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<![CDATA[
CCASE:
R.G. RICHARDSON MAIL SERVICE & J & M TRUCKING
DDATE:
19940506
TTEXT:
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[1] BOARD OF SERVICE CONTRACT APPEALS
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
RAYMOND G. RICHARDSON, JR., BSCA CASE NO. 93-03
Individually and d/b/a
RAYMOND G. RICHARDSON
MAIL SERVICE
and
MAR JEAN RICHARDSON,
Individually and d/b/a
J & M TRUCKING
BEFORE: Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
DATED: May 6, 1994
DECISION OF THE BOARD OF SERVICE CONTRACT APPEALS
This matter is before the Board of Service Contract Appeals
pursuant to the McNamara-O'Hara Service Contract Act of 1965, as
amended (41 U.S.C. [sec] 351 et seq.; "SCA"), and the regulations
of the Department of Labor at 29 C.F.R. Part 8. The Acting
Administrator of the Wage and Hour Division has petitioned for
review of the January 28, 1993 decision and order of
Administrative Law Judge ("ALJ") Jeffrey Tureck regarding alleged
violations of the SCA by Raymond G. Richardson, Jr., individually
and d/b/a Raymond G. Richardson Mail Service; and Mar Jean
Richardson, individually and d/b/a J&M Trucking (collectively
referred to as "Richardsons" or "Respondents"). The ALJ found no
violations for an alleged kickback scheme or for payment of the
employees pursuant to in-house agreements instead of the SCA wage
determination; the ALJ also declined to order debarment of
Respondents. For the reasons set forth below, the ALJ's decision
and order is reversed as to those issues, and the Acting
Administrator's petition for review is granted.[1]
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[2] I. BACKGROUND
A. Factual background
Raymond and Mar Jean Richardson own and operate two trucking
companies -- Raymond G. Richardson Mail Service and J & M
Trucking. Both firms are engaged in hauling mail for the United
States Postal Service ("USPS"). At the time of the ALJ hearing
in this case, the Richardsons had held contracts with the USPS
for more than 23 years. The Richardsons are jointly involved in
the day-to-day operations of the firms. Mar Jean Richardson
handles the payroll for all the firms' truck drivers. (ALJ's
Decision ("ALJD") at p. 3.)
From May, 1985 to June, 1990, the Richardsons entered into
11 contracts with the USPS. The 11 contracts required the
contractor to pay the wages and fringe benefits specified in the
applicable SCA wage determination unless there was a collective
bargaining agreement that was consistent with the SCA and the
Department of Labor's regulations. It is undisputed that six of
the contracts (three temporary contracts, two new contracts, and
one renewal contract) required that Respondents' employees be
compensated pursuant to the SCA wage determinations then in
effect. (ALJD at pp. 4-5.) The dispute in this case centers on
whether Respondents violated the SCA by paying their employees
pursuant to in-house agreements rather than according to the wage
determinations.
The five contracts in question are renewal contracts 53014,
53041, 53048, 53057, and 53006. Raymond Richardson testified
that he paid drivers pursuant to in-house agreements under those
contracts. The signature page and body of Contract 53014
incorporated a "collective bargaining agreement" (an in-house
wage agreement) dated May 24, 1986. Contracts 53048 and 53037
are similar to Contract 53014. In Contract 53041, the signature
page indicates that Wage Determination No. 77-196 applies, but
the body of the contract incorporates the in-house agreement of
May 24, 1986. Contract 53006 incorporates an agreement dated
July 1, 1986, on the signature page, but the text of the contract
incorporates Wage Determination No. 77-196. (ALJD at pp. 5-6.)
The ALJ noted that the earliest in-house agreement (dated
June 30, 1984) in the record apparently covered the predecessor
contracts to 53014, 53041, 53048, 53006, and 53057. The second
year of that agreement was apparently renegotiated, although the
actual agreement is not in the record. The next agreement was
dated May 24, 1986. The record contains no executed copy of the
following agreement (dated June 30, 1987). The Richardsons
testified that an unexecuted agreement or proposal in the record
reflected the terms of that agreement. That unexecuted agreement
or proposal indicates that it covers the period from July 1, 1987
to June 30, 1988. The ALJ stated that another agreement was not
reached until late 1988, with two agreements dated November
[2]
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[3] 18, 1988 and effective from January 1, 1989 to June 30,
1990. (ALJD at pp. 6-8.)
