Vigilantes, Inc. v. Administrator of Wage and Hour Div., U.S. Dept. of Labor, 91-1809

• Decision Date: 08 January 1992
• Docket Number: No. 91-1809,91-1809
• Citation: 968 F.2d 1412
• Parties: 30 Wage & Hour Cas. (BNA) 1609, 122 Lab.Cas. P 35,668, 38 Cont.Cas.Fed. (CCH) P 76,365 VIGILANTES, INC., et al., Petitioners, Appellants, v. ADMINISTRATOR OF WAGE AND HOUR DIVISION, U.S. DEPARTMENT OF LABOR, et al., Respondents, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1412

968 F.2d 1412

30 Wage & Hour Cas. (BNA) 1609, 122 Lab.Cas.

P 35,668,

38 Cont.Cas.Fed. (CCH) P 76,365

VIGILANTES, INC., et al., Petitioners, Appellants, v. ADMINISTRATOR OF WAGE AND HOUR DIVISION, U.S. DEPARTMENT OF LABOR, et al., Respondents, Appellees.

No. 91-1809.

United States Court of Appeals First Circuit.

Heard Jan. 8, 1992.

Decided July 9, 1992.

George E. Cranwell with whom Cranwell & O'Connell, Arlington, Va., was on brief for petitioners, appellants.

Carol Arnold with whom David S. Fortney, Deputy Sol. of Labor, Monica Gallagher, Associate Sol., William J. Stone, Counsel for Appellate Litigation, Patricia M. Rodenhausen, Associate Regional Sol., Washington, D.C., Daniel Lopez-Romo, U.S. Atty., and Fidel Sevillano, Asst. U.S. Atty., Hato Rey, P.R., were on brief, for respondents, appellees.

Before TORRUELLA, Circuit Judge, ALDRICH and CAMPBELL, Senior Circuit Judges.

BAILEY ALDRICH, Senior Circuit Judge.

Vigilantes, Inc., a government contractor, and its president, Angel Pedrosa appeal from the dismissal, as a result of cross-motions for summary judgment, of their petition to overturn a final decision and order of the Deputy Secretary of Labor (Secretary) under the McNamara-O'Hara Service Contract Act (SCA). ¹

Background

The SCA requires independent contractors who perform service contracts for the federal government to meet certain labor standards. The independent contractor is required to pay its employees certain minimum wages and fringe benefits and to meet certain minimum standards of safety in working conditions. ² The failure of a contractor to comply with the SCA and the regulations promulgated thereunder ³ may result in liability and debarment from contracting with the government for three years. ⁴

Pursuant to the set aside program for minority contractors of Section 8(a) of the Small Business Act, ⁵ Vigilantes was awarded ten contracts to provide security guard services to the Federal Aviation Administration (FAA) and the General Services Administration (GSA) in Puerto Rico and the United States Virgin Islands for the period beginning either September 1 or October 1, 1977 and ending May 1, 1982. ⁶

On September 20, 1981, the Department of Labor (DOL) filed a complaint against Vigilantes and its president, Angel Pedrosa, initially charging them with failing to pay service employees the minimum wages and fringe benefits mandated by the SCA, or those provided in the collective bargaining agreement, and failing to keep proper records of employment pursuant to 29 C.F.R. § 4.6(g). The complaint was amended in 1984 to include an allegation that Vigilantes failed to pay certain service employees overtime pay as required under the Contract Work Hours and Safety Standards Act. ⁷ Based on these violations, the DOL claimed that appellants were not only liable for the amounts owed, but that they should also be barred from contracting with the government pursuant to Section 5(a) of the SCA. ⁸

The Administrative Law Judge's Decision

Vigilantes' first contract with the FAA became effective on October 1, 1977. The Administrative Law Judge (ALJ) found that prior to entering into that contract, Vigilantes, through its president, Angel Pedrosa, was aware of the existence of a collective bargaining agreement between the predecessor contractor and the Industrial, Technical and Professional Employees Division of the National Maritime Union of America (the Union). It is undisputed that the predecessor contractor and the Union knew, by "informal notification," by November of 1976 that the predecessor would not be awarded a renewal of the contract since it had been set aside for award to a minority contractor pursuant to Section 8(a) of the SBA. Nevertheless, the predecessor contractor and the Union agreed on July 29, 1977 to a supplemental collective bargaining agreement establishing a higher wage rate to become effective the day after the predecessor's contract with the FAA would expire. This supplemental agreement provided for a twenty cent raise in the hourly rate to $3.20, with substantial fringe benefits.

