Fort Hood Barbers Ass'n v. Herman , 137 F.3d 302 ( 1998 )

REVISED, April 8, 1998
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 97-50570
Summary Calendar
____________________
FORT HOOD BARBERS ASSOCIATION;
HENRY TORREZ, JR.; and GILBERT
BARRATACHEA,
Plaintiffs-Appellants,
versus
ALEXIS M. HERMAN, Secretary,
United States Department of Labor
and Any Successor; and NILA STOVALL,
Chief of the Branch of Service
Contract Wage Determination of
the United States Department of
Labor, and Any Successor,
Defendants-Appellees,
GINO MORENA ENTERPRISES,
Intervenor.
________________________________________________
Appeal from the United States District Court
for the Western District of Texas
________________________________________________
March 30, 1998
Before WIENER, BARKSDALE, and EMILIO M. GARZA, Circuit Judges.
PER CURIAM:
Plaintiffs-Appellants Fort Hood Barbers Association, Henry
Torrez, Jr., and Gilbert Barratachea (collectively plaintiffs)
appeal from the district court’s grant of summary judgment in favor
of Defendants-Appellees Alexis M. Herman, Secretary of the United
States Department of Labor and any successor, Nila Stovall, Chief
of the Branch of Service Contract Wage Determination of the United
States Department of Labor and any successor, and Intervenor Gino
Morena Enterprises (collectively defendants), affirming the
decisions of the Department of Labor’s Administrator of the Wage
and Hour Division and the Administrative Review Board. Plaintiffs
contend that the district court erred in concluding that (1) the
McNamara-O’Hara Service Contract Act (SCA)1 does not require the
application of wages and fringe benefits from a pre-existing
collective bargaining agreement to the full term of a successor
contract, and (2) the Department of Labor did not act arbitrarily
or capriciously in holding that plaintiffs’ administrative
challenge to the Department’s 1993 wage determination was untimely.
Following a de novo review of the record, the arguments of
counsel in the appellate briefs, and especially the thorough
explication of the district court in its order of May 14, 1997, we
conclude that the district court did not err in awarding summary
judgment on these claims. We agree with the district court that
this is an extremely close case. Considering the deference due the
Department’s regulatory approach2 —— implemented pursuant to
specific statutory authority —— and its interpretation of its own
regulations,3 however, we are satisfied that the district court
reached the correct conclusion. Moreover, as the Secretary’s brief
notes, adoption of the plaintiffs’ position would create
1
41 U.S.C. §§ 351-358 (1992).
2
See Auer v. Robbins, 117 S. Ct. 905, 909 (1997); Clark v.
Unified Servs., Inc., 659 F.2d 49, 52 (5th Cir. 1981).
3
Auer, 117 S. Ct. at 911.
disincentives for collective bargaining.4 As the district court’s
order provides a comprehensive, well-reasoned analysis of these
issues, we adopt that court’s opinion as our own and append a copy
hereto. Accordingly, the order of the district court is, in all
respects,
AFFIRMED.
ENDRECORD
4
The facts of this case aptly illustrate how a collective
bargaining process may be undercut: Plaintiffs had a collective
bargaining agreement (CBA) with the prior contractor to Gino Morena
Enterprises (Morena). After Morena won the contract, the CBA
lasted through the first year of Morena’s contract before expiring,
and, as section 4(c) of the SCA mandates, the CBA’s provisions
applied to the first year of the Morena contract. Plaintiffs and
Morena were unsuccessful in reaching a new CBA, so that at the time
of the 1993 wage determination of which the plaintiffs complain, no
CBA was in effect. Because the expired CBA was more advantageous
to the plaintiffs than the 1993 wage determination, they now want
the CBA terms to apply to the entire, five-year duration of the
Morena contract. If section 4(c) were to create such a result for
the entire duration of the successor contractor, the successor
contractor (here, Morena) and the union would have little incentive
to negotiate a new CBA; the party relatively advantaged by the
existing or lapsed CBA (here, the plaintiffs) could obstruct
collective bargaining and insist that the expired CBA continue for
the duration of the contractor’s contract, thereby receiving a
better bargain than it could negotiate for itself. By contrast,
section 4(d) of the SCA and the Secretary’s regulation in question,
29 C.F.R. § 4.145(b), partially ameliorate the disincentives to
collective bargaining by providing for biannual wage determinations
and for each two-year period to be treated as a “wholly new
contract[],” at least where no CBA exists, thereby forcing the
parties to bargain or to pay and receive the prevailing wage rate.
Further, as the district court opinion correctly notes, § 4.145(b)
actually benefits workers in situations in which they receive less
than the prevailing wage rate by creating “new” service contracts
and hence, upward adjustments in their wages every two years.
