TOM MISTICK & SONS, INC., WAB Nos. 88-25 and 88-26 (WAB May 30, 1991)
CCASE:
TOM MISTICK & SONS, INC.,
DDATE:
19910530
TTEXT:
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[1] WAGE APPEALS BOARD
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
TOM MISTICK & SONS, INC., WAB Case Nos. 88-25
Pittsburgh, Pennsylvania 88-26
BEFORE: Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
Stuart Rothman, Senior Member
DATED: May 30, 1991
DECISION OF THE WAGE APPEALS BOARD
These matters are before the Wage Appeals Board on the
petitions of Tom Mistick & Sons, Inc. ("Mistick" or "Petitioner"),
for review of decisions issued May 2, 1988 by the Administrator of
the Wage and Hour Division. For the reasons stated below, the
Board denies the petitions for review.
I. BACKGROUND
A. Mistick's Fringe Benefit Plan (Case No. 88-25)
Mistick was prime contractor or subcontractor on several
projects in the Pittsburgh, Pennsylvania area that were covered by
the Davis-Bacon Act (40 U.S.C. [sec] 276 et seq.) or Related Acts.
In three letters dated May 2, 1988, the Administrator discussed the
results of investigations into the performance of [1]
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[2] Mistick and prime contractor Allegheny Home Builders, Inc.,
("Allegheny") on those projects. (FOOTNOTE 1)
Mistick's practice on the projects in question was to
contribute the difference between the required prevailing wage
rates and its employees' regular cash wages into a trust plan --
known as the Tom Mistick & Sons, Inc., Davis-Bacon Fringe Benefit
Plan -- in an attempt to meet Mistick's prevailing wage
obligations. The plan was established by a trust agreement between
attorney David Priselac, and Mistick, Allegheny, and Bridges and
Company, Inc. The trust agreement authorized trustee Priselac to
disburse funds to employees upon written application for
medical or hospital care, pensions on retirement or death,
compensation for injuries or illness resulting from
occupational activity, or insurance to provide any of the
foregoing, for unemployment benefits, life insurance,
disability and sickness insurance, or accident insurance, for
vacation and holiday pay, for defraying costs of
apprenticeship or other similar programs, or for other bona
fide fringe benefits, but only where the Employer is not
required by Federal, State or local law to provide any of such
benefits, and such other purposes as the Employees in their
sole discretion may at any time direct the Employer, provided,
that none of the property in the trust may ever be used to
fund any expense or fringe benefit that is provided to the
other employees of the Employer, and further provided, that
none of the Trust property may ever be used to fund any
expense that is required to be provided by the Employer or is
customarily provided by the Employer for its Employees. The
Employer shall notify the Trustee that such amounts are to be
disbursed within three (3) working days after an Employee
makes written application to the Employer for a disbursement,
specifying the amount and purposed of said request. [2]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
(FOOTNOTE 1) One letter, to Mistick, detailed the investigation findings
regarding Mistick's performance as prime contractor on several
projects and Mistick's performance as subcontractor on the East
Northside Community Center project. A second letter to Allegheny,
which is under the control and ownership of brothers Thomas and
Robert Mistick, discusses Allegheny's performance as prime
contractor on the East Northside Community Center project. A third
letter, also to Allegheny, discussed the responsibility of a prime
contractor to pay back wages when a subcontractor fails to do
so. [2]
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[3] Thus, the trust agreement language tracked the list of
fringe benefits enumerated in Section 1(b)(2) of the Davis-Bacon
Act (the "Act"). (FOOTNOTE 2) Actual disbursals from the Mistick fund,
however, included disbursals for items -- such as job-related tools
and truck expenses; and personal items such as payment of loans,
rent, phone, bills, and vehicles not used for work -- in addition
to the matters listed in the trust agreement.
The Administrator stated in her May 2, 1988 decision letters
on Mistick's Fringe Benefit Plan that with regard to fringe benefit
contributions under the Davis-Bacon Act, it is the Department of
Labor's position that the amount contributed by an employer must
bear a reasonable relationship to the actual rate of costs or
contributions required to provide benefits for the employee in
question. Amounts contributed by employers over and above the
actual cost of providing bona fide fringe benefits, the
Administrator added, would not be creditable for Davis-Bacon
purposes unless the excess amounts are paid in cash to the
employees.
In addition, the Administrator stated, the Department
prohibits use of contributions made for work subject to the
Davis-Bacon Act to fund a fringe benefit plan for periods of
non-Davis-Bacon work. Thus, for all fringe benefit plans (except
defined contribution pension plans which provide for immediate
participation and immediate or essentially immediate vesting --
that is, 100% vesting after an employee has worked 500 or fewer
hours), credit for Davis-Bacon purposes is allowed for
contributions based on the effective annual rate of contributions
for all hours worked during the year.
Furthermore, the Administrator stated, the Department's
position is that where employees are required to use certain tools
or safety equipment or to wear certain clothing in performing
Davis-Bacon work, the cost of furnishing such items is a business
expense of the employer )and not a wage or fringe benefit) which
may not be charged to the employee to the extent that the cost of
such items reduces the employee's wages below the required
prevailing wage rate. Work-related vehicle expenses are also
viewed as business expenses of the employer incurred for the
employer's benefit, and not as employee wages or [3]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
(FOOTNOTE 2) Section 1(b)(2) lists the following:
medical or hospital care, pensions on retirement or
death, compensation for injuries or illness resulting
from occupational activity, or insurance to provide any
of the foregoing, for unemployment benefits, life
insurance, disability and sickness insurance, or accident
insurance, for vacation and holiday pay, for defraying
costs of apprenticeship or other similar programs, or for
other bona fide fringe benefits, but only where the
contractor or subcontractor is not required by other
Federal, State, or local law to provide any of such
benefits. . . . [3]
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[4] fringe benefits, the Administrator added. Accordingly, the
Administrator stated, payments from a fringe benefit plan for
work-related tools, clothing, safety equipment and vehicle expenses
are not creditable as wages or fringe benefits under the
Davis-Bacon Act.
