BUILDING AND CONSTRUCTION UNIONS JOB TARGETING PROGRAMS, WAB No. 90-02 (WAB Oct. 9, 1991)
CCASE:
BLDING & CONST. UNIONS JOB TARGETING PRGRMS
DDATE:
19911009
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[1] WAGE APPEALS BOARD
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
BUILDING AND CONSTRUCTION WAB Case No. 90-02
UNIONS JOB TARGETING PROGRAMS
BEFORE: Ruth E. Peters, Presiding Member
Stuart Rothman, Senior Member
Patrick J. O'Brien, Member
DATED: October 9, 1991
DECISION OF THE WAGE APPEALS BOARD
On June 13, 1991, the Wage Appeals Board ruled that deductions
from wages of workers on Davis-Bacon Act construction projects for
the purpose of "targeting" private sector projects (i.e.,
subsidizing a union-signatory contractor in order to offset any
wage-related cost advantage enjoyed by a nonsignatory competitor)
violate the regulations found at both 29 C.F.R. Part 3 and at 29
C.F.R. Part 5, and that any contractor participating in these
deduction programs faces the possibility of debarment. This ruling
was premised on three interrelated principles: first, that workers
are entitled to prevailing wages on Davis-Bacon and Related Acts
projects; secondly, that public funds should not be used to
subsidize private sector construction projects; and third, since
there was no guarantee that the monies deducted from a particular
worker's paycheck would vest to his or her direct and traceable
benefit (although the employer would benefit from the deduction),
the job targeting programs would not be bona fide fringe benefits
for the purposes of the Part 5 regulations. That June 13, 1991
decision is attached hereto.
Counsel for the Acting Administrator of the Wage and Hour
Division has moved the Board to withdraw that portion of its
decision which analyzes job targeting programs under the Part 5
regulations, claiming that the funding of the programs comes
exclusively from the wages of employees and are not [1]
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[2]
contributions made by employers. Hence, argues Wage and Hour, the
Part 5 regulations are irrelevant.
The Wage and Hour Division further argues that the June 13
decision is incorrect insofar as it would require contributions to
a job targeting program to vest to the direct benefit of the
employee whose labor generated that payment.
In response to the Board's request for the views of interested
parties, memoranda were received from the National Electrical
Contractors Association and the Mechanical Contractors Association
of America, Inc. ("NECA/MCCA"); the Building and Construction
Trades Department, AFL-CIO ("BCTD"); the Associated Builders
and Contractors, Inc. ("ABC"); and the National Right to Work
Committee ("NRWC"). NECA/MCCA generally agrees with the Wage and
Hour Division, while the BCTD essentially repeats arguments made
previously. The ABC and the NRWC, on the other hand, generally
support the proposition that job targeting programs violate the
fringe benefit regulations insofar as the deductions result in a
benefit to an employer and no necessary direct benefit to the
employee whose work generated the corresponding funding.
For the reasons contained herein, the Board reaffirms its June
13, 1991 decision and denies the Motion of the Acting
Administrator.
I. DISCUSSION
Counsel for the Acting Administrator takes issue with the
language in the Board's June 13 decision insofar as it requires
irrevocable vesting of that portion of an employee's income which
would constitute a payment into a job targeting fund. Wage and
Hour claims that the legislative history of the amendments to the
Davis-Bacon Act permitting fringe benefit contributions stands for
the proposition that immediate vesting is not required.
