B-145183, MAY 11, 1961

B-145183, MAY 11, 1961

TO RUSTYK PRODUCTS, INCORPORATED:

ATTACHED IS A COPY OF OUR FINDING OF TODAY THAT RUSTYK PRODUCTS, INCORPORATED, EARL H. HELLERMAN, PRESIDENT, AND FRANK MCGOUGH, SECRETARY- TREASURER, HAVE DISREGARDED OBLIGATIONS TO EMPLOYEES WITHIN THE MEANING OF THE DAVIS-BACON ACT, 40 U.S.C. 276A, IN THE PERFORMANCE OF CONTRACTS NBY- 14385 AND 22084, FOR CONSTRUCTION WORK AT THE U.S. NAVAL AIR DEVELOPMENT CENTER, JOHNSVILLE, PENNSYLVANIA, AND THE NAVAL AIR STATION, LAKEHURST, NEW JERSEY, RESPECTIVELY.

PURSUANT TO THE PROVISIONS OF SECTION 3 (A) OF THE ACT, THESE NAMES WILL BE INCLUDED ON A LIST FOR PUBLICATION MAY 15, 1961, AND NO GOVERNMENT CONTRACT CAN BE AWARDED TO THEM OR TO ANY FIRM, CORPORATION, PARTNERSHIP, OR ASSOCIATION IN WHICH THEY HAVE AN INTEREST, UNTIL THREE YEARS SHALL HAVE ELAPSED FROM SUCH DATE.

FINDING

IN THE MATTER OF RUSTYK PRODUCTS, INCORPORATED, AND EARL H. HELLERMAN, PRESIDENT, AND FRANK MCGOUGH, SECRETARY-TREASURER, SELLERSVILLE, PENNSYLVANIA.

SECTION 1 OF THE DAVIS-BACON ACT OF AUGUST 30, 1935, 49 STAT. 1011, 40 U.S.C. 276A, PROVIDES IN PART THAT---

"THE ADVERTISED SPECIFICATIONS FOR EVERY CONTRACT IN EXCESS OF $2,000, TO WHICH THE UNITED STATES * * * IS A PARTY, FOR CONSTRUCTION, ALTERATION, AND/OR REPAIR, INCLUDING PAINTING AND DECORATING, OR PUBLIC BUILDINGS OR PUBLIC WORKS OF THE UNITED STATES * * * AND WHICH REQUIRES OR INVOLVES THE EMPLOYMENT OF MECHANICS AND/OR LABORERS SHALL CONTAIN A PROVISION STATING THE MINIMUM WAGES TO BE PAID VARIOUS CLASSES OF LABORERS AND MECHANICS * * * AND EVERY CONTRACT BASED UPON THESE SPECIFICATIONS SHALL CONTAIN A STIPULATION THAT THE CONTRACTOR OR HIS SUBCONTRACTOR SHALL PAY ALL MECHANICS AND LABORERS EMPLOYED DIRECTLY UPON THE SITE OF THE WORK, UNCONDITIONALLY AND NOT LESS OFTEN THAN ONCE A WEEK AND WITHOUT SUBSEQUENT DEDUCTION OR REBATE ON ANY ACCOUNT, THE FULL AMOUNTS ACCRUED AT TIME OF PAYMENT, COMPUTED AT WAGE RATES NOT LESS THAN THOSE STATED IN THE ADVERTISED SPECIFICATIONS, REGARDLESS OF ANY CONTRACTUAL RELATIONSHIP WHICH MAY BE ALLEGED TO EXIST BETWEEN THE CONTRACTOR OR SUBCONTRACTOR AND SUCH LABORERS AND MECHANICS * * *.'

SECTION 3 (A) OF THE ACT PROVIDES THAT---

"* * * THE COMPTROLLER GENERAL OF THE UNITED STATES IS FURTHER AUTHORIZED AND IS DIRECTED TO DISTRIBUTE A LIST TO ALL DEPARTMENTS OF THE GOVERNMENT GIVING THE NAMES OF PERSONS OR FIRMS WHOM HE HAS FOUND TO HAVE DISREGARDED THEIR OBLIGATIONS TO EMPLOYEES AND SUBCONTRACTORS. NO CONTRACT SHALL BE AWARDED TO THE PERSONS OR FIRMS APPEARING ON THIS LIST OR TO ANY FIRM, CORPORATION, PARTNERSHIP, OR ASSOCIATION IN WHICH SUCH PERSONS OR FIRMS HAVE AN INTEREST UNTIL THREE YEARS HAVE ELAPSED FROM THE DATE OF PUBLICATION OF THE LIST CONTAINING THE NAMES OF SUCH PERSONS OR FIRMS.'