Applying these principles to Mistick's Fringe Benefit Plan,
the Administrator stated that the plan is not a bona fide fringe
benefit plan within the meaning of Section 1(b)(2)(B) of the
Davis-Bacon Act "because contributions to the plan are made in
amounts greater than the actual cost of providing benefits and
because payments from the plan are used to provide for non-bona
fide fringe benefits." The Administrator informed Mistick that
Davis-Bacon prevailing wage credit would not be allowed for future
contributions to the Fringe Benefit Plan. For enforcement
purposes, however, the Administrator stated that credit would be
permitted for disbursals to employees for the types of bona fide
fringe benefits listed in the Davis-Bacon Act. Partial credit,
based on the effective annual rate of contribution, was allowed for
payments used to provide benefits such as medical reimbursement,
missed or sick days, and vacation days. Full credit was allowed
for payments withdrawn for personal reasons, and for payouts of an
employee's balance upon termination from employment. Credit was
not allowed, however, for past payments which were used for
work-related tools, vehicle expenses or other items that are
considered employer business expenses and not bona fide fringe
benefits. (FOOTNOTE 3
B. Mistick's Request for a Final Ruling (Case No. 88-26)
In a separate May 2, 1988 letter, the Administrator
responded to Mistick's request for a final ruling on three points:
(1) whether the effective annual rate of contribution must be
applied to Mistick's Medical Reimbursement Plan; (2) whether
Mistick's Working Condition Fringe Benefit Plan is a bona fide
fringe benefit plan, and (3) whether Mistick can receive credit
toward its prevailing wage obligations by redistributing non-bona
fide trust funds into a newly established Profit Sharing Plan.
On the first point the Administrator stated that since the
Medical Reimbursement Plan makes no provisions for contributions
during periods of non-Davis-Bacon work, credit for contributions to
the plan, if permissible, would be allowed based on the effective
annual rate of contribution for all hours worked during the year.
The Administrator further stated that Mistick had provided no
information showing a relationship between the rate of
contribution, as stipulated [4]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
(FOOTNOTE 3) The Administrator also made other findings of violations by
Mistick which are not challenged in Mistick's petition for review
in Case No. 88-25. Back wages totaling $66,196.81 were assessed
against Mistick, and back wages in the amount of $8,255.77 were
assessed against Allegheny. [4]
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[5] in the Medical Reimbursement Plan, and the rate of costs which
may be reasonably anticipated in providing the proposed benefit.
Accordingly, the Administrator concluded, the Medical Reimbursement
Plan as currently designed is not a bona fide fringe benefit plan,
and contributions to the plan would not be creditable to Mistick's
prevailing wage obligations.
The Administrator also discussed the proposed Working
Condition Fringe Benefit Plan. The plan, she stated, provides
reimbursement to employees for purchase of tools, clothing,
equipment and other "working condition fringes" as defined by
Internal Revenue Code Section 132(d). However, the Administrator
noted that Mistick had already been advised that where employees
are required to use certain tools or safety equipment or to wear
certain clothing in performing Davis-Bacon work, the cost of
furnishing such items is a business expense of the employer which
may not be charged to the employee to the extent that the cost of
such items reduces the employee's wages below the required
prevailing wage rate; work-related vehicle expenses are likewise
viewed as business expenses of the employer incurred for the
employer's benefit. Accordingly, the Administrator determined that
payments from the Working Condition Fringe Benefit Plan would not
be creditable as either a wage or a fringe benefit for Davis-Bacon
purposes.
Finally, the Administrator addressed Mistick's inquiry on
whether Mistick can receive Davis-Bacon credit for fringe benefit
contributions previously made to a non-bona fide trust fund if the
firm redirects the funds not yet disbursed into its new Profit
Sharing Plan. The Administrator disagreed with Mistick's argument
that employees for whom the firm contributed to the non-bona fide
trust fund would receive a windfall if Mistick was required to make
cash payments to the employees rather than be permitted to redirect
the funds to the new Profit Sharing Plan. Cash payments would not
be a windfall, the Administrator stated, but instead would "provide
those employees with the full wages to which they were entitled for
work performed on Davis-Bacon covered projects."
The Administrator also turned aside Mistick's contention
that it would be of little consequence that the new Profit Sharing
Plan was not in existence at the time that the trust fund
contributions were initially made as long as the employees
eventually received benefits from the original contributions. The
weekly payment and regular contribution requirements of the
Davis-Bacon Act and implementing regulations "clearly required the
full amount of prevailing wages due, including bona fide fringe
benefits, during the performance of the Government contract," the
Administrator stated. "To allow retroactive credit for
contributions redistributed from a non-bona fide fringe benefit
plan to a plan established well after contract performance would
not conform with the intent and purpose of the Davis-Bacon Act and
the Department's regulations." The Administrator ruled that the
balance of the trust fund accounts should be transferred to the
employees as cash payments. [5]
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[6]
II. DISCUSSION
A. The Fringe Benefit Plan
The Administrator determined that Mistick's Fringe Benefit
Plan is not a bona fide fringe benefit plan within the meaning of
the Davis-Bacon Act for two reasons: "because contributions to the
plan are made in amounts greater than the actual cost of providing
benefits and because payments from the plan are used to provide for
non-bona fide fringe benefits." On review, the Board concludes
that the Administrator was correct on both counts, and her decision
should be affirmed.
