B-170784, FEB 17, 1971

B-170784, FEB 17, 1971

SET-OFF - WAGE UNDERPAYMENTS - LIQUIDATED DAMAGES DECISION CONCERNING A SET-OFF TO COVER WAGE UNDERPAYMENTS AND LIQUIDATED DAMAGES REQUESTED BY THE DEPARTMENT OF LABOR ON A FOREST SERVICE CONTRACT WITH R.E. BORELLO FOR ROAD MAINTENANCE. WHERE THE LABOR DEPARTMENT HAS REQUESTED A SET-OFF AND THE INTERNAL REVENUE SERVICE HAS SERVED A LEVY ON FUNDS HELD BY THE FOREST SERVICE WHICH WERE TO BE PAID A CONTRACTOR, GAO BELIEVES THAT THE WAGE UNDERPAYMENTS AND LIQUIDATED DAMAGES UNDER THE CONTRACT WORK HOURS STANDARD ACT WAS AUTHORIZED AND AVAILABLE FUNDS BE APPLIED FIRST TO THE WAGE UNDERPAYMENTS AS PROVIDED BY 29 C.F.R. 5.14(D)(2), THERE BEING NO REAL DISTINCTION, AS A CLAIM OF THE GOVERNMENT, BETWEEN LIQUIDATED DAMAGES TO BE IMPOSED UNDER THE PERTINENT LABOR LAW AND THE TAX LIEN.

TO U.S. DEPARTMENT OF AGRICULTURE, FOREST SERVICE, REGION 6:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 28, 1970, WITH ENCLOSURES, REQUESTING OUR ADVICE AS TO THE PROPER DISPOSITION OF CERTAIN FUNDS NOW HELD BY THE FOREST SERVICE. IT IS REPORTED THAT ON OR ABOUT JUNE 20, 1969, A ROAD MAINTENANCE CONTRACT NO. 18-01850, WAS AWARDED TO R. E. BORELLO. THE WORK WAS PERFORMED AND PARTIAL PAYMENTS WERE MADE UNDER THE CONTRACT IN A NORMAL MANNER. PERFORMANCE OF THE CONTRACT WORK IS NOW COMPLETE AND THE AMOUNT OF $8,795.50 REMAINS TO BE DISBURSED.

BECAUSE OF LABOR PROBLEMS ON THIS JOB THE UNITED STATES DEPARTMENT OF LABOR ON APRIL 20, 1970, REQUESTED A SET-OFF TO COVER WAGE UNDERPAYMENTS IN THE AMOUNT OF $5,400.96, AND LIQUIDATED DAMAGES IN THE AMOUNT OF $2,630.00. ATTACHED TO SUCH REQUEST WAS A STANDARD FORM 1081 "VOUCHER AND SCHEDULE OF WITHDRAWALS AND CREDITS" FOR THE TRANSFER OF FUNDS FROM DEPARTMENT OF AGRICULTURE-FOREST SERVICE TO DEPARTMENT OF LABOR-WAGE-HOUR DIVISION, AND A CONSENT SIGNED BY THE CONTRACTOR AGREEING TO THE APPLICATION OF $5,400.96 TO THE PAYMENT OF BACK WAGES. THE CONTRACTOR REQUESTED, WITH LABOR'S CONCURRENCE, THAT THE WITHHOLDING FOR BACK WAGES BE DIVIDED BETWEEN PAYMENTS FOR MAY AND JUNE 1970, RATHER THAN TAKING THE ENTIRE AMOUNT OF THE MAY PAYMENT. THE SUM OF $1,400.00 WAS THEREFORE WITHHELD FROM THE MAY EARNINGS, BUT WAS NEVER TRANSFERRED TO THE DEPARTMENT OF LABOR OR THIS OFFICE, AND IS A PART OF THE $8,795.50 PRESENTLY AVAILABLE FOR PAYMENT. AN INTERNAL REVENUE SERVICE LEVY OF $6,362.58 WAS SERVED ON THE FOREST SERVICE BEFORE THE JUNE PAYMENT WAS DUE ON JUNE 30, 1970. YOU STATE IT IS ASSUMED THAT AT LEAST A PART OF THIS TOTAL COVERS PAYROLL TAXES UNDER THIS CONTRACT.