Section 4(c) of the SCA provides in pertinent part:

No contractor or subcontractor under a contract, which succeeds a contract subject to this chapter and under which substantially the same services are furnished, shall pay any service employee under such contract less than the wages and fringe benefits, including accrued wages and fringe benefits, and any prospective increases in wages and fringe benefits provided in a collective-bargaining as a result of arm's-length negotiations, to which such service employees would have been entitled if they were employed under the predecessor contract: Provided, That in any of the foregoing circumstances such obligations shall not apply if the Secretary finds after a hearing in accordance with regulations adopted by the Secretary that such wages and fringe benefits are substantially at variance with those which prevail for services of a character similar in the locality.

41 U.S.C. § 353(c) (initial emphasis supplied).

Under the literal terms of Section 4(c), Vigilantes as successor contractor under the 1977 amended contract appears to have been required to pay its employees $3.20 per hour. In the notice of award of contract given to Vigilantes by the FAA, reference was made to the predecessor collective bargaining agreement, but neither the collective bargaining agreement nor its supplemental version were attached. Instead, the 1977 contract included an erroneous minimum wage determination attachment, which listed the employees' pay rate at $2.45 per hour, rather than the supplemental collective bargaining agreement's rate of $3.20.

The ALJ concluded that Vigilantes was not bound by its predecessor's collective bargaining agreement because it was not negotiated at "arms-length." The ALJ found that the appropriate wage rate was $2.65 per hour. He further held that with respect to the other contracts Vigilantes had committed violations of the minimum wage fringe benefits provisions of the SCA, including violations for overtime, holiday and vacation pay, and that Vigilantes was liable for the cost of gun permits prior to October 1978 and the expense of obtaining a guard license and renewal of such license. Using Vigilantes' own computation of the SCA violation (except for the calculation of holiday pay and fringe benefits owed under the Virgin Islands contracts), the ALJ assessed appellants' liability for these violations at more than $70,000. Notwithstanding his finding that Vigilantes had incurred in several violations in its performance of the ten contracts, the ALJ concluded that debarment of Vigilantes was unwarranted because Vigilantes' violations were not the result of "intentional wrongdoing" and Vigilantes made good faith efforts to correct errors when notified of them.

The Decision of the Secretary

The DOL filed a petition with the Secretary for review of the ALJ' decision. The Secretary reversed both findings. As to the first he held that in considering the Section 4(c) issue, the ALJ failed to consider the implementing regulation, 29 C.F.R. § 4.6(d)(2), which provided, in 1978, ⁹ in pertinent part:

If this contract succeeds a contract, subject to the Service Contract Act of 1965 as amended, under which substantially the same services were furnished and service employees were paid wages and fringe benefits provided for in a collective bargaining agreement, then in the absence of a minimum wage attachment for this contract neither the contractor nor any subcontractor under this contract shall pay any service employee performing any of the contract work less than the wages and fringe benefits, provided for in such collective bargaining agreements, to which such employee would be entitled, if employed under the predecessor contract.... No contractor or subcontractor under this contract may be relieved of the foregoing obligation unless the limitations of § 4.1c(b) apply or unless the Secretary of Labor or his authorized representative determines that the collective bargaining agreement applicable to service employees employed under the predecessor contract was not entered into as a result of arms-length negotiations, or finds, after a hearing as provided in Labor Department regulations, 29 C.F.R. § 4.10, that the wages and fringe benefits provided for in such an agreement are substantially at variance with those which prevail for services of a character similar in the locality.

29 C.F.R. § 4.6(d)(2) (emphasis supplied.) According to the Secretary, Vigilantes had the burden of requesting a hearing and since they never sought to have the Secretary determine that the collective bargaining agreement at issue was not entered into after arms-length negotiation, they "were not relieved of their statutory obligation to pay the $3.20 per hour wage rate provided in the collective bargaining agreement."

The Secretary further held that the ALJ erred in concluding that appellants had met their burden of establishing the existence of "unusual circumstances" to warrant relief from the debarment sanction as required by the implementing regulation, 29 C.F.R. § 4.188(b)(3)(i). Although he found no history of repeated violations of the Act, he concluded that Vigilantes' violations were serious in nature, involving a significant amount of money and affecting many employees.

The District Court's Opinion

Vigilantes sought review of the Secretary's Final Decision in the United States District Court for the District of Puerto Rico, asserting that the Secretary's conclusion that Vigilantes was bound by the wage rates set forth in their predecessor contractor's collective bargaining agreement and his order debarring Vigilantes pursuant to Section 5(a) of the SCA were "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). In accordance with Section 4(a) of the SCA, the district court applied the ...