3
APPENDIX
ORDER
Before the Court are Plaintiffs' Motion for Summary Judgment
[# 16], Defendants' Response to Plaintiffs' Motion for Summary
Judgment and Cross Motion for Summary Judgment [# 23], Plaintiffs'
Reply to Defendants' Response to Plaintiffs' Motion for Summary
Judgment and Cross-Motion for Summary Judgment [# 19], Gina Morena
Enterprise's Supplemental Response [# 26], Plaintiffs' Letter Brief
Filed February 6, 1997[# 25], Defendants' Letter Brief received by
the court February 13, 1997, Plaintiffs' Letter Brief received by
the Court February 20, 1997, and Defendants' Letter Brief received
by the court February 21, 1997. Rarely does clarity shine its
calming face in a case with briefing of such order of magnitude,
and this case is certainly no exception.5
Contours of the Dispute
Plaintiff Association represents barbers working at Fort Hood,
Texas. The other plaintiffs are members of the Association. In
1988, the barbers were employed at Fort Hood by Ollie Weaver
Enterprises ("Weaver"). On July 1, 1988, the barbers, through the
United Food and Commercial Workers Union, AFL-CIO, Local 540
("UFCW"), entered into a collective bargaining agreement ("CBA")
with Weaver covering compensation terms and prohibiting the taking
5
That is not to say, however, that the persistence of the
parties in tangling with a difficult issue is not appreciated.
4
of tip credits against wages. The CBA was a four-year agreement,
set to expire in 1992. Weaver's contract with the Army and Air
Force Exchange Services ("AAFES") expired, however, in 1991.
Shortly before expiration of the contract, the AAFES opened the
bidding process and awarded the new contract, a five-year
concessionaire contract, to Gino Morena Enterprises ("Morena") on
January 31, 1991, with performance to commence on March 21, 1991.
The contract, a multi-year service contract not subject to annual
appropriations, was governed by the provisions of the McNamara-
O'Hara Service Contract Act of 1965 ("SCA"), Pub.L. No. 89-286, 79
Stat. 1034 (codified as amended at 41 U.S.C. §§ 351-58 (1994)).
The parties dispute (1) the level of wages and fringe benefits
that the SCA obligated Morena to pay the barbers6 at various times
under the contract; and (2) whether Morena could take tip credits
against wages. Section 4(c) of the SCA provides:
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.
41 U.S.C. § 353(c). In accordance with this provision and 41
6
It appears that the same barbers that had worked under Weaver
continued to work at Fort Hood under Morena.
5
U.S.C. § 351(a),7 the Wage and Hour Division of the Department of
Labor issued, at the inception of the 1991 contract, a "wage
determination," WD 74-0110 (rev.8) ["1991 wage determination"],
stating that the wages and fringe benefits to be paid by Morena to
the barbers at Fort Hood were those contained in the UFCW-Weaver
CBA. Two years later, in accordance with the Secretary's
regulations that are here the primary subject of dispute, the Wage
and Hour Division issued WD 74-0110 (rev.11) ["1993 wage
determination"] which, instead of incorporating the rates and
benefits provided under the UFCW-Weaver CBA, reflected the
Secretary's determination of the prevailing rates and benefits for
the locality. Morena apparently paid the barbers in accordance
with this wage determination through the remainder of the five-year
contract.
Administrative History
On November 19, 1993, plaintiffs requested administrative
review of the 1993 wage determination, contending that (1) the
rates and benefits set in the 1991 wage determination, reflecting
the CBA rates and benefits, should apply to the full five years of
the Morena contract pursuant to Section 4(c) of the SCA; and (2)
7
41 U.S.C. § 351(a) provides that every contract subject to
the SCA shall contain provisions specifying the "minimum monetary
wages" and the fringe benefits to be paid to employees performing
services under the contract as determined by the Secretary in
accordance with the wages and benefits "prevailing" in the locality
"or, where a collective-bargaining agreement covers any such
service employees," in accordance with the wages and fringe
benefits provided for in such agreement. These determinations made
by the Secretary are known as "wage determinations." In no
instance may a wage determination set wages lower than the minimum
wage set in the Fair Labor Standards Act. Id.6
Morena's practice of crediting tips against wages violated the SCA
and its accompanying regulations. After relentless effort by the
plaintiffs, including resort to the Administrative Review Board and
institution of this lawsuit, the Administrator of the Wage and Hour
Division finally, and with inexcusable tardiness, rendered on July
24, 1996 a decision upholding both the 1993 wage determination and
Morena's tip credit practice. The Administrator also ruled
untimely an argument made by the plaintiffs that the 1993 wage
determination, even assuming it was properly made based on
prevailing rates rather than the rates set in the UFCW-Weaver CBA,
did not accurately reflect wage rates prevailing in the locality.8
Plaintiffs appealed the Administrator's decision to the
Administrative Review Board, which upheld the Administrator's
ruling on November 12, 1996.
The Administrator and the Administrative Review Board based
their decisions on the Secretary's regulation interpreting and
implementing section 4(d) of the SCA. Under that section,
government service contracts
may, if authorized by the Secretary, be for any term of years
not exceeding five, if each such contract provides for the
periodic adjustment of wages and fringe benefits pursuant to
future determinations, issued in the manner prescribed in
section 351 of this title9 no less often than once every two
years during the term of the contract, covering the various
classes of service employees.
8
Plaintiffs articulated this contention for the first time in
this federal court lawsuit filed May 17, 1996 and submitted the
question in their amended petition for review to the Administrative
Review Board prior to the ruling by the Administrator.
9
See supra note 3 (describing § 351 and the issuance of wage
determinations).
