CCASE:
MC DONALD'S CORP.
DDATE:
19920930
TTEXT:
~1
[1] BOARD OF SERVICE CONTRACT APPEALS
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
MC DONALD'S CORPORATION BSCA Case No. 92-02
BEFORE: Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
Anna Maria Farias, Member
DATED: September 30, 1992
DECISION OF THE BOARD OF SERVICE CONTRACT APPEALS
This matter is before the Board of Service Contract Appeals on
the petition of McDonald's Corporation ("McDonald's" or
"Petitioner") seeking review of the final ruling dated November 19,
1991 issued by the Acting Administrator, Wage and Hour Division
pursuant to the McNamara-O'Hara Service Contract Act of 1965, as
amended (41 U.S.C. [sec] 351 et seq.; "SCA"). McDonald's seeks
review concerning forty-nine wage determinations applicable to a
fast food concession contract between McDonald's and the Navy
Resale and Services Support Office ("NAVRESSO"). These wage
determinations apply to the classifications of Fast Food Worker and
Shift Leader. Of the forty-nine wage determinations, some of which
have been modified by the Administrator, see Administrative Record
("R.") Tab A, McDonald's accepts twelve as representing the
prevailing wages, and contests one or both classifications of
twenty-six. The parties agree that the remaining eleven wage
determinations apply to locations at which McDonald's does not yet
have a facility subject to this contract. /FN1/ [1]
/FN1/ As to these wage determinations, because they do not apply to
work under the contract, we agree with the Administrator, see
Administrator's Statement at 5 n.4, that McDonald's is not an
"interested party" within the meaning of 29 C.F.R. 8.2 and,
therefore, lacks standing to challenge them. If at some point
McDonald's is affected by any of these wage determinations, it may
seek review and reconsideration at that time. 29 C.F.R. 4.55(a).[1]
~2
[2] McDonald's also seeks review of the determination of the
applicability of the Service Contract Act to the subject contract.
The Board has considered the issues raised by the Petition for
Review; the Wage and Hour Division's record of the administrative
proceeding below and its statement in support of the final ruling;
Petitioner's statements in response to the Acting Administrator,
and the arguments presented by the Parties at oral argument
conducted on August 19, 1992. For the following reasons the final
ruling of the Acting Administrator is affirmed.
I. BACKGROUND
On August 7, 1984, NAVRESSO awarded McDonald's Contract No.
NNA250-84-D-0081, effective for a ten year term from the date the
facilities were opened. R., Tab R. The Wage and Hour Division
issued the first set of wage determinations on October 7, 1986,
applicable to the initial contract period beginning in 1986. R.,
Tab A at 4; Administrator's Statement (Ad. St.) at 2-3. The
second set of wage determinations was issued on February 21, 1989.
Ad. St. at 3. In each instance, the wage determinations were based
on data supplied by McDonald's. Id. See R., Tab A at 4.
Prior to issuing the wage rates for 1991, Wage and Hour worked
with McDonald's to design a Bureau of Labor Statistics ("BLS")
survey to more accurately reflect the prevailing wages by locality.
The BLS survey was conducted from October, 1990 through January,
1991. On June 20, 1991, Wage and Hour issued the forty-nine wage
determinations, establishing an effective date of August 6, 1991.
The effective date has been suspended pending the decision in this
case. R., Tabs A and D.
Where reliable BLS data was available, Wage and Hour
established prevailing rates for both Fast Food Worker and Shift
Leader based on the survey median /FN2/ results for each locality.
R., Tab A at 3. In instances where the median for Fast Food Worker
was less than the new national minimum wage of $4.25/hr., effective
April 1, 1991, the minimum wage was selected as the prevailing wage
and the Shift Leader rate was increased to maintain its general
relationship to the former Fast Food Worker median rate. Id. at 5.
Wage and Hour applied the national average differential of 24.4%
between the Fast Food Worker rate and the Shift Leader rate to
establish the Shift Leader rate in those localities where survey
data was not available for Shift Leader. In three California
locations where there was no reliable BLS survey data for either
classification, Wage and Hour used the Federal Wage System Non
Appropriated Fund [2]
/FN2/ The median is "a point in a distribution of wage rates where
50 percent of the surveyed workers receive that or a higher rate
and an equal number receive a lesser rate." 29 C.F.R. 4.51(b). [2]
~3
[3] ("NAF") wage schedules to establish the rates. The NAF surveys
exclude part-time and temporary workers and the rates for positions
comparable to Fast Food Worker were as much as 13.5% higher than
the BLS rates for Fast Food Worker at other California locations.
The NAF schedule rates were therefore adjusted by reducing them
13.5% for the three California locations.
