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LODGE 1858, AFGE v. ADMINISTRATOR

August 12, 1976

LODGE 1858, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, et al., Plaintiffs,
v.
ADMINISTRATOR, NATIONAL AERONAUTICS AND SPACE ADMINISTRATION, et al., Defendants, and National Council of Technical Service Industries, Intervenor-Defendant



The opinion of the court was delivered by: WADDY

 WADDY, District Judge.

 This is a suit for declaratory judgment and injunctive relief arising out of a reduction-in-force (RIF) action, resulting from budget cuts, among civil service personnel at the George C. Marshall Space Flight Center, Huntsville, Alabama (the Marshall Center).

 Plaintiffs are: (1) Lodge 1858, American Federation of Government Employees, a labor organization recognized by the National Aeronautics and Space Administration (NASA) as the exclusive bargaining agent under Executive Order 10988 for all civil service employees at the Marshall Center; and (2) six named individual civil service employees. Pursuant to the RIF action, the individual plaintiffs and about 760 other civil servants received notices on December 6, 1967, informing them that they would either be reduced-in-grade or separated from government service effective January 13, 1968.

 Defendants are the Administrator of NASA and the Chairman and Members of the Civil Service Commission. Defendant-intervenor is the National Counsel of Technical Service Industries (NCTSI), a nonprofit corporation comprised of companies which contract with various Federal agencies, including NASA, to supply support services.

 Plaintiffs contend that NASA violated the personnel procurement restrictions of its enabling Act, The National Aeronautics and Space Act of 1958, as amended, as such are delineated in 42 U.S.C. § 2473(b)(2), as well as other federal statutes relating to the hiring, retention and employment of civil service employees by instituting a RIF among civil service employees when support service contractor and sub-contractor employees were allegedly performing work reserved to civil service personnel. Plaintiffs also contend the RIF violated the Union's collective bargaining contract with NASA.

 Plaintiffs seek a declaration that the RIF action and various support service contracts are unlawful and an injunction restraining and enjoining NASA from continuing to enter into and perform such support service contracts. Plaintiffs also seek reinstatement of the affected civil service employees to the positions, grades and classifications from which they were separated by reason of the RIF and NASA's contracting practices, and an award of back pay and employee benefits. *fn1"

 The case is before the Court on the motion of plaintiffs for final summary judgment and the cross-motions of defendants and NCTSI for summary judgment. Also pending is a ruling on an Order to Show Cause why defendants should not be held in contempt for failing to comply with the Court's Orders of November 30, and December 21, 1973. *fn2"

 I. HISTORY OF THE CASE

 Shortly after the case was filed in 1967, the late Judge Alexander Holtzoff granted plaintiffs' motion for preliminary injunction and enjoined the RIF action at the Marshall Center. Defendants thereafter advised the Court by means of a memorandum denominated "NASA-CSC Agreement on the MSFC Reduction-in-Force" that all but approximately 166 separation and reduction-in-grade notices *fn3" to civil service employees at the Marshall Center were being cancelled due to the existence of improper support service contract operations. On defendants' motions, the Court, by Order dated March 12, 1968, vacated the injunction "without prejudice to any administrative remedies that may be possessed by such individual employees in whose cases NASA now effectuates its RIF actions under the Agreement reached between the Civil Service Commission and NASA." The complaint was dismissed April 18, 1968, and plaintiffs appealed.

 On April 21, 1970, the United States Court of Appeals for this Circuit reversed and remanded the case for further proceedings on the merits. Lodge 1858, American Federation of Government Employees v. Paine, 141 U.S.App.D.C. 152, 436 F.2d 882 (1970). *fn4" Upon the completion of lengthy discovery proceedings, plaintiffs moved for summary judgment, defendants cross-moved for summary judgment, and NCTSI moved to dismiss the complaint.

 On November 30, 1973, partial summary judgment was granted to plaintiffs. This Court ruled that the six elements or standards *fn5" set forth in an opinion written in October 1967 by Leo Pellerzi, then General Counsel of the Civil Service Commission, as to the legality of two representative NASA support service contracts at the Goddard Space Center, represented the appropriate "standards of review to be applied in determining whether or not an employer-employee relationship has been established between NASA and private contractor employees by the terms and performance of each of the support service contracts."

 Quoting from General Counsel Pellerzi's Opinion, the Pellerzi Standards are set forth in the Court's Memorandum Opinion at pages 20-21 as follows:

 
"In the absence of clear legislation expressly authorizing the procurement of personnel to perform the regular functions of agencies without regard to the personnel laws, we must insist on scrupulous adherence to those laws and the policies they embody. Accordingly, contracts which, when realistically viewed, contain all the following elements, each to any substantial degree either in the terms of the contract, or in its performance, constitute the procurement of personal services proscribed by the personnel laws.
 
