CCASE:
REMBRANT, INC.,
DDATE:
19910430
TTEXT:
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[1] WAGE APPEALS BOARD
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
REMBRANT, INC.,
Lower-tier subcontractor WAB Case No. 89-16
on Sand Filter Facilities,
Contract No. AXC-24626
and Respirator Cleaning
Facility, Contract No.
AXC-95854 -- Savannah River
Plant; and Subcontractor
on Hunter Army Airfield, FA,
Contract No. HQ85-PRS-122
BEFORE: Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
Patrick J. O'Brien, Member
DATED: April 30, 1991
DECISION OF THE WAGE APPEALS BOARD
This case is before the Wage Appeals Board on the petition of
Rembrant, Inc. ("Rembrant" or "Petitioner"), for review of July 21,
1988, and June 6, 1989 decisions by the Administrator of the Wage
and Hour Division regarding unpaid wages owed to Petitioner's
employees. For the reasons stated below, the Board denies the
petition for review.
I. BACKGROUND
On May 21, 1986, the Deputy Administrator of the Wage and Hour
Division responded to Petitioner's May 5, 1986 request for approval
of the firm's Davis-Bacon policy and the Rembrant, Inc.,
Davis-Bacon Benefit Fund. The [1]
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[2] Deputy Administrator informed Petitioner that Wage and Hour
"cannot approve this policy or your firm's proposed Davis-Bacon
Benefit Fund, as currently designed." The Deputy Administrator
noted, among other things, that the Rembrant Davis-Bacon Benefit
Fund does not appear to provide the type of benefits listed in
Section (1)(b)(2)(B) of the Davis-Bacon Act, 40 U.S.C. [sec] 276a
et seq. (the "Act"). In addition, the Deputy Administrator stated
that it is not permissible to use contributions made for one employee
to fund benefits for other employees, including other employees for
whom no contribution is made to the plan; and that fringe benefit
contributions creditable for Davis-Bacon purposes may not be used
to fund a fringe benefit plan for periods of non-government work.
By letter dated August 8, 1986, the Director of the Division of
Contract Standards Operations again advised Petitioner that Wage
and Hour could not approve the firm's Davis-Bacon policy and
proposed Davis-Bacon Benefit Fund, for the reasons listed in the
May 21, 1986 letter.
The Administrator of the Wage and Hour Division, by letter
dated May 28, 1987, responded to Petitioner's request for review
and approval of its revised Davis-Bacon policy and Davis-Bacon
Deduction and Redistribution Plan. It is Wage and Hour's
understanding, the Administrator stated, that it continued to be
Rembrant's policy to pay all employees a set "hire-in" rate
regardless of the wage rate required by an applicable Davis-Bacon
wage determination. Pursuant to the deduction/redistribution plan,
the difference between the Davis-Bacon rate and the "hire-in" rate
is deducted from a participating employee's wage and placed in a
"DB Sharing Fund" for a weekly redistribution among all craft
members on a pro-rata basis. The monies are then distributed to
employees, including employees on non-Davis-Bacon projects.
The Administrator informed Petitioner that "we still cannot
approve this policy or plan nor can we conclude that your policy
and plan meet the Davis-Bacon requirements." The payments, the
Administrator stated, do not constitute employer contributions to
a bona fide fringe benefit plan within the meaning of the Act or 29
C.F.R. 5.31, nor do the payments constitute permissible deductions
from employee wages under 29 C.F.R. Part 3. Section 3.5 lists
certain payroll deductions which may be made from employee wages
without the approval of the Department of Labor, the Administrator
stated, but deductions for a "redistribution plan" do not fall
within any of the categories listed in Section 3.5.
In addition, the Administrator stated, under Section 3.6
payroll deductions that are not permitted under Section 3.5 may be
made only with the approval of the Department of Labor, which will
be granted when the requirements set forth in Section 3.6 are met.
However, the Administrator added, the deductions for the
redistribution plan do not meet the requirements of 29 C.F.R.
3.6(c) and (d). The regulations, in Section 3.6(c), permit
approval of deductions consented to by employees in advance and in
writing, and provided that "such consent is not a [2]
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[3] condition either for the obtaining of employment or its
continuance." Since the deductions under Rembrant's plan are
redistributed to all employees on a pro-rata basis, the Administrator
stated, "DB covered employees receive less wages than they are required to
receive under the applicable DB wage decision. In view of this, it
seems very likely that the `employee consent' obtained by your firm
may be a condition of employment, contrary to the requirement in
Section 3.5(c)." Furthermore, the Administrator added, "the
underpayment of DB covered employees is not for the convenience or
interest of the employees, contrary to Section 3.5(d)."
