HEAVY CONSTRUCTORS
ASSOCIATION OF THE GREATER KANSAS CITY AREA, WAB Case No. 94-13 (WAB Oct. 11, 1994)
CCASE:
HEAVY CONSTRUCTORS
DDATE:
19941011
TTEXT:
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[1] WAGE APPEALS BOARD
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
HEAVY CONSTRUCTORS WAB Case No. 94-13
ASSOCIATION OF THE
GREATER KANSAS CITY AREA
BEFORE: David A. O'Brien, Chair
Ruth E. Peters, Member
Karl J. Sandstrom, Member
DATED: October 11, 1994
DECISION OF THE WAGE APPEALS BOARD
This matter is before the Wage Appeals Board on the petition
of the Heavy Constructors Association of the Greater Kansas City Area
("Petitioner" or "HCA"), seeking review of May 20, 1994 ruling by the
Administrator, Wage and Hour Division. The Administrator ruled that
HCA's payments to a vacation fund -- at the rate of $1.05 for each hour
worked under the agreement -- should be included in the "basic hourly
rate" under Davis-Bacon and Related Act wage determinations. For the
following reasons, the Administrator's ruling is reversed.
I. BACKGROUND
A. General
Petitioner is an association of heavy and highway construction
contractors whose members perform contracts subject to prevailing wage
and overtime requirements of the Davis-Bacon Act (40 U.S.C. [sec] 276a
et seq.; the "Act"); its Related Acts (see 29 C.F.R. 5.1); and the
Contract Work Hours and Safety Standards Act (40 U.S.C. [sec] 327 et
seq.; "CWHSSA"). HCA is signatory to a [1]
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[2] collective bargaining agreement ("CBA") effective 1992 to 1995 with
the Western Missouri and Kansas Laborers District Council (the
"Laborers").
Among the terms of the CBA is Article XI, entitled "Welfare, Pension,
Vacation, Supplemental Dues and Training." (Administrative Record ("AR"
Tab D, Exhibit Two, pp. 16-19). Paragraph 5 of Article XI specifies the
Laborers' and HCA's agreement with respect to vacation pay:
The Employers [in HCA] agree to pay, [*]in addition to wages[*], One
Dollar Five Cents ($1.05) per hour for each hour paid to employees
covered by this Agreement into the jointly administered Construction
Industry Laborers' Vacation Fund for each employee's Vacation Savings
Payments into the Vacation Fund and shall be mailed to the Administrator
at the Construction Industry Laborers' Welfare and Pension Fund offices,
Jefferson City, Missouri.
A. The Employer shall deduct all withholdings from the full
amount of wages, including the vacation payment each pay
check. However, the full vacation payment shall be paid into the
Vacation Fund each month since the withholding will be deducted
from the wages.
B. An Employee may draw his Vacation Savings out once a year
between the dates December 10 and March 10 of the following
year.
C. Vacation Savings shall accumulate annually from November 1
through October 31.
D. The employee shall notify the Construction Industry Laborers'
Welfare and Pension Fund Office two (2) weeks in advance of the
date he wishes to draw his Vacation Savings money due him.
(Id. at pp. 18-19). Petitioner states (and the Administrator does not
contest the assertion) that HCA and the Laborers have negotiated a
similar vacation benefit fund for approximately 24 years and that --
until recently -- Wage and Hour has issued wage determinations listing
the vacation savings payments as fringe benefits, thereby excluding the
$1.05 hourly payments from the basic hourly rate of pay. However, in
two recent Greater Kansas City area wage determinations [2][3]
applicable to heavy and highway construction (Nos. KS940012 and
MO940001)/FN1/, the Administrator has changed the long-standing practice
and included the $1.05 hourly vacation pay in the basic hourly wage
rate. (See AR Tab D, Exhibit One)./FN2/
B. Statutory provisions regarding fringe benefits and exclusions
from the basic hourly rate
In 1964 -- after extensive hearings concerning the administration of
the Act -- Congress added section 1(b), which -- in pertinent part --
provides:
As used in sections 276a to 276a-5 of this title, the term "wages",
"scale of wages", "wage rates", "minimum wages", and [*]"prevailing
wages" shall include[*] --
* * *
(2) the amount of --
(A) [*]the rate of contribution irrevocably made by a contractor or
a subcontractor[*] to a trustee or to a third person pursuant to a
fund, plan, or program; . . .
