ARB CASE NO. 99-003
ALJ CASE NO. 97-SCA-20
DATE: April 30, 2001
In the Matter of:
HUGO REFORESTATION, INC. and
and HUGO PEREGRINO, an individual.
In re Contract No. 14022H-952-C96-218 with the Bureau of Land Management,
Portland, Oregon
BEFORE: THE ADMINISTRATIVE REVIEW BOARD
Appearances:
For the Petitioners: James A. Nelson, Esq., Toledo, Washington
For the Deputy Administrator: Joan Brenner, Esq., Paul L. Frieden, Esq., Steven J. Mandel, Esq., U.S. Department of Labor, Washington, D.C.
FINAL DECISION AND ORDER
This case arises under the provisions of the McNamara-O'Hara Service Contract Act of 1965, as amended ("SCA"), 41 U.S.C. §§351-358 (1994), the Contract Work Hours and Safety Standards Act, as amended ("CWHSSA"), 40 U.S.C. §§327-333 (1994), and implementing regulations found at 29 C.F.R. Parts 4 - 8 (2000). Hugo Reforestation, Inc., and its President, Hugo Peregrino (collectively, "Petitioners") challenge the Administrative Law Judge's Decision and Order ("D&O") of August 28, 1998, in which the ALJ ordered that Petitioners be debarred and listed as ineligible for future government contracts because of wage underpayments and recordkeeping violations.
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Based upon a thorough review of the record and the briefs of the parties, we affirm the ALJ's determination that Petitioners violated the SCA and CWHSSA. In accordance with the respective debarment provisions of the SCA and CWHSSA, we order that both Hugo Peregrino and Hugo Reforestation, Inc., be debarred.
BACKGROUND
Petitioner Hugo Reforestation, Inc. is a Washington corporation in the business of contracting for the provision of reforestation services, including tree planting and thinning. The company maintains its headquarters in Chehalis, Washington, and employs approximately 30 to 40 workers annually. Petitioner Hugo Peregrino is the company's sole owner, CEO and president. Tr. at 169-170, 241-242; DX-12 at 196.1
1 The citation form "DX-__" refers to Department of Labor exhibits introduced at the hearing before the ALJ, and citations to specific pages refer to the consecutively-numbered pages in the Department of Labor's "Exhibit Book" used at the hearing. The citation form "RX- __" refers to exhibits filed by Petitioners. "Tr. __" refers to transcript citations of the hearing before the ALJ.
2 At the hearing before the ALJ, Peregrino also argued that he thought he was only required to pay his employees overtime pay after they had completed 80 hours of work in a two week period. Tr. 33-34. See discussion infra at p. 11 .
3 With regard to the February 1991 MSPA-related investigation, Yerger also testified that the investigation also revealed $522 in back wages owed under the Fair Labor Standards Act, and that Peregrino was provided with a "summary of probable MSPA violations . . . and it showed that he had failed to properly disclose the employment conditions to workers." Id.
In addition, Yerger testified that Petitioners were investigated in February 1992 concerning FLSA child labor law violations after two minors were injured using chainsaws. Peregrino appealed the investigation's findings. A hearing was held before an ALJ, who entered findings against Peregrino and ordered that he pay a civil money penalty (CMP) of $2,000. The company was provided copies of the FLSA law and regulations and was advised on compliance, and agreed to FLSA compliance in the future. Tr. at 86-87, 112; D&O at 4.
Yerger also testified that in September of 1993, DOL received allegations of MSPA violations by Petitioners (failure to provide employees with proper wage statements and failure to pay minimum wage). However, there was no investigation; instead, DOL issued only a "conciliation letter" citing relevant regulations and statutes. D&O at 4; Tr. at 90-91. See DX-10. In August, 1995, DOL again received allegations of MSPA violations (workers did not know what their pay and fringe benefit entitlements were). Again there was no investigation; and a "conciliation letter" was issued. D&O at 4; Tr. at 92. See DX-11. Finally, Yerger testified regarding an investigation in 1997 involving MSPA violations involving the service contract at issue in this case. Tr. 93. As noted by Peregrino and conceded by the attorney for the Department, this recent investigation resulted in an ALJ-approved settlement expressly without admission of liability. Tr. 192-93. See "Consent Findings" in ALJ No. 97-MSP-16, attached as Exhibit 2 to the Department's Response to Motion for Summary Decision, filed with the ALJ March 31, 1997.
Although this testimony about FLSA and MSPA violations (either proven or merely alleged) was recounted by the ALJ in the D&O, the Division's findings or conciliation agreements regarding possible FLSA and MSPA violations by the Petitioners are not relevant to the underlying debarment concerns at issue in this case, i.e., whether Petitioners had a history of violating the SCA or CWHSSA, and the extent to which they had been counseled concerning SCA or CWHSSA compliance. The alleged FLSA and MSPA violations therefore play no roll in our decision in this case.
4 Before the ALJ, Petitioners submitted documents signed by some of the affected employees purporting to waive their right to receive overtime compensation in exchange for this accommodation. RX-1-13.
5 Although the Wage and Hour Division did not charge Petitioners with any holiday pay violation for Memorial Day, there also is unrefuted evidence that at least one employee did not receive holiday pay for working on that holiday. See Tr. at 139; DX-14 (BLM daily diary entry for June 11, 1996).
