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CCASE:
J & J MERRICK'S ENTERPRISES,
DDATE:
19941027
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[1] BOARD OF SERVICE CONTRACT APPEALS
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D.C.
In the Matter of:
J & J MERRICK'S BSCA CASE NO. 94-09
ENTERPRISES, INC.
and JOHNNY E. MERRICK,
individually and jointly
BEFORE: David A. O'Brien, Chair
Ruth E. Peters, Member
Karl J. Sandstrom, Member
DATED: October 27, 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 case is
pending on the petition of J & J Merrick's Enterprises, Inc. and
Johnny E. Merrick, individually and jointly (collectively
referred to herein as "J & J" or "Petitioners"), seeking review
of an Administrative Law Judge ("ALJ") decision dated June 13,
1994 which did not relieve either of the Petitioners from
debarment for violation of the SCA. For the reasons stated
below, the decision of the ALJ is reversed.
I. BACKGROUND
J & J was awarded Highway Contract Route Contracts Nos.
70735, 70736, 70737 and 70738 with the U.S. Postal Service to
provide mail hauling and related services on various routes in
the Baton Rouge, Louisiana area for the period of July 1, 1987
through June 30, 1991. In 1987 the Administrator of the Wage
and Hour Division of the Department of Labor ("Administrator")
conducted an investigation of J & J. The result of that
investigation was, [1]
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[2] according to Petitioners, that "J & J's recordkeeping was
inadequate." (See Affidavit of Johnnie E. Merrick ("Affidavit"),
4.) The record does not reflect the filing of any administrative
enforcement proceeding against Petitioners as a result of the
inadequate recordkeeping, or for any other reason.
From the beginning of their contract Petitioners paid their
employees based upon the Postal Service's pre-bid survey of how
long each route should take if completed in a timely manner and
upon Johnnie E. Merrick's own survey of the times required for
each route. Petitioners kept no records of the actual hours
worked by employees. At the time of the 1987 investigation
Petitioners were informed of a defect in their recordkeeping and
took steps to correct what they understood to be the problem.<1>
However, Petitioners did not begin to keep proper records showing
that employees were being paid according to actual hours worked,
as opposed to a set number of hours deemed appropriate for the
given route. Therefore, when a second investigation of J & J was
conducted in March of 1991 the Petitioners were unable to present
any employee time sheets indicating the actual hours worked by
their employees. Based upon interviews with employees the
Administrator concluded that J & J owed their employees a total
of $15,764.23 in unpaid back wages.
On July 2, 1993 the Administrator filed a complaint alleging
that J & J had violated the SCA in the performance of mail
hauling services in Baton Rouge, Louisiana. The parties resolved
the back wage liability issues by stipulation. On April 2, 1994
the ALJ issued a Consent Order releasing $15,764.23 in withheld
funds to the seven employees entitled to back wages. The only
issue not resolved was the question of debarment. No formal
hearing was held on this issue. Petitioners filed a brief and
affidavit in support of their argument against debarment. The
Administrator did not respond.
On June 13, 1994 the ALJ issued a Decision and Order that
refused to relieve the Petitioners from debarment. The ALJ found
that Petitioners had not demonstrated the "unusual circumstances"
necessary to justify relief from debarment. The ALJ ruled that
the Petitioners were ineligible for relief from debarment because
of a history of repeated violations of the recordkeeping
provisions of the SCA, no bona fide legal issues were in dispute
and the employees were not promptly paid the sums due them. [2]
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[3] II. DISCUSSION
Section 5(a) of the SCA states that "[u]nless the Secretary
otherwise recommends because of unusual circumstances" all
persons or firms that the "Federal agencies or the Secretary have
found to have violated the Act" shall be placed on the debarred
bidders list. Thus, once a violation of the SCA has been found,
which occurred by stipulation in this case, the offending parties
must be debarred unless an affirmative finding of "unusual
circumstances" is made. The Secretary's regulations at 29 C.F.R.
[sec] 4.188(b) define "unusual circumstances." As shown by the
regulation and the interpretive case law, "[a] contractor seeking
an `unusual circumstances' exemption must run a narrow gauntlet."
A to Z Maintenance Corp. v. Dole, 710 F.Supp. 853, 855 (D.D.C.
1989).
The regulations at 29 C.F.R. [sec] 4.188(b) have been
interpreted as setting forth a three-part test for determining
when relief from debarment is appropriate. The test clarifies
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." At 29 C.F.R. [sec] 4.188(b)(3)(i), Part
I of the test states:
[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. Furthermore, relief
from debarment cannot be in order where a contractor
has a history of similar violations, where a contractor
has repeatedly violated the Act, or where previous
violations were serious in nature.
The second part of the test lists as prerequisites for
relief "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 if the 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 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. See
Florida Transportation Service, Inc., Federal Transportation
Services, Inc., and John C. Gorman, Jr., BSCA Case No. 92-03,
(Aug. 31, 1992); Elaine's Cleaning Service, BSCA Case No. [3]
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[4] 92-07 (Aug. 13, 1992); and Crimson Enterprises, Inc., and
Carl H. Weidner, BSCA Case No. 92-08 (Sept. 29, 1992).
