DIR's $42k Fine Dropped to $4k

Read the entire DIR Civil Wage Assessment against Horn Electric Corporation 9/10/07 here.

Horn Electric Corporation

Affected subcontractor Horn Electric Corporation ("Horn") submitted a timely request for review of a Civil Wage and Penalty Assessment ("Assessment") issued by the Division of Labor Standards Enforcement ("DLSE") with respect to work performed by Horn on the Yuba City Wastewater Treatment Facility Upgrades (''the Project"). The Assessment, which issued on May 19, 2006, determined there was $42,419.90 in unpaid prevailing wages and statutory penalties.


The Assessment was amended at the hearing to $19,013.40 in unpaid prevailing wages, composed primarily of unpaid fringe benefits due to apprentices. The parties were directed to address the issue of how many prevailing wage and overtime violations were represented by the stipulated underpayments to the four journeymen in their closing briefs.

Two primary issues remain to be decided in this case:

1. Whether Horn correctly took credit for apprenticeship contributions for its apprentice inside wiremen, for training fund contributions paid in excess of the $0.86 per hour mandated by the applicable prevailing wage determination; and

2. Whether DLSE abused its discretion in assessing penalties under Labor Code section 1775 1 at the maximum rate of $50.00 per violation.

Based on a review of Horn's certified payroll records ("CPR") for the Project, DLSE Industrial Relations Representative Julia Sidhu determined that five inside wireman apprentices had been paid less than the prevailing wages due under the applicable prevailing wage determination ("PWD"), number SUT-2002-1. All five apprentices were paid at least the correct base hourly rates, but the CPRs did not reflect the payment of the additional amounts required for fringe benefits and training fund contributions.

Sidhu acknowledged that the required training fund contributions ($0.086 per hour) had been made for all the apprentices on the Project but noted that Horn took a credit against the total prevailing wage obligation paid to the apprentices of the difference between its $2.25 per hour contribution to the apprenticeship program and that $0.86 per hour training fund contribution (difference is $1.39 per hour). She also testified that DLSE would not give any credit for training fund contributions made on behalf of first-year apprentice Dave Garcia, as the PWD did not require training fund contributions for first-year apprentices.

All of the inside wireman apprentices who worked for Horn on the Project were dispatched by the Western Electrical Contractors Association, Inc. (WECA) Electrical Apprenticeship and Training Committee subject to an Agreement to Train Apprentices ("Training Agreement") between WECA and Horn. Pursuant to the Training Agreement, Horn was required to pay into WECA's ERISA governed Health and Welfare and Retirement Plans on behalf of any apprentices that it employed. Christine Hall, WECA's Training Director, testified that, for each apprentice, Horn was required to pay $3.00 per hour to the Health and Welfare Plan, which covers medical, dental, disability and life insurance and the employee assistance program. Horn was also required to pay between $0.86 and $2.00 per hour into the Retirement Plan for each apprentice, based on his or her year in the program and could elect to make additional "excess" contributions to the Retirement Plan at its discretion.

Hall testified that Horn made all required fringe benefit and training fund contributions during the relevant time period and submitted a list of posted general ledger transactions documenting the training fund, health and welfare fund and both regular and excess pension fund contributions made to WECA by Horn between August 31, 2003, and September 30, 2006. With the exception of excess Retirement Fund contributions, which are detailed by the name of the worker and amount of the contribution, however, the list of fringe benefit and training fund payments provided by Hall does not give any detail as to how the payments were applied.

Deborah Castelan, Horn's Office Manager, handled payroll and prepared the CPRs for the Project. She testified that the fringe benefit and training fund payments for apprentices were not recorded on the CPRs because they were paid directly to WECA. Every month during the Project, Castelan prepared an Apprentice "Monthly Hour Worksheet which was submitted with Horn's payment to WECA, and which recorded the private and public work hours for each WECA apprentice during the reporting period and detailed the required training fund, health and welfare fund and regular and excess retirement fund contributions for each apprentice based on the total hours worked during the month. Castelan acknowledged that overtime worked by apprentices Matt Mueller and Andrey Palamarchvk had either been erroneously reported or improperly paid during the weeks of October 6 through 12, 2003, and October 13, through 19, 2003. She testified that she had prepared revised CPRs for those two weeks and checks had been issued for the unpaid overtime.

Castelan stated that she implemented pay increases for journeymen on public works projects when new PWDs were issued each year, and thus inadvertently underpaid some journeymen for a few months when predetermined wages increases took effect before a new PWD was issued. She agreed that Horn had received three prior civil wage and penalty assessments, but said that she didn't believe that Horn had admitted any liability by settling those prior cases.


Horn Is Entitled To Full Credit For Fringe Benefit And Training Fund Contributions Made To WECA On Behalf Of Its Apprentices.