Petitioner was a subcontractor on three projects (a lower-tier
subcontractor on Contract Nos. AXC-24626 and AXC-95854 at the
Savannah River Plant, Aiken, South Carolina; and a subcontractor on
Contract No. HQ85-PRS-122 at Hunter Army Airfield, Georgia) covered
by the Davis-Bacon or Related Acts. By letter dated July 21, 1988,
the Administrator outlined the results of an investigation into
Rembrant's performance on the three contracts. The investigation
disclosed that Rembrant failed to pay the required prevailing
wage rate, in that the difference between the required prevailing
wage rate and the employee's regular cash wage was paid into the
Davis-Bacon Benefit Fund. The monies were then redistributed on a
pro rata basis to all employees in the craft, including employees
who did not work on Davis-Bacon projects. Accordingly, the
Administrator stated, the employees on the Davis-Bacon projects
were underpaid as a result of the redistribution.
The Administrator noted that the Department of Labor had
previously advised Rembrant by letters dated May 21, 1986 and
August 8, 1986 that the benefit fund could not be approved, because
contributions to the fund did not constitute contributions to a
bona fide fringe benefit plan within the meaning of the Act and the
Department's regulations. Nevertheless, the Administrator added,
Rembrant implemented the "Benefit Fund" with the pay period ending
August 22, 1986. Rembrant was also advised by letter dated May 28,
1987, the Administrator stated, that payments to the benefit fund
constituted neither employer contributions to a bona fide fringe
benefit plan or a permissible deduction from employee wages under
29 C.F.R. Part 3. However, the Administrator noted, Rembrant
continued to make payments to the benefit fund over the
Department's objections until October 1, 1987, when Rembrant ceased
using the plan.
Back wages totaling $7,958.57 for 25 employees (including
$257.66 in unpaid overtime compensation) were assessed. Rembrant
refused to pay the back wages, and the prime contractor on the
Hunter Army Airfield project also refused to pay the back wages due
on that project. The prime contractor on the other two contracts
submitted $3,983.71 in partial payment of the amount owed on those
contracts. [3]
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[4]
The Administrator advised Rembrant in the July 21, 1988 letter
that if relevant facts were believed to be in dispute, Rembrant was
permitted to submit a statement detailing the facts alleged to be
in dispute. The Administrator added that if, after review of the
statement, it is determined that a relevant issue of fact exists,
the matter would be referred to Office of Administrative Law
Judges. By letter dated June 6, 1989, the Administrator stated
that "relevant issues of fact" generally pertain to the number of
hours worked by employees, the classifications of work performed by
employees, and the amount of wages received by employees. However,
the Administrator added, Rembrant's dispute essentially "involves
a legal issue as to whether the `Davis-Bacon Benefit Fund' is bona
fide rather than factual issues. Therefore, this matter is not
appropriate for a hearing before an ALJ."
II. DISCUSSION
A. Rembrant's Davis-Bacon Benefit Fund
On review, the Board concludes that the award of back wages in
this case should be affirmed. Petitioner has contended that it
made fringe benefit contributions on behalf of its employees by
contributing to the Rembrant Davis-Bacon Benefit Fund. However, as
we discuss below, the Administrator properly recognized that there
were several infirmities in the Davis-Bacon Benefit Fund, and
properly declined to credit Petitioner's contributions to the fund
toward Petitioner's prevailing wage obligations.
First, we note that all contributions toward the fund were
distributed in cash to the employees on a weekly basis, and no
other type of benefit was provided by the fund. However, as the
Board observed in Cody-Zeigler, Inc., WAB Case No. 89-19 (April 30,
1991), at pp. 2-4, cash payments are not included among the
examples of bona fide fringe benefits enumerated in Section
(1)(B)(2)(B) of the Act, and the Department of Labor has never
recognized such payments as bona fide fringe benefits.
