171 F.3d 58 (1st Cir. 1999), 98-1830, Dantran, Inc. v. United States Dept. of Labor

Docket Nº:98-1830.
Citation:171 F.3d 58
Party Name:(BNA) 334 DANTRAN, INC., et al., Plaintiffs, Appellants, v. U.S. DEPARTMENT OF LABOR, Defendant, Appellee.
Case Date:March 29, 1999
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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171 F.3d 58 (1st Cir. 1999)

(BNA) 334

DANTRAN, INC., et al., Plaintiffs, Appellants,

v.

U.S. DEPARTMENT OF LABOR, Defendant, Appellee.

No. 98-1830.

United States Court of Appeals, First Circuit

March 29, 1999

Heard Jan. 7, 1999.

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[Copyrighted Material Omitted]

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Richard P. Romeo, with whom Seth D. Harrow and Smith, Elliott, Smith & Garmey, P.A. were on brief, for appellants.

Mary J. Rieser, Attorney, United States Department of Labor, with whom Judith E. Kramer, Deputy Solicitor, Steven J. Mandel, Associate Solicitor, and Paul L. Frieden, Counsel for Appellate Litigation, were on brief, for appellee.

Before SELYA, Circuit Judge, CUDAHY, [*] Senior Circuit Judge, and STAHL, Circuit Judge.

SELYA, Circuit Judge.

The Secretary of Labor (the Secretary) accused Dantran, Inc., and its principal, Robert C. Holmes (collectively, the plaintiffs), of having violated certain provisions of the McNamara-O'Hara Service Contract Act of 1965, 41 U.S.C. §§ 351-358 (the Act), and the regulations thereunder. She wished to debar the plaintiffs, that is, to place them on a list of contractors with whom no government entity may transact business, for a period of three years. The district court, echoing a determination of the Labor Department's Administrative Review Board (the ARB), authorized debarment. We reverse.

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I. BACKGROUND

For over a decade, the United States Postal Service routinely awarded contracts to Dantran for hauling mail between various sites in Maine, Vermont, New Hampshire, and Massachusetts. During this period, Dantran operated profitably; in its heyday, the company employed approximately 40 persons and generated annual revenues in the $2,000,000 range. The tectonic plates shifted in mid-1991, when the Secretary, acting on a compliance officer's conclusion that the company's practices violated certain regulations dealing with, among other things, employee fringe benefit payments, "froze" funds owed to Dantran by the Postal Service.

If the Secretary's earlier investigation of Dantran provided any baseline for comparison, the results of the 1991 probe must have come as something of a shock. In 1989, the Secretary had sent a compliance officer to inquire into Dantran's payroll practices. On that occasion, the investigator, George Rioux, uncovered no irregularities. Rioux's final report specifically noted that there were no problems with Dantran's fringe benefit payment practices.

When the Wage and Hour Division returned in 1991, Dantran's practices had not changed at all from 1989. The Secretary's outlook apparently had: shortly after the new compliance officer, Scott Wilkinson, began his review, he informed the plaintiffs that two of Dantran's routine practices--paying employees on a monthly basis and capping fringe benefits at 40 hours per week regardless of the number of contracts, or hours per contract, an employee actually worked--violated the Act.

In response to Wilkinson's admonitions, the plaintiffs promptly devised a plan to inaugurate semi-monthly wage payments and commenced negotiations to identify the amounts due in respect to the cross-crediting of fringe benefits. Wilkinson nonetheless recommended that the Secretary freeze some $20,000 owed to Dantran by the Postal Service to satisfy his estimate of what Dantran owed its employees by virtue of cross-crediting. The Secretary obliged. The timing could not have been worse. Cf. Benjamin Franklin, Poor Richard's Almanac (1758) (explaining how for want of a nail, the kingdom was lost). Without the withheld funds, Dantran could not cover insurance premiums on its fleet of trucks and, unable to keep the uninsured trucks in service, suspended operations. This, in turn precipitated a further withholding of funds, to the tune of some $60,000, without which Dantran could not meet its July 1991 payroll.

Dantran and the Secretary eventually settled all wage-related matters. The settlement totaled roughly $67,000, ($40,000 of which consisted of the wages Dantran had been unable to pay in July 1991). Despite the fact that the settlement made Dantran's work force whole, Wilkinson's final report pressed for debarment "because of the size of the violations and the fact that the firm was investigated once before." The Secretary acquiesced and, in her complaint, attempted to justify so extreme a sanction on the basis of cross-crediting and an alleged failure adequately to maintain records. The case was tried before an Administrative Law Judge (ALJ). During the hearing, the Secretary raised two new issues: the frequency of payment of wages and Dantran's failure to pay its employees in July 1991 (when the Secretary froze its revenue stream).

