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CCASE:
SERVICE EMPLOYEES INTERNATIONAL UNION
DDATE:
19930923
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[1] BOARD OF SERVICE CONTRACT APPEALS
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
SERVICE EMPLOYEES BSCA CASE NO. 93-08
INTERNATIONAL UNION,
AFL-CIO, CLC (Formerly No. 92-01)
With respect to Review and
Reconsideration of Two Nationwide
Health and Welfare Fringe Benefit
Levels Issued under the McNamara-O'Hara
Service Contract Act
BEFORE: Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
DATED: September 23, 1993
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. 351 et seq.; "SCA"), and the regulations of
the Department of Labor at 29 C.F.R. Part 8. The case is pending
on the petition of Service Employees International Union, AFL-CIO,
CLC ("SEIU"), seeking review of the May 28, 1993 ruling of the
Acting Administrator, Wage and Hour Division. The Laborers'
International Union of North America, AFL-CIO ("LIUNA"), has
participated in these proceedings as an interested person within
the meaning of the Board's regulations.
The May 28 ruling was issued in response to this Board's
Decision and order of remand issued August 28, 1992. In his
ruling, the Acting Administrator reaffirmed Wage and Hour's
reliance on "size-of-establishment" data for service employers as
the basis for establishing two separate levels of fringe benefits
for contracts subject to the SCA. Using the size-of-establishment
data, Wage and [1]
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[2] Hour sets two levels of fringe benefits for health and welfare
("H&W") payments.
One level -- the "insurance benefit" -- is applied to most
federal service contracts, generally for routine services requiring
lesser-skilled service employees. The second H&W package is the
"total benefits" level and is issued under wage determinations
applicable to contracts which provide technical services, large
installation support services, or which replace services previously
performed by federal employees.
For the reasons stated below, this matter is remanded to the
Wage and Hour Division for further consideration and issuance of a
ruling consistent with this decision within 90 days of this
decision and order of remand.
I. BACKGROUND
A. The previous administrative litigation and Board
decision
This matter was earlier before the Board in SEIU's petition
for review of Wage and Hour's July 8, 1992 ruling. See, SEIU re
Nationwide Fringe Benefit Determinations, BSCA Case No. 92-01 (Aug.
28, 1992) ("SEIU I"). In the July 8, 1992 ruling, the Acting
Administrator ruled as appropriate the issuance of two separate
nationwide H&W levels for fringe benefits to be applied to
contracts subject to the SCA. Several separate challenges were
raised by SEIU in that prior matter. This Board affirmed most of
the July 8, 1992 ruling and the methodologies employed by Wage and
Hour in determining SCA prevailing fringe benefits as within the
scope of the discretion granted by Congress. A full discussion of
the various issues presented in the first appeal is found in the
Board's earlier decision.
However, the Board did not affirm Wage and Hour's reliance on
an "internal study" to support using "size-of-establishment" data
as the basis for issuing fringe benefit levels. We noted and
accepted the arguments raised by SEIU's challenge to using this
internal study to support the two levels of fringe benefits:
First, as SEIU notes, the purpose of the 1986 "internal
study" had no relationship to determining the number of
employees working under typical service contracts.
Rather, the purpose of the 1986 study was to determine
the percentage of service contracts that would be
excluded from coverage if the threshold dollar amount for
SCA coverage were raised. Second, it is acknowledged in
the "internal study" itself that the study was drawn from
a "very [2]
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[3] small sample" (368 out of 41,000 requests for
wage determinations for the first nine months of FY
1986), and there is no indication that scientific
sampling techniques were utilized to select those
contracts actually studied. Finally, the study was based
on information submitted by contracting officers on
SF-98A forms ("Notice of Intention to Make a Service
Contract and Response to Notice"). Yet this information
cannot be viewed as a reliable source of data on the
number of employees working under service contracts. As
the Acting Administrator acknowledged in her July 8
ruling (Rec. Tab B, p. 3 n.1), this information probably
"[*] underestimates [*] the employment of low-skill service
workers" (emphasis supplied), since "contracting officers
sometimes record an anticipated employment level in such
occupations as `1,' thereby requesting the prevailing
wage rates for the occupation without developing a
realistic estimate of actual employment."
