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Tri-County Contractors, Inc. v. Perez

United States District Court, District of Columbia

February 23, 2016

THOMAS E. PEREZ, Secretary of Labor, Defendant.



This is an action brought under the Administrative Procedure Act (“APA”), 5 U.S.C. § 702 et seq., by a minority-owned small business to challenge its debarment from participation in federal contracting programs. From 2006 to 2007, plaintiff Tri-County Contractors, Inc., was a contractor for the Federal Emergency Management Agency (“FEMA”) on the Gulf Coast, where it repaired and inspected trailers used for temporary housing. During this period, the Department of Labor conducted two investigations into whether Tri-County was complying with the McNamara-O’Hara Service Contract Act (“SCA”) and the Contract Work Hours and Safety Standards Act (“CWHSSA”), which collectively set wage standards for federal contractors in their role as employers. The Department found statutory violations during both investigations, and after the second investigation, it filed a formal complaint. In February 2009, an Administrative Law Judge (“ALJ”) formally recommended that Tri-County be debarred for a three-year period, and the Department’s Administrative Review Board affirmed the ALJ’s order in July 2012. Tri-County was debarred from July 2012 to July 2015.

Tri-County brought this action under the APA seeking to set aside the debarment order. The matter is before the Court on the parties’ cross-motions for summary judgment. See Dkts. 9, 12. Because the debarment period ended while this matter was pending, the Court ordered the parties to submit supplemental briefs on whether the matter is moot. Finding that this matter is not moot, because the expired debarment order is likely to impede Tri-County’s ability to obtain federal contracts in the future, but that the ALJ did not act arbitrarily and capriciously in ordering Tri-County debarred for willfully failing to record its employees’ hours accurately, the Court will grant the Secretary’s motion for summary judgment and deny Tri-County’s cross-motion for summary judgment.


A. Statutory Background

Congress enacted the SCA in 1965 in order to “provide wage and safety protection for employees working under Government service contracts.” S. Rep. No. 92-1131, at 1 (1972), reprinted in 1972 U.S.C.C.A.N. 3534, 3534. The Act requires every service contract with the United States for an amount greater than $2, 500 to include certain protections for the contractor’s employees. See 41 U.S.C. § 6703; 29 C.F.R. § 4.6. Among other things, each such contract must specify “the minimum wage to be paid to each class of service employee.” 41 U.S.C. § 6703(1). The contract must also provide for the payment of fringe benefits. Id. § 6703(2). And in order to facilitate the proper payment of wages and fringe benefits, the contractor is required to “make and maintain for 3 years . . . records containing, ” among other information, “[t]he correct work classification or classifications, rate or rates of monetary wages paid and fringe benefits provided, . . . daily and weekly compensation of each employee, [and] [t]he number of daily and weekly hours so worked by each employee.” See 29 C.F.R. § 4.6(g)(1)(ii)- (iii). All federal contractors must also comply with the CWHSSA, which requires them to pay their employees “at a rate not less than one and one-half times the basic rate of pay[] for all hours worked in excess of 40 in the workweek.” 40 U.S.C. § 3702(a).

The Secretary of Labor is charged with the enforcement of the SCA and the CWHSSA, see 40 U.S.C. § 3703(a); 41 U.S.C. § 6707(a), and is authorized to debar a federal contractor found to be in violation of either statute-that is, to bar it from receiving federal contracts, see 41 U.S.C. § 6706(b); 29 C.F.R. § 5.12. The SCA goes farther-it requires the Secretary to “forward to the Comptroller General . . . the name of [any] person or firm found to have violated” the statute and requires a mandatory 3-year debarment period for such an entity “[u]nless the Secretary recommends otherwise because of unusual circumstances.” 41 U.S.C. § 6706(b). Congress established such a “severe sanction” due to its concern that “employees of government-service contractors historically ‘tended to be among the lowest paid people in the economy.’” Summitt Investigative Serv., Inc. v. Herman, 34 F.Supp.2d 16, 19 (D.D.C. 1998) (quoting Hearing on H.R. 6244 and H.R. 6245 Before the H. Comm. on Educ. & Labor, 92d Cong. 3 (1971) (statement of Rep. O’Hara)). Accordingly, the SCA makes the “debarment of contractors who violate[] the SCA . . . the norm, not the exception.” Vigilantes, Inc. v. Adm’r of Wage & Hour Div., 968 F.2d 1412, 1418 (1st Cir. 1992).

The SCA itself does not define the “unusual circumstances” that the Secretary must find in order to exempt a contractor from debarment, but the Secretary has set forth a three-part test in the Act’s implementing regulations to assess whether such circumstances exist. See 29 C.F.R. § 4.188(b)(3). The first prong of this test forecloses relief from debarment if certain aggravating factors exist: for example, if the violation of the SCA was “willful” or “deliberate, ” or if the contractor “has a history of similar violations.” Id. § 4.188(b)(3)(i). Under the second prong of the test, relief from debarment is permitted only if certain “prerequisites” are present, including, among others, “cooperation in the investigation” and “repayment of moneys due.” Id. § 4.188(b)(3)(ii). If the first two prongs of the test are met, the Secretary finally considers “a variety of factors, ” such as the existence of “recordkeeping violations [that] impeded the investigation” and “the impact of violations on unpaid employees.” Id.; see also Summitt, 34 F.Supp.2d at 20 (reciting this test); A to Z Maint. Corp. v. Dole, 710 F.Supp. 853, 855 (D.D.C. 1989) (describing this test as “a set of narrow, relatively demanding criteria”).