On July 26, 1991, Mcdonald's requested review and
reconsideration of several of the wage determinations. R., Tab I.
In a final ruling, dated November 19, 1991, the Administrator
rejected McDonald's contention (Id. at 3-7), that prevailing wage
rates could be based on the BLS survey mode, /FN3/ R., Tab A at
3-5, and affirmed Wage and Hour's use of the median. The ruling
concluded, however, that Wage and Hour erred by increasing the
Shift Leader rate in instances where the Fast Food Worker rate was
raised to the minimum wage. In those cases, the Administrator
adopted the median rate for Shift Leader where BLS survey data was
available. Id. at 5. Where no data was available for Shift
Leader, the Administrator applied the median rate of a nearby
comparable locality but, if there was none, affirmed the use of the
national average differential. The Administrator affirmed the use
of adjusted NAF data in the wage determinations applicable to the
three California locations. Id. at 6.
II. DISCUSSION
A. Petitioner's untimely challenge to the ruling
regarding the applicability of the SCA
McDonald's raises the issue of SCA coverage, arguing that the
contract is not for the provision of services through the use of
service employees. Rather, it is in the nature of a lease because
the Government makes no payment to McDonald's and, instead,
McDonald's makes payments to the Government based on its sales
volume. Petition for Review (Pet. Rev.) at 1,4. On November 20,
1984, [*] after [*] the contract was awarded, McDonald's requested
a ruling from the Department of Labor on whether the SCA applied to
the contract. [Emphasis in original] The Department of Labor
issued the coverage ruling on March 10, 1986. The ruling stated,
in essence, that the McDonald's contract was covered by the SCA by
operation of law and by the contract itself. See R. Tab R, p. 25.
Moreover, the contract is described as a concession contract, and
concessionaire services are specifically listed as covered service
contracts. 29 C.F.R. 4.130(a)(11). The Board notes that
McDonald's has accepted SCA coverage with respect to its "fast food
hamburger concessions" operated on various Air Force bases. See
R., Tab C (letter of May 11, 1989). [3]
/FN3/ The mode is the wage rate which occurs most frequently in a
given survey. [3]
~4
[4] McDonald's argues that, contrary to the Administrator's
statement, the contract provides that it is not subject to the SCA
because where the contract has space for insertion of wage rates
and wage determination numbers, the words "not applicable" appear.
Petitioners's Response (Pet. Resp.) at 6. Initially, it should be
noted, as McDonald's concedes, that the contract "contains the
standard Service Contract Act clause." Id. The Deputy
Administrator concluded that "not applicable" refers to the fact
that a wage determination had not yet been issued for the contract,
which is a reasonable explanation. R., Tab P at 4-5. Moreover,
McDonald's could not rely on the words "not applicable" to exempt
it from SCA coverage as the Department of Labor, and not the
contracting agencies, has primary and final authority for
administering and interpreting the SCA, including determinations of
coverage. 29 C.F.R. 4.101(b).
Finding this contract subject to the SCA would be unfair,
McDonald's contends, because, unlike most service contracts, this
one has no mechanism to pass on wage based costs to the Government.
Pet. Rev. at 6; Pet. Resp. at 10. While this feature may justify
a contractual adjustment, it is a procurement matter for resolution
with NAVRESSO and it provides no basis for the Department of Labor
to conclude that the SCA should not apply.
The ruling also stated that a petition for review of that
determination could be filed within 60 days from the date of the
letter pursuant to 29 C.F.R. 8.7(b). See R., Tab P, p 6; however,
no appeal was taken at that time.
Approximately 5 1/2 years later, well beyond the sixty day
time limit, McDonald's seeks to appeal the coverage ruling. At
oral argument, McDonald's could only explain the delay by arguing,
as noted above, that the contract had the words "not applicable' in
the space where wage rates and wage determinations should be
present. Therefore, due to the untimeliness of the appeal of the
coverage issue, the Deputy Administrator's March 10, 1986, coverage
ruling stands as the final decision of the Department in this
matter. See Cynthia E. Aiken, BSCA Case No. 92-06 (July 31, 1992).
B. BLS survey procedures and policies
McDonald's contends that the wage determinations are not
enforceable because Wage and Hour withheld much of the source data
and thereby prejudiced McDonald's ability to challenge them
effectively. Citing Wirtz v. Baldor Electric Co., 337 F.2d 518
(D.C. Cir. 1963), McDonald's argues that, under the Administrative
Procedure Act ("APA"), a party may not be adversely affected by
administrative determinations based on information withheld from
the party. Pet. Resp. at 12 and n.9.