At the August 12 [1992] hearing in this matter, counsel
for the Acting Administrator acknowledged that the 1986
study was not a scientific study and contained
significant errors. Counsel also took the position that
a remand would be the appropriate course of action if the
Board were to set aside any aspect of the Acting
Administrator's ruling. We agree that a remand would be
appropriate in such circumstances, and for the above
reasons the Board remands this matter to the Acting
Administrator for reconsideration of the use of the size-
of-establishment data in setting the SCA fringe benefits
rates. [*] On remand, Wage and Hour must either articulate
and explain a reasonable basis for use of the size-of-
establishment breakout, or must instead use other data to
set the fringe benefits rates.[*]
SEIU I, supra at pp. 6-7; [*] emphasis supplied [*].
B. Wage and Hour's ruling on remand
Pursuant to our remand order, Wage and Hour reconsidered the
size-of-establishment approach. In the May 28, 1993 ruling, the
Acting Administrator explained:
Reconsideration of this matter has involved investigation
of available data bases that include information on
service establishments by employment size interval.
Also, we have conducted a random sample survey of
establishments for which Service Contract Act wage
determinations were issued over the past two years. [3]
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[4] Administrative Record II, Tab A, p. 1. The reconsideration
entailed identification and examination of two "reliable" sources
of information on establishment employment size, i.e. the "County
Business Patterns" series, published by the United States
Department of Commerce and the United States Department of Labor's
"Unemployment Statistics" data. These data sources, stated the
Acting Administrator, "confirm that the vast majority of the
nation's 2 million service establishments (about 98 percent) employ
fewer than 100 workers." Id.
Wage and Hour also conducted a new survey of federal
contract procurement agencies. This effort was described in the
ruling on reconsideration as "a random sample survey," which
was designed primarily to determine the percent of
establishments, for which wage determinations have been
requested, that employ fewer than 100 workers. A net
sample of 103 establishments indicated with 95 percent
confidence that 65 to 82 percent of these establishments
employ fewer than 100 workers.
Id. The Acting Administrator concluded this new evidence
established that "the great preponderance of service establishments
employ fewer than 100 workers" and he affirmed the methodology of
using size-of-establishment data to develop the two SCA H&W fringe
benefit levels. /FN1/ Id. at p. 2. SEIU filed the instant petition
for review on June 28, 1993, briefs and statements were filed, and
oral argument -- where the parties and interested person presented
their respective positions -- was conducted by the Board on August
23, 1993.
II. DISCUSSION
At the time that SEIU filed its petition for review in this
matter, SEIU did not file a brief in support of its petition, but
instead simply stated the following:
In support of its petition, SEIU raises all of the
arguments made in support of its original petition and in
its briefs filed with the Board in support thereof. In
addition, SEIU asserts that the [4]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
/FN1/ At page 2 of the May 13, 1993 ruling, the Acting
Administrator further stated that Wage and Hour was:
also examining other alternative methodologies. These
alternatives were discussed with SEIU and other outside
parties. The alternatives, however, had many negative
implications and their adoption was rejected at that
time. Nevertheless, we are committed to further
consideration of alternatives and intend to initiate
expeditiously rulemaking to further explore alternative
methodologies. [4]
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[5] Administrator's subsequent random sample survey is
deficient for the same reasons as its prior random sample
survey was found deficient by the Board originally and is
insufficient to support its decision on remand.
The Administrator responded to SEIU's petition by stating that
Wage and Hour "endeavored to identify a reliable data base that
corresponds to the benefits paid by contractors subject to the SCA"
(Statement for the Administrator in Opposition to Petition for
Review, at p. 6). The Administrator further stated that the two
universe data bases relied upon Wage and Hour in the remand
decision -- the Department of Commerce's County Business Patterns
data and the Department of Labor's Unemployment Statistics data --
both indicate that about 98% of all service establishments employ
fewer than 100 workers (Id. at p. 8). These two data bases, the
Administrator argued, were compiled by reliable sources and were
sufficient to support use of size-of-establishment data (Id.). The
Administrator also refuted SEIU's contention that Wage and Hour's
random sample survey should be viewed as defective for the reasons
that the Board found the 1986 "internal study" to be defective.