-- Performance on-site
 
-- Principal tools and equipment furnished by the Government
 
-- Services are applied directly to integral effort of agencies or an organizational subpart in furtherance of assigned function or mission
 
-- Comparable services, meeting comparable needs, are performed in the same or similar agencies using civil service personnel
 
-- The need for the type of service provided can reasonably be expected to last beyond one year
 
-- The inherent nature of the service, or the manner in which it is provided reasonably requires directly or indirectly, Government direction or supervision of contractor employees in order:
 
-- To adequately protect the Government's interest or
 
-- To retain control of the function involved, or
 
-- To retain full personal responsibility for the function supported in a duly authorized Federal officer of employee.
 
"Applying these standards, the contracts under review and all like them are proscribed unless an agency possesses a specific exception from the personnel laws to procure personal services by contract."

 The Court concluded at page 22 of the Opinion that

 
". . . 42 U.S.C. Section 2473(b)(2) requires NASA to appoint all of its officers and employees in excess of 425 of the scientific, engineering and administrative personnel in accordance with the Civil Service laws and prohibits the Administrator of NASA from entering into contracts and enforcing contracts with Intervenors or others that make non-civil service employees NASA employees as defined in the Pellerzi Opinion, and that all such contracts in existence on December 6, 1967, and at present, were and are null and void."

 The Court ordered further proceedings held in abeyance and referred the case to the Civil Service Commission (Commission) with instructions to investigate the involved support service contracts and to apply the Pellerzi Standards to

 
"determine whether the relationship of employer-employee existed on December 6, 1967, and exists at the present time between National Aeronautics and Space Administration and the contractor noncivil service employees involved in this case, and report its finding to this Court within 60 days from the date hereof."

 Defendants then moved for clarification of the November 30, 1973 Order, requesting that the Court's references to the Pellerzi Standards include the interpretation rendered in a supplemental opinion by the subsequent General Counsel of the Civil Service Commission, Anthony L. Mondello, on July 5, 1968. *fn6" On December 21, 1973, the Court ruled that

 
". . . the Mondello Supplement did not modify or change the 'Pellerzi Standards' but, as stated in the Supplement, its purpose was '. . . to clarify the meaning of these (Pellerzi) elements and the scope of the opinion in order to ensure that support service contracts are not drafted or performed in a manner which will evade the requirements of the personnel laws'; and * * * [the] supplement did not add any new or different standards or cancel or delete any of the 'Pellerzi Standards' but reaffirmed them and supplied the clarification thereof." (Emphasis in Original)

 On February 19, 1974, defendants submitted proposed Commission steps to implement the Court's mandate and moved for an extension of time for the Commission to complete its investigation and report its findings back to the Court. Included therein was a letter dated February 1, 1974, from the office of the United States Attorney as defense counsel to the Commission's General Counsel Anthony Mondello. In pertinent part, that letter reads:

 
". . . We advise that the Commission must apply the 'six elements' enumerated in the 'Pellerzi Opinion', subject to the emphasis or clarification supplied in the * * * 'Mondello Opinion'.

 On April 2, 1974, the Court entered an order denying defendants' motion for an extension of time and "for Court approval of the proposed Civil Service Commission steps, which differ from the Court's Order of November 30, 1973 and which further delay implementation of said Order". On April 22, 1974, the Court took under advisement plaintiffs' motion to hold defendants in contempt for failure to comply with this Court's Orders dated November 30, and December 21, 1973.

 From March 11, 1974 through April 5, 1974, the Commission examined thirty-two (32) support service contracts in force at the Marshall Center, including the satellite operations known as Mississippi Test Facility (MTF), located at Bay St. Louis, Mississippi, and the Michoud Assembly Facility (Michoud), located at New Orleans, Louisiana. Five of these contracts were viewed by the Commission as within the purview of this Court's Order although they had not originally been identified as within the litigation.

 The Commission submitted its Report on May 30, 1974, concluding that none of the 32 NASA support contracts investigated created a relationship tantamount to that of employer-employee. The Commission's filing consisted of a " Summary Report " and 32 individual reports covering each of the NASA support service contracts. Some of these contracts had been in effect in 1967 when the RIF challenged herein occurred; the others were either follow-on or replacement contracts in effect when the Commission investigation was undertaken. The individual reports contain copies of the contracts and modifications thereto, affidavits of involved personnel, and other evidentiary material accumulated in connection with the investigation and report preparation. A summary of the Commission's conclusions is as follows:

 
(1) Of the 12 contracts in effect at the Marshall Center in 1967
 
--- None were found to involve Government Supervision (Pellerzi Element 6)
 
--- Additionally, three were found to have been performed off-site (Pellerzi Element 1); and two of these three were also found not to involve the use of Government Equipment (Pellerzi Element 2);
 
(2) Of the 12 contracts in effect at the Marshall Center at the time of the investigation
 
--- None were found to involve Government Supervision (Pellerzi Element 6)
 
--- Additionally, two were found to have been performed off-site (Element 1);
 
(3) Of the eight Government-owned, Contractor-operated (GOCO) type contracts at the Mississippi Test Facility and the Michoud Assembly
 
--- None were found to involve Government Supervision (Element 6)
 
--- Additionally, five did not meet the integral effort standard (Element 3).