In the end, the ALJ concluded that Holmes's testimony was credible 1 and that neither he nor Dantran should be debarred. In his view, the case boiled down to cross-crediting and frequency of wage payments. He determined that Dantran's practices in these respects did not transgress

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the regulations. As an alternative holding, the ALJ further concluded that Dantran had continued the challenged practices in reasonable reliance on the results of the Secretary's earlier investigation and that the case therefore displayed unusual circumstances sufficient to warrant relief from debarment. See 41 U.S.C. § 354(a). These circumstances included, in addition to the fact that the plaintiffs had been misled by the Secretary's earlier investigation and by statements of various Postal Service employees, three additional facts: (1) Dantran had not acted culpably, willfully, or deliberately to violate the law; (2) it had an excellent history of compliance with the wage and hour laws; and (3) the plaintiffs had fully cooperated with the Secretary's inquiry.

The Secretary appealed the ALJ's ruling to the ARB, which reversed. It found that the cross-crediting and frequency of payment practices violated the regulations and that Dantran had been culpable in disregarding the law because, during the 1989 indagation, Rioux had given Holmes a copy of the regulations (which should have alerted Dantran to the illegality of its actions). The ARB deemed this finding of culpable disregard dispositive on the question of debarment.

The plaintiffs sought judicial review of the ensuing debarment order. In a brief, unpublished memorandum, the district court rejected their plea. This appeal followed. Because the ARB predicated its debarment order on two of Dantran's practices--cross-crediting and making monthly wage payments--we discuss each practice.

II. CROSS-CREDITING

With certain exceptions not relevant here, the Act provides that every service contract entered into by the United States "shall contain" provisions specifying the fringe benefits which those employees of the contractor who perform the work will receive. See 41 U.S.C. § 351(a)(2). The Act lists the types of fringe benefits that must be included in such a package, including items such as health insurance, life insurance, and retirement benefits. See id. Instead of prescribing a single method for the delivery of these benefits, the Act permits employers to choose the manner in which they wish to satisfy their statutory obligation. Exercising this latitude, many employers opt to discharge parts of it by making payments in cash to the affected employee (or to a union trust fund on his behalf) in a sum equivalent to the value of certain benefits owed.

The Act leaves room for the operation of the collective bargaining process in valuing fringe benefits. See id. Often, however, service contractors abide by general per-hour valuations determined by the Secretary, based on the Secretary's assessment of prevailing fringe benefit arrangements applicable to similarly situated employees in a particular locality. See id.; see also 29 C.F.R. § 4.51. Thus, for example, if truck drivers in rural Vermont typically earn fringe benefits worth $2.80 per hour, the Secretary might well ask a service contractor to pay that amount to its truck drivers who operate principally in rural Vermont. The particular wage/benefit terms applicable to a specific service contract between an employer and a government agency typically are written into that contract, and so it was with the contracts entered into between Dantran and the Postal Service.

The dispute in this case concerns not the values assigned to fringe benefit payments (i.e., the per-hour rates), but the total number of hours per week for which a service contractor must make payments to its employees. Relying on the regulations--the statute is silent on the matter--the Secretary argues, and the ARB agreed, that when employees work on multiple contracts for a single employer, they are entitled to fringe benefits corresponding to every hour they work on each particular contract in a given week, up to a maximum of 40 hours worth of fringe benefits per contract. In other words, under the Secretary's reading of the regulations,

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fringe benefit determinations turn not on the total number of hours worked per week, but on the number of different contracts to which an employee is assigned.

To illustrate, assume that a service contractor has three separate mail-hauling contracts with the Postal Service, and that in a given week worker A spends 25 hours on contract X, 20 hours on contract Y, and 10 hours on contract Z. According to the Secretary, worker A must receive an incremental payment equal to 55 hours worth of fringe benefits, notwithstanding that worker B, who likewise toiled for 55 hours that week but spent it all in carrying out contract X, will only receive a payment equal to 40 hours worth of fringe benefits. In contrast, Dantran's interpretation is not contract-specific. On its understanding, both A and B would receive...

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