In this case, it is undisputed that all five of the affected apprentices received the basic hourly rate and that Horn made the required training fund contributions of $0.86 per hour to WECA. The question presented here is whether Horn is entitled to credit toward the balance of its per diem wage obligation for fringe benefit payments and an additional $1.39 per hour training fund contribution that it paid to WECA for hours worked by each of the affected apprentices. The answer is that Horn has shown that it had a right to do so in this case.

In addition to the $0.86 per hour training fund contribution required under section 1777.5, subdivision (m)(l), for which DLSE has agreed to give credit, Horn contends that it is also entitled to receive credit for the remaining $1.39 per hour training fund contribution that it is required to pay for its apprentices under its training agreement with WECA. California's prevailing wage laws does not prohibit such additional contributions nor do they limit the amount of the contribution or corresponding credit beyond the base-line obligation to pay the requisite non-fringe hourly wages directly to the workers. (§1773.1, subd. (c).) As discussed below, these "excess" training fund contributions are entitled to credit toward Horn's prevailing wage obligation under section 1773.1, subdivision (a)(6).

Thus, an employer may be deemed to have satisfied its obligation to pay the fringe benefits due under the applicable PWD as long as the total amount which can be credited as "employer payments" is equal to or greater than the "total of all fringe benefit amounts listed as prevailing in the appropriate wage determination." The employer's credit is limited to the aggregate amount of fringe benefits due under the applicable PWD, and may not "decrease the amount of direct payment of hourly wages of those amounts found to prevailing for straight or over-time wages." This limitation is not in issue here, as the parties agree that Horn paid the base hourly wages required by the PWD to all affected apprentices.

All five of the apprentices identified in the Assessment were dispatched by WECA and were indentured in its apprenticeship program, thus they directly received the benefit of the training which was funded in part by the Horn's mandatory contributions of $2.25 per hour under the Training Agreement. Moreover, Hall's testimony that the size of the employer contribution to the apprenticeship training fund is directly related to WECA's annual operating budget satisfies the additional requirement of section 1773.1, subdivision (a)(6) that "the cost of training is reasonably related to the amount of the contributions." The direct relationship between the amount of the training fund contribution and the training actually received by the WECA apprentices employed by Horn is underscored by the fact that WECA only required the higher contribution for apprentices. For journeymen, by contrast, Horn was only required to contribute the $0.86 per hour mandated by the PWD. For these reasons, Horn is entitled for full credit for its documented fringe benefit and training fund contributions to WECA on behalf of its apprentices, including the $1.39 per hour paid to the WECA training fund in excess of the $0.86 per hour required by the PWD.

The one documented underpayment to an apprentice on the Project was to Bennett, who was underpaid by $0.192 per hour for the 70 straight-time hours he worked on nine days between April 12, 2004 and April 25, 2004, at an hourly rate, before benefits, of $16.61. The total unpaid wages owed to Bennett for this period are $13.84. Bennett was paid at, or in excess of, the total required hourly rate for the balance of his work on the Project. Both Bennett and Ciuriuc received slightly less than the required fringe benefit amounts for all of their work on the Project, but the CPRs establish that they" received in excess of the short fall in cash, in the form of higher than required hourly wages. Horn's total liability for unpaid prevailing wages to apprentices on the Project is therefore $13.84 and constitutes nine violations of section 1775, subdivision (a).

The Stipulated Unpaid Prevailing Wages To Journeyman Represent 25 Violations Of Section 1775(a) And One Violation Of Section 1813.

At the hearing, the parties stipulated that four journeymen were owed a total of $1,242.24 in unpaid wages, but they did not stipulate to the number of violations of sections 1775, subdivision (a), and 1813 that were represented by those unpaid wages. Horn stipulated to the prevailing wages owing and unpaid for Cox and Rodriguez, $22.32 and $421.34, respectively, that were originally assessed by DLSE. On that basis, DLSE's assessment of penalties for 13 violations of section 1775 and one violation of section 1813 represented by those unpaid wages is affirmed.

Consequently, Horn is liable for a total 25 violations of section 1775(a) and one violation of section 1813 for its stipulated underpayment of prevailing wages to journeymen on the project and DLSE's penalty assessment, as modified, is affirmed.

In this case, Horn acknowledges having received and settled three prior civil wage and penalty assessments, one of which involved failure to timely implement predetermined wage increases: the apparent cause of the stipulated underpayments to four journeymen on the Project and the primary basis for penalties under the Assessment Horn's only defense for failing to implement the predetermined wage increases required for its journeymen Under the applicable, PWD was Castelan's testimony that her normal practice was to implement wage increases on public works projects when a new PWD was issued rather than when the increases were due under the PWD which actually governed prevailing wages on the Project In other words, Horn admits that it simply did not bother to implement the predetermined pay wages increases required by the applicable PWD even though the prior assessments provided more than adequate notice of the actual requirements. .