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 fringe
benefits, . . .
* * *
Section 1(b) of the Act further requires that the employer's cost of
bona fide fringe benefits shall be excluded from laborers' and
mechanics' basic hourly rate in computing the overtime pay to which they
are due.[3]
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[4] Thus, vacation pay was explicitly included within the
Congressionally enumerated fringe benefits allowable under the Act.
Further, if such a vacation fringe benefit is provided by an employer's
contribution, that amount must be excluded from computation of the basic
hourly rate of pay upon which overtime premiums under the CWHSSA are to
be based.
C. The Administrator's ruling
In her May 20, 1994 ruling (AR Tab A), the Administrator concluded
that the HCA vacation fund payment must be included in the basic hourly
rate portion of prevailing wage determinations, because the $1.05 vacation
benefit was an employee contribution and not an employer contribution,
as required by the Act. The Administrator reasoned that [*](emphases
supplied)[*]:
[i]n those cases where contributions for vacation pay are made by the
contractor or subcontractor to a "fund, plan or program" (29 CFR 5.27),
that contribution is reflected as a fringe benefit on the wage
determination. [*]However, where such a contribution is made by the
employee as a deduction from the employee's basic rate of pay, as in
this instance in accordance with Article XI, paragraph 5A, then it is
not shown as a fringe benefit on the wage determination but is included
in the basic rate reflected in the wage determination.[*] (See 29 CFR,
Part 5, section 5.32(a)). This is consistent with the definition of the
basic hourly rate of pay found at 29 CFR, Part 5, section 5.24, in that,
prior to the 1964 amendments to the Davis-Bacon Act, such deductions
were included in the basic rate. In order to treat payments for
vacation pay as employer contributions for fringe benefits, [*]it must
be clear from the collective bargaining agreement that such payments are
not a deduction from the employees' wages.[*]
II. DISCUSSION
This Board, as an appellate body, will defer to the interpretations
and rulings of the Administrator under the circumstances we delineated in
Titan IV Mobile Service Tower, WAB Case No. 89-14 (May 10, 1991), slip
op. at p.7:
The Administrator, to whom Davis-Bacon rulemaking functions are
entrusted (29 C.F.R. 1.1), is likely in the best position to interpret
those rules in the first instance (see Udall v. Tallman, 380 U.S. 1,
16-17 (1965)), and absent an interpretation that is unreasonable in
some sense or that exhibits an unexplained departure from past
determinations, the Board is reluctant to set the Administrator's
interpretation aside.[4]
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[5] We conclude that the ruling of the Administrator in the instant case
is both unreasonable and an unexplained departure from past
determinations and therefore must be reversed.
The rule of decision in this case -- as identified by the Administrator
-- is that "it must be clear from the collective bargaining agreement
that such payments are not a deduction from the employees' wages." AR
Tab A. We hold that in this case, it is clear from the CBA that the
vacation fund payment is not a deduction from the employees' wages.
As noted in our recitation of the relevant CBA clause, the parties
clearly specified that the vacation fund payment of $1.05 hourly is "in
addition to wages...." (AR Tab D, Exhibit Two, p. 16). The vacation
fund is, moreover, set forth in Article XI, which governs employer
payments for "Welfare, Pension, Vacation, Supplemental Dues and
Training," and not in Article XV, regarding employer wage payments. In
addition to these clear indices of intent in the CBA regarding employer
vacation benefit contributions, we note that the parties clearly treated
another type of payment -- not a bona fide fringe benefit -- in an
entirely different manner. Under Article XI of the CBA, the parties
agreed to employee contributions for Supplemental Dues:
In addition to the wages set out in the schedule of this Agreement,
[*]each Employer agrees to add Fifty Cents ($0.50) per hour to the
wages[*] of each employee for each pay roll hour. During the term of
this Agreement and continuing thereafter and in accordance with the
terms of an individual and voluntary written authorization for checkoff
of membership dues in form permitted by the provisions of Section 302(c)
of the Labor Management Relations Act, [*]the Employer shall deduct from
the wages of all employees covered by this Agreement the above amounts
per hour for each pay roll hour, as supplemental dues[*].
