USDOL v. MORRIS EXCAVATING COMPANY, INC., 1985-DBA-58 (ALJ Aug. 29, 1986)
CCASE:
DOL V. MORRIS EXCAVATING
DDATE:
19860829
TTEXT:
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[86-27.WAB ATTACHMENT]
[1]
U.S. Department of Labor - Office of Administrative Law Judges
304A U.S. Post Office and Courthouse
Cincinnati, Ohio 45202
(513) 684-3252
In the Matter of
UNITED STATES DEPARTMENT OF LABOR Date Issued: August 29, 1986
Complainant Case Number: 85-DBA-58
vs.
MORRIS EXCAVATING COMPANY, INC.,
Contractor,
and
STEVE MORRIS, President
Respondents.
APPEARANCES: Benjamin Chinni, Esquire
For the U.S. Department of Labor
Mark R. Riegel, Esquire
For the Respondents
BEFORE: Donald W. Mosser
Administrative Law Judge
DECISION AND ORDER
This proceeding arises pursuant to an Order of Reference
filed by the Administrator, Wage and Hour Division, Employment
Standards Administration, alleging that respondents violated the
Housing and Community Development Act, (hereinafter HCDA), 42
U.S.C. [sec] 1440(g), 5310, by failing to pay the prevailing wage
to its employees at the time the wages were due, and falsifying its
payroll records to indicate that the correct amounts had been
paid. The prevailing wage is mandated by the Davis-Bacon Act, 40
U.S.C. [sec] 276, and applied to other labor statutes through
Reorganization Plan No. 14 of 1950, 5 U.S.C. [sec] 903 and 29
C.F.R. [sec] 5.1. [1]
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[2] The Order of Reference indicates that these violations of
Morris Excavating Company are within the meaning of 29 C.F.R. [sec]
5.12 (hereinafter) cited by Section number only) and therefore both
Morris Excavating and Steve Morris, its president and owner,
should be debarred from bidding on government or government
sponsored contracts.
By certified mail dated April 23, 1984, the respondents were
advised by the Administrator, Wage and Hour Division, of the
findings of the specific violations and the conclusion that the
violations were aggravated and willful within the meaning of
Section 5.12(a)(1) of the regulations. Respondents were further
advised of their right to request a hearing within 30 days.
Respondents, by letter dated May 16, 1984, requested a
hearing and asserted that there were mitigating circumstances
that would make debarment inequitable.
As noted above, the Order of Reference was then filed on
March 18, 1985, and this case was transferred to the Office of
Administrative Law Judges for a formal hearing. A hearing was
held on March 21, 1986, in Lancaster, Ohio, at which time the
parties were given full opportunity to present evidence. Both
parties submitted post-hearing briefs.
ISSUES
The parties have agreed that two issues are involved in this
litigation:
1. Whether respondents' payment of back wages due after
completion of the contracts remedied the failure to pay the
proper prevailing wage rates during the term of the contracts.
2. Whether the failure to pay the prevailing wage rates
during the contracts constituted a willful or aggravated
violation of the Act which justifies placing respondents on
the list of debarred bidders as provided for in Section 5.12
of the regulations.
FINDINGS OF FACT
1. Respondent, Morris Excavating Company, is a corporation
duly organized and existing under the laws of the State of Ohio
having its principal place of business at 1030 Memorial Drive in
Lancaster, Ohio. Steve Morris was and is the President of Morris
Excavating Company and is the person responsible for the day-to-day
business activities of the corporation. (Joint Exhibit 1).
2. Respondents were issued two contracts by the City of
Lancaster, Ohio for street and sidewalk repairs. The first
contract, known as Phase II was issued on May 10, 1983, and was [2]
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[3] valued at $420,739.00. The second contract, known as Phase IIA,
was issued on September 6, 1983, and was valued at $155,000.00.
(Jt. Ex. 1).
3. The aforementioned contracts were funded under the
H.U.D. block grant program under the authority of the Housing and
Community Development Act of 1974. Both contracts were for
projects which were federal or federally assisted construction
projects within the meaning of Section 5.1 and, as such, are
subject to and contain all required stipulations and conditions
of the Davis-Bacon Act. (Jt. Ex. l).
