1,222 DIR Violations = $215,000 Penalty

Read the entire DIR Civil Wage Assessment against Koo Construction 5-5-2011 here.

KOO Construction, Inc ("KOO") worked on the Seismic Corrections Phase 4 Project ("Project") at the University of California, Davis ("University") in Yolo County. The Notice determined that KOO owed $220,432.88 in unpaid prevailing wages and statutory penalties.

FACTS

The University advertised the Project for bid on September 14, 2006. KOO contracted with the University as "Design Builder" for the Project on or about January 7, 2007. The Project involved the design and construction of seismic retrofitting for seven University buildings. KOO employees worked on the Project from approximately June 19, 2007, through the completion of construction in December 2008. The Project required multiple shifts to accommodate the needs of the University and its class schedule. Some employees were required to work evening shifts and on weekends in addition to normal day shift work. The applicable prevailing wage rates for all work subject to the Notice are the Area 2 Laborer Group 3 rate under NC-23-102-1-2006-1 (Laborer and Related Classifications for Northern California) and the Area 3 Carpenter rate under prevailing wage determ ination (PWD) NC-23-31-1-2006-1 (Carpenter and Related Trades for Northern California). Both PWDs contain predetermined pay rate increases that went into effect during KOO's work on the Project. Both PWDs required higher pay rates when workers worked during second or third shift periods.

KOO submitted certified payroll records ("CPRs") to the University for the first seven weeks of work on the Project, through the week ending August 15,2007. CCMI took over management of labor compliance on the Project for the University in late November or early December 2007. Soon thereafter, CCMI informed KOO that KOO and its subcontractors would be required to submit their CPRs via an electronic payroll reporting program, LCP Tracker. KOO began resubmitting its CPRs via LCP Tracker in April 2008. Yvonne Nickles was the CCMI analyst assigned to the Project.

Nickles audited KOO's work by reviewing the CPRs KOO submitted to check the workers' names, job classifications, hours worked and amounts reportedly paid. When KOO's records reported a worker in different job classifications during the same work shift, Nickles calculated the prevailing wages owed to that worker at the higher paid classification for audit purposes.

CCMI served the Notice by certified mail on April 13,2009. The Notice found that KOO failed to report and pay the required prevailing wages, including failure to pay shift differentials, overtime, weekend and holiday pay, misclassified employees, failed to report all of its employees performing work on the Project on its CPRs, and failed to make the required training fund contributions for any of the affected workers.

Underpayment Of Required Prevailing Wages To Workers Performing Laborer Work On The Project: KOO reported that almost all of its workers were paid at one or more Laborers' pay rate. For those workers that the Notice determined properly should have been paid at the Laborer Group 3 rate, KOO was required to pay a prevailing wage rate of $37.28 per hour for work performed from the beginning of the Project through June 29, 2008. A prevailing wage rate of $39.13 per hour applied to work performed from June 30, 2008, through the end of the Project. The hourly wage rates KOO actually paid for that work were generally lower than required, ranging from $26.91 to $42.00 per hour. Similarly, KOO failed to pay any of its laborers either the required shift differential for evening work or the prevailing overtime wage

Nickles also compared the LCP Tracker ePRs to the ePRs that KOO had originally submitted to the University during the first seven weeks of the Project and found that the entries in the ePRs and LCP Tracker ePRs reported the same pay rates but used different job classifications for the same work.

Newbill, the project maanger, prepared a self-audit which accepted the hours in the Notice and pay classifications (with one exception). The self-audit shows that underpayments occurred, but not to the extent determined in the Notice. The self-audit contains significant flaws, however, including, the failure to apply the applicable shift differential and overtime rates to second shift and overtime hours, all of which were paid at the straight time rate. Even so, KOO concedes that, with the exception of one worker, all of these workers were paid less than the prevailing wages due for their work.

Reclassification of Workers From Laborer To Carpenter: CCMI identified ten of the affected workers who were reportedly paid at the lower Laborers' prevailing wage rate when the work listed on their time cards, KOO's daily project logs, and the sign-in sheets showed they were entitled to be paid the higher Carpenters' prevailing wage rate for some or all of their work on the Project.

Failure To Report And Pay Prevailing Wages To Reeves And Whitehouse: CCMI found that KOO had also failed to report and pay prevailing wages for substantial periods of time for two workers - Reeves and Whitehouse - had performed carpentry worked on the Project. During those periods, KOO had considered Reeves and Whitehouse to be "assistant superintendents" and paid them on salary at below the Carpenters' prevailing wage rate. Both Reeves and Whitehouse testified that they worked primarily as carpenters but also performed limited supervisorial duties. The time cards support this testimony, providing adequate details to justify the Notice's calculations of hours worked as carpenters. KOO did not present any evidence to contradict this testimony or to throw doubt onto its own records.