AR Tab D, Exhibit Two, p. 18; [*]emphases added[*]. In this section of
the CBA, the parties have made it clear that the supplemental dues
checkoff is a "deduct[ion] from the wages" of employees; the treatment
of the vacation fund under the CBA is entirely different, further
underscoring the vacation benefit as an employer contribution "in
addition to wages."
There is no question that the vacation plan here under consideration
is anything other than bona fide. Vacation benefit plans are, as noted,
one of the types of bona fide fringe benefits specifically enumerated in
the Act. The Administrator herself has conceded that the HCA/Laborer
vacation plan is a bona [5][6] fide fringe benefit and that there is no
evidence of fraud or collusion by the parties to artificially reduce the
basic hourly rate./FN3/
Moreover, the specifics of the plan all support the conclusion that
the vacation benefit is bona fide. Here, the vacation benefit is clearly
calculated to provide approximately 2 weeks of full pay to an employee.
This on its face is a reasonable vacation benefit. Another "vacation
benefit fund" which sequestered an unreasonable amount of paid vacation
would be suspect. See our discussions of the "effective annual rate of
contribution" in Tom Mistick & Sons, Inc., WAB Case Nos. 88-25 and -26
(May 30, 1991) and Rembrant, Inc., WAB Case No. 89-16 (Apr. 30, 1991).
The Board concludes that the creation of an actual beneficial trust
for the employees in the HCA/Laborers plan is of great significance. The
payments made by employers on an employee's behalf are not assignable or
otherwise alienable by the employee. The trust's restrictions governing
withdrawals make it abundantly clear that the vacation plan is a bona
fide benefit. The timing of an employee's right of withdrawal is
limited to the construction "off season" of December to March. The plan
requires that the funds must be withdrawn within a year of deposit.
Additionally, withdrawals are limited to vacation pay purposes only
(i.e. the vacation fund cannot be used for personal expenses such as
medical bills or school tuition).
There are, moreover, well-established guidelines for determination of
whether any such fund is a beneficial trust. Six factors are stated in
Laborers Union Local 1298 of Nassau and Suffolk Counties Vacation Fund
v. Frank L. Lyon & Sons, Inc., 323 N.Y.S.2d 229, 77 L.R.R.M 3107 (1971):
(1) the nature of the employment is such that the individual employees
would not become entitled to vacation benefits from any one employer; in
a very real sense, therefore, the benefits result from something (the
collective force of union bargaining) in addition to the individual's
efforts; (2) the employers' payments must be made to the fund; the
employee cannot sue for them directly; . . ., nor can the union sue . .
.; (3) the contribution being required by the collective bargaining
agreement on the basis of manhours worked, the employee has no right
individually to waive its being made; (4) the trust is not dry or
passive, for the principal (the employers' contributions) is to be
invested, income received, expenses paid and income and portions of
principal paid out . . ., and since benefits in December of any year
stem from [6]
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[7] what accumulated during the benefit year (ending on the
preceding June 30) there will always be a principal balance in the
individual's account until he dies or leaves the industry; (5) the
employee cannot demand any payment from the fund until 5 to 17 months
after his employer has paid his contribution in . . .; (6) such
precedent as exists accords with treating the benefit as a trust
payment.
Citations omitted. With minor variations in the specifics of the
HCA/Laborers plan and that in Laborers Union Local 1298, the foregoing
factors prove the creation of a legitimate beneficial trust.
Consequently, there is a solid basis for concluding that the employees
in the instant case have received a trust interest rather than
traditional wages.