In their Petition for Review, Petitioners argue that
"unusual circumstances" are present in this case because the
employees alleged to have been underpaid "were, upon the release
of the withheld funds, actually overpaid," and because Johnnie
Merrick's illness rendered him unable to properly supervise the
employees' work. Neither of these arguments constitute valid
reasons for a finding of unusual circumstances. Petitioners
cannot validly argue that "unusual circumstances" are present
here because no back wages were actually owed, after they
stipulated to the fact that they owed back wages. If they did
not owe back wages then Petitioners should not have stipulated
to that fact. Parties are bound by facts to which they have
stipulated.
As for Mr. Merrick's illness, while very unfortunate, we see
no evidence that the recordkeeping practices of J & J were in any
way affected by his absence. Perhaps, as argued by the
Petitioners, the employees were able to get away with claiming
more hours worked than appropriate because of Mr. Merrick's
absence. However, if Mr. Merrick had been present during the
entire contract period the records kept by J & J would still
have been inadequate. Therefore, the argument does not address
the basis of the SCA violation in this case -- inadequate
recordkeeping. In spite of our rejection of Petitioners'
specific arguments we do believe that the limited record
submitted in this case does contain sufficient factual support
to render a prima facia finding of "unusual circumstances."
The Administrator spends a considerable portion of her brief
arguing that, in effect, the Petitioners were negligent in
failing to fulfill the recordkeeping requirements of the SCA.
This is clearly true, but to avoid the application of the
"unusual circumstances" exception more than just negligence
must be found. The initial portion of Part I of the "unusual
circumstances" test, as stated by the Administrator in her brief,
is that "relief from debarment may be considered if: (1) the
violations are not willful or aggravated; (2) they are not the
result of culpable neglect or culpable conduct. . . ." In
applying this test, the Board can only rely on the facts as
set forth in the record.
The entire record consists of the amended complaint, the
consent order with attached consent findings and the affidavit of
Johnnie E. Merrick. The Administrator did not file any factual
material for the record on the debarment issue. The factual
allegations set out in the Merrick affidavit are, therefore,
undisputed. This limited record does not reveal any evidence of
willfulness or aggravation. Therefore, our analysis must focus
on the culpability of the Petitioners. Culpable is defined by
Black's Law Dictionary as "[b]lamable; censurable." At p. 454,
Rev. 4th Ed. (1968).[4]
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[5] Culpable neglect or conduct is more than just acting in a
negligent manner. It requires conduct which is beyond
negligence, but short of specific intent. The New Hampshire
Supreme Court has defined "culpable neglect" as being "less than
gross carelessness, but more than the failure to use ordinary
care, it is a culpable want of watchfulness and diligence. . . .
It exists `[i]f no good reason, according to the standards of
ordinary conduct, . . . [for the negligence] is found.' " Cass
v. Ray, 556 A.2d 1180, 1181-2 (N.H. 1989).
Petitioners were not keeping appropriate records as required
by the SCA. This resulted in the negligent failure to pay their
employees prevailing wages. But, to exclude J & J from the
"unusual circumstances" exception of the Act it must be found
that J & J was also culpable. Culpability can be shown by actual
intent to avoid the recordkeeping requirements of the Act, which
is not even alleged in this case. Or, it may be inferred by the
circumstances surrounding the recordkeeping violation. As noted
by the Administrator "this Board presumes that SCA contractors --
even first time contractors. . . -- read their contract labor
standards provisions." Miller Enterprises, Inc., BSCA Case No.
94-04 (Aug. 18, 1994). Thus, a contractor would usually be
guilty of culpable neglect in failing to keep proper records just
by failing to read the applicable labor standards. However, in
this case the Petitioners were operating under a pay plan which
they believed had been accepted by the Administrator.
After the 1987 investigation by the Administrator,
Petitioners continued to keep their records in the same manner as
they did before the investigation, with the exception of a
computerized back up ledger. 29 C.F.R. [sec] 4.188(b)(4) states
that "[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." The Petitioners did not seek
advice from DOL because they were investigated by the
Administrator in 1987 and believed that the problems with their
recordkeeping had been corrected. Therefore, we find that the
culpability that may normally be inferred from improper
recordkeeping is mitigated in this case.
We therefore, find that J & J has met the first part of the
test to show "unusual circumstances" and proceed to an analysis
of Part II. The first factor to be considered according to Part
II of the test is the Petitioners' compliance history.
The ALJ held that "there is a history of repeated violations
in that [Petitioners] concede they were told of recordkeeping
problems as early as 1987 and still had not corrected the same by
1991." This finding of fact is not supported by the record and
must be reversed. The record only reflects that as a result of
the 1987 investigation the Petitioners were told of the need to
have a "back up" to their payroll checkbook register. The record
also reflects that [5]
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[6] Petitioners immediately took steps to comply with the "back up"
requirement. This single admission by the Petitioners does not
establish "repeated violations" of the Act as held by the ALJ.