7
41 U.S.C. § 353(d). The regulation interpreting and implementing
this provision provides for biennial wage determinations which are
characterized as "amendments" to the contract. See 29 C.F.R. §
4.145(b) (1996). As such, a multi-year contract is "treated as [a]
wholly new contract[ ] for the purposes of the application of the
Act's provisions and regulations thereunder at the end of the
second year and again at the end of the fourth year, etc." Id. The
Administrator reasoned that because the 1993 wage determination
issued at the end of the first two years of the Morena contract
created a new contract for purposes of the SCA, Morena became his
own successor contractor in the second two-year period of his
five-year government service contract. See 29 C.F.R. § 4.163(e).10
The Administrator further reasoned that because Morena had not
entered into a collective bargaining agreement of his own with his
employees during the first two year term (the "predecessor
contract"), section 4(c) of the SCA did not apply to the second
two-year term (the "successor contract") and the new wage
determination reflecting locally prevailing wage rates was proper.
With regard to the tip credit contention, the Administrator
concluded that Morena's practice of crediting tips against wages
was authorized under 29 C.F.R. § 4.6(q). That regulation provides:
An employee engaged in an occupation in which she or he
10
This regulation emphasizes that "[t]he operative words of
section 4(c) refer to "contract' not "contractor' " and concludes
that "the statute is applicable by its terms to a successor
contract without regard to whether the successor contractor was
also the predecessor contractor." 29 C.F.R. § 163(e) (1996)
(emphasis omitted). Therefore, "[a] contractor may become its own
successor...." Id.8
customarily and regularly receives more than $30 a month in
tips may have the amount of tips credited by the employer
against the minimum wage....
The regulation imposes certain conditions an employer must meet
before taking the credit, including a proviso that "[t]he use of
such tip credit must have been permitted under any predecessor
collective bargaining agreement applicable by virtue of section
4(c) of the Act." Id. § 4.6(q)(4). The Administrator concluded
that because section 4(c) did not apply to Morena's second two-year
term of the five year contract, neither did this proviso apply.
The Administrative Review Board affirmed the conclusions of
the Administrator in a Final Decision and Order which constitutes
a final decision by the Secretary. See Secretary's Order 2-96, 61
Fed.Reg. 19978 (1996). Plaintiffs' instant lawsuit, held in
abeyance until the Final Decision and Order issued, is now ripe for
decision.
In their Motion for Summary Judgment, plaintiffs essentially
contend that (1) the decision of the Secretary violates the
statutory requirements of the SCA, (2) the Secretary's
interpretation of its own regulations is erroneous, (3) even
assuming that the UFCW-Weaver CBA rates do not apply to the 1993
wage determination, the Department failed to properly determine the
prevailing rates in the locality, and (4) the Secretary's
determination that Morena's practice of taking tip credits is
statutorily permissible is erroneous.
Standard of Review
In reviewing administrative action taken pursuant to a
9
regulation issued to interpret and implement a federal statute, the
deference to be accorded the action is dictated by whether the
regulation at issue is "legislative" or "interpretive" in nature.
See Dresser Indus., Inc. v. Comm'r, 911 F.2d 1128, 1137 (5th
Cir.1990). Where the regulation is legislative, that is, "issued
under a specific grant of authority to prescribe a method of
executing a statutory provision," Snap-Drape, Inc. v. Comm'r, 98
F.3d 194, 197 (5th Cir.1996) (internal quotations and citation
omitted), the Court may set aside the agency action only if the
regulation is "arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law" or if the action otherwise
failed to meet statutory, constitutional, or procedural
requirements. See 5 U.S.C. § 706(2); Citizens to Preserve Overton
Park, Inc. v. Volpe, 401 U.S. 402, 414, 91 S.Ct. 814, 822, 28
L.Ed.2d 136 (1971). Action taken pursuant to an interpretive
regulation, that is, one promulgated pursuant to a general grant of
authority to prescribe regulations, is accorded less weight but is
considered valid if it is reasonable and "harmonizes with the plain
language of the statute, its origin, and its purpose." Snap-Drape,
Inc., 98 F.3d at 197 (internal quotations and citation omitted).
The Secretary promulgated the regulations at issue in this
case pursuant to specific statutory authority. See 41 U.S.C. §
353(a) (1987) (providing that the Secretary's authority to make
rules, regulations, and decisions in enforcing the Service Contract
Act are coextensive with the Secretary's authority to enforce the
Walsh-Healey Public Contracts Act); 41 U.S.C. §§ 38, 39 (1987)
10
(prescribing the extent of the Secretary's authority to enforce the
Walsh-Healey provisions). This Court may therefore set aside the
decision of the Administrative Review Board only if the Board's
action was "arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law" or if the action otherwise
failed to meet statutory, constitutional, or procedural
requirements.
Under this standard of review, where Congress has "directly
spoken to the precise question at issue," the Court must give
effect to the "unambiguously expressed intent" of Congress.
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781, 81 L.Ed.2d 694 (1984).
Where Congress has not directly addressed the issue, as in this
case, the Court must sustain the Secretary's regulatory approach so
long as it is "reasonable" and "based on a permissible construction
of the statute." Auer v. Robbins, --- U.S. ----, ----, 117 S.Ct.
