Administrator, Wage and Hour Div., USDOL v. Price Gordon, LLC (agency decision, March 9, 2020)

Plain-English summary

Price Gordon and related entities provided non-emergency medical transportation under a Veterans Affairs contract covered by the Service Contract Act. The ALJ found that drivers and dispatchers had not received required prevailing wages and benefits, but limited owner Nicholas Price's liability to the period after he resumed daily control in June 2016. The Board held that Price remained responsible throughout the contract because he was the sole owner and could not avoid personal liability by delegating management. The ALJ used the wrong totality-of-the-evidence approach to debarment, but his findings satisfied the regulation's three-part unusual-circumstances test. The Board extended back-wage liability to the entire contract period and affirmed the decision not to debar Price and the company.

Decision snapshot

• Cited authorities: 41 U.S.C. §§ 6703, 6705, and 6706; 29 C.F.R. §§ 4.187(e), 4.188(b)(3), and 8.9(b)
• Outcome: Liability was modified to cover the full contract period, while relief from the three-year debarment sanction was affirmed.
• Key point: A responsible corporate owner cannot avoid Service Contract Act back-wage liability by delegating day-to-day management.

Full text (DOL official public release)

U.S. Department of Labor Administrative Review Board
200 Constitution Ave. NW
Washington, DC 20210-0001

In the Matter of:

ADMINISTRATOR, WAGE ARB CASE NO. 2019-0032
& HOUR DIVISION, U.S.
DEPARTMENT OF LABOR ALJ CASE NO. 2017-SCA-00008

  PROSECUTING PARTY,                DATE: March 9, 2020

  v.

PRICE GORDON, LLC d/b/a VETERAN
NATIONAL TRANSPORTATION, LLC d/b/a
VNT; LMC MED TRANSPORTATION, LLC;
NICHOLAS PRICE, an individual; and
TRACY BEASLEY, an individual,

        RESPONDENTS.

Appearances:

For the Administrator, Wage and Hour Division:
Kate S. O’Scannlain, Esq.; Jennifer S. Brand, Esq.; Jonathan T. Rees,
Esq.; and Heather Maria Johnson, Esq.; U.S. Department of Labor,
Office of the Solicitor; Washington, District of Columbia

For the Respondents Price Gordon, LLC, d/b/a Veteran National Transportation, LLC, d/b/a LMC Med Transportation, LLC., and Nicholas Price: 1
Timothy J. Turner, Esq.; and Daniel McAuliffe, Esq.; Whitcomb,
Selinsky, McAuliffe, P.C.; Denver, Colorado

  1     Counsel does not represent Tracy Beasley.

Before: Thomas H. Burrell, Acting Chief Administrative Appeals Judge, James A. Haynes and Heather C. Leslie, Administrative Appeals Judges.

                         DECISION AND ORDER

   PER CURIAM. This case arises under the McNamara-O’Hara Service Contract

Act of 1965, as amended (SCA). 41 U.S.C. § 6701 et seq. (2011) and its implementing regulations at 29 C.F.R. Parts 4, 6, 8 (2018). On February 21, 2019, the Administrator, Wage and Hour Division (the Administrator), as Prosecuting Party, filed a petition with the Administrative Review Board (ARB or Board) to review the Administrative Law Judge’s (ALJ) January 11, 2019 Decision and Order (D. & O.). 2 For the reasons set forth below, we affirm in part and modify in part the ALJ’s D. & O.

                               BACKGROUND

   The facts are not in dispute. Respondents Nicholas Price and Tracy Beasley

formed LMC Med Transportation, LLC (LMC) in 2013. The company was certified as a “service-disabled veteran-owned small business” (SDVOSB) and became eligible for government contracts set aside for these businesses with Nicholas Price as the owner and requisite manager and supervisor, 3 and Tracy Beasley his employee.

   LMC contracted with the U.S. Department of Veterans Affairs on May 1,

2015, to provide non-emergency medical transportation services to veteran beneficiaries of the Southern Arizona Veterans Affairs Health Care System. D. & O. at 1. The contract incorporated the provisions of SCA and required SCA prevailing wage and fringe benefits for drivers and dispatchers.