CONTRACTS NBY-14385 AND 22084, EACH IN EXCESS OF $2,000, FOR CONSTRUCTION WORK AT THE U.S. NAVAL AIR DEVELOPMENT CENTER, JOHNSVILLE, PENNSYLVANIA, AND THE NAVAL AIR STATION, LAKEHURST, NEW JERSEY, RESPECTIVELY, WERE ENTERED INTO BY THE UNITED STATES (DEPARTMENT OF THE NAVY) WITH CHARLES CONSTRUCTION COMPANY, INCORPORATED. PORTIONS OF THE WORK UNDER BOTH CONTRACTS WERE SUBCONTRACTED TO RUSTYK PRODUCTS, INCORPORATED, AND THE APPLICABILITY OF REQUIREMENTS IN SECTION 1 OF THE ACT THERETO HAS BEEN ACKNOWLEDGED.

INVESTIGATION BY THE FOURTH NAVAL DISTRICT OF COMPLIANCE WITH PERTINENT LABOR STANDARDS, INCLUDING PAYMENT TO EMPLOYEES OF PRESCRIBED MINIMUM WAGES, DISCLOSED THAT PAYROLL REPORTS FURNISHED BY THE SUBCONTRACTOR, SWORN TO BY EARL H. HELLERMAN, PRESIDENT, CONTAINED INCORRECT INFORMATION. THE EMPLOYEES, IN SIGNED STATEMENTS, ADVISED THAT ACTUAL HOURS WORKED WERE GREATER THAN REPORTED AND, IN SOME INSTANCES, THAT ACTUAL WAGES RECEIVED WERE LOWER. ALSO, EMPLOYEES SHOWN AS LABORERS WERE DETERMINED TO BE ENTITLED TO IRON WORKER CLASSIFICATIONS. THE PERTINENT DETAILS AND UNDERPAYMENTS WERE AS FOLLOWS:

TABLE

CLASSIFICATIONS, HOURS AND RATES

REPORTED ACTUAL REQUIRED L. MCGOUGH LABORER 46 AT $2.60 IRON WORKER 96 AT $4.05

STEEL WORKER 62 AT 4.25 108 IRON WORKER 80

AT 4.30 W. CLARK LABORER IRON WORKER 96

AT 4.05 107 AT 2.60 176 IRON WORKER

80 AT 4.30 F. SERRILL LABORER

54 AT 2.60 56 IRON WORKER 56 AT 4.30 S. LONGACRE LABORER (NO REPORT) 32 IRON WORKER 32 AT 4.05

WAGES

REPORTED ACTUAL REQUIRED UNDERPAYMENT L. MCGOUGH $336.81

$290.40 $732.80 $442.40 W. CLARK 268.98 290.40 732.80 442.40 F. SERRILL (NO REPORT) 78.40 240.80 162.40 S. LONGACRE 137.12 68.80 129.60 60.80

THE IRREGULARITIES WERE BROUGHT TO THE ATTENTION OF RUSTYK PRODUCTS, INCORPORATED, BY THE DEPARTMENT OF LABOR, IN A LETTER DATED JULY 21, 1960, CHARGING A SERIOUS DISREGARD OF OBLIGATIONS TO EMPLOYEES WHICH MIGHT WARRANT IMPOSITION OF THE STATUTORY DEBARMENT PENALTY BY THE COMPTROLLER GENERAL OF THE UNITED STATES IF NOT SATISFACTORILY EXPLAINED. UNDER DATE OF OCTOBER 20, 1960, THE FIRM'S ATTORNEY ANSWERED THE CHARGES. WITH RESPECT TO HOURS WORKED IT WAS ALLEGED IN PART THAT---