905, 909, 137 L.Ed.2d 79 (1997) (citing Chevron ). In other words,
unless the Secretary's approach is "irrational and not reasonably
related to the purposes of the legislation," the Court must uphold
that approach. Clark v. Unified Servs., Inc., 659 F.2d 49, 53 (5th
Cir.1981) (reviewing administrative regulations promulgated
pursuant to the SCA). If the Secretary considered all relevant
factors and made no "clear error of judgment," the Court must
uphold the Secretary's decision regardless of the Court's view of
the wisdom of the decision. Volpe, 401 U.S. at 416, 91 S.Ct. at
823-24; Miranda v. National Transp. Safety Bd., 866 F.2d 805, 807
11
(5th Cir.1989).
Secretary's Interpretation of SCA Provisions
Were Morena's service contract considered a single five-year
contract rather than three short period contracts, plaintiffs would
be entitled to the wages and benefits set in the UFCW-Weaver CBA
for the entire five-year term of the Morena contract. The plain
language of the Act and the legislative development of that
language certainly supports the plaintiffs' construction. The
legislative history of the amendments to the Act suggest, however,
that while Congress did not specifically contemplate the
Secretary's chosen construction, that construction adequately
accommodates the purposes behind passage of the amendments. For
this reason, the construction given by the Secretary is entitled to
deference.
Statutory Language
The Secretary's regulation codified at 29 C.F.R. § 145(b),
which interprets and implements section 4(d) of the SCA, conflicts
with the clear language of section 4(d). The regulation provides
for biennial wage determinations during a multi-year contract and
deems those periodic wage determinations "amendments" to the
contract. See 29 C.F.R. § 145(b). The regulation states that the
wage determinations therefore create "wholly new contracts" for
purposes of the SCA and its other regulations. Id. The most
natural reading of section 4(d) does not comport with this
interpretation. The section allows for service contracts to be for
terms up to five years so long as wages and fringe benefits are
12
adjusted pursuant to wage determinations "issued ... no less often
than once every two years during the term of the contract." 41
U.S.C. § 353(d) (emphasis added). The statutory language clearly
contemplates the multi-year contract as being a single contract for
a term of years. Moreover, wage determinations issued during the
term are characterized not as full-scale contract amendments, but
simply as the vehicles by which periodic adjustments of wages and
fringe benefits are to be made over the life of the contract. See
id. Congress could, however, have simplified the language of the
provision considerably by use of the term "amendment" had this been
what it contemplated.
Because Congress has not directly addressed the precise
question at issue, however, the inquiry does not end with analysis
of statutory language. The Court must determine whether the
Secretary's construction of the statute is rational, reasonable,
and in accordance with legislative purpose, not simply whether the
Court agrees with the construction. After reviewing and carefully
considering the legislative purpose and history of the Act and the
amendments, the Court is of the opinion that the Secretary's
construction of Sections 4(c) and 4(d), while somewhat creative, is
not irrational or unreasonable.
Evolution of Section 4(c)
A careful study of the evolution of the Act supports, to some
extent, the plaintiffs' argument. When section 4(c) was first
drafted and passed the House and Senate, it did not contain the
proviso for substantial variance hearings. See S. 3827, 92d Cong.
13
§ 3 (introduced July 21, 1972); H.R. 15376, 92d Cong. § 3
(introduced June 7, 1972), reprinted in LEGISLATIVE HISTORY OF THE
SERVICE CONTRACT ACT AMENDMENTS of 1972 [hereinafter LEGISLATIVE
HISTORY], at 1-9 (1972). The proviso was added only after
testimony before the House Committee on Education and Labor and the
Senate Subcommittee on Labor of the Committee on Labor and Public
Welfare raised concerns about the wisdom of binding government
contracting agencies to union contract wage rates that may often be
significantly higher than prevailing wages in the locality. See
H.R. 15376, 92d Cong. § 3 (reported with amendments Sept. 15,
1972), reprinted in LEGISLATIVE HISTORY at 55-60. Richard Keegan,
the Deputy Under Secretary for Procurement in the Department of the
Air Force put the problem succinctly:
The Department of Defense, which foots the bill, would be
locked into a one-way ratchet situation of constantly rising
service contract costs, with no resort to independent
standards to correct any imbalance. There would be nothing to
prevent service employee wages from escalating far beyond the
wages of comparable employees in the locality.
Service Contract Act Amendments, 1972: Hearings on S. 3827 and
H.R. 15376 Before the Subcommittee on Labor of the Senate Committee
on Labor and Public Welfare [hereinafter Hearings ], 92d Cong. 97
(1972). Thus the only mechanism explicitly contemplated by
Congress for readjusting exorbitant union wages binding on a
successor contractor was the substantial variance hearing. This
does not mean a fortiori, however, that the Secretary's adoption of
a regulation going beyond what Congress envisioned was an abuse of
authority. As noted earlier, Congress granted the Secretary a wide
girth of discretion with which to implement the Act. If the
14
regulation reasonably comports with the purposes of the Act and the
amendments, it must be deemed valid.
