the Secretary otherwise
recommends because of unusual circumstances, no contract
of the United States shall be awarded to the persons or
firms appearing on this list. . . .
41 U.S.C. [sec] 354(a). Although the Act does not define the term
"unusual circumstances," guidelines for determining that term [3]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
/FN2/ Barry Bither testified that Respondents paid a flat rate for
all hours worked and did not pay for fringe benefits but could not
remember the exact rate. It is clear from the testimony of
employees (T. at 95, 122) and transcriptions from payroll records
that the flat rate was $9.00 per hour. Administrative Record
(A.R.) Exh. D, 20-32. [3]
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[4] were set forth in Washington Moving and Storage Co., SCA-168,
Dec. of the Asst. Sec., aff'd Secy. March 12, 1974. This guidance
was codified with further explanation in 1984 in regulations found
at 29 C.F.R. [sec] 4.188(b). The ALJ applied several of the
criteria in Washington Moving to Respondents' violations and
referred to Mastercraft Flooring, Inc. v. Donovan, 589 F. Supp. 258
(D.D.C. 1984) and Federal Food Services, Inc. v. Donovan, 658 F.2d
830, 834 (D.C. Cir. 1981), but he did not reference the Department
of Labor's regulations. The Administrator argues that "it is error
for the ALJ to ignore the properly promulgated regulation which was
developed for determining the existence of 'unusual circumstances,'
set forth at 29 C.F.R. [sec] 4.188(b)(3). M.E.S. Services. Inc.,
86-SCA-65 (Decision of the Deputy Secretary, July 28, 1989), slip
op. at 4." Petition at 13.
Respondents contest the Administrator's argument and suggest
that the Administrator is misleading by arguing that the ALJ
"somehow applied the incorrect law in making this decision."
Respondents' Statement at 18. Washington Moving and Storage is
clearly the primary basis for defining the existence of unusual
circumstances, and while the ALJ did consider the applicable case
law , totally ignoring the clarification and codification contained
in the regulations and failing to apply the test as provided in
section 4.188(b)(3) or even to reference it was error by the ALJ.
In the Matter of U.S. Department of Labor v. Stancil G. Jones,
87-SCA-9, Dec. of Dep. Secy., January 25, 1991, slip op. at 5
(citing M.E.S. Services. Inc.). [4]
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[5] II.
The Administrator aptly summarizes the three parts to the
debarment "test" in Section 4.188(3) against which Respondents'
violations should be examined:
Under Part I of the test, the contractor must first show
that no "aggravated circumstances" exist, that the
violations were not willful, deliberate, or of an
aggravated nature, or the result of culpable conduct such
as culpable neglect to ascertain whether practices were
in violation, or culpable failure to comply with
recordkeeping requirements; nor may the contractor have
a history of similar violations, or have repeatedly or
seriously violated the Act. 29 C.F.R. 4.188(b)(3)(i).
Only if these criteria are satisfied does debarment
analysis properly proceed to Part II of the test, which
calls for certain prerequisites to be met: the
contractor must demonstrate a good compliance history,
cooperation in the investigation, repayment of moneys
due, and sufficient assurances of future compliance. 29
C.F.R. 4.188(b)(3)(ii). Finally, if the conditions in
Parts I and II are met, Part III provides for the
consideration of additional factors to determine whether
unusual circumstances can be found. These factors
include: whether the contractor was previously
investigated for SCA violations; whether recordkeeping
violations impeded the investigation; whether liability
depended 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 or present violations, including the impact of
violations on unpaid employees; and whether sums due were
promptly paid. 29 C.F.R. 4.188(b)(3)(ii).
Petition at 8-9.