4. Both contracts contained Wage Determination OH83-2006
which specified minimum rates of pay and fringe benefits for
persons employed on the said contracts. The rates required by
the wage determination were $12.82 plus $2.70 in fringes for
laborers; $13.52 plus $1.75 in fringes for truck drivers, and
$16.39 plus $3.06 in fringes for operators. (Jt. Ex. 1).
5. There was a verbal agreement between Morris Excavating
Company, Inc. and its employees that the employees would be paid
at the regular wage rates during the work on the project in
question, and would be paid the difference between the regular
wage rates and the federal wage rates, as set forth in the
contracts, upon completion of the project, but no later than
December 25, 1983. (Resp. Ex. l; Tr. 16, 17, 27).
6. Respondents regularly submitted certified payrolls which
indicated employees were receiving the wage rates as set forth in
the contracts and fringe benefits for all hours worked, when, in
fact, such wage rates were not being paid during the performance
of the contracted services. (Jt. Ex. 1). Mr. Morris was responsible
for submitting the certified payrolls in such a manner and
he did so because he believed the payrolls were to reflect the
wage rates that were required to be paid under the contracts and
because those rates eventually were to be paid to the employees.
(Tr. 33).
7. An investigation by the Columbus, Ohio Office of the
Wage and Hour Division of the U.S. Department of Labor was
conducted in November of 1983 concerning respondents' compliance
with the above-mentioned federal contracts. When the compliance
officer arrived at the respondents' premises, the payroll
department employees of the respondent were computing the back
wages owed the respondents' employees under the above-mentioned
verbal agreement. Mr. Morris explained the circumstances regarding
the back wages to the compliance officer during the initial
conference and was prepared to pay the back wages on that day. The
compliance officer requested Mr. Morris to withhold paying the back
wages until after the completion of the investigation. Mr. Morris
was described as "extremely cooperative" during the investigation.
(Tr. 16-18, 24, 25). [3]
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[4] 8. The investigation revealed Morris Excavating Company,
Inc. had underpaid wages and fringe benefits under the contracts
totalling $22,574.91 and such amount was paid to the employees
immediately following the investigation. (Jt. Ex. l; Tr. 19, 20,
9. Respondents acknowledge that they violated the minimum
wage provisions of the Davis-Bacon and related Acts in failing to
pay the employees employed on the federal contracts the minimum
wages and fringe benefits required by the contracts at the time
the employees performed their services. Respondents further
acknowledge that the submission of the inaccurate certified
payrolls also violated the Davis-Bacon and related Acts. (Jt.
Ex. 1).
STATEMENT OF THE CASE
The Secretary argues that failure to pay the correct contract
wages as they come due is a violation of the Davis-Bacon Act. He
contends Mr. Morris knowingly chose to defer the entire amount of
the prevailing wage until the contract had been completely
performed and knowingly chose to submit false payroll records which
indicated that the entire amount had been paid. Since these actions
were taken "knowingly," the Secretary contends the violations were
"willful and aggravated" so that Morris Excavating should be
barred from bidding on government contracts for the next three
years. Respondents contend that since they always intended to
pay the prevailing wage, they never willfully violated the spirit
of the law, even though they may have violated some of the
technical aspects by the manner in which the prevailing wage was to
be paid.
CONCLUSIONS OF LAW
The purpose of the Davis-Bacon legislation was to make sure
that government funds would not be spent on projects where workers
would be exploited by being deprived of a fair wage for their
work. Perkins v. Lukens Steel Co., 310 U.S. 113, 128 (1940);
Endicott Johnson Corporation v. Perkins, 317 U.S. 501, 507 (1943)
and S. Rep. No. 798, 89th Cong., 1st Sess. reprinted in 1965
U.S. Code Cong. and Adm. News, 1965, pp. 3737-3739. In order to
protect the workers, government contractors are required to pay
the prevailing wage, as set forth by the regulations, on the date
the payroll is due and to submit certified copies of their payroll.
Although the Davis-Bacon language concerning certified payrolls,
which is cited by the Secretary, does not apply to HCDA, there is
similar language in 29 C.F.R. [sec] 5.5 which is applicable:
The contractor shall submit weekly for each week
in which any contract work is performed a copy
of all payrolls.... 29 C.F.R. [sec] 5.5(a)(3)(ii)(A) [4]
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[5] Each payroll submitted ... shall certify ...
that each laborer or mechanic ... employed on
the contract during the payroll period has been
paid the full weekly wages earned without
rebate, and that no deductions have been made
either directly or indirectly from the full
wages earned. ... 29 C.F.R. [sec] 5.5(a)(3)(ii)(B)
and (B)(2)
There is no question that Morris Excavating Company has violated
these regulations.
