Posts Tagged ‘US Department of Labor’

Why An US Department Of Labor Investigation Can Ruin Your Year

Over the past few years, state and federal construction projects have been the bread and butter for the struggling construction industry. These projects are largely prevailing wage projects, and unfortunately, many contractors and subcontractors found themselves trying to understand compliance with these regulations for the first time.

At the same time, federal budget challenges and extra funding from the Obama Administration put more eyes at the US Department of Labor on prevailing wage violations.

The result is that many folks found themselves in the middle of a prevailing wage investigation, and learning about how frustrating and unfair these investigations can be.

This post gives you a glimpse at how these investigations work, and why an investigation – even without underlying wrongdoing – can really ruin the year (or more) for your company.

The Investigation Is Confidential

The first thing you’ll learn about a US Department of Labor Prevailing Wage investigation is that it is confidential. You will probably learn this at your first sit down with the investigator, as he or she explains to you all of the alleged violations. You’ll likely ask to see what the investigator is using to reach his or her conclusions, and that’s when you’ll be hit with the bombshell: you can’t see a thing.

The Department of Labor typically begins an investigation into a company or project after receiving a complaint. Any requests to see this complaint will be denied, as it is confidential to protect the rights of the complainant and to encourage complaints.

Then, the department will request you provide wage documentation and certified payroll, and will begin to interview laborers on the project. If you ask the department to identify who they interviewed or what was discussed, all of this will not be disclosed, as it is confidential.

The Complaint Against You Can Be Completely Meritless And Still Cause Problems

I was recently involved in a prevailing wage investigation where the Department of Labor was requiring a construction company to pay back wages on employees whose names were not even fully known, and who the department had no contact information on whatsoever. These partially named parties even appeared to be relatives of other laborers on the project.

So, for example, there would be an Alex Rodriquez on the project, and then a list of two or three other laborers like B. Rodriquez, C. Rodriquez and D. Rodriquez, all without any address or contact information, and with the department claiming these laborers were entitled to 10k – 20k each in back wages!

In other instances, I’ve seen the department of labor find laborers were working 60-80 hours per week when no one on the job was working those hours, or finding that folks who performed lower classified work (i.e. pure laborers) getting classified as plumbers or electricians.

And while these allegations may be completely meritless they are impossible to fight at the investigation level because the investigations are under seal, and an investigation you can’t see is an investigation you can’t fight.

So What Are Your Options?

This whole thing may seem a bit unfair, and from my perspective, it is unfair. Really unfair. However, courts have sided with these type of “under seal” investigations in the past, ruling that they protect the integrity of the investigation and the interests of complaints.

The reason these investigations have passed constitutional muster in the past is because a company can appeal the department’s findings to a federal court. Upon filing an appeal, the investigation materials become more of an open book.

This sounds fair from a theoretical viewpoint, it has practical challenges in reality.

First, the cost of appealing an investigation is quite high, as you will be hiring an attorney and paying a retainer of at least $10k – $20k.

Second, and more importantly, you’ll have lots of pressure on other folks on the construction project to resolve the issue. If you don’t resolve it, the investigator will go up the contact chain, all the way to the owner, with all parties being required to pay the back wages. This results in your money getting held up, and making it very difficult for you to continue on with work or a legal fight.

So, what do you do?

You can pay the back charges and try to learn from the experience, or you can lawyer up and fight the investigation findings tooth and nail…fight the good fight.

From a prevention standpoint, you’ll want to keep meticulous records and be extra careful to comply with wage determinations on these projects. Hire a construction attorney to advise you on how to comply with these requirements, and follow the regulations to the letter, keeping records you can use to prove your case in the event of an investigation…and, hope for a little bit of luck.

