Wage Law Violations in Federal Construction Contracts

If federal construction contractors do not comply with applicable wage laws, you may have the basis for a False Claims Act Claim. Contact us to learn more.

Wage Law Violations in Federal Construction Contracts

In most federally funded or assisted construction projects, contractors and subcontractors must comply with applicable wage laws that protect the rights and welfares of employees. A failure to do so is often referred to as “wage theft” and it is all-too-common in the construction industry. In some circumstances, noncompliance with applicable wage laws can form a basis for a False Claims Act ("FCA") claim. In previous FCA cases, courts have treated wage law violations and wage theft in federally funded projects seriously. In a recent FCA case, the Third Circuit Court of Appeals upheld a judgement of over $1 million against appellant-contractor for underpaying employees.

What is Wage Theft?

Wage theft, the most common form of theft in the United States, occurs when employees are not properly paid for their work. Wage theft can take the form of minimum wage violations, overtime violations, lunch-break violations, and all forms include employers failing to pay employees the wages to which they are legally entitled. Wage theft is responsible for depriving workers, usually low-income workers, from billions of dollars each year, and it has been estimated that wage theft accounts for about three times more than the amount of lost resources than robberies every year. Unsurprisingly, wage theft is committed both by private employers and by employers receiving federal money in the form of contracts. This blog post will focus on the laws designed to prevent wage theft and to protect federal contractor employee rights, and the connection of these wage laws to the False Claims Act.

Wage Laws for Federal Construction Contracts

There are three wage laws that are frequently involved in federal construction contracts: the Davis-Bacon and Related Acts, the Copeland "Anti-Kickback" Act, and the Contract Work Hours and Safety Standards Act. These acts are in place to enforce federal contractor employee rights, ensuring that those working for government contractors are paid the wages they deserve.

The Davis-Bacon and Related Acts

At its most fundamental level, the Davis-Bacon and Related Acts require that federal construction contractors and subcontractors pay their workers at a rate which meets or exceeds locally prevailing wages. In the construction industry, prevailing wages can be defined as the average wage paid to similar workers in the area of employment. For example, if a contractor received a contract to perform construction in rural Montana, the contractor would have to pay its workers the going rate for construction work in rural Montana. If, instead, a contractor received a contract to perform construction in Manhattan, the contractor would be required to pay its workers the going rate for construction work in Manhattan. The Acts cover federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair of public buildings or public works. Federally assisted projects are those which receive grants, loans, loan guarantees, and insurance from the federal government.

Senators James J. Davis of Pennsylvania and Representative Robert L. Bacon of New York, the co-sponsors and namesakes of the Davis-Bacon Act.

The Copeland “Anti-Kickback” Act

Under the Copeland Act’s Anti-Kickback provision, contractors and subcontractors are not allowed to induce an employee to give up any part of the compensation to which the employee is entitled. Anti-kickback provisions, like the Anti-Kickback Statute for the healthcare industry, cover many kinds of remunerations, including money, goods, or benefits. By ensuring employees covered under federal contracts are given the wages to which they are entitled, the Anti-Kickback provision of the Copeland Act protects employees from illegal wage theft. The provision applies to contractors and subcontractors that perform work on contracts for certain public construction projects or works funded in whole or in part by loans or grants from the United States.

Contract Work Hours and Safety Standards Act ("CWHSSA")

Under CWHSSA, workers on government-contracted projects are entitled to receive 1 and 1/2 times their basic rate of pay for all hours worked over 40 in a workweek. CWHSSA applies to include federal construction contracts over $150,000. It also applies to certain contracts to which the federal government is not a direct party but which is over $100,000 and is also subject to the Davis-Bacon and Related Acts. Failure to pay workers their proper due for overtime work is a violation of CWHSSA.

Wage Laws and The False Claims Act

Oftentimes, requirements combatting wage theft are included in federal construction contracts, which imposes responsibility on government contractors and subcontractors to follow applicable wage laws. The Federal Acquisition Regulation (FAR) requires solicitations and contracts in excess of $2,000 for construction within the United States to include Construction Wage Rate Requirement clauses that are governed by the Davis-Bacon Act.[1] Certain construction contracts in excess of $150,000 should include Contract Work Hours and Safety Standards—Overtime Compensation clauses.[2] This means that covered contractors and subcontractors must pay locally prevailing wages and/or follow overtime payment requirements. Thus, if employers fail to fulfill these requirements but still submit claims to the government and/or certify compliance, this can form a basis for an FCA claim.

FAR also requires covered solicitations and contracts to include clauses on maintaining and submitting payroll records, following the Copeland Act. First, contractors and subcontractors should maintain all payrolls and related records during and for a period of three years after the work. Second, contractors should submit a copy of all payrolls to the contracting officer on a weekly basis. Along with each payroll submitted, the contractor or subcontractor that makes the payment shall sign and submit a "Statement of Compliance," certifying that the information in the payroll is accurate and correct, that laborers or mechanics are paid in full without delay, and that they are paid not less than applicable wage rates as specified in the wage determination.[3] The submission of these records ensures that contractors are not skimming off the top of the federal contract payments to secure financially beneficial arrangements or contracts for itself through kickbacks, such as paying for the dinners or vacations of interested parties. