$149,000 DIR Fine - Failure to Submit Payroll Records

Read the entire DIR Civil Wage Assessment against Hobbs Construction, Inc. 8/15/17 here.

Affected contractor, Hobbs Construction, Inc. (Hobbs) submitted a timely request for review of the Civil Wage and Penalty Assessment (Assessment) issued by the Division of Labor Standards Enforcement (DLSE) on December 11, 2015, with respect to the El Pescadero Park and McDonald Park Renovation Project in the City of Tracy. The Assessment determined that $149,200.00 in statutory penalties under Labor Code section 1776 was due. A Hearing on the Merits was conducted on August 24, 2016, and December 1, 2016, in Fresno, California, before Hearing Officer Gayle T. Oshima, Chad Wishchuk appeared for Hobbs, and David Cross appeared for DLSE. The matter was submitted for decision on February 17, 2017.

At trial, the parties stipulated to the issues for decision as follows:

- Whether Hobbs failed to timely submit certified payroll records, and is therefore liable for penalties under section 1776.

- Whether section 1776 requires a contractor to create, maintain, or provide the DLSE with "time cards."

- Whether section 1776 authorizes penalties for anything other than the specific record that is a certified payroll record, not back-up data, or whether the DLSE is without valid authority and therefore, the Assessment should be dismissed.

The Director finds that Hobbs has failed to carry its burden of proving that the basis of the Assessment was incorrect. Therefore, the Director issues this Decision affirming the Assessment.

FACTS

On July 1, 2014, Hobbs entered into an agreement for public improvements with the City of Tracy in the El Pescadero Park and McDonald Park Renovation Project (Project) for $657,900.00. The contract required Hobbs to install prefabricated masonry restrooms, a shade structure and a water play structure; construct a sports court; and conduct other related work as to water, sewer, grading, concrete paving, landscaping, and resurfacing.

Section 1776, Subdivision (h): Requests for Payroll Records

Deputy Labor Commissioner Lori Rivera (Rivera) testified that the case was opened for investigation on October 24, 2014, upon DLSE receiving a wage complaint from Lillian Gentz, an employee of the Fresno City Public Works Department. Gentz had received information from at least one of Hobbs' workers alleging underpayment of wages owed by Hobbs. In filing the complaint with DLSE, Gentz provided two weekly timesheets for weeks in August and September 2014 entitled "Hobbs Construction Timesheet," one purporting to relate to a Hobbs worker named "Michael" and another with no worker's name on it. Both timesheets indicated the days, job code, and daily duties performed. Rivera interpreted the timesheets to refer to Hobbs worker Michael Wrona on his work on the Project, although the August timesheet bore a different job code than the September timesheet.

On October 29, 2014, DLSE sent Hobbs a Request for Payroll Records (First Request). The First Request referred to section 1776 as authority, described a ten working days' response time, warned of the $100.00 per day per worker statutory penalty rate for failure to comply, and included DLSE forms under section 1776, subdivision (c) that Hobbs could use for providing Certified Payroll Records (CPRs).

Rivera contacted Hobbs on November 14, 2014, to inquire whether Hobbs had received her October 29, 2014, letter (First Request). On November 17, 2014, Michael Hobbs, the owner of the company (Mr. Hobbs), sent DLSE an email stating that he did not receive the First Request. In response, on November 17, 2014, Rivera faxed and emailed a form letter to Mr. Hobbs requesting payroll information, together with a second letter dated November 17, 2014 (collectively, Second Request). The Second Request form letter stated, "[t]his letter constitutes a formal request for public works payroll information as authorized by Section 1776 of the California Labor Code." The letter stated:

We also require certain additional 'Payroll Records' as that term is defined at Title 8, California Code or Regulations, Section 16000, as including:

All time cards, cancelled checks, cash receipts, trust fund forms, books, documents, schedules, forms, reports, receipts or other evidences which reflect job assignments, work schedules by days and hours, and the disbursement by way of cash, check or in whatever form or manner, of funds to a person(s) by job classification and/or skill pursuant to a public works project.

The specific Payroll Records now requested are: Please see attached for a listing of all additional requested information on each of the requested cases.

The second November 17, 2014, letter attached to the email and fax asked that Hobbs provide the following:

1. Proof of any employer payment contributions claimed to have been paid, canceled checks to unions, health plans, training funds, etc. as part of the prevailing wage on this project. Only those contributions, which are shown to have been paid, will be credited against the prevailing wage obligation.