The Board did not and does not intend to question the validity
of otherwise legitimate fringe benefit programs which contain years
of service or other delayed vesting provisions. There are (and
were at the time of the amendments) three basic models of pension
and welfare plans: In a defined contribution plan, a specific
portion of an employee's compensation is earmarked in an account
for that employee held by a plan trustee. The contribution vests
immediately, and the amount of the benefit ultimately received is
generally contingent on the performance of the fund. In a defined
benefit plan, the employee is promised a benefit in proportion to
the number of years employed; and (with a host of actuarial
and tax-related variations), employer contributions follow years of
service for the employee group covered by the plan. As a general
rule (in the absence of a plan termination), the employer
contribution is irrevocable and the [2]
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[3] employee is entitled to a specified level of benefit after temporal
service requirements are met. Should the fund be insufficient to
meet the specified benefit levels, the employer is liable for the
difference. In a hybrid of the two common to the construction industry, the
multiemployer plan, contributions are made in a specific amount
based on the number of creditable hours worked. However, benefits
are paid at a specified level after temporal service requirements
are met. All three types of plans are governed by ERISA.
In the case of a defined benefit or multiemployer plan, every
hour worked by the employee in question results in some actuarially
ascertainable benefit to that employee. In the case of a worker
whose takehome paycheck is reduced by virtue of a checkoff into a
job targeting fund, there is no actuarially ascertainable
increase in the benefit available to that worker: the funds are
used to subsidize an employer, and the particular employee may
receive no quantifiable pension or welfare benefit.
The legislative history referred to by counsel for the Wage
and Hour Division is taken out of context. Congress did not elect
to favor any type of plan over another; hence, it rejected
immediate contribution "vesting" in a technical sense that would
have adversely affected defined benefit and multiemployer
plans. The language cited does not, however, permit work of a
specific employee to go unrewarded. Thus, the Board reaffirms its
ruling that irrevocable vesting (in the form of a specific
contribution or in the form of an actuarially ascertainable
increase in a defined benefit) on behalf of the employee whose
efforts generated the contribution is the sine qua non of the
legality of fringe benefits under the Davis-Bacon and Related Acts.
The application of the foregoing should be viewed in the
context of the variations of job targeting programs. The Local
595, IBEW, plan requires every signatory employer to deduct 3% from
the hourly wages of each covered employee. That contribution is
then transmitted to a "vacation fund." Funds are drawn to
subsidize bids on private sector projects by union signatory
contractors in order to minimize, eliminate, or reverse any
wage-related advantage enjoyed by nonunion contractors. There is
no guarantee that any specific worker whose paychecks are reduced
will benefit by the expenditure; however, the employer benefits
either through direct receipt of a subsidy or through the
heightened demand for its services occasioned by an overall
increase in market demand for signatory contractors.
Counsel for the Acting Administrator further argues that the
"contributions" used to fund the Local 595 job targeting program
were payroll deductions and not fringe benefit contributions by
employers. Hence, argues counsel, they should not be considered
under the Part 5 fringe benefit regulations. [3]
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[4] Where an employee's paycheck is reduced by means of a
payroll deduction by an employer (other than deductions required or
permitted by state or federal law), one of two results ensues.
Either the employee is not receiving prevailing wages or the
deduction meets the fringe benefit regulations found at 29 C.F.R.
Part 5. Therefore counsel's suggestion that the Part 5 regulations
are inapplicable to this matter is incorrect: were the question
before the Board limited to an individual, completely voluntary
election by an employee of how to spend his or her income
(including whether to make an independent contribution to a job
targeting fund), there would be no issue. Here, however, the whole
case revolves around the legality of certain payroll deductions
which may or may not effectively reduce wages below prevailing
levels.
II. CONCLUSION
For the foregoing reasons, the Motion by counsel for the
Acting Administrator is denied.
BY ORDER OF THE BOARD:
Ruth E. Peters, Presiding Member
Patrick J. O'Brien, Member
Gerald F. Krizan, Esq.
Executive Secretary
SEPARATE STATEMENT OF MEMBER ROTHMAN
The Acting Administrator has moved that the Board withdraw a
portion of its decision of June 13, 1991, regarding Part 5 of the
Regulations. I expressed my views on this matter in my dissenting
opinion and see no reason to make any changes. I note that the
majority clarifies its June 13, 1991 decision on one point; it did
not hold that in every case of a contribution to a pension or
welfare fund subject to Davis-Bacon, the pension must vest with the
individual employee from the date of employment. [4]