YOU RAISE THE FOLLOWING QUESTIONS UPON WHICH YOU REQUEST OUR ADVICE:

"1. DO THESE WAGE CLAIMS HAVE PRIORITY OVER THE IRS LEVY? IF NOT, DOES THE ACT OF SETTING ASIDE THE $1,400.00 WITHOUT TRANSFER TO LABOR CHANGE THE STATUS OF THIS MUCH OF THE AMOUNT ON HAND?

"2. IN VIEW OF 41 U.S.C. 352(A) SHOULD FUNDS AVAILABLE FOR PAYMENT OF WAGE CLAIMS BE TRANSFERRED TO LABOR FOR PAYMENT OR PAID DIRECTLY TO THE MEN BY THE FOREST SERVICE?

"3. DOES THAT PART OF THE IRS CLAIM (IF ANY) WHICH AROSE OUT OF THIS CONTRACT HAVE A DIFFERENT PRIORITY FROM THE PART (IF ANY) WHICH IS UNRELATED TO THIS CONTRACT (E.G. OTHER GOVERNMENT CONTRACTS OR PRIVATE INDUSTRY JOBS)?

"4. WHAT SHOULD BE DONE ABOUT THE LIQUIDATED DAMAGE PORTION OF LABOR'S CLAIM AND WHAT PRIORITY DOES IT HAVE?"

THE WAGE CLAIMS ARE SHOWN BY THE RECORD SUBMITTED TO THIS OFFICE TO HAVE ARISEN OUT OF VIOLATIONS OF THE SERVICE CONTRACT ACT, 41 U.S.C. 351, AND THE CONTRACT WORK HOURS STANDARDS ACT, 40 U.S.C. 328, UNDER FOREST SERVICE CONTRACTS NOS. 18-01850 AND 002638. HOWEVER, OTHER THAN A STATEMENT THAT BACK WAGES IN THE TOTAL AMOUNT OF $5,400.96 ARE DUE TO 21 UNIDENTIFIED EMPLOYEES UNDER THE ABOVE TWO STATUTES, AND A DECLARATION THAT AN AMOUNT OF $2,630.00 FOR LIQUIDATED DAMAGES HAD BEEN COMPUTED AGAINST THE CONTRACTOR UNDER THE CONTRACT WORK HOURS STANDARDS ACT, THERE IS NO BREAKDOWN OF RECORD OF THE UNDERPAYMENTS CHARGEABLE UNDER EACH STATUTE. FURTHER, WHILE THE CONTRACT PAYMENT SUMMARY AND INVOICE COPIES SUBMITTED TO THIS OFFICE SHOW THAT AMOUNTS PAYABLE WERE EARNED UNDER CONTRACT NO. 18 -01850 DURING VARIOUS PERIODS FROM JULY 9, 1969, THROUGH NOVEMBER 24, 1969, THERE IS NO SHOWING OF THE AMOUNTS OF EARNINGS UNDER CONTRACT NO. 002638, OR WHETHER ANY AMOUNTS WERE WITHHELD FROM PAYMENTS DUE UNDER THAT CONTRACT FOR WAGE UNDERPAYMENTS. IN VIEW THEREOF, WE ARE UNABLE TO GIVE DETAILED INSTRUCTIONS FOR THE DISPOSITION OF THE PERTINENT FUNDS ON THE BASIS OF THE PRESENT RECORD, AND GENERAL DIRECTIONS BASED ON THE APPLICABLE PRIORITIES FOR THE DISPOSITION OF LIKE FUNDS WILL THEREFORE BE OUTLINED IN ANSWERING THE QUESTIONS YOU HAVE SUBMITTED.