2. Copies of original time cards for all work on this project.

3. Copies of the canceled payroll checks issued, (front and back) which reflect the wages paid as reported on the Certified Payroll Reports.

4. A list of all employees who worked on this project; include full names, last known address, telephone number and social security number.

5. All DAS forms 140 and 142 submitted on all projects.

The letter further admonished, "PLEASE NOTE: Strict compliance with Labor Code Section 1776(c) will be enforced in this investigation. Pursuant to the California Code of Regulations, Title 8, Group 3, Section 16000 (definition-payroll records) this request is subject to the same ten day requirement as the Certified Payroll Reports."

On December 8, 2014, Hobbs hand-delivered payroll records to the DLSE Bakersfield office for weeks ending August 2, 2014, through November 8, 2014. These records were CPRs pertaining to five workers, Jeff Burns, Sergio Villa, Michael Wrona, Chuck Melton, and Mr. Hobbs, prepared using California Department of Transportation (Caltrans) forms, which are similar to DLSE's form, but do not include the same level of detail, such as payments required under prevailing wage rate determinations for employee benefits (health and welfare, pension, vacation/holiday, and training fund payments) and the full Social Security numbers of employees that DLSE had requested.

Hobbs also delivered hand-filled daily timesheets for the Project, but no copies of the weekly time cards prepared by any of Hobbs workers such as those that Gentz sent to DLSE at the outset of DLSE's investigation. A comparison between the September 2014 weekly time card for Wrona that Gentz sent DLSE and the daily timesheets Hobbs produced for the same September 2014 week suggests that Hobbs' daily timesheet underestimated Wrona's hours on two separate days. Also, while the Wrona weekly time card discloses particular duties performed by Wrona on each day, Hobbs' daily timesheets pertained to all of the crew and only described generally the duties performed by the entire crew for that day.

On October 23, 2015, DLSE sent by facsimile, ordinary first class mail, certified mail, and email another request (Third Request), requesting payroll records, a defined in title 8, section 16000 of the California Code of Regulations. DLSE included a copy of the Second Request in this mailing. In particular, the Third Request stated:

We are in receipt of your certified payroll records you submitted on 12/10/14, [sic] which included payrolls 1-15 through week ending 11/8/14. Please submit all remaining payroll records for the remainder of this project. Please be aware that [section] 1776(h) penalties are still being accumulated for failure to provide the employee information item #4, as previously requested on the letter dated 11/17/14.

As stated above, item number 2 in the Second Request sought copies of original time cards and item number 4 a list of employee names, addresses, telephone numbers, and Social Security numbers.

As a result of the Third Request, by an email on November 5, 2015, Hobbs office employee Sandra Gallardo provided the additional CPRs covering work periods after November 8, 2014, and an employee list. On December 3, 2015, Hobbs also emailed "employer contribution statements." However, copies of the original weekly time cards as prepared by individual workers still were not part of Hobbs' November 5, 2015, and December 3, 2015, productions.

On December 11, 2015, because DLSE had not received the requested copies of original time cards as part of the payroll documents, DLSE issued the Assessment. The Assessment imposed a total penalty on Hobbs of $149,200.00, calculated at $100.00 per day for four workers for each of the 373 days that Hobbs failed to provide the time cards after ten days from the Second Request.

Mr. Hobbs testified that his company did not use time cards or timesheets filled out by employees. He stated that his company may have requested workers to fill out time cards in past projects, but it did not use them in this Project. He further testified that the weekly time card DLSE obtained as to Wrona was like the time cards Hobbs used in 2013 in a federal project. Mr. Hobbs testified that the Wrona time cards DLSE obtained were replaced by the current timesheet he filled out for each crew of the five workers after the day's work and produced to DLSE on December 8, 2014, and November 5, 2015.

