American Federation of Labor and Congress of Indus. Organizations v. Donovan, 84-5072

• Decision Date: 22 March 1985
• Docket Number: No. 84-5072,84-5072
• Citation: 757 F.2d 330
• Parties: 27 Wage & Hour Cas. (BN 145, 244 U.S.App.D.C. 255, 53 USLW 2489, 102 Lab.Cas. P 34,651 AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS, et al., Appellants v. Raymond J. DONOVAN, Secretary of Labor, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 330

757 F.2d 330

27 Wage & Hour Cas. (BN 145, 244 U.S.App.D.C. 255,

53 USLW 2489, 102 Lab.Cas. P 34,651

AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS, et al., Appellants v. Raymond J. DONOVAN, Secretary of Labor, et al.

No. 84-5072.

United States Court of Appeals District of Columbia Circuit.

Argued Nov. 2, 1984.

Decided March 22, 1985.

Laurence Gold, Washington, D.C., with whom George Kaufman, Laurence J. Cohen, Terry R. Yellig, Robert J. Connerton, Linda Lipsett, Kathy L. Krieger, Washington D.C., and Howard Schulman, New York City, were on brief, for appellants.

John C. Hoyle, Atty., U.S. Dept. of Justice, Washington, D.C., with whom Richard K. Willard, Acting Asst. Atty. Gen., U.S. Dept. of Justice, Joseph E. diGenova, U.S. Atty., and Anthony J. Steinmeyer, Atty. U.S. Dept. of Justice, Washington, D.C., were on brief, for appellees.

David S. Cohen and Tara Harvey, Washington, D.C., were on brief for Computer and Communications Industry Ass'n, amicus curiae, urging affirmance. Barbara A. Duncombe also entered an appearance for amicus curiae.

Thomas M. Susman was on brief, for Computer and Business Equipment Manufacturers Ass'n, et al., amicus curiae, urging affirmance.

Lawrence J. Latto and Patrick M. Hanlon, Washington, D.C., were on brief, for National Forest Products Association, amicus curiae, urging affirmance.

Before GINSBURG, BORK and STARR, Circuit Judges.

Opinion for the Court filed by Circuit Judge STARR.

STARR, Circuit Judge:

This action grows out of a rulemaking by the Department of Labor amending regulations which implement the Service Contract Act of 1965. 41 U.S.C. Secs. 351-358 (1982) (as amended). Appellants brought suit in the United States District Court for the District of Columbia seeking an injunction against implementation of eight of the final rules. The District Court granted summary judgment in favor of the Secretary of Labor with respect to all eight rules. See American Federation of Labor & Congress of Industrial Organizations v. Donovan, 582 F.Supp. 1015 (D.D.C.1984). We affirm the District Court's judgment with respect to seven of the regulations but conclude that the adoption of the eighth was violative of the notice and comment requirements of the Administrative Procedure Act (APA), 5 U.S.C. Sec. 553(b)(3) (1982).

I

A

The Service Contract Act (the Act) provided the third leg in Congress' support of labor standards in federal contracting. Workers on federal or federally funded construction contracts were already protected under the Davis-Bacon Act, 40 U.S.C. Secs. 276a to 276a-5 (1982), which was enacted in 1931, while those performing work under federal supply contracts were protected under the Walsh-Healey Public Contracts Act, 41 U.S.C. Secs. 35-45 (1982), passed by Congress in 1936. Contracts for services to be provided to the federal government (and the District of Columbia) were perceived by Congress as the only remaining category of federal contracts in which no protection of labor standards existed; the Act, adopted in 1965, was aimed at providing that protection. See S.Rep. No. 798, 89th Cong., 1st Sess. (1965); H.R.Rep. No. 948, 89th Cong., 1st Sess. (1965), U.S.Code Cong. & Admin.News p. 3737.

By its terms, the Act applies to contracts in excess of $2,500 the principal purpose of which is the furnishing of services to the Government through the use of service employees. The Act mandates that such employees be paid no less than the rate determined by the Secretary of Labor to be the prevailing rate in "the locality." Any fringe benefits prevailing in "the locality" are also protected. Other provisions of the Act (1) prohibit payment of wages at less than the minimum wage; (2) require safe and sanitary working conditions; and (3) mandate notice to employees of benefits due under the Act. Penalties are provided for non-compliance. Finally, specific exemptions are carved out for contracts already covered by the Davis-Bacon or Walsh-Healey Acts or those falling into several other categories. The Secretary is also vested with authority to grant "variations, tolerances and exemptions ... [as he may find] necessary and proper in the public interest or to avoid the serious impairment of government business." 41 U.S.C. Sec. 353(b).