Legislative Intent
Congress enacted the McNamara-O'Hara Service Contract Act in
1965. See Pub.L. No. 89-286, 79 Stat. 1034 (codified as amended at
41 U.S.C. §§ 351-58 (1994)). The House and Senate Reports
accompanying the measure indicate that the primary purpose of the
Act was to protect wage standards of employees:
Since labor costs are the predominant factor in most service
contracts, the odds on making a successful low bid for a
contract are heavily stacked in favor of the contractor paying
the lowest wages. Contractors who wish to maintain an
enlightened wage policy may find it almost impossible to
compete for Government service contracts with those who pay
wages to their employees at or below the subsistence level.
When a Government contract is awarded to a service contractor
with low wage standards, the Government is in effect
subsidizing subminimum wages.
H.R.Rep. No. 89-948, at 2-3 (1965); S.Rep. No. 89-798, at 3-4
(1965), reprinted in 1965 U.S.C.C.A.N. 3737, 3739. By requiring
service contractors to pay their employees the prevailing wage
rate, Congress sought to neutralize the federal government's
inordinate purchasing power and its depressive effect on the
market's natural resolution of wage and benefit rates. See, e.g.,
Hearings at 96 (explaining that the Act "puts the Government in
precisely the same position as other users of contract services"
and "limit[s] the extent to which the Government can exert its
bargaining power."). In short, Congress did not want the federal
purchasing power to play a role in suppressing wage rates.
The statute failed to completely effectuate its intended
purpose, however. See id. at 14 ("[W]e would expect our Government
15
to be a model employer, but in this case, it is just the opposite.
Now, we have to pass a law to prevent that." (statement of Senator
Harrison A. Williams, Jr., Chairman of the Subcommittee on Labor
and the Committee on Labor and Public Welfare)). Wage
determinations based on the prevailing wage rate prevented
government contracting from suppressing service workers' wages to
a "subsistence level." But the nature of government contracting,
calling for frequent rebidding, combined with the SCA's sole
emphasis and reliance on the prevailing wage rate scheme,
effectively diminished the bargaining power of unionized
workforces. A contractor without a CBA covering its employees, or
with a CBA setting comparatively low wage and benefit rates, was
able to easily outbid an incumbent contractor bound by a CBA with
higher wages and rates that would survive the commencement date of
the new contract.
One example of such a scenario caught the attention of
Congress not long after the enactment of the SCA and galvanized
support for an amendment to the Act. In June of 1970, the National
Aeronautics and Space Administration (NASA) invited bids for
performance of particular services for a one-year period with
performance commencing on April 1, 1971. See Boeing Co. v.
International Ass'n of Machinists and Aerospace Workers, 504 F.2d
307, 309 (5th Cir.1974), cert. denied, 421 U.S. 913, 95 S.Ct. 1570,
43 L.Ed.2d 779 (1975). Transworld Airlines, Inc. (TWA) performed
these services pursuant to a contract from 1964 through April of
1971. See id. At the time of rebidding, a collective bargaining
16
agreement negotiated between TWA and the union representing TWA's
nonsupervisory personnel, the International Association of
Machinists and Aerospace Workers (IAMAW), was in force. See id.This CBA was to "remain in full force and effect to and including
December 31, 1971." Id. Four of the seven contractors bidding on
the new contract, including TWA, based their computations of labor
costs on the wages and fringe benefits provided for in the existing
TWA-IAMAW collective bargaining agreement. One other bidder,
however, the Boeing Company (Boeing), based its computation of
labor costs on the wages and fringe benefits provided for in its
own existing CBA with the IAMAW, an agreement that covered several
employees engaged in substantially similar services at NASA. See
id. This agreement provided for substantially lower wages and
fringe benefits than did the TWA-IAMAW agreement, and NASA awarded
the contract to Boeing. See id.Congress added sections 4(c) and 4(d) to the SCA by amendment
in 1972, see Pub.L. No. 92-473, § 3, 86 Stat. 789 (1972), largely
in response to these events. See Boeing Co., 504 F.2d at 311-12 &
n. 7; see generally Hearings. Section 4(d) contributed to wage
stability by allowing for longer term contracts. See Hearings at
103 ("That is one of the purposes of this legislation, to get away
from those annual reopeners." (statement of Chairman Williams)).
The Senate Report on the 1972 amendments indicates that section
4(c) was enacted to "assur[e] 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
17
those under their current agreement." S.Rep. No. 92-1131 (1972),
reprinted in 1972 U.S.C.C.A.N. 3534. "The only relevant statements
at the time § 353(c) was passed indicate that the purpose of that
section was to remedy the practice of underbidding for government
contracts by slashing wages." Gracey v. International Bhd. of
Elec. Workers, 868 F.2d 671 (4th Cir.1989); see also, e.g.,
Hearings at 30 ("[T]he addition of subsection (c) to section 4,
which recognizes the role of freely negotiated bargaining
agreements in establishing competitive and prevailing wages, should
counteract the cut throat bidding practices existing in certain
service industries.").
