Credit available against prevailing wages for apprenticeship training trust payments

STATE OF CALIFORNIA
Arnold Schwarzenegger, Governor
DEPARTMENT OF INDUSTRIAL RELATIONS
DIVISION OF LABOR STANDARDS ENFORCEMENT
455 Golden Gate Avenue, 9th Floor
San Francisco, California 94102
(415) 703-4863
(415) 703-4806 fax

ANGELA BRADSTREET, STATE LABOR COMMISSIONER

ROBERT R. ROGINSON
Chief Counsel

February 4, 2009

Mr. William Diesel
President
BEC, Inc.
25051 East Fifth Street
San Bernardino, California 92410-5119

Re: Credit Available For Training Trust Payments

Dear Mr. Diesel:

This letter is in response to your letter dated September 18, 2008, to the Director of the Department of Industrial Relations, concerning the applicable credit BEC, Inc. (BEC) may take against its obligation to pay the general prevailing rate of per diem wages for training trust payments made on behalf of journeymen workers. The Division of Labor Standards Enforcement (Division or DLSE) is responsible for the enforcement of California's prevailing wage laws. Accordingly, your letter has been forwarded to this office for reply.

As described more fully below, the Division is unable, based upon the information presently provided by BEC, to determine whether BEC may take a credit for the full training trust contribution amount paid on behalf of its journeyman workers.

We understand that BEC is affiliated with and obtains apprentices from an approved apprenticeship training program, the Associated Builders and Contractors of Southern California Merit Training Trust Fund ("ABC Training Trust"). We also understand that BEC contributes to the ABC Training Trust for each hour worked by all journeymen and apprentices employed on the project. The amount paid by BEC to the ABC Training Trust is $.60 cents per hour, which is an amount more than the $.45 cents specified for "training" in the applicable prevailing wage determination made and published by the Director.

Labor Code section 1777.5(m)(1) requires public works contractors who employ journeymen or apprentices to perform any of the work under the contract to contribute to the California Apprenticeship Council "the same amount that the director determines is the prevailing amount of apprenticeship training contributions in the area of the public works site," and permits contractors "to take as credit the amount so paid." The section also authorizes payment "to an approved apprenticeship program that can supply apprentices to the site of the public works project." Labor Code section 1773.1(b)(3) defines the term "employer payments" to include "[p]ayments to the California Apprenticeship Council pursuant to Section 1777.5." Section 1773.1(c) likewise specifically entitles public works contractors to receive for employer payments "a credit against the obligation to pay the general prevailing rate of per diem wages." Thus, a contractor is entitled to full credit for the section 1777.5 apprenticeship training contributions for all workers and, accordingly, BEC may clearly take a credit against the prevailing wage obligation for $.45 cents of the $.60 cents per hour paid to the ABC Training Trust.

To determine if the contractor may take a credit for the additional $.15 cents paid to the ABC Training Trust, however, BEC must also establish that the extra $.15 cents per hour itself qualifies as an "employer payment" under Labor Code sections 1773.1(a)(6) and 1773.1(b)(1). Pursuant to those provisions, contractors may offer apprenticeship training programs as an employee benefit under section 1773.1(a)(6). Unlike the fixed training contribution to the California Apprenticeship Council under section 1777.5, however, which is not required by any statute or regulation to specifically benefit workers, a contractor cannot claim a credit against a worker's per diem wages for a benefit payment under section 1773.1(b)(1) unless the worker actually benefits from the payment.¹

A contractor does not become entitled under Labor Code section 1773.1(b)(1) to such credit unless the payments are "pursuant to" the particular plan or program and unless there is a connection between the plan or program and the workers on whose behalf the payments are made in order to meet the fundamental mandate of Labor Code sections 1771 and 1774 that the prevailing rate of wages be paid to workers employed on the project. When a contractor seeks credit for additional contributions beyond the full rate specified by the Director, that contractor must affirmatively show entitlement to that credit under section 1773.1(b)(1).

This issue was recently addressed by the Director of the Department of Industrial Relations in two separate decisions following requests for review made by affected contractors pursuant to Labor Code § 1742. The first decision was in the matter, Horn Electric Corporation, Case No. 06-0101-PWH. In Horn Electric, the contractor sought to take credit for apprenticeship contributions for its apprentice inside wiremen, for training fund contributions paid in excess of the $.86 per hour mandated by the applicable prevailing wage determination. For its journeymen, the contractor paid only the required training fund contribution mandated by the applicable prevailing wage determination. The Director concluded that the contractor satisfactorily demonstrated that it had the right to take full credit for those contributions made on behalf of the apprentices. As the Director noted:

¹ Labor Code sections 1771 and 1774 require that wage payments be made "to" workers. Title 8 of the California Code of Regulations, section 16000, likewise requires that "employer payments" to a plan or program be made "for the benefit of employees, their families and dependents, or retirees."