THE SERVICE CONTRACT ACT OF 1965, 41 U.S.C. 351-357, PROVIDES THAT EVERY CONTRACT ENTERED INTO BY THE UNITED STATES IN EXCESS OF $2,500, WITH CERTAIN EXCEPTIONS, THE PRINCIPAL PURPOSE OF WHICH IS TO FURNISH SERVICES THROUGH THE USE OF SERVICE EMPLOYEES, SHALL CONTAIN CERTAIN LABOR STANDARDS STIPULATIONS INCLUDING THE PAYMENT OF SPECIFIED MINIMUM WAGES. SECTION 3 OF THE ACT (41 U.S.C. 352) PROVIDES THAT SO MUCH OF THE ACCRUED PAYMENT DUE ON THE CONTRACT MAY BE WITHHELD AS IS NECESSARY TO COMPENSATE UNDERPAID EMPLOYEES, AND THAT ON ORDER OF THE SECRETARY OF LABOR ANY COMPENSATION FOUND DUE SHALL BE PAID DIRECTLY TO THE EMPLOYEES FROM THE WITHHELD MONIES.

UNDER THE CONTRACT WORK HOURS STANDARDS ACT, THE COMPTROLLER GENERAL IS AUTHORIZED AND DIRECTED TO PAY AGGRIEVED EMPLOYEES, FROM ANY AMOUNTS WITHHELD PURSUANT THERETO, THE AMOUNTS ADMINISTRATIVELY FOUND TO BE DUE THEM. THE CONTRACTOR RESPONSIBLE FOR VIOLATIONS OF THIS ACT IS LIABLE TO THE EMPLOYEES FOR UNDERPAYMENT OF WAGES AND TO THE GOVERNMENT FOR LIQUIDATED DAMAGES, WITH AUTHORITY IN THE PERSON "WHOSE DUTY IT IS TO APPROVE THE PAYMENT OF MONIES *** IN CONNECTION WITH THE PERFORMANCE OF THE CONTRACT WORK" TO DIRECT THE WITHHOLDING OF SUCH AMOUNTS AS ARE DETERMINED TO BE NECESSARY TO SATISFY THE DEBTS TO THE AGGRIEVED EMPLOYEES AND TO THE GOVERNMENT. IN THIS REGARD, WE STATED IN OUR DECISION TO THE SECRETARY OF LABOR (B-167000, JUNE 26, 1969) THAT THE LANGUAGE OF THE ABOVE ACT MAKES IT CLEAR THAT CONGRESS INTENDED THAT THE FULL AMOUNT WITHHELD SHOULD FIRST BE APPLIED TO UNDERPAYMENTS OWED THE EMPLOYEES, RATHER THAN TO THE LIQUIDATED DAMAGES ASSESSED UNDER THE ACT. TO THE SAME EFFECT, SEE 29 C.F.R. 5.14(D)(2). HOWEVER, SINCE YOUR SUBMISSION FILE HAS CITED TWO SEPARATE CONTRACTS AS BEING INVOLVED IN THE UNDERPAYMENTS UNDER TWO SEPARATE STATUTES, WE ALSO THINK IT APPROPRIATE TO RESTATE AT THIS TIME OUR VIEW THAT THE CONTRACT WORK HOURS STANDARDS ACT DOES NOT AUTHORIZE WITHHOLDING, FOR THE BENEFIT OF UNDERPAID WORKERS, OF AMOUNTS DUE THE EMPLOYING CONTRACTOR UNDER CONTRACTS OTHER THAN THOSE IN WHICH THE UNDERPAYMENTS WERE FOUND. SEE WHITNEY BROTHERS PLUMBING AND HEATING INC. V UNITED STATES, 224 F. SUPP. 860 (1963); 48 COMP. GEN. 387 (1968). HOWEVER, COMPARE 35 COMP. GEN. 144 (1955) WITH RESPECT TO WITHHOLDING FOR LIQUIDATED DAMAGES.