The "nuts and bolts" of how the vacation plan payment are made in
this case also show that these are direct payments from employers and not
deductions from employees' wages. The Board acknowledges that an
employee's pay statements reflect the vacation fund payments. The $1.05
is not, however "paid" to or "received" by the employee. Rather, the
employer retains the full $1.05 per hour payment and -- on a monthly
basis -- directly remits the vacation payment to the jointly
administered vacation benefit fund. At this juncture, we must again
note that the vacation benefit plan in this case has been funded in the
same manner -- "in addition to wages" -- for approximately 24 years
without raising a question from Wage and Hour. Nor, apparently, would a
question have ever been raised by Wage and Hour had the parties not
memorialized the computational mechanism for the vacation benefit in
their CBA.
The Administrator attempts to distinguish between employer and employee
contributions based upon the treatment of these employer payments under
the tax code. However, with respect to vacation benefit plans similar
to the multi-employer one at issue here, it would appear that there is
no payment mechanism which would avoid taxation as income in the year
paid. The Administrator's reliance on tax implications serves only to
include payments made to all multi-employer vacation benefit plans
within the basic hourly rate.
Vacation pay is taxable income to an employee in the year earned if
there is no substantial risk of forfeiture. 26 U.S.C. [sec] 83. In
this case, the employees (under the terms of the trust) have a vested
right in the vacation benefit at the time of the employer's contribution
and there is therefore no substantial risk of forfeiture. The employee
must take the amount of the benefit into income and the employer must
withhold taxes. Even though the employee has not received any payment
and will only receive payment at the time and in the manner provided for
in the trust agreement, the employee has realized income for tax
purposes. The employer in turn must withhold taxes on these sums.
Regardless [7][8] of the mechanics and timing of the payment to the
trust, the same tax treatment would hold./FN4/
It should be noted that the trust could be governed by different
vesting rules. For example, the trust could provide that an employee
needed to be member of the union for at least 26 weeks before being
entitled to vacation pay. In that case, only the employees who will have
been employed for that period of time would have to realize income and have
taxes withheld. This would be the case even though the vacation payment
of $1.05 per hour is still paid by the employer to the trust. It is
inconceivable that the Administrator's position would be that the
vacation payment is an employer contribution for non-vested employees
but an employee contribution for vested employees.
We further disagree with the Administrator's argument that her treatment
of the HCA/Laborer vacation benefit payments as employee contributions
is supported by the regulation at 29 C.F.R. 5.24. This provision
explicitly includes in the basic hourly rate only payments made directly
to employees. As pointed out previously, the vacation payment at issue
here is not "made directly" to the employees. Secondly, the regulation
specifically excludes fringe benefits from the basic hourly rate of pay
and at oral argument, counsel for the Administrator conceded that the
vacation fund in this case is not only a fringe benefit, but a bona fide
fringe benefit.
Nor does 29 C.F.R. 5.32(a) support the conclusion that the vacation
fund payment is a "deduction" from employee "wages." That regulation
[*](emphasis added)[*] states:
The act excludes amounts paid by a contractor or subcontractor for
fringe benefits in the computation of overtime. . . . It is clear from
the legislative history that in no event can the regular or [8][9] basic
rate upon which premium pay for overtime is calculated ... be less than
the amount determined by the Secretary of Labor as the basic hourly rate
(i.e. cash rate) under section 1(b)(1) of the Davis-Bacon Act. (See S.
Rep. No. 963, p.7) [*]Contributions by employees are not excluded from
the regular or basic rate upon which overtime is computed under these
statutes; that is, an employee's regular or basic straight-time rate
is computed on his earnings before any deductions are made for the
employees contributions to fringe benefits.[*] The contractor's
contributions or costs for fringe benefits may be excluded in computing
such rate so long as the exclusions do not reduce the regular or basic
rate contained in the wage determination.
The Administrator erroneously contends that the $1.05 hourly payment
-- although clearly paid by the employer to the vacation fund --
should not be excluded from the employees' regular hourly rates
because such payments do not meet the threshold requirement of being
contributions made by the employer directly into a fund.... The
vacation pay is treated the same as regular wages in that the employer
withholds income tax from the total cash payment including the vacation
pay.