B. Facts and Proceedings Below

Tri-County is a corporation headquartered in Jackson, Mississippi. Dkt. 19-7 at 6 (Joint App. 222) (“J.A.”). John Kenneth Hunter is its president and CEO. Id. In April 2006, Tri-County entered into a contract with FEMA to inspect and repair temporary trailers that housed Gulf Coast residents whose homes had been destroyed by Hurricane Katrina. J.A. 221; see also Dkt. 25-2 at 50 (Hr’g Tr. at 379) (“Tr.”). Under the terms of that contract, Tri-County was obligated to follow the SCA and the CWHSSA, and it was therefore required to pay employees a minimum wage rate. J.A. 62, 221; see also J.A. 324-30 (SCA terms as incorporated into the contract). The contract provided a list of occupations and minimum wage rates, see J.A. 377-82, but did not specifically provide wage rates for “preventative maintenance inspectors, ” the trailer inspectors whose wages are at the heart of this action.

Tri-County initially paid its inspectors a “piece rate” of $6.50 for every trailer inspected. Tr. 56, 115, 158. (The “piece rate” was subsequently increased to $7. See id.) According to the employees who testified at Tri-County’s debarment hearing, the use of a piece rate was common in the developing market for FEMA trailer inspections. Tr. 40, 72. But Tri-County’s rate was lower than the rate of $10 per trailer that many employees had previously been paid by another company, Tr. 72, 158, and eventually one of Tri-County’s employees, Teresa Dabbs, reached out to the Department of Labor to complain that she was not being paid an adequate wage, Tr. 25. The Department began an investigation into Tri-County’s labor practices in December 2006. Tr. 283.

The scope and emphasis of the Department’s first investigation are disputed by the parties. But it is clear that the Department made at least three findings at the end of this investigation. First, the Department found that Tri-County had failed to keep records of the actual hours that its “piece rate” employees were working. J.A. 223; Tr. 287. Second, it found that Tri-County had failed to pay its employees the fringe benefits required by law. Tr. 290-91. Finally, it found that-based on the hours it estimated Tri-County’s “piece rate” employees had worked-Tri-County had failed to pay those employees the equivalent of the minimum hourly wage required under its contract and had failed to pay them time-and-a-half for all hours worked over 40. J.A. 223; Tr. 287-90. Because the contract had not listed a specific wage rate for the inspector position, the Department relied on a generic equivalent-“Laborer”-to calculate the minimum hourly wage that it believed was required ($10.21). See Tr. 310-12 (“[W]hen [we] don’t have a classification listed, we use the closest one . . . to match the type of work that was being performed.”) (testimony of Ms. Van Etten); Tr. 319-20 (explaining that there was no problem with using the $10.21 rate, because it was listed in the contract and it “closely matched the type of work being performed”) (same). The Department ordered Tri-County to pay $52, 994.42 in unpaid wages and benefits to its employees, but did not seek debarment. J.A. 223; Tr. 298.

What happened after the Department’s first investigation is the subject of even greater dispute. Hunter testified that Tri-County made a concerted effort to come into compliance. Tr. 146. He testified that he required his employees to record the actual hours that they worked in any given week. Tr. 171. He testified that he directed them not to work more than 40 hours per week unless instructed. Id. And he testified that Tri-County began to pay its inspectors using a formula that the Department’s investigator, Melissa Van Etten, had approved during a meeting after the investigation had ended. Tr. 168. Using this formula, he explained, the inspectors recorded the number of trailers that they had inspected each day; if they had inspected more trailers than the “average” number calculated by Van Etten during the first investigation, they would receive an additional check at a “supplemental rate.” Tr. 167-69. Hunter testified that he had attempted to contact Van Etten in the weeks and months after the first investigation in order to ensure that Tri-County’s new method of paying inspectors was compliant with the SCA, but that Van Etten had not responded. Tr. 146.

The Tri-County employees who later testified at the debarment hearing told a different story. According to the employees, although Tri-County instructed them to sign a document stating that they would work only 40 hours each week, they in fact regularly worked between 50 and 60 hours each week, including weekends, in order to accomplish their assigned inspections. Tr. 22-27, 60-64, 84-85, 96-97, 116-22. The inspectors testified that they were asked to record the number of trailers that they had inspected, not the number of hours they worked; that occasionally they were asked to sign timesheets that Tri-County had filled out recording the number of hours worked in any given week as 40; but that in fact they were working more than 40 hours each week without receiving overtime pay. See, e.g., Tr. 61-62 (“Q. Did the time sheets show a number of hours worked in your average week? A. Yes, sir. Q. And what was the number it usually showed? A. Forty hours. Q. Did you work 40 hours a week? A. No, sir.”).

In August 2007, the Department began a second investigation into Tri-County’s labor practices. This investigation focused on the company’s failure to keep accurate records of the hours worked by its inspectors, and the related failure to pay overtime and prevailing wages. Tr. 299-301.[1] At the end of the investigation, Van Etten recommended debarment “due to the willful and repeated violations” of the SCA and CWHSSA. Tr. 303. The Department ordered Tri-County to pay $49, 015.39 in back wages and overtime, J.A. 224, and in September 2008 it filed a formal complaint seeking Tri-County’s debarment, J.A. 230. The parties appeared for a formal hearing before the ALJ in April 2010, and the ALJ ordered Tri-County debarred under the SCA for a period of three years in October 2010. J.A. 221, 228. The ALJ found, among other things, that Tri-County “had been instructed to record actual hours worked, had agreed to do so, and did not do so.” J.A. 225. Instead, the ALJ found, Tri-County’s timesheets “never showed more than forty hours worked per week, no matter how many hours each employee actually worked.” J.A. 224. On the basis of these findings, as well as others, the ALJ concluded that Tri-County could not demonstrate the “unusual circumstances” ...

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