The basis for Baldor, however, was the provision in the Walsh-
Healey Act, under which that case arose, which expressly requires
an APA hearing on [4]
~5
[5] the record when matters are contested at the agency level. See
41 U.S.C. [sec] 43. Because there is no similar provision in the SCA,
the holding in Baldor would not apply to SCA wage determinations.
49 Fed. Reg. 10,637 (1984). The regulation addressing source data
supporting wage determinations states that while summaries may be made
available, under no circumstances shall the data itself be disclosed.
29 C.F.R. 8.5. Accordingly, the Board concludes that Wage and Hour
followed the proper procedures in issuing the wage determinations.
Next, McDonald's argues that BLS's "snapshot" view which
gathers data from one particular pay period, rather than throughout
the year, ignores the high turnover rate in the fast food industry.
Looking to the actual number of employees over a significant period
of time is, in McDonald's view, consistent with 29 C.F.R. 4.51 and
41 U.S.C. [sec] 351 which speak of "workers" and "employees,"
rather than "positions." Pet. Resp. at 14-15. Nothing in either
the regulations or the SCA, however, requires an extended survey to
establish prevailing wages, a requirement which could impose a
significant additional administrative burden on BLS. Moreover,
adopting McDonald's position would give equal weight to the wages
paid to each worker even though some work considerably less than
others. It would thus distort the prevailing wages by yielding
values lower than those prevailing at any time during the year.
/FN4/
Because BLS included salaried employees in the Shift Leader
definitions, McDonald's contends that the BLS surveys for that
classification cannot be relied on for calculating the prevailing
wage and should be disregarded. Pet. Rev. at 5; Pet. Resp. at 16.
In response, the Acting Administrator acknowledges that some
salaried employees were included in the Shift Leader surveys, but
argues that those instances were extremely limited as data from
salaried employees appeared on only three of the 650 to 700
schedules which comprised the survey. Even in these cases, the BLS
staff stated their belief that the salaried employees were properly
classified in the Shift Leader category. Ad. St. at 21. [5]
/FN4/ Assume there are three similar companies each employing ten
workers. Company A pays $4.50/hr., Company B pays $5.00/hr. and
Company C pays $5.50/hr. Because Company A pays low wages it
experiences high turnover and 40 different workers hold the ten
positions during a one year period. Companies B and C experience
no turnover and the same ten workers are employed throughout the
year. At [*] any [*] point during the year 30 workers are employed
and the median rate is $5.00/hr. [*Emphasis in original*] Since
the same number of workers is in each pay group, there is no mode.
Adopting McDonald's position, there would be 60 workers during
the year, 40 paid at $4.50/hr., ten at $5.00/hr. and ten at
$5.50/hr. The median rate for this distribution would be
$4.75/hr., a rate which could hardly be considered prevailing since
it is lower than the median at any point during the year. The mode
would be $4.50/hr., but this would be an artificial mode because at
no point during the year would $4.50/hr. be the most frequently
occurring wage. [5]
~6
[6] Although salaried employees are often exempt from SCA
coverage, 29 C.F.R. 4.156, the number of such employees included in
the BLS surveys is de minimis. Coupled with the fact that these
employees may have been properly classified, the Board concludes
that the validity of the BLS surveys has not been compromised and
that Wage and Hour properly relied upon them.
C. Measure of prevailing wages
1. Use of the median rate
The regulation which applies to determining prevailing wage
rates provides that where a single rate is paid to a majority of
workers in a class, the rate is determined to prevail. 29 C.F.R.
4.51(b). McDonald's acknowledges this provision, but argues that
in past years under this contract Wage and Hour has approved modal
rates as prevailing even when paid to fewer than fifty percent of
the employees in a locality. Furthermore, it argues that Wage and
Hour retains the discretion to continue approving modal rates and,
under applicable federal law, may not deviate from that policy
without legitimate reasons. Pet. Resp. at 7-10.
Section 4.51(b) provides that "[i]n the case of information
developed from [BLS] surveys" statistical measurements of central
tendency such as the median or mean are considered indicative of
the prevailing rate and which one will be applied depends upon a
consideration of several factors. Use of the median is the general
rule. In the prior instances alluded to by McDonald's, there were
no BLS surveys available and, therefore, the regulatory directive
to use a measure of central tendency did not apply. Wage and Hour
had discretion in those cases to accept the mode as the prevailing
wage rate. /FN5/ In the wage determinations at issue, BLS surveys
were available for the first time and Wage and Hour followed the
regulations. See R., Tab A at 4. Even if past acceptance of modal
rates may have suggested in some way the establishment of a policy,
using median rates for the instant wage determinations would not be
a departure from such a policy because the availability of BLS
surveys means that there were different circumstances to consider.
McDonald's, alleging that many of the challenged rates are paid
to few, if any, fast food workers, contends that it is
"bureaucratic myopia" to cavalierly dismiss adopting modal rates.