(Administrator's Statement in Opposition to the Petition for Review
("Opposition") at p. 6; emphasis added). This analysis ignores the
patent fact (discussed in detail above) that the employer does actually
remit the monies directly to the fund, albeit after reflecting the
income for tax withholding purposes on an employee's pay statement./FN5/
The Administrator also argues that she "views [the HCA/Laborers plan]
as being tantamount to a forced savings plan, whereby employees have
agreed to have a portion of their paycheck deducted and deposited on their
behalf into a savings account." Opposition at p. 7, n.5. This view is
unsupported. The vacation plan in this case is, after all, a bona fide
fringe benefit, paid by the employer, into a beneficial trust to which
the employees have vested rights. In no way can the vacation plan be
analogized to a "forced savings plan." This plan lacks the indicia of a
savings plan including assignability and ownership of the earnings on
the principal.
Finally, the Administrator has argued that there is a valid policy
consideration for her interpretation that these payments are employee
deductions [9][10] and therefore includable in the basic hourly rate of
pay for laborers and mechanics. As stated in her Opposition (at p. 8):
Wage and Hour needs clear guidelines for determining basic hourly rates
of pay for purposes of ensuring that appropriate overtime premiums have
been paid. It is reasonable for Wage and Hour to follow a basic policy
that where money paid into a fund comes out of the employee's paycheck,
it is an employee contribution, and hence, not excludable from the
employee's regular rate of pay. Otherwise, Wage and Hour will be faced
with a great deal of uncertainty and the potential for unwarranted
reductions in employees' basic rates of pay.
However, this policy guideline is based on the false assumption that the
payment "comes out of" the employee's paycheck. This guideline,
moreover, reaches a result contrary to the clear language of the Act and
not explicitly required under the regulations. The guidelines suggested
in this opinion should be sufficiently clear for determining basic
hourly rates of pay and avoiding the potential for unwarranted
reductions in employees' basic rates of pay.
BY ORDER OF THE BOARD:
David A. O'Brien, Chair
Ruth E. Peters, Member
Karl J. Sandstrom, Member
Gerald F. Krizan, Esq.
Executive Secretary[10]
FOOTNOTES
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
/FN1/ AR Tab B, Exhibits 1 and 2.
/FN2/ At oral argument, Petitioner noted that one current wage
determination in the area continues to list the vacation benefit payment
as a fringe benefit, rather than as a part of the basic hourly rate.
This, stated counsel for the Administrator, is an error in light of the
Administrator's ruling in this case.
/FN3/ The Laborers have intervened in this proceeding and filed a
statement in support of HCA's arguments that the vacation plan payments
should be considered a bona fide fringe benefit and therefore excluded
from the basic hourly rate of pay.
/FN4/ Even if it were possible under Internal Revenue Service
regulations for HCA employers to establish an administratively
burdensome separate vacation benefit funding system -- without ever
recording the transaction in employee paychecks -- and continue to make
the payments directly into the vacation fund, the payments would still
not qualify for exclusion from the basic hourly rate pursuant to the
reasoning in Wage and Hour's ruling, since the payments would still be
taxable "wages" under the federal tax code. Indeed, when questioned at
oral argument, counsel for the Administrator stated that even under the
foregoing hypothetical plan (where the employer paid the vacation monies
directly to a fund without computing and recording the payment through
an employee's paycheck), Wage and Hour would still consider the tax
treatment as "wages" to be paramount and would therefore continue to
include the payment in the basic hourly rate. This is an anomalous
result that the Board should not allow to stand. Upon further
questioning, counsel for the Administrator could not postulate any
vacation benefit funding mechanism which would pass Wage and Hour's
muster, but was "sure" that a vacation fund payment plan -- validly
excludable from the basic hourly rate under the Administrator's test --
existed somewhere in the construction industry.
/FN5/ The employer withholds the applicable taxes and reflects the
income on the employee's pay statement to satisfy the employer's
obligation under the Internal Revenue Code.