1. Non-bona fide fringe benefits
As discussed at page 2, supra, the language of the Fringe
Benefit Plan trust agreement essentially tracked the list of fringe
benefit items enumerated in Section 1(b)(2) of the Davis-Bacon Act.
However, actual disbursals from the fund included disbursals for
items -- such as job-related tools and truck expenses; and personal
items such as payment of loans, rent, phone and other personal
bills, and vehicles not used for work -- that are not listed in the
Act, nor are they similar to fringe benefits listed in the Act. As
the Board recently noted in Cody- Zeigler, Inc., WAB Case No. 89-19
(April 30, 1991), at p. 3, the Act does permit the Department of
Labor to recognize bona fide fringe benefits other than those
listed in the Act as those other benefits become prevailing.
However, the Solicitor explains (Statement for the Administrator,
at p. 10) that in light of the legislative history to the 1964
amendments, the Department has interpreted the Act as listing all
the types of fringe benefits that Congress considered to be common
to the industry at the time of the amendments. See 29 C.F.R.
5.29(a); Cody-Zeigler, Inc., supra. Thus, the Solicitor states
(Statement for the Administrator, supra) that since tools and
personal expenses were common at the time of the amendments but
were not listed by Congress in Section 1(b)(2), the Department has
not recognized those items as bona fide fringe benefits.
Furthermore, the Administrator ruled in her May 2, 1988 decision
letters that work-related tool and vehicle expenses are considered
business expenses of the employer and, therefore, are not bona fide
fringe benefits (see discussion at pages 10-12, infra).
Mistick describes (No. 88-25 Petition, at p. 9) the Fringe
Benefit Plan as a "flexible means of meeting the individual benefit
needs of the employees," and argues that the Administrator has
taken "an unduly restrictive position towards types of fringe
benefits to be credited for Davis-Bacon purposes." While it is
correct to say, as Petitioner does (Id.), that the Act is not
intended to require "an overly restrictive view" of the types of
fringe benefits that may be credited [6]
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[7] toward an employer's prevailing wage obligations, it is also
apparent, as stated in the Department's interpretations (29 C.F.R.
5.29(d)), that "to insure against considering and giving credit
to any and all fringe benefits, some of which might be illusory
or not genuine, the qualification was included [in the Act] that
such fringe benefits must be `bona fide.' " In determining
whether a plan is "bona fide" within the meaning of the Act, it
is entirely reasonable for the Department to consider whether or
not disbursals to employees are for the types of items contemplated
by Congress and listed in the Act, and whether disbursals are for
items that are properly categorized as business expenses of the
employer rather than as bona fide fringe benefits.
2. The rate of contribution
Mistick's Fringe Benefit Plan is also defective for a second
reason, in that there is no demonstration that the amount
contributed by Petitioner to the plan bears any reasonable
relationship to the actual rate of contributions that is required
to provide benefits to the employees. As noted by the Solicitor
(Statement for the Administrator, at pp. 11-12), the term "rate of
contribution" in Section 1(b)(2)(A) of the Act refers to plans,
like Mistick's Fringe Benefit Plan, that are funded plans. (FOOTNOTE 4)
Typically, a funded plan will require a rate of contribution (FOOTNOTE 5)
that is based on the cost of providing the benefits specified in
the plan and the cost of plan administration. However, Mistick's
Fringe Benefit Plan does not specify a rate of contribution that
has any relationship to the cost of providing benefits to the
employees. Instead, the rate of contribution was based solely on
the difference between the required prevailing wage rate and the
employees' regular cash wages, and Mistick made contributions to
the plan only when the employees were performing Davis-Bacon work.
Thus, the rate of contribution was not based on the cost of
providing benefits, but rather by the amount of Davis-Bacon work
performed by an employee. See Rembrant, Inc., WAB Case No. 89-16
(April 30, 1991), at p. 5 (an unfunded plan was not a bona fide
plan, since the rate of costs was based entirely on the difference
between the required prevailing wage rate and the employee's
regular cash wage rate, and thus bore no relationship to the costs
of benefits provided to employees performing Davis-Bacon work). [7]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
(FOOTNOTE 4) With respect to unfunded plans, Section 1(b)(2)(B) specifies
that credit for contributions to an unfunded plan is limited to
"the rate of costs to the contractor or subcontractor which may be
reasonably anticipated in providing benefits" to employees. See
also, 29 C.F.R. 5.28(a); Rembrant, Inc., WAB Case No. 89-16 (April
30, 1991), at p. 5.
(FOOTNOTE 5) See 29 C.F.R. 5.25(b) ("The rate of contribution or cost is
ordinarily an hourly rate, and will be reflected in the wage
determination as such. In some cases, however, the contribution or
cost for certain fringe benefits may be expressed in a formula or
method of payment other than an hourly rate."). [7]
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[8] Petitioner responds to the Administrator's finding with
respect to the rate of contribution by arguing (No. 88-25 Petition,
at pp. 4-5) that employees receive a "dollar-for-dollar" equivalent
of contributions made by Mistick on the employees' behalf.
