Not a Public Works Project - DIR Still Assesses $14k Fine

Read the entire DIR Civil Wage Assessment against Total Service, Inc. 9/21/07 here.

Affected contractor Total Service, Inc. ("Total Service") requested review of a Civil Wage and Penalty Assessment ("Assessment") issued by the Division of Labor Standards Enforcement ("Division") with respect to the Little Theatre Demolition Project, Orange County Fair, 32nd District Agricultural Association, State of California. A hearing on the merits was held on March 3 and May 19, 2006, in Long Beach, California, before appointed Hearing Officer Ann F. MacMurray. Total Service appeared through Mr. Walter Schuster, and the Division appeared through Bruce McManus, together with Deputy Labor Commissioner Ken Madu. The parties presented evidence and arguments, and the case was submitted for decision on May 19, 2005. For the reasons set forth below, the Director dismisses in part and modifies in part the Assessment.

PROCEDURAL STORY

This case arises out of a public works contract between Total Service and the Orange County Fair & Exposition Center, 32nd District Agricultural Association, State of California ("Ag District"). The contract called for Total Service to demolish and remove the Little Theatre building and all spoils directly related to the demolition ("Project"). Five salvage workers filed complaints with the Division asserting that Total Service had not paid them the correct prevailing wage.

The Division determined that Total Service was liable for $6,863.10 in back wages for the salvage workers, $1,350.00 in penalties under sections 1775(a), and $50.00 in overtime penalties under section 1813. The potential amount of liquidated damages under section 1742.1(a) amounted to $6,863.10. The Division also determined that section 1776(g) penalties were due in the amount of $19,250.00 for failure to provide CPR's. The Assessment totaled $34,376.20.4

In its defense, Total Service asserted that, based on the representations of the Ag District, the Project was not a public work and thus not subject to the payment of prevailing wages nor subject to CPR submissions. Total Service also asserted that the five salvage workers, for which it was assessed unpaid wages, were not Total Service employees, but rather independent salvage workers who salvaged lumber for resale in Mexico.

On August 26, 2005, at the first prehearing conference, the Division made clear that it was aware that the unpaid wage Assessment was limited to the salvage workers and did not include Total Service's own demolition employees. The Division gave no indication at either conference that it would seek to amend the Assessment on any basis.

FACTS

Total Service proposed the following scope of work:

A. Demo and remove existing "Little Theatre" building, including all walls, partitions, flooring, ceiling, paneling, and stucco material.

B. Demo and remove 6,672 square feet of existing on-site Asphalt Parking Area located directly adjacent to the "Little Theatre."

C. Removal and disposal of all spoils directly related to the Demolition..

The Ag District accepted this proposal on December 13, 2004.

The Division offered testimony through Madu. He testified that the five complaining workers reported that they performed demolition clean-up work at the Project. Madu took worker statements, reducing them to signed declarations, and obtained calendar information regarding the workers' best estimates of their dates and hours worked. Four of the five workers worked eight hours per day for five days (including one Saturday). The fifth worker reported working the same five days plus two additional days of 10 and 13 hours respectively. For all work performed, each worker was paid between $100.00 and $300.00 total.

Madu obtained documents from the Ag District including Total Services Quotation Requests, a Change Order, as well as the Contract Purchase Order. The Ag District representative also told Madu that the Ag District did not know the Project was a public work.

Madu spoke with Total Service which claimed that, based on the representations of the Ag District the work was not a prevailing wage job. Total Service also claimed that the complaining workers were independent salvage workers and not its employees. Total Service provided the Division with a list of Total Service's demolition employees along' with the gross and net wages paid, as well as a list of the dates and hours worked by its own employees and the salvage workers.

Decision of the Director

Cota testified that he has worked prior salvage jobs. He gets paid by selling the salvage material to truck drivers from Mexico. Castro called him to help salvage the lumber from this demolition project. Cota worked five eight-hour days on January 27, 28, 29, 31, and February 1, 2005. Since January 29 was a Saturday, he accrued eight hours of overtime. Cota received a total of $200.00 from Castro for the entire job, despite being promised $100.00 per day.

Dena Heathman serves as the Chief Administrative Officer for the Ag District.