It is also well-established that employees cannot agree to
waive their rights to wage levels mandated by federal statutes.
United States ex rel. Maude Johnson v. Morley Construction, 98
F.2d 781, 788-789 (2d Cir. 1938); Matter of J.B.L. Construction
Co. Inc., 1978-1981 Transfer Binder] Lab. L. Rep. (CCH) [par]
31,230 (July 18, 1978); Matter of Ernest Simpson, [1978-1981
Transfer Binder] Lab. L. Rep. (CCH) [par] 31,308 (Oct. 18, 1979).
Under this reasoning, it follows that employees cannot waive
their right to receive their correct wages on time. However, it
must be conceded that releasing the [*right to receive the wages*],
- which is the issue in the cases cited by the Secretary, is a
vastly different issue than releasing the right to receive the
correct wages on time, which is the issue in Morris Excavating.
Under the regulations, contractors who are "found ... to be
in aggravated or willful violation of the labor standards
provisions of any of the applicable statutes" can be debarred for
a period not to exceed three years. It is clear that restitution
alone does not automatically free a violator from the application
of the debarment sanction. Even when the violations are willful
and aggravated and thus result in debarment from further contracts,
it is still expected that the employees will be paid their proper
wages. Consequently, restitution does not preclude the debarment
sanction. Matter of Ace Contracting, [1978-1981 Transfer Binder]
Lab. L. Rep. (CCH) [par] 31,357 (May 30, 1980); Matter of Cosmic
Construction, [1978-1981 Transfer Binder] Lab. L. Rep. (CCH)
31,382 (Sept. 2, 1980); Matter of Marvin Hirchert, [1978-1981
Transfer Binder] Lab. L. Rep. (CCH) [par] 31,353 (Oct. 16, 1978) .
Hence, the restitution of back-pay to the employees of Morris
Excavating does not necessarily preclude debarment.
Even if restitution does not automatically preclude debarment,
it has been considered along with other factors to mitigate the
general rule expressed in Matter of Ace Contracting, Matter of
Cosmic Construction, and Matter of Marvin Hirchert, that falsIfied
payrolls constitute willful and aggravated violations which are
grounds for debarment under 29 C.F.R. [sec] 5.12(a)(1). In these
cases and in others cited by the Secretary, [Thomas Moore,
[1978-1981 Transfer Binder] Lab. L. Rep. (CCH) [par] 31,351 (Nov.
28, 1979) and [5]
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[6] Matter of Marco Construction Company and Joe Martinez, [1973-1978
Transfer Binder] Lab. L. Rep. (CCH) [par] 31,190], the falsified
payrolls indicated a "disregard" for the "obligations"~ owed by the
employer to the employee, Marco at 42,190; Moore at 43,484; Cosmic
Construction at 43,575; Ace at 43,502; Hirchert at 43,491. In light of
considerable past experience [Hirchert at 43,491; Ace at 43,502; and
Moore at 43,484], these respondents tried to argue that bookkeeping
errors, [Ace at 43,502; Hirchert at 43,491; Cosmic Construction at
43,573], or fraud by a superintendent, [Cosmic Construction at 43 ,573]
should excuse the failure to pay the prevailing wage. In Moore, the
employer obtained falsified statements from employees indicating that
they had been paid the correct amount, [Moore at 43,484.] Discrepancies
between time cards and the falsified payroll remained unexplained in
Marco. [Marco at 42,925.] In each case, the Wage Appeals Board found an
abuse of employee wage rights that went to the heart of the Davis-Bacon
Act.