However, this argument is simply unavailing. The "dollar-
for-dollar" argument could be offered by any employer who makes a
delayed cash payment -- with or without the artifice of a "plan"
from which cash payouts are made -- of the full amount of wages
owed to employees for their work on Davis- Bacon projects. This
does not mean, however, that such a scheme would be acceptable
under the Act and the Department's regulations: cash payments,
after all, are not recognized as a bona fide fringe benefit (see
Rembrant, Inc., supra, at p. 4), and employees are to be paid their
full wages on a weekly basis (see 29 C.F.R. 5.5(a)(1)). While
Congress did not intend to impose specific standards regarding the
administration of fringe benefit plans, the funded fringe benefit
plans that were in existence when Congress enacted the 1964
amendments were typically plans that were administered in
accordance with Section 302(c)(5) of the Taft-Hartley Act, and that
specified a rate of contribution for all hours worked. See 29
C.F.R. 5.29(b). All fringe benefit plans -- whether or not they
are covered by Section 302(c)(5) -- that are offered by a
contractor for credit toward the contractor's prevailing wage
obligations under the Davis-Bacon Act must provide employees actual
benefits of the type contemplated by Congress, with a rate of
contributions or costs that is commensurate with the benefits
provided to employees.
B. The Medical Reimbursement Plan
1. The rate of contribution
The Administrator also ruled that Mistick's proposed Medical
Reimbursement Plan is not a bona fide fringe benefit plan, and the
Board concludes that this ruling should be affirmed. The proposed
plan provides reimbursement for medical expenses for which the
employee is not reimbursed by the contractor's group health
insurance policy or any other reimburser. Mistick would contribute
the difference between the required Davis-Bacon prevailing wage
rate and the employees' regular cash wages into the Medical
Reimbursement Plan to a limit of $2,000, with the remainder going
into Mistick's Profit Sharing Plan. Thus, the proposed Medical
Reimbursement Plan suffers from the same infirmity as Mistick's
Fringe Benefit Plan -- that is, the rate of contribution bears no
reasonable relationship to the actual cost of providing benefits to
the employees. Rather, the rate of contribution was based on the
difference between the required prevailing wage rate and the
employees' regular cash wages, and Mistick made contributions to
the plan only when the employees were performing Davis-Bacon work.
Further, Mistick provides group health insurance to its employees,
and as noted by the Solicitor (Statement for the Administrator, at
p. 11) there is no [8]
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[9] showing that the average unreimbursed medical expenses per
employee was $2,000 or any other amount.
2. Application of the annualization principle
The Administrator also ruled that since the proposed Medical
Reimbursement Plan does not provide for contributions during
periods of non-Davis-Bacon work, credit for contributions to the
plan, even if otherwise permissible, would be allowed based on the
effective annual rate of contribution, which is calculated by
dividing the total annual contributions made for employees by the
total number of hours worked by the employees on both Davis-Bacon
and non-Davis-Bacon jobs. The Board is of the view that the
annualization principle -- like the Administrator's enforcement of
the principle that the rate of contributions or costs must bear a
reasonable relationship to the cost of providing fringe benefits --
effectuates the purposes of the Act by preventing underpayment of
employees for their Davis-Bacon work. Furthermore, enforcement of
these principles prevents an employer from using Davis-Bacon
contributions to fund fringe benefits for non-Davis-Bacon work.
(FOOTNOTE 6)
The Act does not specify in Section 1(b)(2)(A) the period of
time over which the "rate of contribution" for funded plans is to
be calculated. However, we do know that the plans in existence at
the time of 1964 amendments were typically plans that specified a
rate of contribution for all hours worked in a year. Thus, as
stated in the House Report, the existing plans in the construction
industry were "financed primarily by employer contributions of so
many cents per hour for each hour worked by a covered employee." H.
Rep. No. 308, 88th Cong., 1st Sess. (1963), at p. 3. It is also
apparent from the legislative history that Congress was concerned
that fringe benefit plans not be a sham for avoiding compliance
with the prevailing wage requirements of the Act. See S. Rep. No
963, 88th Cong., 2nd Sess. (1964), at p. 6. Viewed against this
backdrop, it seems eminently reasonable for the Administrator to
utilize the annualization principle in order to prevent employers
from "using the Davis-Bacon work as the disproportionate or
exclusive source of funding for benefits that are in fact
continuous in nature and compensation for all the employee's work,
both Davis-Bacon and private" (Statement for the Administrator, at
p. 14), since such a [9]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
(FOOTNOTE 6) Cf. Rembrant, Inc., supra, at p. 5 ("The Board agrees with
the Solicitor that enforcement of the Act's requirement that the
`rate of costs' [for unfunded plans] bear a reasonable relationship
to the costs of providing fringe benefits, prevents a contractor
from using Davis-Bacon contributions to fund fringe benefits for
non-Davis-Bacon work."); Ocean Habitability, Inc., WAB Case No. 87-
22 (March 28, 1991) (An employer may not reduce the employee's
regular rate of pay on non-government work to offset the prevailing
wage rate required on Davis-Bacon work performed in the same
workweek as the non-government work, since the effect of such a
practice is to deprive employees of the full prevailing wage rate
for the hours worked on Davis-Bacon projects). [9]
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[10] disproportionate funding practice would result in the employee
receiving less than the required prevailing wage rate on
Davis-Bacon projects. See Miree Construction Corp. v. Dole, No.
90-7143 (11th Cir. May 13, 1991), slip op. at p. 3173.
In this case, reimbursements for medical expenses would be
available to employees under the proposed Medical Reimbursement
Plan on a year-round basis, and not simply while an employee was
working on a Davis-Bacon project. Thus, the Administrator properly
applied the annualization principle to the proposed Medical
Reimbursement Plan to rule that credit for contributions to the
plan, even if otherwise permissible, would be allowed based on the
effective annual rate of contribution. The Board disagrees with
Petitioner's characterization (No. 88-26 Petition, at p. 10) of the
annualization principle as effectively an attempt by the
Administrator to regulate wages paid on non-government projects.