Pet. Resp. at 10-11. As the Acting Administrator notes, however,
neither the SCA nor the regulations requires that the prevailing
rates be paid to a large number of workers and in cases where the
median may be inappropriate, there is discretion to use the mean.
Ad. St. at 16. See 29 [6]
/FN5/ The Acting Administrator stated that the use of a modal wage
rate in 1986 was not indicative of a general Division policy to
utilize the mode in issuing SCA wage determinations. R., Tab A at
4. [6]
~7
[7] C.F.R. 4.51(b). In sum, the Board concludes that Wage and Hour
did not err by accepting survey median rates as the prevailing
wages. /FN6/
2. NAF wage data
McDonald's contends that using indexed NAF data to establish
prevailing wages for the three California locations (Los Angeles,
Alameda and San Francisco) is improper because there is no
correlation between fast food industry rates and NAF rates. /FN7/
Pet. Rev. at 6 Pet. Resp. at 16-17. Although there may not be an
exact correlation, Wage and Hour compared the NAF rates with the
BLS survey rates for Fast Food Worker at all California locations
where surveys were conducted. Finding that the NAF rates were as
much as 13.5% higher than the Fast Food Worker rates, Wage and Hour
adjusted the NAF rates at three locations downward by that
percentage and determined the Shift Leader rates based on the
adjusted Fast Food Worker rates. R., Tab J.
This adjustment provides a good indication of what a survey
would disclose for the prevailing Fast Food Worker rate in the
three locations based on the relationship between the NAF rates and
Fast Food Worker survey rates in other localities. The fact that
the greatest percentage differential was chosen works to McDonald's
advantage. Nothing in the regulations prohibits the use of NAF
data, as wage determinations may be based on "other available
sources." 29 C.F.R. 4.51(a). Wage and Hour therefore committed no
error by basing the prevailing rate at the three locations on NAF
data.
3. National average differential
McDonald's objects to use of the national average differential
of 24.4% between the Fast Food Worker and Shift Leader survey rates
to calculate Shift Leader rates where there is not survey data
because that differential was based on surveys taken prior to the
minimum wage increase. R., Tab I at 10. It argues, under a "wage
compression" theory, that the Shift Leader rate does not increase
commensurately when an increase in the minimum wage causes a
substantial increase in the Fast Food Worker rate. Pet. Resp. at
18. The Acting [7]
/FN6/ McDonald's argues that, in view of the minimum wage increase,
more employees should have been listed at the $4.25/hr. rate. Pet.
Resp. at 13-14. Even if that were done, however, the percentage of
employees paid at that rate, by McDonald's own admission (Id. at
14), would not exceed fifty percent at any locality and could not
be considered the prevailing wage.
/FN7/ McDonald's also alleges that in 1986 Wage and Hour made a
decision not to rely on NAF wage surveys for this contract. Pet.
Resp. at 16. This allegation, however, is not supported by any
evidence in the record. [7]
~8
[8] Administrator asserts that there is no evidence of wage
compression. /FN8/ Ad. Stat. at 23; R., Tab A at 5. In addition,
the Acting Administrator asserts that McDonald's own data appears
to indicate a steady, or possibly increasing differential between
prevailing wage rates for the two occupations. Where there was no
survey data which could be applied to the Shift Leader
classification, the Acting Administrator therefore affirmed the use
of the national average differential as "fully consistent with
established practices under the Service Contract Act." R., Tab A
at 6.
The Board concludes that the Acting Administrator did not err
by using the national average differential when there was no survey
data which could be applied to the Shift Leader classification,
since the Acting Administrator has great latitude as to the
information it may consider to determine prevailing wages. 29
C.F.R. 4.51(a). Petitioner, on the other hand, has failed to show
clearly demonstrable wage compression sufficient to require
overturning the use of the national average differential in these
circumstances.
For the foregoing reasons, the Acting Administrator's final
ruling of November 19, 1991 is affirmed.
BY ORDER OF THE BOARD:
Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
Anna Maria Farias, Member
Gerald F. Krizan, Esq.
Executive Secretary [8]
/FN8/ At fifteen locations where the Fast Food Worker median rate
was increased by the minimum wage, the Acting Administrator
modified the wage determinations which had increased the Shift
Leader rate to maintain the relative position in the wage
structure. The Acting Administrator adopted instead for the Shift
Leader rate the survey median for that locality or a nearby locale,
see R., Tab A, Attch. A, items 13, 15, 17-19, 27, 32, 34, 37, 39-
40, and 43-46, because there was no specific data to support the
theory that the wage differential was maintained. R., Tab A at 5.
[8]