The ALJ found that the Respondents did not willfully violate
the terms of the Act, stating as follows:
As a consequence of these new contracts and employees,
respondents were responsible for implementing six
different wage rates depending on the type of truck and
the location of the route. (TR 27) Respondents were
inexperienced with such complex payroll practices, and
their solution was to: "[Look] at the lowest pay scale
according to what the Department of Labor had given us to
pay. We took the lowest pay scale and the highest pay
scale, and we . . . shot somewhere in the middle." [5]
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[6] (TR 29) The result was that some employees were overpaid
and some employees were underpaid. Although this conduct
may constitute some degree of negligence, respondents
were not willfully violating the terms of the Act. Their
actions speak of a desire to implement the complex
regulations in the best manner that they could. This
second factor, therefore, also weighs in respondents'
favor of finding unusual circumstances.
D. and O. at 3. The ALJ's finding that Respondents were not
willfully violating the terms of the Act is not supported by a
preponderance of the evidence. 29 C.F.R. [sec] 8.1(d). In fact,
there is ample evidence to show that Respondents were aware of
their obligation to pay all employees the wages and fringe benefits
required by the Department of Labor's wage determination yet chose
to pay all employees a wage rate clearly lower than several of the
basic hourly wage rates and also chose not to pay any fringe
benefits. The result was that the majority of drivers, if not all,
hired under these new contracts were deliberately underpaid. Barry
Bither, Vice President of the firm, admitted during the hearing
that he deliberately paid employees less than required wages. In
response to questions concerning wage rates paid after acquiring
the eight new contracts, Bither answered affirmatively, as follows:
Q. And during this time, you were aware that you
were paying some of your employees less than
the wage determination, isn't that correct?
A. Yes.
T. at 42.
Further, Respondents' justification for deliberately paying a
single flat rate to all employees, to avoid payroll complexities
and "to make it fair for everybody", T. at 28, 29, cannot be [6]
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[7] regarded as a basis for establishing "unusual circumstances." I
agree with the Administrator's argument that
Rather than violating the SCA in order to avoid dealing
with the complexities of multi-rate contract compliance,
Bither could have chosen some lawful alternative. For
example, instead of "shooting for the middle," as Bither
claims to have done, it could have paid its employees at
the highest minimum rate; that would also simplify its
payroll, but would ensure that all employees received at
least the minimum required in each contract. By not
taking this approach, Bither deprived numerous employees
of the required minimum rate for the company's own
operational benefit. Where a contractor puts its
self-interest above its obligation to compensate
employees properly, a finding of unusual circumstances is
not warranted. James W. Morriss, [1987-89 Transfer
Binder] Lab. L. Rep. (CCH) [par] 31,577 (Decision of the
ALJ, August 6, 1986).
Petition at 18. Based on the preponderance of the evidence, I find
that the ALJ erred in finding that the violations committed during
the first investigation were not willful. Where a respondent's
conduct in causing or permitting violations of the Act's provisions
of the contract is "willful, deliberate or of an aggravated nature
. . . relief from the debarment sanction cannot be in order." 29
C.F.R. [sec] 4.188(b)(3)(i).
Respondents' second investigation disclosed a failure to
implement wage increases at the required time, electing instead to
wait until they had sought and received a comparable adjustment in
reimbursement from the Postal Service. The ALJ found that the
violations disclosed in the second investigation, conducted within
a relatively short time after the first investigation, did not
constitute a history of repeated violations. Neither did he
consider Respondents' conduct to be culpably negligent,
stating: [7]
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[8] A second investigation, conducted in the wake of the
first investigation, revealed further underpayment
violations. Although there were two separate findings of
violations, the investigations were closely related in
time and in substance. The second investigation revealed
mistakes respondents made in attempting to implement the
corrections dictated by the first investigation. Taken
as a whole, therefore, the record reveals no history of
repeated violations, a factor which weighs in favor of
finding unusual circumstances.
* * * * *
A third factor outlined in Washington Moving and Storage
Co. is whether respondents exhibited "culpable neglect."
Respondents admitted that they were aware of the six wage
rates needed to correctly implement their postal
contracts, but that they instead "shot somewhere in the
middle" and set one rate for all employees. In addition,
respondents also admitted that they failed to hire a
competent payroll person after the first investigation,
waiting instead until the second investigation was under
pay. Although this conduct evidences at least some
neglect by respondents in their compliance with the Act,
I do not find that Respondents actions were knowing, or
"culpable" violations of the Act. This factor,
therefore, does not require a finding of debarment.