 Thus, 22 of the 32 contracts investigated were found to contain all of the Pellerzi Elements except Element 6, Government Supervision; eight of the contracts involved all but two of the Pellerzi Elements; and two of the contracts involved only three of the Pellerzi Elements.

 
"A critical issue discussed in [the letter from the Office of the U.S. Attorney dated February 1, 1974 to General Counsel Mondello] had to do with the application of the 'Pellerzi Standards' and the effect, if any, of the 'Mondello Opinion'. The crux of this discussion was that in order for a determination to be made that a relationship is tantamount to employer-employee existed: (1) all six of the 'Pellerzi Standards' elements had to be present, each to a substantial degree, and (2) with regard to the sixth element, relatively continuous, close supervision of a substantial number of contractor employees must be present and must be shown to be related to one of the following requirements, '(a) to adequately protect the Government's interest, or (b) to retain control of the function involved, or (c) to retain full personal responsibility for the function supported in a duly authorized Federal officer or employee.'
 
"Therefore, the determinations presented in the individual reports, * * * were made in accordance with the instructions given by the Office of the U.S. Attorney." (Emphasis supplied) *fn7"

 II. THE PRESENT CONTROVERSY

 In their motion for final summary judgment, plaintiffs have made various challenges to the manner in which the Commission applied the Pellerzi Standards and the conclusions reached. In plaintiffs' view, the Commission was misdirected and misled by government counsel as to the correct application of the Pellerzi Elements, particularly with respect to the sixth element, and that the Commission's conclusions are therefore arbitrary and capricious. They urge this Court to consider all of the evidence and find that the preponderance of the evidence supports the conclusion that an unlawful employer-employee relationship existed, and continues to exist under the support service contracts reviewed.

 Defendants and defendant-intervenor NCTSI take the position that the Commission properly applied the Pellerzi Standards, as clarified by the Mondello Supplement. They contend there has been a fair and bona fide investigation which produced evidence supporting the Commission's findings and that the conclusions are not arbitrary and capricious. Defendants maintain that since the Commission was given the investigatory task because of its "special competence in the field", its reports should be given great weight by the Court under the rationale of Wheelabrator Corporation v. Chafee, 147 U.S.App.D.C. 238, 455 F.2d 1306 (1972). Defendant-intervenor NCTSI also places reliance on the Wheelabrator case, contending that although the Court is not bound by the Commission's findings and conclusions, they should be given very substantial consideration and weight. Each urges that their respective motions for summary judgment be granted.

 Turning first to the threshold question of how much weight is to be accorded to the Commission's investigation and reports, the Court notes that our Court of Appeals held in Wheelabrator Corporation v. Chaffe, supra at 1316, that:

 
"Under the doctrine of primary jurisdiction, a court may entertain an action for permanent relief and defer its consideration of the merits until an agency 'with a special competence' in the field has ruled on the issues, * * * The court has the last word, but it can properly seek the benefit of whatever contributions can be made by an agency whose 'area of specialization' embraces problems similar to or intermeshed with those presented to the court."

 A. APPLICATION OF THE PELLERZI STANDARDS

 The basic criteria for determination of whether an employer-employee relationship exists between an individual and the Federal government are set forth in 5 U.S.C. § 2105(a). *fn8" The six Pellerzi Elements, in turn, relate primarily to the third of these statutory criteria. In this regard, the Pellerzi analysis of the two representative NASA support service contracts begins by stating at page 22:

 
"[This] criterion embodies the same considerations as the common law test of control of a servant. * * * It is the right or power to control the individual in the performance of his work and the manner in which the work is done that is usually decisive."

 Following a discussion of various provisions of the representative contracts and a brief review of the operations thereunder, General Counsel Pellerzi concluded that the contractor supervisors were merely pro forma supervisors. The inquiry, however, went further, there being "other factors relevant to whether the power of direction and control exists and is exercised by Federal officials over the contractor's personnel." *fn9" Those factors are embodied in the Pellerzi Elements, which are not to be mechanically applied. Contracts under review are to be realistically viewed, both by their terms and operation.