Conclusion
This objective, the minimization of cutthroat bidding
practices in order to stabilize wages, can be effectuated even with
the regulation promulgated by the Secretary. At bidding time for
a multi-year contract, all prospective contractors must calculate
their bids accounting for at least two years of wages and benefits
at the rates established in the CBA governing the predecessor
contract. Thus, the bidding process does not work to undercut the
wages and benefits bargained for by employees. Truly the
regulation may, in some circumstances, disadvantage the incumbent
contractor. If the incumbent contractor's CBA extends to a date
beyond two years from the inception of the new contract period,
that contractor will be obligated to pay the CBA wages and benefits
longer than a prospective contractor without a CBA or with a CBA
establishing lower wages and benefits. This calculation may allow
18
the prospective contractor to underbid the incumbent contractor.
As a result, contractors may have less incentive to enter into
long-term CBAs that would extend past the two-year mark of the
following contract term.11
But it is clear that Congress did not intend to entirely
eradicate competitiveness in bidding—even where labor rates are at
stake. For example, the Fifth Circuit has held that a successor
contractor is not bound to the successorship and seniority rights
acquired under the predecessor contractor's CBA. See Clark v.
Unified Servs., Inc., 659 F.2d 49 (5th Cir.1981). The Court
acknowledged as "persuasive" the appellants' argument that leaving
successorship rights and seniority rights out of the definition of
"fringe benefits" in the Act emasculated the purposes of the SCA
since prospective contractors could underbid incumbents by simply
hiring employees with limited experience and fewer seniority rights
and thereby underbid an incumbent. Id. at 52. The Court felt
constrained, however, by the language of the Act, the determination
of the Secretary of Labor, and the silence of Congress to read the
statute otherwise, policy implications aside. Id.; see also
Trinity Servs., Inc. v. Marshall, 593 F.2d 1250 (D.C.Cir.1978)
(holding that severance payments and seniority rights are not
"fringe benefits" under the Act); Service Employees' Int'l Union
v. General Servs. Admin., 443 F.Supp. 575 (E.D.Pa.1977) (holding
that a successor contractor is neither obligated to hire the
11
This problem is minimized, of course, by the fact that most
collective bargaining agreements are no longer than three years.
See Hearings at 103.
19
predecessor contractor's employees nor to abide by an arbitration
clause in the predecessor's CBA).
Although it may provide little comfort to the plaintiffs at
bar, the Secretary's regulation will sometimes serve to better
uphold the purposes of the Act than the plaintiffs' construction of
the statute. At least one circuit court has held that section
353(c) was enacted not to protect workers under an unfavorable CBA
by enforcement of prevailing wage rates but simply to assure the
maintenance of negotiated wage rates and benefits-even if they are
lower than the prevailing rates. See Gracey, 868 F.2d at 674-77.
Furthermore, the court held that the provision for a substantial
variance hearing applied only where the employer sought to lower
CBA-defined wages to a substantially lower prevailing wage rate and
not to those situations in which the employees sought to increase
the negotiated wage rates to the prevailing wage rate. See id.
Where such circumstances exist, the Secretary's regulation creating
"new" service contracts every two years works to the advantage of
workers.
In short, the Secretary's regulation calling for a wage
determination that creates a "new contract" at the end of every
two-year period during a multi-year service contract, while not a
natural construction of the statute textually, is acceptable
because it does not undercut the essential purpose of the
legislation. It is particularly reasonable as applied to the case
at bar, where the UFCW-Weaver CBA would have expired one year into
the new contract (and one year prior to the 1993 wage
20
determination) anyway. The Court must therefore give deference to
the regulation at issue.
Secretary's Interpretation of His Own Regulations
Plaintiffs alternatively contend that, assuming 29 C.F.R. §
4.145(b) was issued within the Secretary's authority, the Secretary
failed to interpret the regulation properly in this case.
Plaintiffs' burden on this claim is high; the Secretary's
interpretation of his own regulation is controlling unless it is
"plainly erroneous or inconsistent with the regulation." Auer v.
Robbins, --- U.S. ----, ----, 117 S.Ct. 905, 911, 137 L.Ed.2d 79(1997) (citations omitted).
To support their argument that negotiated rates and benefits
apply to the entire term of a service contract, rather than only
for the first two years, Plaintiffs make two arguments. First, in
their brief, Plaintiffs point to various other regulations
promulgated by the Secretary to implement section 4(c). Plaintiffs
contend the regulations demonstrate the intention of the Department
to make CBA rates applicable to the entire term of any contract.
Plaintiffs urge that because the regulations specifically discuss
section 4(c), and 29 C.F.R. § 145(b) does not, they are controlling
and negate the Secretary's interpretation of § 4.145(b).
For example, the plaintiffs note that 29 C.F.R. § 4.163(h)
gives examples, the "basic principle" of which "is that
successorship provisions of section 4(c) apply to the full term
successor contract " (emphasis added). This section, however, is
entitled "[i]nterruption of contract services" and simply provides
21
that an interruption in the provision of services—whether it be a
temporary cessation of contract services between the old contract
and new contract, a change in contracting agency, or the like—shall
not negate the application of section 4(c). See id. The substance
of this regulation does not conflict with the Secretary's
interpretation of § 4.145(b), despite the "full term contract"
language employed.