   After initiating the contract, Price delegated management to Beasley and

other staff. In June 2016, however, Price resumed direct management of the contract following complaints from the Department of Veterans Affairs. As part of that resumption, Price removed Beasley and changed the company’s name to Price

  2       William T. Barto (the ALJ) subsequently became the Chief Administrative

Appeals Judge of the Administrative Review Board but did not participate in the consideration of this case while it was pending on appeal before the Board.
3 The provision at 13 C.F.R. Part 125 subpart B requires that SDVOSB owners
maintain control of the entity.
2
Gordon, LLC d/b/a Veteran National Transportation (VNT). Order Granting Partial Summary Decision (Summary Decision Order) at 3 (Apr. 5, 2018).

  On June 7, 2017, the Administrator filed a complaint alleging that

Respondents failed to pay certain service employees the wage rate and fringe benefits required by the Contract and the SCA. As part of the enforcement proceedings, the Department of Veterans Affairs withheld from VNT SCA contract payments. Respondents stopped working on the contract about May 30, 2017. Id. at 6.

   Parties filed motions for summary decision. On April 5, 2018, the ALJ issued

an Order Granting Partial Summary Decision. In his April 5 Order, the ALJ found that the Respondents violated the terms of the SCA by not paying SCA wages and fringe benefits for all hours worked in the performance of a contract with the United States Department of Veterans Affairs. The ALJ found that Respondents erroneously limited drivers’ SCA wages to those times when drivers were actually transporting patients. Summary Decision Order at 4. For other times, drivers received the applicable minimum wage rather than the SCA wage. The ALJ found that Respondents owed wages for several tasks including inspecting a vehicle, driving a vehicle, and waiting at a pick-up location. Id. at 9. The ALJ scheduled a hearing on April 24–26, 2018, to resolve disputed facts concerning the actual wages owed.

   After hearing, the ALJ issued a Decision and Order on January 11, 2019. In

the D. & O., the ALJ modified his findings of April 5, 2018, to find that drivers’ wait time was compensable at SCA wages if it primarily benefited the employer and his business. D. & O. at 10. The time spent waiting to be dispatched was an integral and indispensable component of the principal activities of Respondents and thus was in fact compensable at SCA wages. Id. at 10–11. Agreeing with the Administrator, the ALJ found that Respondents failed to pay dispatchers the appropriate SCA rate for all hours worked with Respondents. Id. at 12–13. The ALJ also found that Respondents failed to show that they paid holiday pay appropriately and thus owed holiday pay to all employees according to the SCA and its regulations. Id. at 14.

   Having found that Respondents violated the SCA and owed employees SCA

wages, the ALJ then examined the individual liability of Beasley and Price. The ALJ found that Beasley failed to answer pleadings or participate in the proceeding and therefore he was jointly and severally liable with LMC for all violations. D. & O. at 9. The ALJ found that Nicholas Price was liable only for violations occurring after June 8, 2016, because he took control and supervision of LMC’s employment and management policies at that time. Id.

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   Because the ALJ found that Respondents violated the Act, Respondents were

subject to debarment unless the ALJ found exceptional circumstances relieved them from that sanction. The ALJ found “unusual circumstances” warranted relieving Price and VNT from the sanction of debarment.

   On appeal, the Administrator seeks review of the ALJ’s decision to limit VNT

and Price’s back wage liability. The Administrator also appeals the ALJ’s decision declining to debar Respondents Price and VNT. The Respondents filed an opposition to the appeal.