She oversees the facilities department, human resources and finance. She testified that the Ag District, which is a part of the Department of Food and Agriculture, is an agency of the State of California. The purpose of the Ag District is to promote agricultural education and to hold and manage properties for fairs and agricultural programs. Heathman first learned about the Project during a department budget and planning session. She has signed purchase orders similar to the one that paid for the Project. Heathman testified that the Ag District's only source of funds are those internally generated, so that the money used for the Project would have been the Ag District's general operating funds; the Ag District receives no general fund money from the State.

Vince Staskewicz, the Ag District's Supervisor of Maintenance, negotiated the Project's terms of work with Total Service. He testified that he told the Total Service representative that this job was not a public work and therefore was not subject to payment of prevailing wage job. Staskewicz stated that he mistakenly believed it was not a "prevailing wage job because his own work crew dismantled the infrastructure, and Total Service was only required to demolish the building and remove the remaining material.

Hammond reported that all of Total Services demolition projects have salvageable material. Sometimes Total Service pays to have the salvage removed to a dump and other times a salvage crew pays Total Service for the opportunity to remove salvage for resale. These salvage workers make their living from selling the salvage. In this case Hammond allowed the salvage workers to remove the material without cost to either party. The salvage workers sold the lumber to a truck driver who transported the material to Mexico for reuse. Hammond testified that he expected the salvage from the Project to generate enough profit for Castro that Total Service would receive money from the salvage crew.

Hammond testified that the salvage workers were not Total Service employees and that Total Service did not promise to pay, nor did it pay, for any of the salvage work. Total Service did not direct the salvage work because the workers are knowledgeable and will leave the job site if they are directed.

Hammond stated that Madu asked Total Service to supply CPRs. Since Hammond believed the project was not a prevailing wage job, Total Service had no CPRs. Total Service did submit a list of its eight demolition workers employed on the job, their gross and net wages paid, as well as a list of all workers, including the salvage workers, reflecting the dates and hours worked.

DISCUSSION

The Division knew as early as August 26, 2005, that the Assessment was based only on the salvage workers and did not include Total Service demolition employees. Furthermore, the Division had in its possession at least by July 1, 2005, the list of Total Service demolition employees, their gross/net wages paid as well as "the dates and hours worked; yet the Division did "nothing with that information until the day of the hearing. Discovery of this new evidence sometime in July 2005 might have provided the Division "with the right to seek amendment of the Assessment at that time, but not seven months after first coming into possession of this information, on the day of the hearing. Any good cause to amend is more than offset by the prejudice to the contractor (who has the burden of proof) by seeking an amendment in an unspecified amount at the eleventh hour. Similarly, the Division's unreasonable delay in seeking to amend the Assessment for section 1776(g) penalties does not demonstrate good cause to amend.

Public Works Coverage

The salvage workers might be entitled to prevailing wages under a second statutory basis. Under section 1772, "[w]orkers employed by contractors or subcontractors in the execution of any contract for public works are deemed to be employed upon public work." Similarly, under section 1774, contractors and subcontractors shall pay not less than the specified prevailing wage to all workers employed in the execution of the public works contract. In this analysis, the first question to be answered is whether there is an underlying public work project pursuant to the definition contained in section 1720(a)(l).

The Project was demolition, an numerated type of public work, performed under a contract between Total Services and the Ag District. The Project was funded by moneys generated by the Ag District from its participation fu fairs, and other agricultural programs." The Ag District is, by statute, a state institution. Food & Agr. Code, § 3953; see also Food & Agr. Code, § 3802 [defining an association as a district agricultural association] and Food & Agr. Code, § 3884 [stating that the 32d District Agricultural Association is comprised of Orange County]. "[P]aid for in whole and in or in part out of public funds" includes the payment of money by the state or political subdivision directly to the public works contractor. Lab. Code, § 1720(b) (l). Department of Industrial Relations ("DIR") regulations define public funds as including"... state, local and/or federal monies." Cal. Code Regs., tit. 8, § 16000. Government expenditures are public funds without regard to whether the money was acquired through an entity's power of taxation or by some other means. Therefore, the monies paid by the Ag District to Total Service were public funds. Despite the Ag District's misrepresentation to the contrary, the Project was a public work. See, Lusardi, supra.