Another regulation provides that if certain contract
requirements are, for whatever reason, broken out and placed into
new contracts, the wages and fringe benefits provided for in the
original contract under section 4(c) follow the new contracts. See
29 C.F.R. § 4.163(g). It is not inconsistent, however, to make all
aspects of an original contract subject to section 4(c)'s
successorship provision, yet to deem wage determinations made every
two years in the resulting contracts as amendments creating new
contracts. Plaintiffs have not demonstrated that 29 C.F.R. §
4.145(b) or the Secretary's interpretation thereof is inconsistent
with its regulatory scheme.
Neither have plaintiffs shown that the Secretary has given 29
C.F.R. § 4.163(e) a "plainly erroneous" interpretation. As the
Secretary notes in his response, the plaintiffs eliminated a
critical portion of § 4.163(e) in their citation. This section
specifically references § 4.145(b) in explaining how a contractor
may become its own successor. In sum, the Secretary's
interpretation of his regulations is neither plainly erroneous nor
internally inconsistent.
22
In their second argument, made after hearing before the Court,
Plaintiffs urge that even given the Secretary's interpretation of
section 4(d), section 4(c) can plausibly be read to entitle the
barbers to the UFCW-Weaver CBA wage rates and benefits for the
successor Morena contract as well as for the predecessor Morena
contract. Pursuant to section 4(c), an employer under a successor
contract cannot pay its employees less than the "wages and fringe
benefits ... provided for in a collective bargaining agreement ...
to which such service employees would have been entitled if they
were employed under the predecessor contract." 41 U.S.C. § 353(c).
And under the predecessor Morena contract, the barbers were
"entitled" to the wages and benefits provided under the UFCW-Weaver
CBA.
Ironically, the Secretary's own regulations seem to support
this reading of Section 4(c). In 29 C.F.R. § 4.163(e), the
Secretary emphasizes that "[t]he operative words of section 4(c)
refer to "contract' not "contractor ' " in explaining that a
contractor may become its own successor contractor under the
language of this section. The Secretary ignores its previous
emphasis on the statutory term "contract" when explaining that
"[s]ection 4(c) will be operative only if the employees who worked
on the predecessor contract were actually paid in accordance with
the wage and fringe benefit provisions of a predecessor
contractor's collective bargaining agreement." Id. at § 4.163(f);
see also id. at §§ 4.52, 4.105 (both speaking in terms of the
"predecessor's" collective bargaining agreement).
23
The Secretary's decision not to interpret section 4(c) in this
manner, however, is not unreasonable. The employees under a
service contract may be said to be "entitled" to wages and benefits
provided in the statutorily-mandated wage determination, bringing
us back to the initial inquiry already discussed. Furthermore, the
hearings and reports accompanying the amendments make clear that
Congress enacted section 4(c) to address the cutthroat bidding
practices employed by new contractors to compete with incumbent
contractors.
The Secretary's Determination of the Prevailing Wage in the
Locality
Plaintiffs contend that, assuming the second two-year period
of Morena's contract is properly considered a new contract, the
Secretary made its wage determination improperly. Where a CBA does
not apply, the minimum monetary wages to be paid on any service
contract are to be determined by the Secretary, or his authorized
representative, "in accordance with prevailing rates for such
employees in the locality." See 41 U.S.C. § 351(a)(1). Plaintiffs
complain that the Department, before issuing the 1993 wage
determination, reviewed no evidence on prevailing wage rates and
improperly relied, in the Department's words, on wages "being paid
by Gino Morena due to lack of survey data for barber occupation in
the locality." Plaintiffs note the conundrum of this rationale:
If the Department relied in 1993 on rates already being paid by
Morena, and Morena was at that time subject to the 1991 wage
determination incorporating the wages of the UFCW-Weaver CBA, why
does the 1993 wage determination reflect wages at a lower rate?
24
The plaintiffs urge that the 1993 wage determination and all
succeeding determinations based on it be held null and void and the
Department of Labor ordered to issue new wage determinations.
The plaintiffs raised this argument for the first time in
this lawsuit. They also presented the argument in their Brief in
Response to the Statement of the Administrator in Opposition to
Petition for Review to the Administrative Review Board (Transcript,
p. 233 et seq.). The Administrator rejected the challenge as
untimely, coming more than three years after issuance of the
challenged wage determination, two years after expiration of that
determination, and after expiration of the five-year contract. The
Administrative Review Board upheld the Administrator's decision,
citing 29 C.F.R. § 8.6(d) for the proposition that a decision by
the Board "shall not affect the contract after award, exercise of
option, or extension." Plaintiffs contend that they could not have
presented the issue earlier as the written wage determination was
missing the page specifying benefits.
The plaintiffs have standing to challenge the wage
determination in federal district court under the Administrative
Procedures Act. See 5 U.S.C. §§ 701-06; United States v. Todd, 38
F.3d 277, 278 (6th Cir.1994); Expedient Servs., Inc. v. Beggs, No.
81-31-Orl-Civ-Y, 1982 WL 2003, at *8 (M.D.Fla. Oct.4, 1982). The
Secretary's regulations provide that "[a]ny interested person may
seek reconsideration of a wage determination...." 29 C.F.R. § 1.8.