It is certainly within the authority of the Administrator to apply
principles that protect an employee from underpayment of wages on
Davis-Bacon projects and that prevent Davis-Bacon prevailing wages
from subsidizing the payment of wages and fringe benefits for
private work; we see the requirement of an effective annual rate of
contribution for benefits that are of an ongoing nature as serving
both of those objectives.
Petitioner also argues that application of the annualization
principle to the proposed Medical Reimbursement Plan is contrary to
the advisory opinion letter of the Deputy Administrator in Dyad
Construction, Inc. In Dyad, the Deputy Administrator explained
that an exception to application of the annualization principle has
been made in the past for contributions to defined benefit pension
plans that provide for immediate participation and immediate full
vesting. That exception was extended in Dyad to encompass
contributions to pension plans that provide for essentially
immediate vesting -- 100% vesting after an employee has worked 500
or fewer hours. We agree with the Building and Construction Trades
Department, AFL-CIO ("Building Trades") (Statement, at p. 23), that
the Administrator appropriately did not apply the Dyad exception in
the matter, given the differences in the essential character of the
defined contribution pension plan in Dyad and Mistick's proposed
Medical Reimbursement Plan. Thus, a pension plan by its very
nature involves deferred compensation for retirement; under
Mistick's proposed plan, on the other hand, reimbursement for
medical expenses would be available year round, during employment
on both Davis-Bacon and private jobs. Thus, there is no basis for
determining that the Administrator is obliged to apply the Dyad
exception to a plan of a fundamentally different nature.
C. The Working Condition Fringe Benefit Plan
The Administrator also ruled that payments from Mistick's
proposed Working Condition Fringe Benefit Plan would not be
creditable as either a wage or a fringe benefit for Davis-Bacon
purposes. Contributions amounting to 25% [10]
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[11] of the difference between the required Davis-Bacon
prevailing wage rate and an employee's regular cash wages
would be made to the plan, up to $500. The employee may
obtain reimbursement from his fund account for "working condition
fringe benefits."
The Board concludes that the Administrator's ruling
regarding the Working Condition Fringe Benefit Plan should be
affirmed. First, as discussed at pages 11-12, supra, the
Department has not recognized work-related tools and vehicle
expenses as a bona fide fringe benefit as that term is used in the
Davis-Bacon Act. Furthermore, the Administrator explained that the
Department's policy is that where employees are required to use
certain tools or safety equipment or to wear certain clothing in
performing Davis-Bacon work, the cost of furnishing such items is
a business expense of the employer -- and not a wage or fringe
benefit -- which may not be charged to the employee to the extent
that the cost of such items reduces the employee's wages below the
required prevailing wage rate. Work-related vehicle expenses are
also viewed as business expenses of the employer incurred for the
employer's benefit, and not as employee wages or fringe benefits.
Thus, the Administrator explained to Mistick, payments from a
fringe benefit plan for work-related tools, clothing, safety
equipment and vehicle expenses are not creditable as wages or
fringe benefits under the Davis-Bacon Act.
Petitioner contends (No. 88-26 Petition, at p. 12) that the
expenditures should not be considered as for the benefit of the
employer, but instead are for the benefit of the employee, who has
sole control of the funds and who elects how to spend the funds in
the account. However, the employees simply do not have unlimited
discretion to spend the funds in the plan. Disbursals from the
plan must be approved by the trustee; furthermore, employees cannot
receive the funds in cash until after termination of employment.
Petitioner also argues (No. 88-26 Petition, at p. 13) that
the Department's regulations at 29 C.F.R. Part 531, which the
Administrator cited in her ruling, do not support the ruling in
this matter because those regulations apply only where the
Administrator has determined that the furnishing of facilities is
primarily for the benefit or convenience of the employer. However,
the Board rejects that argument. We direct Petitioner's attention
to 29 C.F.R. 531.35, which specifically refers to an employer
requirement that an employee "provide tools of the trade which will
be used in or are specifically required for the performance of the
employer's particular work." (FOOTNOTE 7) In this regard, we take note
[11]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
(FOOTNOTE 7) The Department's regulations, at 29 C.F.R. 3.5, list
permissible deductions from an employee's Davis-Bacon wages.
Section 3.5(j) provides that a deduction from wages may be made for
not more than the "reasonable cost" of facilities that meet the
requirements of Section [FN7 CONTINUED PAGE 12] 3(m) of the Fair
Labor Standards Act ("FLSA") and the Department's Part 531
regulations. Section 531.35 provides that the
wage requirements of the [FLSA] will not be met where the
employee "kicks-back" directly or indirectly to the
employer . . . the whole or part of the wage delivered to
the employee. This is true whether the "kick-back" is
made in cash or in other than cash. For example, if it
is a requirement of the employer that the employee must
provide tools of the trade which will be used in or are
specifically required for the performance of the
employer's particular work, there would be a violation of
the Act in a workweek when the cost of such tools
purchased by the employee cuts into the minimum or
overtime wages required to be paid him under the [FLSA].
[END FN7]
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[12] of the Mistick "Company Policies" memorandum provided by the
Solicitor. This memo indicates that carpentry personnel must
provide the basic tools and equipment needed to perform their work,
advises employees that they should also provide their own insurance
for personal tools and equipment, stipulates that employees are
responsible for 60% of tool repair costs when the repair costs
exceed $50, lists the required tools for rough carpenters and trim
carpenters, and specifies that tools may be purchased through
payroll deductions. (FOOTNOTE 8) Furthermore, we find the distinction
attempted by Petitioner -- tools furnished by an employer, as
opposed to a fund from which employees are reimbursed for tool
expenditures -- is a distinction without consequence: in either
case, the cost of such items is a business expense of the employer.