In cases, however, where the employer did not intend to
violate the purpose of the Act, (to insure that employees on
government contracts received a substantial wage) or where the
employer appeared to be honestly unaware of a correct
interpretation of the regulations, restitution and other mitigating
factors have been considered and debarment was not imposed. In Tilo
Company, Inc., CCH Labor Law Reporter, Administrative Rulings,
[par] 31,114, debarment was not imposed where the government
inexcusably delayed informing Tilo that there was reasonable cause
for debarment, where the company reorganized its procedures for
handling government contracts and where subsequent compliance was
evident. In Steingass Mechanical Contracting, 83 DBA 47 (June
28, 1985), a plumbing company was found to be in violation of
regulations when it improperly classified the temporary summer
help and incorrectly calculated payment for overtime work. The
administrative law judge found that debarment was inappropriate:
In the subject case, the Respondent had no
prior Government contracting experience; there
was complete cooperation with the investigating
officials at all times; the Respondent undertook
to ensure compliance with the regulations after
being made aware of the violations; an agreement
to pay back wages was promptly entered into and
paid in accordance with the payment schedule
worked out between the parties; and the Respondent
has entered into substantial Government
contracting in the five years subsequent to the
Liberty Plaza and Heritage Square Apartments
projects with no other violations. [*] As to the
false payroll records, I accept the explanation
that he thought the prevailing wage [6]
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[7] was one that he had to pay to experienced professional
plumbers, and not to the Part-time helpers, as being
due to inexperience and not out of a pre-conceived intent
to defraud. [*]
[*emphasis supplied*]
Finally, in David Vitale Excavating, 83 DBA 61 (April 30,
1986), debarment was not imposed where there was a controversy
within the Labor Department concerning how certain truck drivers
should have been classified, and where it was not demonstrated
that the subcontractor had received knowledge of the regulations
from the prime contractor. The administrative law judge also
noted that Mr. Vitale did not personally benefit from the
violations, did not keep "double books" and made restitution at his
own expense. These factors were used to indicate that Mr. Vitale
did not intend to violate the Act.
Cases under the Service Contract Act, 41 U.S.C. [sec] 351 et
seq., which sets the prevailing wage standards for service
contracts, whereas the Davis-Bacon Act sets the standards for
construction contracts, have followed the same reasoning. In
Mastercraft v. Donovan, 589 F.Supp. 258, 262 (D.D.C. 1984), the
Court quoted the Secretary's list of factors to be considered in a
debarment action:
Some of the principal factors which must
be considered in making this determination are
whether there is a history of repeated violations
of the Act; the nature, extent, and seriousness
of past or present violations; whether the
violations were willful, or the circumstances
show there was culpable neglect to ascertain
whether certain practices were in compliance,
or culpable disregard of whether they were or
not, or other culpable conduct such as deliberate
falsification of records); whether the respondent's
liability turned on bona fide legal issues of
doubtful certainty; whether the respondent has
demonstrated good faith, cooperation in the resolution
of issues, and a desire and intention to comply with
the requirements of the Act; and the promptness with
which employees were paid the sums determined to be
due them.
Although Mastercraft had been accused or misclassifying workers
and failing to pay fringe benefits, it was determined that
Mastercraft met most of the above factors and debarment was not
imposed. See also Federal Food Service v. Donovan, 658 F.2d 830
(D.C. Cir. 1981). [7]
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[8] The factual pattern in the instant case, while closer to
Tilo, Steingass, Vitale and Mastercraft than the cases cited by
the Secretary, I find is unique. This was Mr. Morris' first
experience with a federal contract and there is no evidence
indicating he intended to personally profit at the expense of the
company's employees. He obviously had no intent to violate the
spirit of the law by disregarding the company's obligation to the
employees as the back wages were already being computed at the
time the investigation commenced. Moreover, his filing of the
inaccurate certified payrolls, I find, was not done with willful
or aggravated intent to deprive the employees of the wages to
which they were entitled. I also find it significant that
restitution was promptly made and Mr. Morris was "extremely
cooperative" during the investigation. (Tr. 17). He has also
expressed a willingness to comply with the regulations in the
future, which I find credible in light of his past cooperation with
the compliance officer. I, therefore, find the requisite
"aggravated and willful intent" is not evident from the facts in
this case. As in the Steingass case, supra, the violations of
Morris Excavating Company, Inc. were "due to inexperience not out
of pre-conceived intent to defraud." To debar under the facts of
this case, I find, would serve no constructive purpose.
Since the Department of Labor has failed to demonstrate that
the violations of Steve Morris or the Morris Excavating Company
were either willful or aggravated, and since there are equitable
considerations to mitigate the seriousness of the violations, the
motion to debar respondent from future contracts under the Act
for a period of three years is denied.
DONALD W. MOSSER
ADMINISTRATIVE LAW JUDGE