"OUR RECORDS DO NOT INDICATE MORE HOURS (THAN THOSE REPORTED) * * * DURING THE COURSE OF THE INVESTIGATION BY THE BUREAU OF YARDS AND DOCKS, MR. WALTER SARKEES OF THE BUILDING CONSTRUCTION BRANCH OF THE PHILADELPHIA NAVAL BASE CONFERRED AT LENGTH WITH MR. HELLERMAN, PRESIDENT OF THE CORPORATION AND WITH MR. QUIGGS OF THE SAME DEPARTMENT AS MR. SARKEES. DURING THESE CONFERENCES MY CLIENTS CHECKED THEIR RECORDS AGAINST THE RECORDS OBTAINED BY MESSRS. SARKEES AND QUIGGS. THERE APPEAR TO BE NO APPARENT DIFFERENCE. THE RECORDS OBTAINED BY SARKEES AND QUIGGS APPEAR TO REFLECT THE SAME AMOUNT OF HOURS AS SHOWN BY THE RECORDS OF MY CLIENT.'

RESPONSIBILITY FOR ANY BAD FAITH OR NEGLIGENCE WAS ATTRIBUTED TO FRANK MCGOUGH, SECRETARY-TREASURER, WHO PROCURED THE SUBCONTRACTS FOR THE FIRM AND SUPERVISED THEM, IN PART, AS FOLLOWS:

"PURSUANT TO THIS AUTHORITY, HE SELECTED HIS SON, LEO MCGOUGH, AND HIS SON-IN-LAW, WILLIAM CLARK * * * HE ALSO WAS IN CHARGE OF ALL ACTIVITIES * * * HE WAS IN CHARGE OF PREPARING FOR CERTIFICATION ALL NECESSARY PAYROLLS, OF DETERMINING PAY SCALES, CLASSIFICATION OF ALL PERSONNEL, NUMBER OF HOURS ACTUALLY WORKED TO BE STATED ON PAYROLLS AND THE LIKE.'

"ON OCTOBER 29, 1958, THE PLANT OF THE CORPORATION WAS BURNED TO THE GROUND * * * THE OPERATING PERSONNEL OF THE CORPORATION WAS USED IN THE MAIN IN THE REBUILDING PROCESS * * * MR. FRANK MCGOUGH, AS PREVIOUSLY STATED, PREPARED THE PAYROLLS FOR CERTIFICATION BY MR. HELLERMAN * * * MR. HELLERMAN HAD NO REASON TO SUSPECT OR DOUBT THE HONESTY, THE INTEGRITY OR THE RESPONSIBILITY OF MR. FRANK MCGOUGH. HOWEVER, ON JUNE 5, 1959, THE BOARD OF DIRECTORS AT A SPECIAL MEETING, AT WHICH MR. FRANK MCOUGH WAS PRESENT, DISCHARGED HIM FOR VARIOUS ACTS AND PRACTICES PREJUDICIALLY TO THE CORPORATION INCLUDING BUT NOT RESTRICTED TO SUCH WRONGDOINGS AS FORGERY OF THE NAMES OF EMPLOYEES ON COMPANY CHECKS * * *.'

WITH RESPECT TO WORK CLASSIFICATIONS, MR. LONGACRE'S CLASSIFICATION AS AN IRON WORKER WAS NOT DISPUTED, AND IT WAS STATED THAT THE PRESIDENT "HAD NO REASON TO SUSPECT OR BELIEVE THAT HE WAS NOT RECEIVING WHAT HE SHOULD HAVE RECEIVED WHEN THE PAYROLLS WERE CERTIFIED IN THE ADMINISTRATIVE COURSE.' LEO MCGOUGH'S "ONLY PREVIOUS JOB HISTORY," IT WAS REPORTED,"WAS THAT OF A MASON'S HELPER AND HE WAS HIRED AS A HELPER TO LEARN A TRADE * * * IT IS DIFFICULT TO SEE HOW HE COULD BE CLASSIFIED AS ANYTHING OTHER THAN A LABORER.' WILLIAM CLARK WAS SAID TO HAVE BEEN "HIRED AS A HELPER OR LABORER ON OUTSIDE WORK AS REQUESTED ON HIS APPLICATION * * * NOTHING IN HIS PREVIOUS EXPERIENCE COULD POSSIBLY JUSTIFY ANY OTHER CLASSIFICATION.' AS TO FRANK SERRILL, IT WAS REPORTED THAT "HE WAS HIRED AS A HELPER AND ASSIGNED TO WORK AS A LABORER ON THE LAKEHURST JOB. HIS PREVIOUS EXPERIENCE HAD BEEN THAT OF A SERVICE STATION ATTENDANT.'