The record reveals that Petitioners have fulfilled the other
requirements of Part II of the test to determine if "unusual
circumstances" are present in this case. J & J did cooperate in
the Administrator's investigation. (See Affidavit 6, June 1,
1994.<2> ) The back wages due were paid. (See Consent Order,
2 (Apr. 4, 1994).) Since April 19, 1991, proper records have
been kept and all employees have been paid for all hours worked
as reflected on their time sheets. (See Affidavit, supra, 7.)
Therefore, future compliance with the SCA is sufficiently
assured. J & J has met the second part of the test to show
"unusual circumstances," so we shall proceed to an analysis of
Part III.
Part III sets out a number of other factors which must be
still be considered before finding that "unusual circumstances"
exist. The list identified at 29 C.F.R. [sec] 4.188(b)(3(ii) is
not exhaustive and no individual factor is dispositive. The
first item listed in Part III is "whether the contractor has
previously been investigated for violations of the Act." In this
case J & J was investigated in 1987, but the record reflects that
no enforcement action or attempt to collect back wages was
initiated by the Administrator as a result of that investigation.
Therefore, this factor does not weigh against the finding of
"unusual circumstances."
The next factor has to do with recordkeeping violations
which impede the investigation. The failure of the Petitioners
to keep proper records is the basis of the entire violation in
this case.<3> It is axiomatic that an investigation
necessitated by the lack of proper records will be "impeded" by a
lack of proper records. However, the failure to keep proper
records is mitigated here for the reasons set out above in our
discussion of the Petitioners' culpability. Therefore, we do not
perceive this to be a dispositive factor in deciding whether or
not "unusual circumstances" are present in this case.[6]
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[7] We agree with the conclusion of the ALJ that there does
not "appear to be any bona fide legal issues in dispute." The
considerations raised by J & J in pursuit of this appeal are
based in fact, not upon legal grounds.
The last set of factors to be considered are identified in
29 C.F.R. [sec] 4.188(b)(3)(ii) as "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 the sums due were promptly paid."
We recognize that Petitioners have the burden of establishing the
existence of "unusual circumstances" to warrant relief from
debarment.
In this case the Petitioners have set out a factually
plausible prima facia case in support of a finding of "unusual
circumstances" that has not in any respect been refuted by the
Administrator. Therefore, the Petitioners have met their burden
of proof. In the absence of some factual record to the contrary,
we cannot assume that the Petitioners have not made efforts to
ensure future compliance. Similarly, we cannot assume that other
serious violations have occurred, past or present. Further,
without a factual foundation, we cannot find that Petitioners'
employees have been adversely impacted.<4> The only other
factor to be considered is the promptness of the payment of back
wages.
The Administrator argues that "[a]t the conclusion of the
March 1991 investigation, Merrick refused to permit the release
of the withheld funds." In this case the investigation may have
been completed in March of 1991, but the complaint against the
Petitioners was not filed until July 2, 1993. The record
provides no explanation for this delay. Therefore, we cannot
conclude based upon the record before us that Petitioners did not
promptly pay the back wages due. Further, even if we were to
conclude that the payment of back wages was not prompt, due to
all the other factors identified above we would not find that
fact to be dispositive.
The decision of the ALJ is reversed and Petitioners are
relieved from inclusion on the debarred bidders list by virtue
of the "unusual circumstances" present in this case.
BY ORDER OF THE BOARD:
David A. O'Brien, Chair
Ruth E. Peters, Member
Karl J. Sandstrom, Member
Gerald F. Krizan, Esq.
Executive Secretary[7]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
<UL>FOOTNOTES</UL>
<1> Petitioners understood that the problem with their
recordkeeping was that no "back up" existed to the payroll
checkbook register showing each employee's total hours for each
pay period. Petitioners thereafter maintained a back up computer
ledger in addition to the payroll check register.
<2> The Administrator argues that J & J did not "fully cooperate
with the investigation." The only argument made in support of
this proposition is that "[a]t the conclusion of the March 1991
investigation, Merrick refused to permit the release of the
withheld funds. . . ." Statement for the Administrator, p. 13.
One can fully cooperate with an investigation and still exercise
the right to contest the findings of that investigation. As the
Administrator's brief specifically alleges, the refusal to
immediately permit release of the withheld funds did not occur
until after the investigation had been concluded.
<3> We have no reason to believe, based upon the record
presented, that J & J attempted to underpay their employees and
this resulted in the failure to keep proper records. The
situation which is presented by this record is that J & J failed
to keep appropriate records and this resulted in an underpayment
to their employees.
<4> The affidavit submitted by Petitioners indicates that for
all employees, save one, earnings were higher when employee
hourly records were not being properly maintained.
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