DISCUSSION

DLSE's Penalty Assessment Under Section 1776 Is Appropriate and Contains Adequate Description and DLSE Investigation Was Appropriate

Each contractor and subcontractor employing workers on a public works project is required to maintain payroll records pursuant to section 1776 and to furnish CPRs upon request to DLSE. Failure to provide such records to DLSE within ten days of written notice subjects the contractor or subcontractor to statutory penalties. (§ 1776, subd. (h).) Subdivision (a) of section 1776 states:

DLSE showed that Hobbs was served with the November 17, 2014, Second Request by email and facsimile. DLSE also showed that Hobbs was served with the Third Request on October 23, 2015, by certified mail, ordinary first class mail, facsimile, and email to Mr. Hobbs. Further, DLSE served the Assessment via certified mail, ordinary first class mail, email, and facsimile. For service of a request for CPRs, the applicable regulation does not prescribe any particular type of service. Instead, it states that the request "shall be in any form and/or method which will assure and evidence receipt thereof." (Cal. Code. Regs., tit. 8, § 16400, subd. (d).)

Therefore, DLSE met its burden of coming forward with evidence that Hobbs was properly served with the Second and Third Requests and properly served with the Assessment in accordance with the applicable rules. (Cal. Code. Regs., tit. 8, § 17220, subd. (a) [hereafter, Rule 20], and § 17250, subd. (a) [hereafter, Rule 50].) The Assessment indicated the nature of the violation as failure to provide time cards as previously requested on November 17, 2014, under subdivision (h) of section 1776, in compliance with Rule 20. 7 DLSE having met its burden of coming forward, Hobbs had the burden of disproving the basis for the penalty assessment. (§ 1742, subd. (b).) Hobbs bears the burden of establishing by a preponderance of the evidence that the Assessment is incorrect. Hobbs has failed to meet its burden.

The Second Request specifically asked for "Copies of original time cards for all work on this project" and "Payroll records" as that defined in a quoted regulation, which includes "All time cards." The Second Request also asked for a list of employees and their Social Security numbers. On December 8, 2014, Hobbs did provide payroll data using Caltrans CPR forms to reflect wages paid and Hobbs produced information on the hourly rate of fringe benefit contributions that were due the employees, but not the contribution amounts actually paid. Hobbs also did not produce the original time cards filled out by employees and the list of employees and their full Social Security numbers, as DLSE had requested.

The Third Request included the contents of the Second Request, and also asked. for "all remaining payroll records for the remainder of the Project" and employee names, addresses, telephone numbers, and Social Security numbers. In response on November 5, 2015, Hobbs produced a list of employees and CPRs for work done after the dates in the December 2014 production. Again, no original time cards prepared by employees were produced that were similar to the one that DLSE had relating to Wrona and that Melton establish the existence or non-existence of any fact shall be by a preponderance of the evidence." (Rule 50, subds. (b) and (d)).

Hobbs' failure to timely respond in full to DLSE's Second and Third Requests by providing "all time cards" as required by regulation justified imposition of penalty at the rate of $100.00 for each calendar for each of the four workers "until strict compliance" was "effectuated." (§ 1776, subd. (h).) Since "strict compliance" never occurred in this case, the penalty imposed by DLSE for the 373-day period from December 3, 2014, to and including December 11, 2015, at $400.00 per day for the amount of $149,200.00 was proper.

Overall, based on the preponderance of the evidence, Hobbs has not met its burden of proof to establish the basis for the Assessment is incorrect.

FINDINGS

Hobbs Construction, Inc. provided four employees to the Project, and subjected itself to compliance with section 1776.

Hobbs Construction, Inc. was required to accurately keep and certify payroll records for workers employed on the Project pursuant to the provisions of section 1776.

On November 17, 2014, DLSE served Hobbs Construction, Inc. with a request for certified payroll records, including time cards, to be produced to DLSE within ten days from the receipt of the request, or be subject to penalties under section 1776, subdivision (h) in the amount of $100.00 per calendar day or portion thereof for each four employees until the records were received. The Request was received on November 17, 2014, by Michael Hobbs by email and Hobbs Construction, Inc. by facsimile.

Hobbs Construction, Inc. delivered some of the requested payroll records on December 8, 2014, November 5, 2015, and December 3, 2015, but failed to timely produce all of the requested payroll records.

Hobbs Construction, Inc. failed to show that the Assessment was incorrect.

DLSE properly assessed penalties against Hobbs Construction, Inc. under section 1776, subdivision (h) for its failure to provide the requested payroll records to DLSE within ten working days of November 17, 2014.

In light of the findings above, Hobbs Construction, Inc. is liable for penalties under section 1776, subdivision (h) in the total amount of $149,200.00.

ORDER

The Civil Wage and Penalty Assessment is affirmed 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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