               JURISDICTION AND STANDARD OF REVIEW

   The ARB has jurisdiction to hear and decide appeals from ALJ decisions and

orders concerning questions of law and fact arising under the SCA. 29 C.F.R. §§ 6.20, 8.1(b)(1), (6). The Secretary of Labor has delegated to the Board authority to issue agency decisions under the SCA. Secretary’s Order 01-2020 (Delegation of Authority and Assignment of Responsibility to the Administrative Review Board) (Feb. 21, 2020). The ARB’s review is in the nature of an appellate proceeding. 29 C.F.R. §§ 8.1(b)(1), (6). In review of final determinations other than wage determinations, the Board may affirm, modify, or set aside, in whole or in part, the decision under review and is authorized to modify or set aside the ALJ’s findings of fact only where they are not supported by a preponderance of the evidence. 29 C.F.R. § 8.9(b).

                                DISCUSSION

1. Statutory and Regulatory Framework

   The SCA requires that employees working on covered Government service
   contracts be paid prevailing hourly wages and fringe benefits, including holiday pay, as determined by the Secretary of Labor. 41 U.S.C. §§ 6703(1)–(2); 29 C.F.R. § 4.6(b)(1). Workers are entitled to pay at the SCA wage rate for each hour worked in the performance of an SCA-covered contract. 41 U.S.C. § 6703(1)–(2); 29 C.F.R. § 4.178. Because this entitlement to SCA compensation is based on the hours worked on a covered contract, contractors have an affirmative obligation to make and maintain accurate records of the “number of daily and weekly hours so worked by each employee.” 29 C.F.R. §§ 4.6(g)(1)(iii), 4.178, 4.185. A contractor has an affirmative obligation to ensure that its pay practices are in compliance with the provisions of the Act, and cannot itself resolve questions which arise, but rather must seek advice from the Department of Labor. 29 C.F.R. §§ 4.188(b)(4), 4.101(g), 4.191(a). A contractor or party responsible that violates the SCA is liable for, among

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   other things, “underpayment of compensation due any employee” who is performing work under a covered contract, 41 U.S.C. § 6705(a), and except in unusual circumstances, is subject to a three-year period of debarment. 41 U.S.C. § 6706.

   2. The ALJ erred in limiting the scope of Price’s liability to activities
      after June 8, 2016

   The ALJ found that Price and VNT were liable only for the time period after
   June 8, 2016, when Price resumed control.

   The Administrator argues on appeal that because VNT and Nicholas Price
   are responsible for violations during the contract’s effective dates, the ALJ committed reversible error in deciding to limit their back wage liability. In support, the Administrator notes that while the company’s name changed from LMC to VNT during the contract period, the company remained the same legal entity—and Respondent so admits. Joint Exhibit 5 at 3. The Administrator adds that Price, as an owner and manager of the company throughout the contract period, is an individual jointly and severally liable for the entire back wage amount under 41 U.S.C. § 6705(a); 29 C.F.R. § 4.187(e)(1)–(4).

   Respondents counter that Price, while the owner throughout the contract
   period, did not exercise his management responsibilities prior to June 2016 when he ousted Beasley, and therefore the ALJ correctly limited Price’s liability to back wages owed after June 8, 2016. Respondents’ Resp. to Admin. Br. at 9.

   We conclude that the ALJ erred in limiting Price’s liability to accrued back
   wages owed after June 8, 2016. Even if Price did not exercise his management responsibilities prior to June 2016, but delegated them to Beasley, such delegation would not relieve him of liability. The regulations provide that corporate officers who control or who are responsible for control of the corporate entity, and who by their action or inaction cause or permit a contract to be breached, are “parties responsible.” 4 Price’s status as sole owner meant that he was a “party responsible”

4 29 C.F.R. §§ 4.187(e)(2),(3),(4):
(2) The failure to perform a statutory public duty under the Service Contract
Act is not only a corporate liability but also the personal liability of each
officer charged by reason of his or her corporate office while performing that
duty…. Accordingly, it has been held by administrative decisions and by the
courts that the term party responsible, as used in section 3(a) of the Act,
imposes personal liability for violations of any of the contract stipulations
required by sections 2(a)(1) and (2) and 2(b) of the Act on corporate officers
who control, or are responsible for control of, the corporate entity. . . .
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and remained responsible for control of the corporate entity at all times. We also note that Price was the service-disabled veteran who was awarded this contract based on his status as such. The rules and regulations implementing the SDVOSB program require that the SDVO maintain control and day-to-day operations of the entity. 13 C.F.R. Part 25.

