- 4(C) Hearings Administrative Hearings Regarding Application of Section 4(C)

Introduction To Section 4(C) “Substantial Variance” And “Arm’S-Length” Administrative Hearings

There are two types of hearing appeals under the SCA concerning section 4(c) wage determinations:

  1. an appeal based on "substantial variance" issues; or
  2. an appeal based on issues concerning "arm's-length negotiations."

Section 4(c) of the SCA and its implementing regulations provide that whenever a section 4(c) wage determination is issued:

  1. The successor contractor is required to pay the wage rates and fringe benefits contained in the predecessor contractor's collective bargaining agreement (CBA).
  2. These rates are to be paid unless there is found to be a "substantial variance" between the collectively bargained rates and those prevailing in the locality, and/or the lack of "arm's-length negotiations" in arriving at the collectively bargained rates.
  3. The implementing regulations are at 29 C.F.R. §§ 4.10 - 4.11.

  4. AAM No. 166 provides guidance regarding "Requirements for Substantial Variance Proceedings Under Section 4(c) of the Service Contract Act" and AAM No. 159 discusses types of arrangements that generally reflect a lack of arm's-length negotiations.

"Substantial Variance" 29 C.F.R. § 4.10

A finding that a 4(c) "substantial variance" exists, at a hearing before an Administrative Law Judge (ALJ), requires that such wage rates and/or fringe benefits in the CBA are found to vary substantially from those that would otherwise prevail for services of a similar character in the locality.

  1. The SCA does not define the term "substantial variance." However, the plain meaning of the term requires that a considerable disparity in rates must exist before the successorship obligation may be avoided. Furthermore, no discrete comparison rate is conclusive. Collectively bargained rates often can be expected to exceed service industry "prevailing rates," and where some variance should be the norm, a finding of "substantial variance" would require a collectively bargained rate clearly to fall out of line when compared to a comprehensive mix of rates.
  2. A request for a hearing must contain information and analysis concerning the differences between the collectively bargained rates issued and the rates contained in:
    1. Corresponding federal wage board rates and surveys. While it is not necessary that the challenged rate be higher than the corresponding federal rate, this is an important factor.
    2. Relevant Bureau of Labor Statistics survey data and the comparable SCA area wage determination.
    3. Other relevant wage data. For example, rates paid in local hospitals would be appropriate for comparison on contracts for hospital aseptic services, while the rates paid in local schools could be of value in comparison for janitorial or food service workers.
    4. Other collectively bargained wages and benefits.
  3. It is expected that a request for a hearing will address all relevant issues.
  4. However, it is recognized that a petitioner may not be able to submit complete data at the time the hearing request is made. Where efforts to obtain supporting evidence are in progress, information must be provided concerning the approximate time necessary to complete the gathering of additional data. Merely providing a statement that data are not available is not sufficient. The request must adequately demonstrate the effort made to obtain or develop such information.
  5. The WHD Administrator can grant or deny the "substantial variance hearing" request. A request is granted only if the review results in a determination that a "substantial variance" may exist. The WHD must respond to the request within 30 days of receipt.

If a "substantial variance" is found to exist, a new wage determination must be issued which reflects prevailing rates for the locality rather than those found in the predecessor contractor's CBA. The collectively bargained rates in the 4(c) wage determination apply until a final decision from the ALJ or ARB.

"Arm's-Length Negotiations" 29 C.F.R. § 4.11 and AAM No. 159

Under section 4(c), the wages and fringe benefits provided in the predecessor's CBA must be reached "as a result of arm's-length negotiations."

  1. This provision precludes arrangements by parties to a CBA who either separately or together, act with an intent to take advantage of the wage determination process. In short, it addresses the "Sweetheart Agreement," between contractor and union, which includes making a CBA contingent upon the issuance of a supporting wage determination requiring reimbursement of the contractor by the funding agency.
  2. The primary example of these types of agreements involves contingent CBA provisions that attempt to limit the contractor's obligations by such means as requiring issuance of a wage determination by the WHD, requiring the contracting agency to include the wage determination in the contract, or requiring the contracting agency to adequately reimburse the contractor. Such contingent arrangements are evidence of an intent to take advantage of the wage determination scheme under the SCA and, generally, reflect a lack of "arm's-length negotiations."
  3. The determination as to whether the CBA has application for section 4(c) purposes must be made pursuant to the SCA and its implementing regulations by the WHD, not by the contracting agency.
  4. As a result of a section 4(c) "arm's-length" hearing, investigation or otherwise pursuant to the SCA, if it is found that the CBA itself or any of the wage rates or fringe benefits contained therein were not established through "arm's-length negotiations," the CBA wage rates and fringe benefits cannot be issued for wage determination purposes. If a lack of "arm's-length negotiations" is found to exist, a new wage determination must be issued that reflects the prevailing rates for the locality rather than those found in the predecessor contractor's CBA.

For "arm's-length negotiations" issues, however, a two-step process may be needed.

  1. The WHD Administrator must first issue findings before a hearing can be initiated.
  2. Such findings may result in the Administrator's referral of the case to a hearing by an ALJ or the ARB.
  3. If the Administrator's determination does not include referral of the case for a hearing, an interested party may then request a hearing.


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