Contributions to apprenticeship programs are specifically included in the definition of "employer payments" under section 1773.1, subdivision (a)(6), "so long as the cost of training is reasonably related to the amount of the contributions." Horn does not become entitled to a further credit for its additional contributions of $1.39 per hour to the WECA training fund, however, simply because apprenticeship training is an enumerated fringe benefit under section 1773.1, subdivision (a)(6) and WECA is a "plan, fund, or program" within the meaning of section 1773.1, subdivision (b)(1). Unlike the contribution under section 1777.5, which is not required to benefit the worker, an employer cannot claim a credit against a worker's per diem wages for a benefit payment under section 1773.1 unless the worker actually benefits from the payment. Horn has established that the affected apprentices did receive a benefit from its additional payments to the WECA training fund.

This issue was also addressed in the matter, DBS Painting, Inc., Case No. 06-0168-PWH. In DBS Painting, the contractor sought to take credit for apprenticeship contributions for its journeymen employees for training fund contributions paid in excess of the $.25 per hour mandated by the applicable prevailing wage determination. The Director determined that the contractor had not demonstrated it had a right to take the credit in this case. Specifically, the Director determined that DBS presented no evidence that the affected journeymen were beneficiaries of the apprenticeship trust to which the contributions were paid. As the Director noted:

DBS has failed to prove the requisite connection between the affected workers and the Trust and is not entitled to a credit against the per diem wages owed to those workers for any contributions to the ABC GGC Training Trust in excess of the amount mandated by section 1777.5.

A copy of each decision is enclosed for your review.

As you can see from each of these determinations, in deciding whether a contractor was entitled to take any credit for training fund contributions in excess of the training fund amount identified in the applicable prevailing wage determination, it is necessary for the contractor to show that the employee for whom the credit was taken actually benefited from the payment. In the present matter, BEC submitted information including portions of the apprenticeship standards for the ABC Training Trust as well as a three page description of the continuing education programs apparently offered for journeyman by the ABC Southern California Chapter. It is unclear from the document itself whether the continuing education programs are offered by the ABC Training Trust and if so, whether its costs are covered by the contributions made by employers, including BEC. In short, these documents and information are not sufficient upon which the Division can make a determination that the journeyman for whom the $.60 payment was made benefitted from the $.15 paid in excess of the training amount set forth in the determination.

This matter is presently pending on a public works project where there is a Labor Compliance Program (LCP), Harris & Associates, responsible for enforcing California's prevailing wage requirements.² Accordingly, it is appropriate at this stage for Harris & Associates to make the determination whether BEC is entitled to take a credit against its prevailing wage obligation for any contributions to the ABC Training Trust which are in excess of the training amount set forth in the applicable determination. We are sending a copy of this letter to Harris & Associates so that Harris & Associates is informed of the Division's position on this issue, which is consistent with the Director's determinations in two recent decisions.

² We are informed that Harris & Associates' status as an approved Labor Compliance Program (LCP) expired December 31, 2008. We are also informed that Harris & Associates is applying for a renewal as an approved LCP. To the extent this means that Harris & Associates is no longer the LCP for this project, the responsibility for monitoring and enforcing the prevailing wage projects would fall to any approved LCP for this project and, if none, then to the DLSE as part of its normal enforcement jurisdiction.

Please contact me if you have any questions or comments.

Robert R. Roginson
Chief Counsel

RRR:

Cc: Labor Commissioner Angela Bradstreet
Harris & Associates
Nance Steffen, DLSE
DLSE Public Works Attorneys

[This opinion letter enclosed full copies of two Director of Industrial Relations decisions discussed above — DBS Painting, Inc., Case No. 06-0168-PWH (affirming a civil wage and penalty assessment because DBS failed to show its journeymen benefited from excess training trust contributions), and Horn Electric Corporation, Case No. 06-0101-PWH (modifying an assessment and finding Horn had shown its apprentices did benefit from excess contributions, while separately finding unrelated wage underpayments to four journeymen). Both decisions are independently public records of the Director of Industrial Relations, not DLSE opinion-letter guidance, and are not reproduced in full here; their holdings are summarized in the letter body above.]