The ALJ also noted that "[n]one of the in-house agreements
were developed through what would be characterized as a formal
collective bargaining process" (ALJD at p. 8). In other words,
the drivers were not unionized nor were they formally organized,
although they did negotiate informally with the Richardsons with
the senior driver, Cecil Duell, as their representative ((Id. at
8- 9). Both Duell and Raymond Richardson testified that Duell
was the only person who acted as a spokesman for the drivers (Tr.
213, 657). Duell testified that Raymond Richardson named him as
spokesman (Tr. 215), that there was no spokesman for the drivers
before him and that he did not become spokesman until Spring 1987
(Tr. 209-213).
The Wage and Hour Division of the Department of Labor filed
a complaint against Respondents on October 15, 1990. The
complaint alleged that Respondents violated the SCA by paying the
drivers pursuant to in-house agreements instead of the applicable
SCA wage determinations. The complaint also alleged a kickback
scheme whereby Respondents forced employees to give their fringe
benefit checks back to the Richardsons. The Department alleged
that Respondents were liable for underpayments of wages and
fringe benefits, and also requested that Respondents be debarred.
Prior to the hearing before the ALJ, the parties executed a
Stipulation and Settlement, in which the Richardsons admitted to
violations and agreed to pay back wages in the amount of
$6,086.12; the Respondents also agreed to pay an additional
$3,723.50, but without admitting to violations. The parties
stipulated that $15,517.30 was the amount of the alleged
underpayments, and $10,517.30 was the amount of the alleged
kickbacks. (Joint Exhibit ("JX") 1.)
B. The ALJ's Decision and Order
The ALJ issued a decision and order on January 28, 1993. On
the in- house agreements issue, the ALJ quoted the Department's
regulations implementing the SCA, which require (at 29 CFR 4.161)
that covered contractors pay their service employees wages and
fringe benefits
in accordance with the prevailing rates for such
employees in the locality, or, where a collective
bargaining agreement applied to the employees of a
predecessor contractor in the same locality, in
accordance with the rates for such employees provided
for in such agreement, including prospective wage
increases as provided in such agreement as a result of
arm's-length negotiations. [3]
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[4]The ALJ stated that the SCA and the regulations do not define
the term "arms-length negotiations," but the regulations do
establish a specific procedure -- an "arms-length proceeding" (29
CFR 4.11) -- for addressing arms-length negotiation issues. (ALJD
at pp. 11-12.)
In this case, the ALJ stated, the Department did not
initiate an arm's-length proceeding, nor did the Department seek
the remedy available through such a proceeding (that is, issuance
of a new wage determination). Instead, he stated, the Department
initiated an enforcement proceeding and sought to recover
underpayments for alleged violations of the SCA, and to have
Respondents debarred. (ALJD at p. 13.) The ALJ held that the
enforcement proceeding was not an appropriate forum (and was too
late) for challenging the validity of the in- house agreements.
He stated that the contractor's sole obligation was to provide
wage and benefit levels equal to or above those of the
predecessor collective bargaining agreement. He concluded that
Respondents' succeeding in-house agreements met this obligation
and that the Department was without authority to set aside the
agreements, even though the wages and fringe benefits they
established were below the prevailing rate. (Id. at pp. 15-16.)
On the kickback issue, the ALJ found that the evidence
established that the Richardsons cashed the drivers' paychecks,
advanced them money and loaned them money, and financed the
purchasing of trucks and equipment without charging interest.
Moreover, he stated, "the evidence establishes that the so-
called kickback checks were returned to the Richardsons as
repayment of debts owed them by the drivers. Having the drivers
repay these debts by signing over their quarterly fringe benefit
checks was an essentially painless and convenient way for the
drivers to repay these debts." (ALJD at p. 16.)
On the question of debarment, the ALJ concluded that
"unusual circumstances" existed that warranted relieving
Respondents from the debarment sanction (ALJD at pp. 17-18).
II. DISCUSSION
A. The in-house agreements
As noted by the Acting Administrator (Statement in Support
of Petition for Review, at p. 23), the SCA was amended in 1972 to
permit the payment of minimum monetary wages "where a collective
bargaining agreement covers any such service employees, in
accordance with the rates for such employees provided for in such
agreement." 41 U.S.C. [sec] 351(a)(1). See also, 41 U.S.C. [sec]
353(c). The reference in the amendments to minimum wages paid in
accordance with the collective bargaining agreement meant a
collective bargaining agreement under a predecessor contract.
See 29 CFR 4.163(d); Trinity Services, Inc. v. Marshall, [4]
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[5]
593 F.2d 1250, 1253 (D.C. Cir. 1978). The provisions of the SCA
require that the collective bargaining agreement of an incumbent
contractor be included in a successor's unless the wages and
fringe benefits provided for in the bargaining agreement are
determined to be substantially at variance with the prevailing
wages and fringe benefits.