 B. THE REQUIREMENT THAT ALL SIX PELLERZI ELEMENTS BE PRESENT

 When reviewing the contracts at issue herein, the Commission applied a test requiring that all six elements be present, each to a substantial degree. There is apparently no disagreement among the parties as to the "substantial degree" requirement. Controversy has arisen, however, over whether all six elements must be present. The Pellerzi Opinion, in setting forth the elements, states at page 40:

 
"[Contracts] which, when realistically viewed contain all the following elements, each to any substantial degree, either in the terms of the contract, or in its performance, constitute the procurement of personal services proscribed by the personnel laws."

 It is clear that contracts containing all six elements will bring about the proscribed employer-employee relationship. However, the Pellerzi Opinion, at page 21, also addresses the question of whether all six elements must be present.

 
"The criteria must be realistically applied and the end-point determination reached on the basis of the overall substance of the contract operations. For the purpose of insuring compliance with the personnel laws we do not believe it possible to refine the criteria or weigh their elements in application so as to indicate that mere changes in form or terminology will meet the substance of the Commission's objections. If, in substantial effect, the contract results in a form of personnel procurement not expressly authorized by law, it is proscribed by the personnel laws."

 The Mondello Supplement further clarifies the correct approach by first recalling the relationship between the Pellerzi Standards and 5 U.S.C. § 2105(a), and then correctly stating:

 
"The absence of any one or a number of [the six Pellerzi Elements] would not mean that supervision does not exist but only that there is less likelihood of its existence. Moreover, any single element may not be significant unless its presence is felt to a substantial degree."

 The Court concludes that when read in context, and with the aid of the Mondello Supplement, all six elements need not be present for a finding that the proscribed relationship exists.

 C. THE PARTICULAR ELEMENTS CHALLENGED

 With respect to the sixth (and for purposes of this case, the most critical) Pellerzi Element, the Commission applied a test requiring "relatively continuous, close supervision [by Federal officials] of a substantial number of contractor employees." Plaintiffs contend that the correct test requires only a showing that "the inherent nature of the service, or the manner in which it is provided, reasonably requires, directly or indirectly, federal direction or supervision of contractor employees."

 The sixth Pellerzi Element is as follows:

 
"The inherent nature of the service, or the manner in which it is provided reasonably requires directly or indirectly, Government direction or supervision of contractor employees in order:
 
-- To adequately protect the Government's interest, or
 
-- To retain control of the function involved, or
 
-- To retain full personal responsibility for the function supported in a duly authorized Federal officer or employee."

 The Mondello Supplement provides the following clarification:

 
"[The sixth element] which involves a requirement for close supervision of contractor employees by Government employees for the protection of Government interest and functions is a companion piece to Bureau of the Budget Circular A - 76 which requires agencies to perform for themselves those basic functions of management which they must perform in order to retain essential control over the direction of their programs."

 "Close supervision", as it relates to the sixth element, is a test to be applied in the context of the Government's interest in maintaining necessary control over the direction of its programs. Moreover, it is clear that "close supervision" can be either "direct or indirect". However, the inclusion of the word "continuous" in the test actually applied by the Commission is troublesome. The Court can find no support in the Pellerzi Opinion for such a requirement. The Mondello Supplement, in referring to the fifth10 element, does state:

 
"The criterion stated in the fifth element is the continuing character of the Government need being met by the contract service. The suggestion that a need for service which lasts beyond a year must be filled by use of civil service personnel does not mean that contracts for briefer periods are invariably permissible. A contract for services to fill a temporary need of 30-60 days duration, but which involves continuous supervision of contractor employees by Government employees would be proscribed."

 "Continuous supervision", in context, relates to those short-term or temporary contracts which are not to be disregarded.

 
"For example, sporadic, unauthorized supervision over an occasional one of a much greater number of contractor employees might reasonably be ignored; whereas, relatively continuous supervision of a substantial number of contractor employees by Government employees would have to be taken into account."

 That passage, however, was included to explain the meaning of "presence felt to a substantial degree", and not for the purpose of formulating the restrictive test applied by the Commission upon the recommendations and interpretations of counsel. The Court is therefore of the opinion that the Commission incorrectly applied the sixth element of the Pellerzi Standards, and that the test urged by plaintiffs would result in the correct application of that element.

 The Commission's application of the first element, Performance On-Site, the second, Government Furnished Equipment, and the third, Services Applied Directly to the Integral Effort of the Mission, have also been attacked by plaintiffs, and justified by defendants and defendant-intervenor NCTSI. Those contentions, being more factually related, are considered in Parts III and IV of this Opinion.

 Plaintiffs' challenges to the Commission's application of the Pellerzi Standards, and its conclusions as to the non-existence of the proscribed employer-employee relationship under each of the support service contracts reviewed, have persuaded the Court that further analysis must be undertaken. That analysis, ...


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