The request "shall be in writing accompanied by a full statement of
the interested person's views and any supporting wage data or other
25
pertinent information." Id. The regulation provides no time limit
for requesting reconsideration. If reconsideration is sought and
denied, an interested person may appeal to the Administrative
Review Board for a review of the wage determination. Id. § 1.9.
Such an appeal "may, in the discretion of the Administrative Review
Board, be received, accepted, and decided in accordance with the
provisions of 29 C.F.R. part 7 and such other procedures as the
Board may establish." Id. "Requests for review of wage
determinations must be filed within 20 days of issuance of the
Wage-Hour Administrator's decision denying a request to make a
change in the wage determination." 29 C.F.R. § 8.3. "The Board may
decline review of any case whenever in its judgment review would be
inappropriate because of lack of timeliness, the nature of the
relief sought, the case involves only settled issues of law, the
appeal is frivolous on its face, or other reasons." Id. § 8.6.
The Court is of the opinion that the decision of the
Department to reject this aspect of the plaintiffs' claim as
untimely is not "arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law." See 5 U.S.C. § 706(2);
Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402,
414, 91 S.Ct. 814, 822, 28 L.Ed.2d 136 (1971). Plaintiffs'
November 1993 letter requesting review of the 1993 wage
determination focused solely on the alleged misconstruction of §
353(c) and the plaintiffs' tip credit contention. Plaintiffs were
obviously dissatisfied with the wage determination, and they could
quite easily and prudently have requested review of the actual
26
"prevailing wage" determination in the alternative.12 Further,
although the Department of Labor did drag this case out over
several years, the plaintiffs apparently never raised the issue
directly to the Administrator. Rather, they included it within a
petition for review filed to the Administrative Review Board.
Under these circumstances, the Department's decision to deem
plaintiffs' argument as waived is not arbitrary or capricious.
Tip Credits
Finally, the plaintiffs contest the Secretary's determination
that Morena's practice of taking tip credits is statutorily
permissible. The Secretary's regulations provide that an employer
may credit against the minimum wages owed under the Fair Labor
Standards Act (FLSA) so long as certain requirements are met. See
29 C.F.R. § 4.6(q).13 The Plaintiffs do not argue the requirements
were not met. Rather, they argue the regulation is an erroneous
interpretation and implementation of the Act. Plaintiffs can
succeed in challenging this regulation only if they find it is
"arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law" or if the action otherwise failed to meet
statutory, constitutional, or procedural requirements. See 5
12
Plaintiffs offer no reason why the fact that the second page
of the 1993 wage determination was blank is relevant to their
failure to make the argument.
13
The section reads in relevant part: "An employee engaged in
an occupation in which he or she customarily and regularly receives
more than $30 a month in tips may have the amount of tips credited
by the employer against the minimum wage required by [the SCA] in
accordance with section 3(m) of the Fair Labor Standards Act...."
27
U.S.C. § 706(2); Citizens to Preserve Overton Park, Inc. v. Volpe,
401 U.S. 402, 414, 91 S.Ct. 814, 822, 28 L.Ed.2d 136 (1971).
A simple review of the statute fairly supports the reading the
Secretary gives it. The section providing for wage determinations
states that "[i]n no case shall ... wages be lower than the minimum
specified in subsection (b) of this section." 29 U.S.C. §
351(a)(1). Subsection (b) states that no contractor or
subcontractor subject to the SCA "shall pay any of his employees
engaged in performing work on such contracts less than the minimum
wage specified under section 206(a)(1) of Title 29." 29 U.S.C. §
351(b)(1). That section, contained in the FLSA, spells out the
minimum wage. See 29 U.S.C. § 206(a)(1). The FLSA's definition of
"wage" explains, in part:
In determining the wage of a tipped employee, the amount paid
such employee by his employer shall be deemed to be increased
on account of tips by an amount determined by the employer,
but not by an amount in excess of 50 per centum of the
applicable minimum wage rate, except that the amount of the
increase on account of tips determined by the employer may not
exceed the value of tips actually received by the employee.
29 U.S.C. § 203(m).
Plaintiffs contend that the SCA, at § 351(b)(1), referenced
provisions of the FLSA "for a limited purpose" only and that
Congress intentionally failed to state that an employer can take a
tip credit against wages to satisfy the minimum monetary wage
requirements of the SCA. The Court does not agree that Congress
intended to incorporate a provision of the FLSA without the FLSA's
definition of a term contained in that provision. At the very
least, the Secretary's understanding that Congress intended to
28
incorporate the definition is neither arbitrary nor contrary to
law.
Conclusion
This Court has no authority to overturn regulations
promulgated by federal agencies charged with enforcing federal
statutes unless they are unreasonable. Although the statutory
language makes the question close, the Court cannot affirmatively
hold the Secretary's regulations unreasonable given the particular
facts of this case and the legislative purpose of the SCA.
Furthermore, the Department's determinations with regard to
plaintiffs' arguments about the prevailing wage determinations and
the taking of tip credits are entitled to deference. Therefore:
IT IS ORDERED that Plaintiffs' Motion for Summary Judgment [#
16] is DENIED;
IT IS FURTHER ORDERED that Defendant's Cross Motion for
Summary Judgment [# 23] is GRANTED.
29