Failure To Report And Pay Wen For Work As Laborer And Carpenter: Wen was employed by KOO and paid a salary as a project engineer/assistant superintendent on the Project from June 25, 2007, through approximately August 2008. The majority of Wen's duties on the Project were administrative and supervisory. Wen testified that he was also assigned additional duties throughout the Project, which required him to perform work covered by the Laborers' and the Carpenters' PWDs.

Credit for 401(k) contributions: KOO maintains a 401(k) plan for its workers that is administered by a third party administrator, Associated Pension Consultants. The plan funds are invested and held in trust by Merrill Lynch. KOO's 401(k) plan is a defined contribution plan with a three year vesting schedule. Participating KOO workers contributed to the plan with salary deferral contributions; KOO made matching contributions ("matching contributions"). In addition, KOO made profit sharing contributions to some workers' 401(k) accounts, based in part on hours the workers worked on the Project ("profit sharing contributions"). KOO deposited profit sharing contributions to these 401(k) accounts once per year, between nine and twelve months after the end of the calendar year for which the contributions were made. In the revised audit accompanying the amended Notice, CCMI gave KOO credit for the value of its Documented matching contributions. CCMI did not give KOO credit for its profit sharing contributions.

KOO's General Defenses: KOO admits that it underpaid most of the affected workers and that its CPRs for the Project were inaccurate but denies that the CPRs were intentionally falsified. KOO attributes the majority of the errors to Schuster's lack of familiarity with California prevailing wage requirements and difficulties that she encountered with transferring prior payrolls to LCP Tracker several months into the Project. KOO also contends that many of the problems could have been avoided but for CCMI's late entry as the labor compliance program for the Project. Odister freely admitted that KOO did not pay its workers overtime because he "feels that he gives them enough money." KOO also admitted that it did not pay the required training fund contributions for any of its workers on the Project. Newbill testified that she worked closely with Nickles to get payroll errors corrected. She further testified that, after four initial restitution checks were issued, Nickles instructed KOO to wait to issue any further restitution checks or pay arrears training fund contributions until CCMl's audit was completed.

DISCUSSION

The overall purpose of the prevailing wage law. Section 1775, subdivision (a) requires, among other things, that contractors and subcontractors pay the difference to workers who were paid less than the prevailing wage rate, and prescribes penalties for failing to pay the prevailing wage rate.

- KOO Has failed to prove that the basis of the assessed underpayment of prevailing wages for laborers' work is incorrect.
- KOO has failed to prove that ccml's reclassification of workers from laborer to carpenter is incorrect.
- KOO only provided testimony regarding the actual work performed by one of the affected workers, I. Flores.
- Whitehouse, Reeves and Wen are entitled to receive prevailing wages for all of the work subject to the laborers' or carpenters' prevailing wage rates that they performed on the project.
- KOO has established entitlement to credit for wages paid to gordon.
- KOO has not established entitlement to credit for the 401(k) profit sharing contributions that it made for some workers.
- KOO is liable for all of the assessed unpaid training fund contributions.
- CCMI's penalty assessment under section 1775 is appropriate.
- Overtime penalties are due for the workers who were underpaid for overtime hours worked on the project.
- KOO is not liable for liquidated damages.

FINDINGS

1. Affected contractor KOO Construction, Inc. filed a timely Request for Review of the Notice of Withholding of Contract Payments issued by CCMI with respect to the Project.

2. With the exception of the unpaid wages assessed for Anthony Gordon, for which KOO has established that it is entitled to an additional credit of $3,305.20, KOO has failed to prove that the basis of the assessed unpaid prevailing wages is incorrect. KOO is therefore liable for the underpayment of prevailing wages to the affected workers for their work on the Project in the aggregate amount of $106,488.16 comprising 1,443 violations of section 1775 and 1,222 violations of section 1815. KOO is also liable for unpaid training fund contributions in the amount of $5,922.81.

3. CCMI did not abuse its discretion in setting section 1775, subdivision (a) penalties at the maximum rate of $50.00 per violation and the resulting total penalty of $72,150.00 for 1,443 violations is affirmed.

4. Penalties under section 1813 at the rate of $25.00 per violation are due for 1,222 violations on the Project, for a total of $30,550.00 in penalties.

5. KOO deposited a bond in the full amount of the Notice in escrow with the Department of Industrial Relations within 60 days after service of the Notice pursuant to section 1742.1, subdivision (b). KOO therefore has no liability for liquidated damages under section 1742.1, subdivision (a).

Wages Due: $106,488.16

Training Fund Contributions Due: $5,922.81

Penalties under section 1775, subdivision (a) : $72,150.00

Penalties under section 1813 : $30,550.00

TOTAL: $215,110.97

In addition, interest is due and shall continue to accrue on a ll unpaid wages as provided in section 1741 , subdivision (b).


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