Furthermore, although the Act's so-called "open-end" provision does
contemplate recognition of "other bona fide fringe benefits" in
addition to those enumerated in Section (1)(b)(2)(B), the
Department's regulations (29 C.F.R. 5.29(e)) require that the
Secretary of Labor examine proposed non-conventional fringe
benefits to determine whether they are bona fide; and since
Rembrant's Davis-Bacon Benefit Fund was apparently an unfunded
plan, the prior approval of the Secretary was required pursuant to
29 C.F.R. 5.5(a)(1)(iv). In this matter, Rembrant applied for
approval of the Davis-Bacon Benefit Fund, but as discussed at pp.
2-3, supra, the Wage and Hour Division repeatedly declined to
approve the fund. [4]
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[5]
Rembrant's Davis-Bacon Benefit Fund is also infirm for other
reasons, in that Petitioner paid the difference between the
required prevailing wage rate and the employee's regular cash wage
[] into the fund. The monies were then redistributed on a pro rata
basis to all employees in the craft, including employees who did
not work on Davis-Bacon projects. Thus, employees on Davis-Bacon
projects received less in cash benefits than the amount contributed
to the fund on their behalf. Accordingly, the Wage and Hour
Division ruled that the plan was not bona fide because
contributions to the plan were greater than the actual costs of
providing fringe benefits to the Davis-Bacon employees. The Board
concludes that this ruling was correct, since the Davis-Bacon
Benefit Fund did not meet the Act's requirement that credit for
fringe benefit contributions for 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. 40
U.S.C. [sec] 276a(b)(2)(B); see also, 29 C.F.R. 5.28(a).
The rate of costs for Rembrant's fund was based solely 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. Furthermore, Petitioner distributed the monies on a pro rata
basis to all employees, including employees who did not work on
Davis-Bacon projects. As the Solicitor notes (Statement for the
Administrator, at p. 13), the consequence of this redistribution
was that "Davis-Bacon work was used to offset costs of benefits on
non-Davis-Bacon work." The Board agrees with the Solicitor that
enforcement of the Act's requirement that the "rate of costs" 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.
Finally, the Administrator also properly ruled that
Petitioner's payments to the Davis-Bacon Benefit Fund may not be
regarded as permissible deductions from the employees' cash wages
under 29 C.F.R. Part 3. Section 3.5 lists payroll deductions which
may be made from employee wages without the approval of the
Department of Labor, but deductions for a "redistribution plan" do
not fall within any of the categories listed in Section 3.5.
Section 3.6 does permit a contractor to seek the Secretary's
approval for deductions not listed in Section 3.5. However, the
Administrator correctly determined that Rembrant's redistribution
plan does not meet requirements of 29 C.F.R. 3.6(c) and (d). The
regulations, at Section 3.6(c), permit approval of deductions
consented to in advance and in writing, and provided that "such
consent is not a condition either for the obtaining of employment
or its continuance." Furthermore, Section 3.6(d) requires that
deductions serve "the convenience and interest of the employees."
Given that Davis-Bacon employees received less in wages under
Rembrant's "redistribution plan" than they were required to receive
under the applicable Davis-Bacon wage determination, it is likely
-- as the Administrator [5]
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[6] noted -- that the "employee consent" obtained by Rembrant from
its employees was a condition of employment, contrary to the provisions
of Section 3.6(c). In addition, the underpayment of the employees
on Davis-Bacon projects can hardly be viewed as for their "convenience
and interest," as required by Section 3.6(d).
B. The denial of Rembrant's request for a hearing
Petitioner objects to the Administrator's denial of Rembrant's
request for a hearing before an Administrative Law Judge ("ALJ").
However, the Board concludes that the denial of a hearing in this
matter was not an abuse of discretion. The regulations of the
Department of Labor (29 C.F.R. 5.11(c)(2)(ii)) provide for a
hearing in Davis-Bacon matters where "relevant issues of fact" are
presented. The Administrator declined to refer this matter for
hearing on the ground that Rembrant's dispute essentially "involves
a legal issue as to whether the `Davis-Bacon Benefit Fund' is bona
fide rather than factual issues." Rembrant has not demonstrated to
the Board that relevant factual issues are actually in dispute in
this matter. Accordingly, the Board declines to set aside the
Administrator's ruling that a hearing was not warranted.
The petition for review is denied. The rulings of the
Administrator are affirmed.
BY ORDER OF THE BOARD:
Charles E. Shearer, Jr., Chairman
Ruth E. Peters, Member
Patrick J. O'Brien, Member
_________________________________
Gerald F. Krizan, Esq.
Executive Secretary [6]