PROCEEDING TO THE TAX LIEN ASPECTS OF THE SITUATION, THE SYSTEM UNDER WHICH THE FEDERAL TAXING AUTHORITIES ACQUIRE THEIR LIENS AGAINST PROPERTY OF TAX DEBTORS FOR TAXES DUE IS ESTABLISHED PRIMARILY UNDER SECTIONS 6321, 6322 AND 6323 OF TITLE 26, UNITED STATES CODE. SECTION 6321 PROVIDES THAT THE FAILURE TO PAY UPON DEMAND ANY TAX DUE CREATES A LIEN IN FAVOR OF THE UNITED STATES UPON ALL PROPERTY, AND RIGHTS TO PROPERTY WHETHER REAL OR PERSONAL BELONGING TO THE TAXPAYER. SUCH LIENS ARISE GENERALLY AT THE TIME OF THE TAX ASSESSMENT (SEE SECTION 6322). SECTION 6323 REQUIRES THE FILING OF NOTICE AT THE DESIGNATED PLACE BEFORE THE TAX LIEN IS VALID AND ITS PRIORITY ESTABLISHED AGAINST CERTAIN PERSONS, SUCH AS PURCHASERS, HOLDERS OF SECURITY INTERESTS, MECHANIC'S LIENORS AND JUDGMENT LIEN CREDITORS. WHILE THE INTERESTS TO BE FURTHERED UNDER THE PERTINENT LABOR LAWS ARE NOT THOSE ENUNCIATED IN 26 U.S.C. 6323, WE THINK THAT THE PURPOSE FOR WHICH THE WITHHOLDING WAS AUTHORIZED AND WAS UNDERTAKEN IN THE PRESENT CASE REQUIRES THAT THE AVAILABLE FUNDS BE APPLIED FIRST TO THE WAGE UNDERPAYMENTS AS AUTHORIZED BY 29 CFR 5.14(D)(2), ABOVE, THERE BEING NO REAL DISTINCTION, AS A CLAIM OF THE GOVERNMENT, BETWEEN LIQUIDATED DAMAGES TO BE IMPOSED UNDER THE PERTINENT LABOR LAW AND THE TAX LIEN HEREIN OF RECORD. COMPARE 19 COMP. GEN. 565 (1939).

THE REMAINING ISSUE IS THE EFFECT ON THE CONTRACT BALANCES OF THE AGENCY ACTIONS TAKEN HEREIN WITH REGARD TO THE FINDINGS AND DETERMINATIONS OF THE DEPARTMENT OF LABOR. THE STATUTORY PROVISIONS SET OUT IN 40 U.S.C. 328 ESTABLISH THE LIABILITY OF THE CONTRACTOR, AND ANY OF HIS SUBCONTRACTORS RESPONSIBLE FOR THE VIOLATION OF THE CONTRACT WORK HOURS STANDARDS ACT, FOR THE UNPAID WAGES OF THE AFFECTED EMPLOYEE AND FOR LIQUIDATED DAMAGES. FURTHER, THE GOVERNMENTAL AGENCY FOR WHICH THE CONTRACT WORK IS DONE MAY WITHHOLD OR CAUSE TO BE WITHHELD, SUBJECT TO THE PROVISIONS OF 40 U.S.C. 330, FROM ANY MONEYS PAYABLE ON ACCOUNT OF WORK PERFORMED BY A CONTRACTOR, FUNDS FOR UNPAID WAGES AND LIQUIDATED DAMAGES AS THEREIN PROVIDED. THAT SECTION ALSO AUTHORIZES AND DIRECTS THE COMPTROLLER GENERAL TO PAY DIRECTLY TO SUCH LABORERS AND MECHANICS, FROM THE SUMS WITHHELD ON ACCOUNT OF UNDERPAYMENT OF WAGES, THE RESPECTIVE AMOUNTS ADMINISTRATIVELY FOUND TO BE DUE.

THE SUBMITTED RECORD SHOWS THAT A DETERMINATION HAD BEEN MADE OF THE AMOUNTS TO BE WITHHELD UNDER THE PERTINENT LABOR LAWS AND THAT THE FOREST SERVICE WAS NOTIFIED AND REQUESTED ON APRIL 20, 1970, TO SET OFF SUCH FUNDS FROM THE CONTRACT MONIES DUE AND PAYABLE TO THE CONTRACTOR. THE PROCEEDINGS PRESCRIBED FOR ENFORCEMENT OF THE SERVICE CONTRACT ACT BY 29 CFR, SUBPART A, PART 6, HAD BEEN COMPLETED AND FINAL FINDINGS OF VIOLATIONS APPARENTLY HAD BEEN MADE BY THE SECRETARY OF LABOR PRIOR TO THAT DATE.