The investigations covered separate periods, the first
encompassing April 1984 to June 1985 and the second from March 1986
to January 1988. Stipulation, Exh. A, B. The record demonstrates
that these were separate and distinct investigations. Id.
Respondents were put on notice by the first investigation starting
in April 1984 of their contract obligations to comply with MOSCA.
Respondents did not seek advice from the Department of Labor to
determine whether its [8]
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[9] practices were in compliance./FN3/ Further, there is nothing in the
record to support the ALJ's statement that the second investigation
revealed mistakes Respondents made in attempting to implement the
corrections dictated by the first investigation. Therefore, I reject
the ALJ's finding that there was no culpable negligence. I find that
Respondents' conduct demonstrates both "culpable neglect to ascertain
whether practices are in violation [and] culpable disregard of whether
they were in violation or not...." 29 C.F.R. [sec] 4.188(b)(3)(i).
Respondents continued failure in 1986-1988 to timely pay the wage
increases constituted a repeat violation. See Ed Bird and Ed Bird
Trucking, Inc., 82-SCA-144 Dec. of the Dep. Sec., April 20, 1987. Thus
I find Respondents violations willful, culpable and repeated, each of
which preclude a finding of "unusual circumstances." 29 C.F.R. [sec]
4.188(b)(3)(i). In view of this determination I need not consider the
additional regulatory tests under Section 4.188(b)(3)(ii).
III.
I believe it is appropriate, however, to comment on the
ALJ's references to Mastercraft Flooring and Federal Food Service
in support of his finding of unusual circumstances. In Mastercraft
Flooring, the court accepted the ALJ's finding that the violations
consisting of failure to pay fringe benefits [9]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
/FN3/ A contractor has an affirmative obligation to ensure that its
pay practices are in compliance with the Act, and cannot itself
resolve questions which arise, but rather must seek advice from the
Department of Labor [citing cases]. 29 C.F.R. [sec]
4.188(b)(4).[9]
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[10] totaling $6,218.38 were unintentional, relatively
insignificant, and inadvertent, and did not result from plaintiff's
culpable negligence or disregard of the requirements of the
contract, the Act, and the regulations. Such is not the case here,
where Respondents, by a conscious management decision, knowingly
established a policy of underpaying employees. Neither is the
amount of violations insignificant. The underpayments for the two
investigations exceeded $20,000.00, substantially greater than
those in Mastercraft, representing approximately two percent of
Respondents' contract amounts. As noted in the Administrator's
Petition at 25, the ALJ failed to weigh the fact that the monies
improperly withheld were due low wage employees for whom the back
wages constituted a substantial amount of the compensation to which
they were entitled. Considering the total underpayments, the
numbers of employees underpaid, and the fact that these "wage
earners are heavily dependent upon wages, which more often than not
constitute the sole source to purchase the necessities of life," I
reject the ALJ's characterization of Respondents' violations as
"relatively insignificant." McClanahan v. Mathews, 440 F.2d 320,
325-26 (6th Cir. 1971)(FLSA case quoting Philip Carey Mfg. Co.,
Miami Cabinet Division v. N.L.R.B., 331 F.2d 720, 730 (6th Cir.
1964)).
In Federal Food Service, there was no evidence the violations
were willful or deliberate and the underpayments totaled $3,328.35,
an amount less than one-fifth of one percent of the contract
values. While the court cautioned that the use [10]
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[11] of debarment against innocent and petty violations was not
intended, I find Respondents' violations neither innocent nor petty.
IV.
In summary, I find that the ALJ's determination on debarment
is not supported by a preponderance of the evidence. 29 C.F.R.
[sec] 8.1(d). Accordingly, I find no "unusual circumstances" to
relieve Respondents from the ineligible list provisions of Section
5(a) of the Act. The Comptroller General will be notified to place
Respondents' names on the list of persons and firms ineligible to
contract with the United States.
SO ORDERED.
[Roderick DeArment]
Deputy Secretary of Labor
Washington, D.C. [11]