3. The ALJ committed harmless error in declining to debar Price and
   VNT

   Under the SCA, debarment is presumed once violations of that Act have been
   found, unless the violator is able to show the existence of “unusual circumstances” that warrant relief from SCA’s debarment sanction. 41 U.S.C. § 6706; 29 C.F.R. §§ 4.188(a), (b); Hugo Reforestation, Inc., ARB No. 99-003, ALJ No. 1997-SCA-020 (ARB Apr. 30, 2001).

   The ALJ found that unusual circumstances precluded Price’s debarment. D.
   & O. at 15. In so finding, the ALJ criticized the three-part test utilized in applicable precedent. Id. at 15, n.71. Specifically, the ALJ stated: “[n]either the plain text of the regulation nor the Act supports such an interpretation, and as such I will conduct my analysis by examining the totality of the evidence as described below.” Id. The ALJ also criticized additional factors provided for by § 4.188(b)(3)(ii) concerning prior investigations and recordkeeping violations but ultimately concluded that these factors were restatements of the criteria articulated in § 4.188(b)(1), which the ALJ already found were not present. For the factor considering the impact of the violation on employees, the ALJ noted that the Government’s withholding SCA payments was a dominant cause of Respondents’ inability to pay employees owed wages. Id. at 17, n.78.

        (3) In essence, individual liability attaches to the corporate official who is
        responsible for, and therefore causes or permits, the violation of the contract
        stipulations required by the Act, i.e., corporate officers who control the day-
        to-day operations and management policy are personally liable for
        underpayments because they cause or permit violations of the Act.
        (4) It has also been held that the personal responsibility and liability of
        individuals for violations of the Act is not limited to the officers of a
        contracting firm or to signatories to the Government contract who are bound
        by and accept responsibility for compliance with the Act and imposition of its
        sanctions set forth in the contract clauses in § 4.6, but includes all persons,
        irrespective of proprietary interest, who exercise control, supervision, or
        management over the performance of the contract, including the labor policy
        or employment conditions regarding the employees engaged in contract
        performance, and who, by action or inaction, cause or permit a contract to be
        breached. . . .
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   On appeal, the Administrator argues that the ALJ erred in finding that VNT
   and Nicholas Price demonstrated “unusual circumstances” warranting relief from the sanction of debarment. Specifically, the Administrator argues that the ALJ erred by not applying the applicable SCA regulation and instead applied a “totality of the evidence” and a “rule of lenity” to support his conclusion that unusual circumstances existed to warrant relief from the sanction of debarment. The Administrator also asserts that the ALJ erroneously focused on a purported “good faith disagreement” or “bona fide legal issue of doubtful certainty” between the parties as factors against debarment.

   The SCA does not define the term “unusual circumstances.” The regulation at
   29 C.F.R. § 4.188(b)(3) sets forth a three-part test to determine when “unusual circumstances” exist to relieve a contractor from the norm of imposing the sanction of debarment. Those factors include the absence of aggravated, willful or culpable conduct; the presence of certain mitigating factors; and assuming those requirements are both met, then the consideration of other enumerated factors. It is the Respondents’ burden to show unusual circumstances. Vigilantes v. Adm’r of Wage and Hour Div., 968 F.2d 1412, 1418 (1st Cir. 1992). In Hugo Reforestation, the ARB summarized the regulatory three-part test:

       Under Part I of this test, the contractor must establish that the
       conduct giving rise to the SCA violations was neither willful,
       deliberate, nor of an aggravated nature, and that the violations were
       not the result of “culpable conduct.” Moreover, the contractor must
       demonstrate an absence of a history of similar violations, an absence of
       repeat violations of the SCA and, to the extent that the contractor has
       violated the SCA in the past, that such violation was not serious in
       nature. Under Part II of the test assuming none of the aggravated
       circumstances of Part I are found to exist there must be established on
       the part of the contractor, as prerequisites for relief, “a good
       compliance history, cooperation in the investigation, repayment of the
       moneys due, and sufficient assurances [by the contractor] of future
       compliance.”
   