RUSTYK PRODUCTS, INCORPORATED, MADE WAGE ADJUSTMENTS AS SUGGESTED BY THE CONTRACTING AGENCY. THE CONDITIONS UNDER WHICH SUCH ACTION WAS TAKEN WERE EXPLAINED BY THE FIRM'S ATTORNEY AS FOLLOWS:

"* * * MR. SARKEES RECOMMENDED A CONFERENCE IN HIS OFFICE FOR THE PURPOSE, AS STATED BY HIM, TO DETERMINE IF THE PROBLEMS COULD BE SETTLED AT THE LEVEL OF HIS OFFICE. THEREAFTER TOOK PLACE A LENGTHY CONFERENCE ATTENDED BY EARL H. HELLERMAN, PRESIDENT OF THE CORPORATION, EDMUND T. MCMAHON, VICE PRESIDENT OF THE CORPORATION, BEN CHARLES, PRESIDENT OF CHARLES CONSTRUCTION COMPANY, WALTER SARKEES AND MR. SARRIMES, HEAD OF THE CONSTRUCTION BRANCH. IN RESPONSE TO REQUEST FROM MR. HELLERMAN THAT I, AS THE LAWYER FOR THE CORPORATION BE PRESENT, MR. SARKEES STATED THAT MR. HELLERMAN MIGHT DO SO. MR. SARKEES FURTHER STATED THAT SHOULD THE CORPORATION ELECT TO HAVE ITS LAWYER PRESENT THIS WOULD PREVENT A CONFERENCE FROM TAKING PLACE AND WOULD FRUSTRATE A POSSIBLE SETTLEMENT OF THE CASE AT THE LEVEL OF HIS OFFICE AND WOULD AUTOMATICALLY REQUIRE THAT A FULL DRESS HEARING BE HELD. ACTING IN RELIANCE ON MR. SARKEES' STATEMENT THE CORPORATION OFFICIALS AGREED TO ATTEND THIS CONFERENCE. DURING THE CONFERENCE MR. SARKEES AND MR. SARRIMES MADE KNOWN THE AMOUNT OF THE TOTAL UNDERPAYMENT TO THE EMPLOYEES IN THE AMOUNT OF $1,108.00. HE SUGGESTED AND REQUESTED THAT THE CORPORATION PAY THIS SUM. THE CORPORATION AT THIS POINT DID NOT CONCEDE AND DOES NOT CONCEDE THE VALIDITY OF ALL THE CLAIMS AND CHARGES MADE AGAINST IT. HOWEVER, MR. SARKEES STATED UNEQUIVOCABLY THAT IF THE CORPORATION WOULD AGREE TO MAKE THE REQUESTED PAYMENT THAT THIS WOULD DETERMINE THE MATTER AND THAT THERE WOULD BE NO FURTHER ACTION IN THE MATTER EITHER BY HIS DEPARTMENT OR ANY OTHER AGENCY OF THE GOVERNMENT. MY CLIENTS PAID THE $1,108.00 IN THE BELIEF THAT THEY WERE SETTLING A CLAIM AND BUYING PEACE. IT WILL BE APPRECIATED AMONG LAWYERS THAT THIS IS MANY TIMES A MATTER OF ECONOMICS AND FISCAL PRUDENCE. * *

UNDER DATE OF OCTOBER 31, 1960, IN RESPONSE TO THE ATTORNEY'S LETTER, THE ASSISTANT SOLICITOR OF LABOR ADVISED HIM THAT "IN VIEW OF THE ALLEGATIONS CONTAINED IN YOUR LETTER, IT WOULD APPEAR ADVISABLE FOR A CONFERENCE TO BE HELD WITH OUR REGIONAL ATTORNEY * * *.' ALTHOUGH SOME CORRESPONDENCE WAS EXCHANGED CONCERNING A SUITABLE DATE FOR SUCH A CONFERENCE, THE MATTER WAS DROPPED WITHOUT FURTHER REPRESENTATIONS BEING MADE OR SUBSTANTIATING EVIDENCE BEING FURNISHED BY THE ATTORNEY.