Posted in:     Prevailing Wages, Regulations  /  Tags: ,   /   Leave a comment

3 Legal Concepts That Are Counter-Intuitive…and Dangerous

Sometimes the best blog posts and legal articles are the simplest.   Take, for example, a post from early October by Joshua Glazov on his Construction Law Today blog, where he simply cites a 1941 quote from US Supreme Court Justice Robert Jackson:

The legal profession, like many another, tends to become over-professionalized.  We forget that the law is the rule for simple and untaught people to live by.  We complicate and over-refine it as a weapon in legal combat until we take it off the ground where people live and into the thin atmosphere of sheer fiction.

– The Struggle for Judicial Supremacy (1941)

Nail on the Head!

This made me think about all the crazy requirements and legal interpretations out there that may go against conventional logic, and I compiled this Top 3 list.

Number One:  Prevailing Wage Determinations

You’re on a state or federal construction project that requires payment of the prevailing wage, and so you go to the books to determine how much you need to pay your employees.   You separate the employees into categories:  electrician, plumber, helper/laborer….  Sounds easy enough, right?  Wrong.

How do you distinguish between someone who is a plumber and someone who is a plumber helper, for example?   While you may make a distinction in your everyday business, that distinction may not be the same as the US Department of Labor or the state agency controlling your project.   Frequently, in fact, it’s not.

Unfortunately, the laws aren’t very helpful to the folks who need to follow them.  That’s because the laws are a bit ambiguous, and requires interpretation.  And from first hand experience, I can tell you that agencies like the US Department of Labor are currently interpreting these requirements very pro-laborer.

Take a plumber, for example, as defined by the U.S. Department of Labor.   Standard Occupational Classification (SOC) §47-2152 defines a plumber as one who does the following:  “Assemble, install, alter, and repair pipelines or pipe systems that carry water, steam, air, or other liquids or gases…”

Compare this to the plumber’s helper (SOC §47-3015) who: “Help plumbers…by performing duties of lesser skill.  Duties include using, supplying or holding materials or tools, and cleaning work area and equipment…”

What exactly is a “lesser skill?”   What if a licensed plumber points to a pipe and asks the other employee “cut right there,” does this make that other employee a helper or a plumber?   I’ve seen the US Department of Labor interpret this as rendering the other employee a “plumber,” and requiring the higher wage.

Number Two:  Lien and Notice Requirements

The lien laws are there to protect folks, but it seems that every state in the Union is a bit conflicted about who the laws are designed to help.   In some states, the law is construed in favor of the lien claimant and against all other parties.  In other states, it’s the opposite.

Perhaps more confusing that this interpretation preference, however, is the notice requirements for the various states.   In some places, notice must be provided by the subcontractors to the property owner, the theory being that the owner might not know the subcontractors are there.  In other places, however, the notice system is completely reversed, requiring the prime contractors to deliver the notice.   Clearly, the owner should know who the prime contractor is!

What makes this very difficult for contractors is that unlike state legislatures and lawyers, the construction industry does business across state lines very frequently.  In fact, some suppliers and contractors do business in every state.   It’s impossible for these contractors to know the highly-technical and complex laws that apply in each state.    The result?   The law is rendered worthless, and not protecting the parties it is designed to protect.

For great discussions about lien and notice laws across the country, check out the Construction Lien Blog.

Number Three:  Pay When Paid Clauses

Contractors and subcontractors all around the country have heard of “pay when paid” clauses, and they frequently find them in their contracts.  Why are they in the contracts?   Because the parties in a construction project understand the payment chain, and they are agreeing to put the risk of non-payment on each project participant.

However, the law in many states has created an interpretation for “pay when paid” clauses that seems counter-intuitive.  In these states (and there are many), a “pay when paid” clause does not allow a contractor to refuse payment to its subs or suppliers after a “reasonable time” has passed since the subs or suppliers work was completed.  In these states, if such an outcome is desire, the parties must enter into a contract with a “pay if paid” clause.

We’ve written about this phenomenon here: Payment Provisions in Construction Contracts.

Posted in:     Construction Contracts, Mechanics Lien, Payment Requirements, Prevailing Wages, Regulations  /  Tags: , , , , ,   /   3 Comments