Having determined that the Project was a public work, the question is whether the salvage workers performed work "in the execution of the public work contract" such that they are entitled to the payment of prevailing wages.

Here, Castro was in the business of salvage on other projects and hired his own crew. He had no contract with the District. The crew had no involvement in the demolition, was not required to take anything away at all and was not guaranteed any payment for their work by the District or by Total Service. Total Service had no direction or control over where the salvage went. It had no direction or control over the crew beyond what was required to keep crews going about their distinct business out of each other's way. The crew was therefore not part of the integrated process of demolition that qualifies for coverage under sections 1772 or 1774 any more than truckers who merely deliver and do not "immediately incorporate." D.G. Sansone Co. v. Department of Transportation, 55 Cal.App.3d 434, 443-44 (1976). As such, no prevailing wages are due the salvage crew.

Total Service Is Not Liable For Penalties Under Labor Code Sections 1775 And 1813 Nor For Liquidated Damages.

There being no prevailing wages due under this decision. Penalties under sections 1775 and 1813 only apply to the failure to pay prevailing wages. Since no prevailing wages are due, there can be no penalties; penalties under sections 1775 and 1813 accordingly are dismissed.

Total Service Is Liable For Penalties For Failure To Provide Certified Payroll Records For Its Own Demolition Employees.

Labor Code section 1776(g) provides in pertinent part:

The contractor or subcontractor has 10 days in which to comply subsequent to receipt of a written notice requesting [certified payroll] records .... In the event that the contractor or subcontractor fails to comply within the 10-day period, he or she shall, as a penalty to the state ... , forfeit twenty-five dollars ($25) for each calendar day, or portion thereof, for each worker, until strict compliance is effectuated ....

The Division sent a Request for Certified Payroll Records requesting certified copies of time and payroll information for all workers who were employed by Total Service on the Little Theatre Demolition Project from the beginning to completion of the project. The Division assessed its penalty based on eleven workers at $25.00 per day for 70 days, from March 8 through June 1, 2005.

Total Service did not provide any CPRs due to the Ag District's contract representative's affirmative representation that the work was not a public work subject to the payment of prevailing wages. As noted above, however, this is no defense. Lusardi, supra. 15 The statutory requirement to submit CPRs, when properly requested by the Division, cannot be negated by agreement or misunderstanding.

The demolition work was a public work subject to the payment of prevailing wages. Total Service admittedly did not prepare or provide CPRs. Thus, Total Service is liable for failing to provide CPRs for its employees. Even if the salvage workers had been doing covered work, Total Service's CPRs only have to include them if they were Total Service's employees.

The Director does not have discretion to modify the penalty amount or otherwise reduce it unless he determines that fewer workers were employed by Total Service. Here Total Service has proven it only had eight workers on the Project. The penalty for failing to provide CPRs for the total Service demolition workers is therefore modified to $14,000.00 (8 workers x $25.00 x 70 days).

FINDINGS

The demolition work that formed the basis of the contract between the 32nd District Agricultural Association and Total Service was a public work subject to the payment of prevailing rate of wages to the workers employed in the execution of the demolition work.

The Assessment was not based on the demolition work performed by Total Service employees, but was based on the salvage work performed by Castro and his crew.

The salvage work was not an independent public work subject to the payment of prevailing rate of wages to the workers employed in the execution of this work.

The salvage work was not work performed in the execution of a public work contract. Therefore, no prevailing wages are due the salvage workers.

No penalties are due pursuant to sections 1775 and 1813.

No liquidated damages are due under section 1742.1(a).

Total Service failed to provide CPRs for its eight demolition employees and is, therefore, liable for section 1776(g) penalties for 70 days for a modified amount of $14,000.00.

The amount found due in the Assessment is modified by the decision as follows:

Wages $0.00

Penalties under Labor Code section 1775 $0.00

Penalties under Labor Code section 1813 $0.00

Liquidated Damages under Labor Code section 1742.1 $0.00

Penalties under Labor Code section 1776(g) $14,000.00

ORDER

The Civil Wage and Penalty Assessment is modified in part and. dismissed in part based on the above Findings: The Hearing Officer shall issue a Notice of Findings that shall be served with this Decision on the parties.


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