THE EXPLANATIONS FURNISHED DO NOT ESTABLISH OBSERVANCE OF THE MINIMUM WAGE OBLIGATIONS TO EMPLOYEES. THEY PLACE THE RESPONSIBILITY FOR FALSIFICATION OF PAYROLL REPORTS AND FOR WAGE UNDERPAYMENTS UPON A DISCHARGED OFFICER OF THE CORPORATION AND SEEK TO AVOID ANY RESPONSIBILITY FOR THE BAD FAITH DISPLAYED. HOWEVER, THE IMPROPER PAYROLL REPORTS WERE CERTIFIED BY THE PRESIDENT OF THE CORPORATION AND HE THEREBY ASSUMED RESPONSIBILITY FOR THEIR CONTENTS. AS A MATTER OF LAW WHEN THE RELATION OF EMPLOYER-EMPLOYEE EXISTS THE EMPLOYER IS LIABLE FOR THE WRONGFUL ACTS OF THE EMPLOYEE IN THE COURSE OF HIS EMPLOYMENT. 57 C.J.S. 266. NEGLIGENCE OF THE EMPLOYER TO INSTRUCT HIS EMPLOYEE AS TO THE PROPER METHOD OF PERFORMING HIS WORK OR TO SEE THAT THE EMPLOYEE OBEYS HIS INSTRUCTIONS RENDERS THE EMPLOYER LIABLE FOR INJURIES TO THIRD PARTIES RESULTING THEREFROM. 57 C.J.S. 272. THE EMPLOYER WILL BE LIABLE FOR ACTS OF HIS EMPLOYEE WITHIN THE SCOPE OF THE EMPLOYMENT REGARDLESS OF WHETHER THE ACTS WERE EXPRESSLY OR IMPLIEDLY AUTHORIZED. 57 C.J.S. 302. WILFUL AND MALICIOUS ACTS OF THE EMPLOYEE ARE IMPUTABLE TO THE EMPLOYER UNDER THE DOCTRINE OF RESPONDEAT SUPERIOR ALTHOUGH THEY MIGHT NOT HAVE BEEN CONSENTED TO OR EXPRESSLY AUTHORIZED OR RATIFIED BY THE EMPLOYER. C.J.S. 572. IT HAS BEEN GENERALLY HELD THAT THE EMPLOYER IS LIABLE TO THIRD PARTIES BECAUSE OF CRIMINAL ACTS OF HIS EMPLOYEE WHERE SUCH ACTS CAN BE SAID TO HAVE BEEN WITHIN THE SCOPE OF THE EMPLOYMENT. 57 C.J.S. 573.

IT IS CLEAR, PARTICULARLY IN THE LIGHT OF THE FALSE PAYROLLS, THAT GOOD FAITH WAS NOT SHOWN IN COMPLYING WITH THE ACT AND CONTRACTUAL PROVISIONS. ONLY THROUGH INVESTIGATION AND DETECTION OF THE MISLEADING INFORMATION FURNISHED IN PAYROLL REPORTS WAS IT POSSIBLE FOR THE GOVERNMENT TO ADOPT MEASURES PROTECTING THE EMPLOYEES INVOLVED AND ENSURING COMPLIANCE. THE DEPARTMENT OF THE NAVY AND THE DEPARTMENT OF LABOR HAVE RECOMMENDED IMPOSITION OF DEBARMENT.

WE THEREFORE FIND THAT RUSTYK PRODUCTS, INCORPORATED, EARL H. HELLERMAN PRESIDENT, AND FRANK MCGOUGH, SECRETARY-TREASURER, HAVE DISREGARDED "OBLIGATIONS TO EMPLOYEES" WITHIN THE MEANING OF THE DAVIS BACON ACT. ACCORDINGLY, THEIR NAMES WILL BE INCLUDED ON A LIST FOR DISTRIBUTION TO ALL AGENCIES OF THE GOVERNMENT AND, PURSUANT TO THE STATUTORY DIRECTION, NO CONTRACT SHALL BE AWARDED TO THEM, OR TO ANY FIRM, CORPORATION, PARTNERSHIP, OR ASSOCIATION IN WHICH THEY HAVE AN INTEREST UNTIL THREE YEARS HAVE ELAPSED FROM THE DATE OF PUBLICATION OF SUCH LIST.