New York’s Labor Law Section 220 requires that contactors and subcontractors working on public works projects are required to pay their workers the prevailing wages and to provide supplemental benefits such as employee retirement benefits and health insurance benefits. The law protects bidding contractors who pay proper wages prevailing in the area by preventing contractors from submitting their bids based on wages and fringe benefits that are lower than those prevailing in the area.
In the recent case of Matter of Central Roofing Co., Inc. v. Musolino, an appellate court reviewed a Department of Labor’s determination that a contractor willfully failed to pay prevailing wages and supplements.
In May of 2008, Central City Roofing Co. contracted with a school district to install a new roof on a high school building. Work on the project commenced on June 30, 2008 and was completed the following May. During that time period, Central City paid its workers according to the wage rate schedule included in the project specifications. That schedule, however, was valid only through the end of June of 2008. A newly issued wage rate schedule went into effect in July of 2008, which was the second day of the project. This new schedule superseded the schedule set forth in the project specifications.
In March of 2010, a local labor union filed a complaint with the Department of Labor, claiming that Central City failed to pay prevailing wages. Following an investigation and a hearing, a Hearing Officer issued a report recommending, among other things, that Central City’s use of the expired wage rate schedule constituted a willful failure to pay prevailing wages and supplements in violation of the Labor Law. The Department of Labor adopted the Hearing Officer's findings and recommendations, which included an assessment of a civil penalty at the maximum rate allowed by statute, which was 25% of the total underpayment and interest.
The appellate court found that notwithstanding Central City’s declaration that it had no intention of underpaying its workers, the Department of Labor’s determination that Central City willfully failed to pay prevailing wages was supported by substantial evidence. After noting that the Department of Labor had to show that Central City’s failure to pay prevailing wages was more than purely accidental, it relied upon well settled case law that it is not necessary to prove an intent to defraud. All that is required is proof that the employer knew or should have known that it was violating the prevailing wage laws. The court found that Central City’s willfulness could be inferred based upon the explicit notices regarding the timing of wage rate changes that appear in the expired schedule upon which Central City relied. The schedule plainly states that it is “effective from July 2007 through June 2008,” and that “future copies of the annual determination are available on the Department of Labor’s website.” The schedule further stated that “[t]he rate listed is valid until the next effective rate change or until the new annual determination which takes effect on July 1 of each year. All contractors . . . are required to pay the current prevailing rates of wages and supplements.”
The court further held that this language provided substantial support for the Department of Labor’s conclusion that Central City — a contracting company with over three decades of experience performing public work projects — should have known that the rate schedule had changed and, by not adjusting its payroll accordingly, it willfully failed to pay prevailing wages to its workers.
The court, however, disagreed with the Department of Labor’s imposition of an additional 25% civil penalty for willfully violating the Labor Law. According to the court, the representatives of Central City had no actual knowledge of the violations and that Central City’s actions were not motivated by bad faith. Equally significant, the court pointed out that Central City “had no history of willful failure to pay prevailing wages, despite performing public works projects since 1979”.
The court concluded that the “imposition of the maximum penalty allowed by law must be annulled as it is so disproportionate to the underlying offenses that it shocks one’s sense of fairness.” The appellate court sent the matter back to the Department of Labor for reconsideration of the civil penalty consistent with the court’s decision.
New York has taken aggressive action towards contractors who have committed prevailing wage law violations. A contractor is well-advised to update and strictly adhere to the wage schedules for the duration of a public works project or risk severe penalties for non-compliance.