The Act was amended in 1972, see Pub.L. No. 92-473, 86 Stat. 789 (1972), to correct perceived problems that had developed in the statute's administration. One purpose of the 1972 amendments was to assure that "employees working for service contractors under a collective bargaining agreement will have wages and fringe benefits under a new service contract no lower than those under their current agreement." S.Rep. No. 1131, 92d Cong., 2d Sess. 1 (1972), U.S.Code Cong. & Admin.News p. 3534. A second legislative purpose was to limit the Secretary's discretion in granting exemptions, variations and tolerances under section 353(b). See H.R.Rep. No. 1251, 92d Cong., 2d Sess. 3-4 (1972). This limitation on administrative discretion was accomplished by providing that the Secretary's authority was to be exercised only (1) in "special circumstances" and (2) when such an exemption, variation or tolerance would be in accord with the remedial purposes of the Act. Id. at 4-5.

The Act was further amended in 1976, see Pub.L. No. 94-489, to restore the status quo ante in light of the decision in Descomp v. Sampson, 377 F.Supp. 254 (D.Del.1974). The Descomp court had held that "white collar" workers were not covered by the Act. Congress squarely rejected that position, amending the statute to make it clear that both "white collar" and "blue collar" employees are to be considered "service employees" within the meaning of the Act. See H.R.Rep. No. 1571, 94th Cong., 2d Sess. 2 (1976), U.S.Code Cong. & Admin.News pp. 5211, 5212.

The sections or subsections of the amended statute relevant to the inquiry at hand are codified at 41 U.S.C. Secs. 351-358 (1982). In view of the pivotal importance of the statutory language itself, we set forth in the text which follows the pertinent parts of the measure:

Sec. 351. Required contract provisions; minimum wages

(a) Every contract (and any bid specification therefor) entered into by the United States or the District of Columbia in excess of $2,500, except as provided in section 356 of this title, whether negotiated or advertised, the principal purpose of which is to furnish services in the United States through the use of service employees shall contain the following:

(1) A provision specifying the minimum monetary wages to be paid the various classes of service employees in the performance of the contract ... as determined by the Secretary ... in accordance with prevailing rates for such employees in the locality, or, where a collective-bargaining agreement covers any such service employees, in accordance with the rates for such employees provided for in such agreement....

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Sec. 353. Law governing Secretary's authority; limitations and regulations allowing variations, tolerances and exemptions; predecessor contracts, applicability; duration of contracts

(a) Sections 38 and 39 of this title [discussed in the text which follows] shall govern the Secretary's authority to enforce this chapter, make rules, regulations, issue orders, hold hearings, and make decisions based upon findings of fact, and take other appropriate action hereunder.

(b) The Secretary may provide such reasonable limitations and may make such rules and regulations allowing reasonable variations, tolerances, and exemptions ... but only in special circumstances where he determines that such limitation, variation, tolerance, or exemption is necessary and proper in the public interest or to avoid the serious impairment of government business, and is in accord with the remedial purpose of this chapter to protect prevailing labor standards.

(c) 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 for in a collective-bargaining agreement 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.

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Sec. 356. Exemptions

This chapter shall not apply to--

(1) any contract of the United States or District of Columbia for construction, alteration and/or repair, including painting and decorating of public buildings or public works;

(2) any work required to be done in accordance with the provisions of the Walsh-Healey Public Contracts Act;

41 U.S.C. Secs. 351, 353, 356. Section 38, incorporated by reference in section 353(a) (quoted on the prior page), grants the Secretary of Labor authority to make, amend and rescind rules and regulations necessary to carry out the provisions of the Walsh-Healey Act. See 41 U.S.C. Sec. 38. Equivalent powers to those enjoyed under Walsh-Healey are therefore granted to the Secretary under the Service Contract Act.

B

Regulations implementing the Act are set forth in 29 C.F.R. Part 4. The regulations are voluminous, covering almost eighty pages in the Code of Federal Regulations. On December 28, 1979, the Labor Department issued a notice of proposed rulemaking to carry out, by its terms, the first "[t]horough substantive updating and clarification [of the regulations] ... since 1969...." 44 Fed.Reg. 77036, 77036 (1979). The changes were...