The Acting Administrator (Statement, at pp. 25-26)
acknowledges that the SCA -- in certain circumstances -- permits
an employer to substitute collectively bargained rates for
prevailing rates. The Acting Administrator argues, however, that
in this case Respondents did not compensate their employees in
accordance with a collective bargaining agreement between a
predecessor contractor and its employees; indeed, argues the
Acting Administrator, the Richardsons never entered into
collective bargaining agreements with their employees, either
under the predecessor service contracts (expiring before July 1,
1986) or under the successor or renewal contracts. Upon review
of the record, the Board agrees with the Acting Administrator.
The essential flaw in the ALJ's decision was his refusal to
entertain the Department's challenge to the bona fides of the
so-called collective bargaining relationship between Respondents
and their truck driver employees on the ground that this
enforcement proceeding was an inappropriate forum for raising
such a challenge. In the Board's view, there is no more
appropriate place than an enforcement proceeding for determining
whether a purported collective bargaining relationship is
actually a sham that deprives service employees of the prevailing
wages and fringe benefits to which they are entitled under the
SCA./FN1/
To be sure, the relationship between Respondents and the
drivers lacked the formalities which usually attend a bona fide
collective bargaining relationship. We need not, however,
determine the extent to which such formalities are necessary, for
as noted in the Administrator's post-hearing brief (at p. 2),
this case lacks even the most basic element of a collective
bargaining relationship -- [5]
/FN1/ In Trinity Services, Inc. v. Marshall, supra, the D.C.
Circuit discusses the statutory requirement that limits wage
increases or future fringe benefits increases to those that are
the product of "arms-length negotiations." In the absence of
such a requirement, the court stated, "it would be a simple
matter for an employer who, for example, expects to leave the
business at the end of the contract term to promise his employees
massive wage increases, full well knowing he will never pay them,
in the hope of binding the successor employer for his employees'
benefits." 593 F.2d at 1259 (footnote omitted). See also,
Kentron Hawaii, Ltd. v. Warner, 480 F.2d 1166, 1179-1180 (D.C.
Cir. 1973).
The ALJ apparently viewed the "arms-length" proceeding
established by the Department's regulations as the appropriate
forum for challenging the validity of the in-house agreements in
this case. In our view, however, this case does not involve
simply an issue of whether the rates in a collective bargaining
agreement were the product of artificial manipulation or of
"arms-length negotiations." Instead, this case involves an even
more basic question -- whether a bona fide collective bargaining
relationship existed -- and an enforcement proceeding is surely
an appropriate forum for resolution of that question.[5]
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[6] that is, that the representatives of management and of labor
have "at least theoretical parity necessary to represent,
respectively, the independent interests of the employer and the
independent, collective interests of the workers." The absence
of this element is apparent from the testimony of Respondent
Raymond Richardson and driver Cecil Duell that Richardson
selected Duell for the role of spokesman for the drivers. While
Duell may have served in some limited instances as a spokesman
for the drivers, that hardly establishes the existence of a
collective bargaining relationship, for he was nominated by
management to serve as the employees' spokesman. Furthermore,
Duell testified that he was the only spokesman for the drivers
and that he did not become the spokesman until Spring 1987 --
long after the June, 1984 in-house agreement was executed. Duell
testified that the June 30, 1987 agreement was the first
agreement in which he was involved (Tr. 224); the Richardsons did
not produce an executed copy of that agreement, and Duell
testified (Tr. 225) that he played no role in the unexecuted
agreement or proposal that was included in the record.
Thus, the record shows that Duell's role as the drivers'
spokesman began when he was nominated for that role by
management, that he did not become the spokesman until years
after the 1984 in-house agreement was executed, and that his
degree of participation in any so-called negotiations is less
than clear. Given that factual background, the Board agrees with
the Wage and Hour Division that no collective bargaining
relationship existed between Respondents and a representative of
their drivers. In short, Respondents will not be permitted to
use the in-house agreements as a means of paying their employees
less than the prevailing rates listed in the applicable SCA wage
determinations.
B. The kickback of fringe benefits checks
As noted in the Administrator's post-hearing brief (at pp.
4-5), six employees /FN2/ testified that they were required to
sign the back of what appeared to be a payroll check, that the
Richardsons took the check from them without letting the employee
see the face of the check and without giving the employees any
money in return for the check. The ALJ found that the testimony
of one of those employees (Fischer) was not credible. The ALJ
also found that "the so-called kickback checks were returned to
the Richardsons as repayment of debts owed them by the drivers"
(ALJD at p. 16). The Board concludes that the ALJ's decision and
order on this point must be reversed.