       Finally, assuming the first two parts of the regulatory test are met,
       under Part III a variety of additional factors bearing on the
       contractor’s good faith must be considered before relief from debarment
       will be granted including, inter alia, whether the contractor has
       previously been investigated for violations of the SCA, whether the
       contractor has committed record-keeping violations which impeded the
       Department’s investigation, and whether the determination of liability
   
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        under the Act was dependent upon resolution of bona fide legal issues
        of doubtful certainty.
   

ARB No. 99-003, slip op. at 12–13 (citations and footnotes omitted).

   We agree with the Administrator that the ALJ erred in finding that the

three-part test is not applicable to debarment proceedings. Neither the ALJ nor the ARB is able to rule upon the validity of the regulations. Secretary’s Order No. 02- 2020, Secretary’s Order, para. 5 (Delegation of Authority and Assignment of Responsibility to the Administrative Review Board) (Feb. 21, 2020) (“Secretary’s Order”) (“The Board shall not have jurisdiction to pass on the validity of any portion of the Code of Federal Regulations that has been duly promulgated by the Department of Labor and shall observe the provisions thereof, where pertinent, in its decisions.”). In M.E.S. Servs., Inc., No. 1986-SCA-065 (Sec’y July 28, 1989), available at 1989 WL 549936, the Deputy Secretary rejected the ALJ’s use of “totality of evidence” in place of the three-part test. Id. (“[I]t is error for the ALJ to ignore the properly promulgated regulation which was developed for determining the existence of “unusual circumstances,” set forth at 29 C.F.R. [sec] 4.188(b)(3). This regulation sets out a three-part test for a finding of unusual circumstances. . .”); see also A to Z Maint. Corp. v Sec’y of U.S. Dep’t of Labor, 710 F. Supp. 853 n.8 (D.D.C. 1989) (declining to give effect to administrative cases that do not comply with the procedure set out in § 4.188(b)(3)).

    However, we further conclude that the ALJ’s error is harmless because he did

in fact apply the necessary factors and consider the appropriate circumstances in finding that unusual circumstances relieve Respondents from debarment. For example, the ALJ found that Respondents did not willfully intend to violate the Act and were not culpably neglectful toward their responsibilities. D. & O. at 15–16 & n.72. The ALJ found that there was no evidence that Respondents previously violated the SCA. The ALJ noted that Price sought to ascertain whether its payroll practices violated the Act and that there was no evidence that Respondents misrepresented its payroll practices or falsified employment records to conceal practices. Id. at 15–16. Rather, Respondents and the Administrator had a “good faith” disagreement on the meaning and interpretation of the SCA’s requirements upon which Respondents litigated and ultimately prevailed in part. D. & O. at 15–

18. The ALJ also found that Respondents did not fail to cooperate in the
    investigation and distinguished any failure to provide sufficient assurances of future compliance. The ALJ refused to interpret Respondents’ decision to litigate as evidence of contumacious noncompliance. Id. at 16–17 & n.75 (arguing that an employer has the ability to contest genuine, bona fide legal issues without fear of forfeiting eligibility for future government contracts). The ALJ noted that Respondents were not able to pay owed back wages in large part because of the

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    withholding of contract payments that accompanied the Administrator’s process against Respondents. Id. at 17.

    In sum, while the ALJ erred in applying the totality of circumstances, that
    error was harmless because the ALJ found that the factors were not present and thus had the ALJ applied the factors in the three-part test, he would have found that Respondents satisfied that test and thus unusual circumstances were present to justify relief from debarment.

                               CONCLUSION
    

    We MODIFY the ALJ’s decision by extending Respondents’ liability to cover
    the entire contract period. We AFFIRM the ALJ’s denying debarment because of the presence of unusual circumstances.

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