The sample survey, the Administrator argued, bears none of the
flaws identified by the Board in SEIU I. Thus, the Administrator
stated, the clear purpose of the sample survey -- unlike the 1986
study -- was to determine the percentage of establishments with
contracts subject to the SCA that employ fewer than 100 workers.
The Administrator added that it is clear that Wage and Hour used an
adequate sample size and employed scientific sampling techniques in
conducting the sample survey. Finally, the Administrator stated,
the survey -- unlike the 1986 study -- was not based on information
from SF-98A forms, but instead was based on responses to a
questionnaire which specifically asked about each establishment's
total number of employees at the time of contract commencement.
The Administrator also defended Wage and Hour's methodology
for determining and issuing H&W fringe benefits rates. Wage and
Hour's study of the size-of-establishment data compiled by the
Bureau of Labor Statistics ("BLS"), the Administrator stated,
showed that establishments with fewer than 100 workers provide
fewer types and smaller amounts of H&W benefits; that the only
benefits paid by the majority of establishments with fewer than 100
workers were medical care and life insurance; and that workers in
the "service worker" category received substantially less in H&W
benefits than the average amount paid by establishments with fewer
than 100 workers (Statement, at p. 15). The Administrator further
stated that the typical worker covered by the SCA is a low-skill,
low-wage employee associated with the service worker occupations.
Thus, of the 103 establishments that responded to the sample
survey, only four involved technical services. (Id. at p. 16.) The
Administrator argued that continuance of the system of issuing two
nationwide H&W benefits rates "offers many significant advantages.
It provides continued issuance of reasonable Health and Welfare
benefit rates, in terms of what prevails; it provides a continuity
and [5]
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[6] consistency for contracting agencies, contractors, and
employees, and helps prevent the disruptive effects that would
occur as the result of large decreases or increases which might
result from the adoption of other methodologies . . .; and, it
assures the availability of data for annual updating based on a
reliable published series." (Id. at pp. 19-20.)
In statements filed a few days before oral argument in this
matter, both SEIU and LIUNA attacked the use of the size-of-
establishment data in setting SCA fringe benefits rates. SEIU
argued (Statement, at p. 3) that use of such data was premised on
the view that the determination of prevailing rates is
appropriately based on what employers similar to SCA employers pay
for fringe benefits. This approach, SEIU stated, is contrary to
both the terms of the SCA (41 U.S.C. 351(a)) and the
Department's regulations (29 C.F.R. 4.50-4.53)), both of which make
clear that the determination of prevailing rates is to be conducted
by reference to other similar workers, not other similar employers.
While everyone is in agreement that data does not exist that would
permit fringe benefits rates to be established by job
classification and locality, SEIU argued, the absence of such data
"does not mean that the Administrator may introduce new limiting
criteria, such as establishment size, into the prevailing fringe
benefit rate determination process." (Id. at pp. 3-4.)
Furthermore, SEIU argued, the Acting Administrator's conclusion
from data examined upon remand that "the great preponderance of
service establishments employ fewer than 100 workers" is shown to
be a meaningless conclusion when the same data bases are examined
for all private industry establishments as well as for service
establishments. The all-industry data, SEIU stated, shows that 98%
of all private establishments, not just service establishments,
employ fewer than 100 workers. (Id. at pp. 6-7.) SEIU argued that
use of the size-of-establishment data understates the fringe
benefits paid by firms that are typical of SCA contractors, and
that "[t]he problem is compounded by the fact that the data used is
the average of what is paid by establishments, not the average of
what is paid to workers" (Id. at p. 9).
LIUNA similarly argued in its statement that the SCA requires
the Secretary of Labor "to issue wage and fringe benefit
determinations based upon prevailing rates for [*] all [*] workers
performing similar work in the locality, not just workers employed
by small service establishments" (Statement, at p. 3) [*](original
emphasis)[*]. By excluding data regarding large employers, LIUNA
stated, a result is produced that does not reflect prevailing pay
practices for employees (Id. at p. 12). LIUNA noted that Wage and
Hour accurately stated that the data showed that 98% of the service
industry establishments employ fewer than 100 employees. However,
LIUNA added, that does not mean that most service workers are
employed by small establishments. Indeed, LIUNA stated, the same
data show that the 2% of establishments with more than 100 workers
employ
a whopping 48% of the total "service industry" workforce.