This Board is reluctant to set aside the factual findings of
an Administrative Law Judge, but the Board will not hesitate to
do so when an ALJ has committed clear error. See P.B.M.C., Inc.,
WAB Case No. 87-57 (Feb. 8, 1991). In this case the ALJ
discredited the testimony of one employee, and the [6]
/FN2/ Employees Albright, Hird, Lakatos, Newman, Flaig, and
Fischer. [6]
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[7] Board will not disturb that credibility resolution. There
remains, however, the consistent testimony of five other
employees that they did not receive any cash in return for the
checks that they signed. And most importantly, Respondents
failed to produce any documentation whatsoever to refute the
employees' testimony or to support Respondents' claim that those
fringe benefits checks were credited as repayment of employee
debts, or that the Richardsons cashed those checks for the
employees themselves. In the absence of such documentation, the
ALJ committed patent error by ruling in favor of Respondents on
this point. See P.B.M.C., Inc., supra.
C. Debarment
The Board also concludes that Respondents failed to
demonstrate the existence of "unusual circumstances" that would
warrant relief from the sanction of debarment.
Section 5(a) of the SCA provides that "[u]nless the
Secretary otherwise recommends because of unusual circumstances"
a violating contractor shall be debarred from being awarded
federal contracts for a period of three years. The term "unusual
circumstances" is not defined in the SCA, but the regulations at
29 C.F.R. 4.188(b) set forth a three-part test for determining
when relief from debarment is appropriate. This test clarifies
and codifies the criteria established in the leading case of
Washington Moving & Storage Co., Case No. SCA-168 (Decision of
the Secretary, Mar. 12, 1974) and other significant cases
defining what constitutes "unusual circumstances." Under the
first part of the analysis, all factors must be favorably
demonstrated by an SCA violator (29 CFR 4.188(b)(1); otherwise,
relief from the sanction of debarment cannot be recommended. At
29 C.F.R. 4.188(b)(3)(i), Part I of the test specifies:
[W]here the respondents' conduct in causing or
permitting violations of the Service Contract Act
provisions of the contract is willful, deliberate or of
an aggravated nature or where the violations are a
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, or
culpable failure to comply with recordkeeping
requirements (such as falsification of records) relief
from debarment cannot be in order.
The second part of the test lists prerequisites to relief --
which must be demonstrated on the record -- such as a good
compliance history, cooperation in the investigation, repayment
of moneys due, and sufficient assurances of future compliance.
Part III lists additional factors which must be considered and
may be weighed if the mandatory conditions of Parts I and II are
met, such as whether the contractor has committed recordkeeping
violations which impeded the investigation; whether liability was
dependent upon resolution of a bona fide legal [7]
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[8] issue of doubtful certainty; the nature, extent, and seriousness of
any past or present violations, including the impact of violations on
unpaid employees; and whether the sums due were promptly paid.
Respondents can not meet the requirements of Part I of the
test. This Board has concluded that Respondents violated the SCA
by the kickback of fringe benefits payments. In the context of
another prevailing wage statutory framework -- the Davis-Bacon
Related Acts -- kickbacks of wages and fringe benefits have been
held to constitute "aggravated" and "willful" conduct (see
Morello Brothers, Inc., WAB Case No. 87-24 (Feb. 21, 1991), and
such activity is also egregious in the context of the Service
Contract Act. Furthermore, Respondents also used the in-house
agreements as way of circumventing the requirement to pay their
drivers the prevailing wages and fringe benefits set forth in the
applicable SCA wage determinations. In addition to these
deliberate violations, the Richardsons also stipulated to other
violations that resulted in underpayments totaling $6,086.12. We
agree with the Acting Administrator (Statement, at p. 39), that
Respondents committed flagrant and willful violations of the SCA,
and that aggravated circumstances are present in this case.
In light of Respondents' failure to meet Part I, there is no
need to conduct an analysis under the remaining prongs of the
test. The Board agrees with Wage and Hour, however, that
Respondents also fail to meet the requirements of Parts II and
III. Of particular relevance to Part II, is Respondents' delay
in paying back wages after being informed that they had violated
the SCA. Under Part III, the nature and the gravity of the
violations committed in this case prevent Respondents from
meeting this part of the test.
In short, Respondents have failed to show the existence of
unusual circumstances, and the Board orders that Respondents be
debarred for a period of three years.
BY ORDER OF THE BOARD:
Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
GERALD F. KRIZAN, ESQ.
Executive Secretary [8]
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