6 Peregrino acknowledged that he personally recorded hours worked in the time sheets, and claimed that they reflected hours worked as reported to him by his foreman. Tr. 195-196.
7 The Secretary of Labor's authority to institute debarment by regulation has been upheld based on the CWHSSA's structure and legislative history. See Sharipoff dba BSR Co., No. 88-SCA-32, slip op. at 2 (Sec'y Sept. 20, 1991); Janik Paving & Constr., Inc. v. Brock, 828 F.2d 84, 91 (2d Cir. 1987). "Like the statutory debarment procedure in the Davis-Bacon Act, the Secretary's regulation is intended to foster compliance with applicable labor standards." A. Vento Constr., WAB No. 87-51 (Oct. 17, 1990).
8 For purposes of determining whether a violation of the Fair Labor Standards Act of 1938 (FLSA), as amended, 29 U.S.C. §201 et seq., is "willful" such that civil penalties should be imposed, the Supreme Court has applied the same standard of willfulness adopted under the Age Discrimination in Employment Act of 1967 (ADEA), as amended, 29 U.S.C. §621 et seq.: "that the employer either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute." McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133, 108 S.Ct. 1677 (1988), citing Trans World Airlines v. Thurston, 469 U.S. 111, 126-127, 105 S.Ct. 613 (1985). As the First Circuit recently noted in Baystate Alternative Staffing v. Herman, 163 F.2d 668 (1998), in adopting this definition the Supreme Court in Richland Shoe expressly rejected a negligence standard of liability, noting that an employer does not act willfully "even if it acts unreasonably in determining whether it is in compliance with the FLSA." 163 F.2d at 681.
9 It has also been held that falsification of certified payrolls to conceal violations or to simulate compliance with the applicable labor standards may of itself constitute willful violation of the Related Acts. See, e.g.,Brighton Painting Co., WAB No. 87-9 (Sept. 20, 1989), Lab. L. Rep. (CCH) ¶ 31,835; Rust Constr. Co., WAB No. 87-15 (Oct. 2, 1987), Lab. L. Rep. (CCH) ¶ 32,007; Warren E. Manter Co., WAB No. 84-20 (June 21, 1985); Marvin Hirchert dba M. & H. Construction, WAB No. 77-17 (Oct. 16, 1978), Lab. L. Rep. (CCH) ¶ 31,353.
10 "Culpable conduct" is defined in the regulation to include "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)." 29 C.F.R. §1.188(b)(3)(i). As the Board of Service Contract Appeals stated in J & J Merrick's Enterprises, Inc., BSCA No. 94-09, slip op. at 5 (Oct. 27, 1994):
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)."
11See 29 C.F.R. §4.188(b)(3)(ii) for a complete listing of the additional factors to be considered under Part III of the test.
12 Certainly Peregrino would have been in a position to present evidence in contravention of Yerger's "hearsay" testimony, had it been incorrect. He did not, instead seeking to prevent her testimony from being introduced by arguing that the documents upon which her testimony was based had not been provided to him during discovery.
13See discussion supra at n.3, for elaboration of Yerger's testimony regarding the Department's records pertaining to prior investigations of Petitioners under the SCA, CWHSSA and other related laws.
14 We reject Petitioners' argument that Washington state law governing "piercing the corporate veil" prohibits finding Peregrino personally liable under the SCA. Under the Rules of Decision Act, 28 U.S.C. §1652, relied on by Petitioners, it is clear that whether state or federal law is to be applied depends on whether the issue in question is a federal matter or a nonfederal matter; if it is a federal matter, federal law will apply. Liteky v. United States, 510 U.S. 540, 555 (1994). Moreover, given the specificity of the SCA regulations with regard to the criteria for determining who is a "party responsible," see 29 C.F.R. §4.187(e), it is unnecessary to "pierce the corporate veil" in order to establish Peregrino's personal liability.
16 In reaching this result, we do not suggest that Peregrino's status viz a viz Hugo Reforestation, Inc. alone suffices as a basis for debarment under the CWHSSA. While status may be sufficient to determine whether an individual corporate official may be held liable, more is required in order to determine whether under the CWHSSA that individual can be personally barred from future government contracts. SeeFacchiano Constr. Co., 986 F.2d at 214-215, and Transcon Assoc., ALJ No. 93-DBA-22 (ALJ, Apr. 9, 1996).
17 But for the characterization by the ALJ of Petitioners' underlying objection as one based on hearsay, we would hold that Petitioners, having failed to raise the hearsay objection before the ALJ, have waived their right to now raise this issue on appeal. 29 C.F.R. §18.103(a)(1). Cf. Howell Construction, Inc., WAB No. 93-12, slip op. at 9 (May 31, 1994) (ALJ's ruling that testimony in surrebuttal would not be permitted not subject to challenge on appeal where the petitioner failed to timely object to ALJ's ruling at hearing).
18 Significantly, Petitioners did not deny the truth of Yerger's testimony, raising instead objections based on technical violations of the evidentiary rules in an obvious attempt to prevent the introduction of certain evidence which Petitioners feared would otherwise serve as a basis for debarment.
19 Before the ALJ, Petitioners cited the ALJ's summary disposition of the question of Peregrino's personal liability as the basis for their motion to disqualify the judge. The ALJ denied Petitioners' motion both on the merits and as being untimely filed. Because we affirm the ALJ's denial of the disqualification motion on the merits, we do not reach the question of timeliness.