The Administrator's approach to determining "prevailing"
fringe [6]
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[7] benefit practices ignores payment data on all
these workers -- almost half of the total workforce
in the service industry!
(Id. at p. 13.) LIUNA also argued that Wage and Hour erred by its
reliance on data from the private sector "service industry," "
`Services' and `service employees' are broad terms of art under the
SCA that are not coextensive with the term `service industry' as
utilized by federal agencies that compile economic statistics,"
LIUNA contended. (Id. at p. 4.)
At oral argument, SEIU again argued that Wage and Hour's
decision to look at comparable establishments, rather than at
comparable employees, was contrary to the SCA, and that by using an
establishment-based average rate Wage and Hour had greatly
distorted the fringe benefits rates at the low end. Counsel for
the Administrator responded that SEIU's initial assumption was
incorrect, because the rates reflected in the BLS size-of-
establishment data were employee-based figures, not an employer-
based average. SEIU and LIUNA countered in rebuttal that even if
the data utilized by Wage and Hour is an employee-based rate, it is
nevertheless an employee-based rate that fails to include a
significant number of employees. Thus, as noted by counsel for
LIUNA, even if it is appropriate to look at the "service industry"
rather than all industry, the data relied upon by Wage and Hour
shows that nearly half the workers employed in the "service
industry" are employed by large establishments.
Upon review of the record and the statements filed by the
parties in this matter, the Board concludes that this matter must
be remanded to the Administrator for further consideration of use
of size-of-establishment data in setting SCA fringe benefits rates.
The Board is satisfied that pursuant to its previous remand order
Wage and Hour identified and utilized reliable data bases (the
County Business Patterns data and the Unemployment Statistics
data). The Board is likewise satisfied that the sample survey
conducted by Wage and Hour contains none of the defects identified
by the Board as having been present in the 1986 internal study. At
this point, however, the Board is not satisfied that the data
relied upon by Wage and Hour justify the departure from the long-
time practice of basing the SCA rates on all-industry data to use
instead the size-of-establishment breakout in setting SCA fringe
benefits rates. Thus, for example, at oral argument counsel for
the Administrator responded to the arguments of SEIU and LIUNA by
stating that the BLS size-of-establishment figures for fringe
benefits payments are employee-based rates, and not employer-based
averages. The unanswered question, however, is whether it is
appropriate to have an employee-based figure that (as argued by
LIUNA) excludes nearly half the employees in the service industry
-- the employees employed by establishments with 100 or more
workers. Furthermore, while the data relied upon by Wage and Hour
may show that the vast majority of all service establishments
employ fewer than 100 workers, the data do not necessarily
demonstrate that the vast majority of SCA workers are employed by
small establishments. Also to be considered is [7]
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[8] SEIU's argument countering Wage and Hour's reliance upon the data
showing that 98% of service establishments employ fewer than 100
workers. While the 98% figure is impressive, stated counsel for SEIU at
oral argument, it indicates nothing unique about service establishments,
for the figure happens to be applicable to all private industry and not
just to service firms. Finally, LIUNA's argument that it is not
appropriate to look only to the "service industry" in setting fringe
benefits rates for SCA workers must be considered upon remand.
This Board appreciates that, as stated by counsel for the
Administrator at oral argument, use of the size-of-establishment
data is intended as a "reasonable solution to a very difficult
problem" -- setting appropriate SCA fringe benefits levels. It is
not clear from the submissions to the Board, however, that the
attributes identified by counsel -- such as consistency, ease of
administration, and the ability to update the SCA fringe benefits
rates on a regular basis -- are characteristic only of a system
that utilizes size-of-establishment data, or whether those same
objectives can be also achieved by using other data to set the SCA
rates.
In sum, this matter is remanded to the Administrator of the
Wage and Hour Division for reconsideration of the use of size-of-
establishment data in setting SCA fringe benefits rates. The
determination on remand shall be issued within 90 days of the date
of this decision.
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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