The record shows that DLSE considered the prescribed factors for mitigation and determined that the maximum penalty of $50 per violation was warranted in this case, primarily on the basis of Horn's prior documented and uncontested failures to meet its prevailing wage obligations. The Director is not free to substitute his own judgment. The record does not establish an abuse of discretion and, accordingly, the assessment of penalties under section 1775, as modified, is affirmed.

Overtime Penalties Are Due For The Workers Who Were Underpaid For Overtime Hours Worked On The Project

Labor Code section 1815 states in full as follows:

"Notwithstanding the provisions of Sections 1810 to 1814, inclusive, of this code, and notwithstanding any stipulation inserted in any contract pursuant to the requirements of said sections, work performed by employees of contractors in excess of 8 hours per day, and 40 hours during anyone week, shall be permitted upon public work upon compensation for all hours worked in excess of 8 hours per day and not less than 1.5 times the basic rate of pay." The record establishes that Horn violated Labor Code § 1815 by paying less than the required prevailing overtime wage rate for one overtime hour worked by journeyman Daniel Rodriguez on November 12, 2002. Unlike Labor Code section 1775 above, section 1813 does not give DLSE any discretion to reduce the amount of the penalty, nor does it give the Director any authority to limit or waive the penalty. Accordingly, the assessment of penalties under section 1813, as modified, is affirmed.

Horn Is Liable For Liquidated Damages On The Stipulated Unpaid Wages Owed To Journeymen.

Labor Code section 1742.1(a) provides in pertinent part as follows:

After 60 days following the service of a civil wage and penalty Assessment under Section 1741 ... , the affected contractor, subcontractor, and surety ... shall be liable for liquidated damages in an amount equal to the wages, or portion thereof, that still remain unpaid. If the Assessment ... subsequently is overturned or modified after administrative or judicial review, liquidated damages shall be payable only on the wages found to be due and unpaid. If the contractor or subcontractor demonstrates to the satisfaction of the director that he or she had substantial grounds for believing the Assessment ... to be in error, the director shall waive payment of the liquidated damages. Rule 51 (b) [Cal.Code Reg. tit. 8 §17251 (b)] states as follows:

To demonstrate "substantial grounds for believing the Assessment ... to be in error," the Affected Contractor or Subcontractor must establish (1) that it had a reasonable subjective belief that the Assessment ... was in error; (2) that there is an objective basis in law and fact for the claimed error; and (3) that the claimed error is one that would have substantially reduced or eliminated any duty to pay additional wages under the Assessment ...

In accordance with the statute, Horn would be liable for liquidated damages only on any wages that remained unpaid sixty days following service of the Assessment. Entitlement to a waiver of liquidated damages in this case is closely tied to Horn's position on the merits and specifically whether there was an "objective basis in law and fact" for contending that the Assessments were in error.


Horn made all required training fund contributions, for both apprentices and journeymen to WECA, fully satisfying its training fund obligations under the applicable prevailing wage determination.

Horn made all required fringe benefit payments for the apprentices employed on the Project to WECA's trust funds, including an additional $1.39 per hour paid to the WECA training fund pursuant to its training agreement with WECA, and fully satisfied its prevailing wage obligations to four of the five apprentices working on the Project.

Inside wireman apprentice Jeremiah Bennett was underpaid a total of $13.84 between April 12, 2004 and April 25, 2004, constituting nine violations of section 1775, sub-division (a).

Horn underpaid four journeymen inside wireman on the Project a total of $1,242.24, constituting 25 violations of section 1775, subdivision (a) and one violation of section 1813.

Liquidated damages due under the Assessment are $1,256.08. Horn has demonstrated that it had substantial grounds for believing that the Assessment was in error as to the apprentices working on the project. Accordingly, Horn is not liable for liquidated damages on the $13.84 in unpaid wages owed to Bennett. With regard to the journeymen, however, no part of the stipulated unpaid wages was paid within 60 days following service of the Assessment and Horn has not demonstrated that it had substantial grounds for believing the Assessment of these remaining wages to be in error. Accordingly, Horn is liable for liquidated damages on the Project in the amount of $1,242.24 under Labor Code section 1742.1, subdivision (a).

The amounts found remaining due in the Assessment as modified and affirmed by this Decision are as follows:

Wages Due: $1,256.08

Penalties under section 1813: $25.00

Penalties under section 1775, subdivision (a): $1,700.00

Liquidated Damages: $1,242.24

TOTAL: $4,223.32


The Civil Wage and Penalty Assessment is modified as set forth in the above Findings. The Hearing Officer shall issue a notice of Findings which shall be served with this Decision on the parties.

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