Finally, Petitioner also argues (No. 88-26 Petition, at
pp. 13) that the Internal Revenue Code recognizes this category of
expenditures as fringe benefits. However, whether the Working
Condition Fringe Benefit Plan qualifies as "working condition
fringes" as that term is used in Internal Revenue Code Section
132(d) does not control whether contributions to the plan are
creditable as either wages or fringe benefits for Davis-Bacon Act
purposes.
D. Mistick's Request for Additional Credits toward Its
Prevailing Wage Obligations
The Administrator determined that Mistick's Fringe Benefit
Plan is not a bona fide fringe benefit plan, and informed Mistick
that Davis-Bacon prevailing wage credit would not be allowed for
future contributions to the Fringe Benefit Plan. However, for
enforcement purposes the Administrator allowed full credit for
payments withdrawn for personal reasons and for payouts of an
employee's balance upon termination from employment. The
Administrator also allowed [12]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
(FOOTNOTE 8) As a general matter the Board, does not accept material into
the record. However, given the relevance of this company memo, and
given that Petitioner has not objected to the Solicitor's
submission of the memo, the Board accepts this memo into the record
of this matter. [12]
~13
[13] partial credit, based on the effective annual rate of
contribution, for benefits such as medical reimbursement, missed or
sick days, and vacation days. The Administrator did not allow any
credit for past payments which were used for work-related tools,
vehicle expenses or other items that are considered employer
business expenses rather than bona fide fringe benefits.
Petitioner argues (No. 88-25 Petition, at pp. 6-12) that
full credit should be permitted for all contributions to the Fringe
Benefit Plan. However, for the reasons discussed at pages 9-10,
supra, regarding Mistick's Medical Reimbursement Plan, the
annualization principle is appropriately applied to benefits that
are available on a year-round basis, and not just while the
employee is working on a Davis-Bacon job. Thus, the
Administrator's determination that for enforcement purposes partial
credit, based on the effective annual rate of contribution, would
be allowed for disbursals for items such as medical reimbursement,
missed or sick days, and vacation days, is an eminently reasonable
decision. Likewise, for the reasons discussed at pages 10-12,
supra, regarding the Working Condition Fringe Benefit Plan, the
Administrator properly disallowed credit for disbursals for
work-related tools, vehicle expenses, and other expenses that are
considered business expenses of the employer.
Nor do we find any basis for disturbing the Administrator's
ruling that credit would not be allowed for contributions
previously made to the Fringe Benefit Plan and redirected into
Mistick's new Profit Sharing Plan. The Administrator was correct
in turning aside Petitioner's argument that employees would receive
a windfall if Mistick was required to make cash payments to
employees, rather than redirecting the contributions to the Profit
Sharing Plan (which was not even in existence at the time that the
contributions were made into the non-bona fide Fringe Benefit
Plan). Employees are entitled to regular payment, during the
course of the Davis-Bacon contract, of the full amount of wages and
fringe benefits due to them according to the established prevailing
wage rate. Accordingly, to require an employer to make a cash
payment of back wages owed would not give the employees with a
windfall, but instead would simply provide the employees with the
wages to which they are entitled for their work on Davis-Bacon
projects. [13]
~14
[14] For all the foregoing reasons, the petitions for review are
denied. The rulings of the Administrator are affirmed.
BY ORDER OF THE BOARD:
Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
Stuart Rothman, Senior Member
_________________________________
Gerald F. Krizan, Esq.
Executive Secretary
Senior Member Rothman, writing separately
In this case the Administrator asks for guidance on the
difficult problem of how much money can a Davis-Bacon Act employer
put into a fringe benefit package and for what purpose. I would
remand to the Administrator to review this case in light of the
guidelines discussed herein.
The problem which confronted the Administrator and which is
now before the Board is found only where the published Davis-Bacon
wage and fringe schedules are based upon the wages and fringe
benefits in negotiated agreements which the Administrator then uses
to set the prevailing wages and fringes in the locality. The issue
does not arise with sufficient frequency, if at all, where
Davis-Bacon predetermined wage schedules are based upon local
market factors other than the negotiated wages and fringe benefits.
Such Davis-Bacon predetermined schedules at this time do not, or
seldom, include fringe benefits.
No employees, labor organizations, or contractors should be
either advantaged or disadvantaged by reason of being subject to or
not subject to the negotiated agreement that produced the fringe
benefit package deemed prevailing for Davis-Bacon Act purposes.
Employees should receive the full package compensation due them --
not less than the combination of the predetermined wages and
predetermined fringe benefits. The Board and the Administrator
should not encroach through Davis-Bacon Act administration either
directly or indirectly upon non-Davis-Bacon Act fringe benefits and
how contractors and [14]
~15
[15] labor organizations deal with such benefits. The Davis-Bacon Act
is administered on a project-by-project and locality-by-locality
basis. These should be the basic applicable and controlling principles.
The Congress in 1964 assumed that the fringe benefit
arrangements would be those administered in accordance with Section
302(c)(5) of the National Labor Relations Act. The Act itself lists
the fringe benefits the Congress considered common in the
construction industry at the time. See 29 C.F.R. Part 5, Subpart B,
Section 5.29(a). But it did not shut the door on others.