IN OUR VIEW OF THE CIRCUMSTANCES HEREIN, IT IS MANDATORY UNDER THE PERTINENT STATUTORY AUTHORITY THAT SO MUCH OF THE WITHHELD FUNDS AS IS REQUIRED TO COVER THE UNDERPAYMENT OF WAGES AND LIQUIDATED DAMAGES BE CONSIDERED AS SET ASIDE FOR THE PURPOSES DIRECTED BY THE SECRETARY OF LABOR. SEE 1962 AND 1965 U.S.C. CONGRESSIONAL AND ADMINISTRATIVE NEWS, PAGES 2121 AND 3737, RESPECTIVELY. COMPARE 35 COMP. GEN. 144 (1955); 46 COMP. GEN. 178 (1966), AND B-161460, MAY 25, 1967. THE LEGISLATIVE HISTORIES OF THESE LABOR STATUTES DISCLOSE A PROGRESSIVE TENDENCY TO EXTEND A MORE LIBERAL INTERPRETATION AND CONSTRUCTION IN SUCCESSIVE ENACTMENTS WITH REGARD TO WORKER'S BENEFITS, RECOVERY AND REPAYMENT OF WAGE UNDERPAYMENTS. FURTHER, AS REMEDIAL LEGISLATION, IT IS AXIOMATIC THAT THEY ARE TO BE LIBERALLY CONSTRUED.

ACCORDINGLY, THE FIRST PART OF YOUR FIRST QUESTION IS ANSWERED IN THE AFFIRMATIVE, AND NO ANSWER IS REQUIRED TO THE SECOND PART.

WITH REGARD TO YOUR SECOND QUESTION THE AUTHORITY SET FORTH IN 41 U.S.C. 352(A) PROVIDES THAT THE FEDERAL AGENCY HEAD OR THE SECRETARY OF LABOR IS AUTHORIZED TO CARRY OUT THIS SECTION, AS DIRECTED BY THE SECRETARY. SEE 1965 U.S.C. CONGRESSIONAL AND ADMINISTRATIVE NEWS, PAGE 3737. THAT PART OF THE FUNDS ATTRIBUTABLE TO THE SERVICE CONTRACT ACT VIOLATIONS SHOULD, IN THIS INSTANCE, BE TRANSFERRED TO THE SECRETARY OF LABOR, AS REQUESTED. THOSE FUNDS ATTRIBUTABLE TO CONTRACT WORK HOURS STANDARDS ACT VIOLATIONS SHOULD, TOGETHER WITH A LIST OF THE NAMES, ADDRESSES AND AMOUNT DUE EACH UNDERPAID WORKER, BE TRANSFERRED TO THIS OFFICE FOR DISTRIBUTION.

TITLE 26 U.S.C. 6321 PROVIDES THAT A TAX LIEN SHALL APPLY TO ALL PROPERTY BELONGING TO THE PERSON LIABLE TO PAY ANY TAX. SECTION 6322 PROVIDES THAT SUCH LIEN CONTINUES UNTIL THE LIABILITY IS SATISFIED OR EXPIRES. THE PROPERTY SOUGHT TO BE ATTACHED BY THE TAX LIEN HEREIN IS THE CONTRACTOR'S FUNDS IN THE HANDS OF THE GOVERNMENT, AND THE TAX LIABILITY NEED NOT HAVE ARISEN OUT OF THE SAME SOURCE AS THE AVAILABLE FUNDS IN ORDER TO BE CONSIDERED OF EQUAL PRIORITY. YOUR THIRD QUESTION IS ANSWERED ACCORDINGLY.

WITH REGARD TO YOUR FOURTH QUESTION, ABSENT ADMINISTRATIVE RELIEF FOR THE LIQUIDATED DAMAGES, SUCH FUNDS HAVING BEEN WITHHELD FOR THE USE AND BENEFIT OF THE UNITED STATES MAY BE COVERED INTO THE APPROPRIATE TREASURY FUND BY YOUR AGENCY. COMPARE B-161640, MAY 25, 1967. THIS DISPOSITION IS MOST EXPEDIENT AND IS IN CONSONANCE WITH THE AUTHORITY GRANTED BY THE CONTRACT WORK HOURS STANDARDS ACT.