The terms "conventional," "commonly accepted in the industry,"
"bona fide," and "the ordinary case" appear to be used
interchangeably in 29 C.F.R. Part 5, Subpart B, Sections 5.29(a) to
(e) of the applicable regulation. Where benefits common in the
construction industry are established under a usual fund, plan, or
program, no difficulty, the regulation announces, is anticipated in
determining whether a particular fringe benefit is "bona fide." A
fringe benefit does not have to be recognized beyond a particular
area to be prevailing in that area, Section 5.29(c). Such
conventional plans do not require DOL advance approval, Section
5.29(e).
Section 5.31 refers to bona fide fringe benefits as those
already specified in the applicable wage determination or are
otherwise found prevailing by the Secretary. Section 5.30(a)
provides: "When fringe benefits are prevailing for various classes
of laborers and mechanics in the area of proposed construction,
such benefits are includable in any Davis-Bacon wage
determination." Contrariwise, "Wage determinations of the Secretary
do not include fringe benefits for various classes of laborers and
mechanics whenever such benefits do not prevail in the area of
proposed construction." Section 5.30(b).
Plans which are not of the conventional type, not the ordinary
case, not common in the construction industry, require specific
permission from the DOL. This is particularly so with respect to
unfunded plans. The regulation provides that it is "necessary for
the Secretary to examine the facts and circumstances of each case
to determine whether such plans are bona fide in accordance with
the requirements of the Act." Section 5.29(e). A plan which is not
common or conventional is not likely to be prevailing and
includable as such in the Davis- Bacon wage determination, yet such
a plan appears to be subject to DOL approval if bona fide. The term
"bona fide" need only be given its common, conventional
meaning.(FOOTNOTE 9) [15]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
(FOOTNOTE 9) Black's Law Dictionary, 4th Edition, defines "bona fide" as
follows: [FN9 CONTINUED ON PAGE 16] Bona Fide. In or with good
faith; honestly, openly, and sincerely; without deceit or fraud.
Truly; actually without simulation or pretense. Innocently; in the
attitude of trust and confidence; without notice of fraud, etc.
Real, actual, genuine, and not feigned. [Citations omitted]. [15]
~16
[16] Sec. 5.30(c) and Sec. 5.31(b)(4) illustrates how a fringe
benefit package can be adjusted to reduce a predetermined wage rate
by increasing the fringe benefit.
Basic Appren-
Classes hourly Health & Vaca- ticeship []
rates Welfare Pensions tions
Laborers $3.25
Carpenters 4.00 $0.15
Painters 3.90 .15 $0.10 $0.20
Electricians 4.85 .15 .15
Plumbers 4.95 .15 .20 $0.05 []
Ironworkers 4.60 .10
At the time Subpart B was added in 1964 to 29 C.F.R. Part 5,
the published Davis-Bacon predetermined schedules itemized the
prevailing fringe benefits. 29 C.F.R. Part 5, Subpart B, added in
1964, has remained unchanged over 25 years. Today, the Wage and
Hour Administrator does not include in published Davis-Bacon
schedules the itemized breakdown of fringe benefits deemed to be
prevailing. The employer with a negotiated agreement upon which the
Davis-Bacon predetermined wage and fringe schedule is based knows
at the time of bidding the itemization in the fringe benefit
package and is bound by his local agreement to pay such amounts. A
bidding contractor who does not otherwise know the fringe benefits
itemization in the Davis-Bacon benefit package and wishes to make
payments into fringe benefits, should request and should receive a
breakdown from the Administrator.
According to the illustration in Section 5.30(c) with a
Davis-Bacon painters' classification of $3.90 an hour and $.45 in
fringes for a total of $4.35, the painter employer can reduce the
hourly wage to $3.75 and increase the fringe package to $.60. The
Board should recognize therefore that the regulations permit an
hourly wage payment of less than the predetermined wage in the
Davis- Bacon schedule.
Part 5, Subpart B, which the DOL calls "Interpretations,"
boils down to the following. The employer who is not subject to a
negotiated agreement can put money into conventional, commonly
accepted, fringe benefits if other conditions concerning financing
are met. The establishment of such fringes can [16]
~17
[17] be but are not necessarily bona fide as long as the employer
stays within the total amount of the fringe benefit package in the
Davis-Bacon predetermined schedules. Such an employer has latitude
to adjust the amounts within the total amount in the package.
The Wage and Hour Administration should allow itself leeway to
permit the employer not subject to a negotiated agreement to
innovate a legitimate fringe benefit that can be said to be bona
fide even though it may not, because it is innovative, be
prevailing in the locality in the same sense that a wage rate has
been found by survey to be prevailing. But an individual fringe or
a total fringe package that results in a reduction in the
predetermined wage will be suspect. The Administrator should adopt
a common sense approach rather than a technical, solely "prevailing
in the locality approach." Otherwise the only plans that can be
acceptable would be those plans already in negotiated agreements
which produce the prevailing Davis-Bacon wage and fringe benefit
package.
The burden to establish the legitimacy, practicality, and
direct benefit to employees of an innovative plan is upon the
employer. In determining whether an innovative plan is bona fide,
each claimed benefit plan must be considered on its own merits. It
may be a tedious task but I see no way to avoid it. The burden of
satisfying the Administrator concerning the bona fides of the plan
rests with the employer who may find itself subject to a back pay
liability and even debarment. The provider of such a plan or the
nominal trustee if a plan is not bona fide does not face such risk.
In review of the foregoing:
(a) An employer without negotiated agreements is not precluded
from establishing fringe benefits solely for its Davis-Bacon
projects where Davis-Bacon fringe benefits are included in the
schedule. But those fringes must either be of the conventional
Section 5.29 type or shown to be bona fide. In setting up such
fringe plans limited to federal projects subject to the Act which
also reduce wages below the predetermined amount the employer has
the burden of showing to the Administrator by demonstrably
objective evidence that the plan either in whole, or in its parts,
is more than a plan to spread Davis-Bacon wage payments to other
projects beyond the completion of the Davis-Bacon job. The
evaluation of the plan is a judgmental factor to be exercised on a
reasonable basis by the Administrator.
(b) The fact a plan is not a conventional benefit is not
controlling but if a plan is so outlandish where compared with
accepted practice in the construction industry it will
significantly affect its bona fides. [17]
~18
[18] (c) A plan which, as here, is identified as a "Working
Conditions Trust Fund" and in which all parts and all moneys are
lumped together without segregation and which reduces the
predetermined wage does not on its face fit into a legitimate
fringe benefits scenario. Careful scrutiny of its parts is
required.
(d) When an employee, as in this case, is required to supply
his own hand tools, allocation of unreasonably large amounts out of
wages into a deferred "Working Conditions Trust Fund" to purchase
tools not generally classified as hand tools but which appear to be
for equipment and tools an employer in the construction industry
normally supplies is not a bona fide plan.
(e) The case in which a Davis-Bacon employer continues to pay
wages at the same wage rate it pays on non-Davis-Bacon work and
such rate is substantially less than the predetermined Davis-Bacon
rate and a relatively huge fringe fund is created to make up the
difference between the wage paid and the Davis-Bacon predetermined
wage presents a prima facie case of invalidity under the
regulations. This is so even though the use of the moneys is for
socially desirable purposes such as a fund for the payment of
medical bills to be drawn upon by an employee when such bills arise
after the job is completed. The contractor may seek approval of
such a plan as not a deferred wage plan but it is up to the
contractor to prove it by probative, reliable information. (FOOTNOTE 10)
(f) There is no one criterion which will govern whether a plan
is a bona fide benefit plan within the requirement of the
Davis-Bacon Act and the regulations. The successful bidder must
assess his legitimate objectives in establishing such plans. If
challenged by the Administrator that the plan does not ring
reasonably true under construction industry standards in the
locality for employers without negotiated agreements but only
appears to cloak deferred wage payments or to withhold wage
payments, the burden, as already noted, remains with the employer
whose conduct has come under DOL investigation. Absent demonstrably
objective justification by the proponent of such a plan, a decision
of the Administrator against the fund as not bona fide will not be
disturbed.
(g) A plan to be bona fide must be reasonable in the view of
the Administrator in terms of administrative costs and in terms of
an employee's reasonable expectation that he or she will benefit
from the plan. It makes no difference, however, in the
administration of Davis-Bacon Act whether the employer or its
employees on the project site is or is not subject to a
locality [18]
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
(FOOTNOTE 10) The contractor's best bet in such a situation is not to make
up the difference with alleged fringe benefit plans that may not
stand muster but to prove, if it can be done, that the negotiated
wage rate which has become the Davis-Bacon rate is not in fact the
prevailing wage rate in the locality. A contractor must request
review at the appropriate time under the regulations to do this.
[18]
~19
[19] negotiated agreement. For this reason I adhere to my view
expressed in Miree Construction Corp., WAB Case No. 87-13 (Feb. 23,
1989), that with respect to cases that would arise after Miree,
there is nothing in the Davis-Bacon Act that either requires or
permits the application of what is described as "annualization" to
determine how much an employer subject to the Davis-Bacon Act can
put into a conventional, common usage, bona fide, fringe benefit
plan. For example, in the case of an apprenticeship fund, if the
Davis-Bacon fringe benefit for apprenticeship training is based on
so many cents per hour, any employer on a project site can put up
to that amount of cents per hour into an apprenticeship training
fund. It may not go far in terms of training apprentices or
trainees. The burden is upon the employer to satisfy the
Administrator that the plan is a true apprenticeship training
program and not a plan to siphon off an employee's wages for other
purposes. In the case in which fringe benefits are determined at so
many cents per hour or a percentage of the hourly wage, the
Davis-Bacon Act employer would do well to establish the plan as
bona fide to stay reasonably close to the formula by which the
Davis-Bacon fringe benefit was determined, subject to the
Regulations, Part 5, Subpart B and the illustration in Section
5.30(c), discussed above.
I have little doubt that if a case with the factual profile
such as this one were to reach a court in review of a Board
decision, a court would most likely affirm a decision reached
within the Department of Labor which discusses "annualization" --
a kind of deference to the agency that administers the Act pursuant
to Reorganization Plan No. 14 of 1950. But the "annualization"
formula, though perhaps a permissible interpretation of the way in
which the Act might be applied with respect to fringe benefits, is
in my view not the only permissible interpretation if permissible
at all. It is not the best one for the long range administration of
the Act. It should not be used.
This case should be remanded to the Administrator to determine
which if any part of this particular "Working Conditions Trust
Fund" can be salvaged for the employer. The parts of the so called
"Working Conditions Trust Fund" not bona fide must be paid into
wages as part of the hourly wage rate. The Administrator has
considerable leeway and flexibility in considering which parts of
this particular fund, if any, can survive.
In the review of the Petition herein, the Board should be
concerned for purposes of the remand only with those matters
protested by the Petitioner. For disposing of this case alone, I
express no view upon those fringe items which the Administrator has
already approved as conventional or if not conventional as bona
fide. The Administrator should consider on remand only those parts
of her decision questioned by the Petitioner on appeal.
Stuart Rothman, Senior Member [19]
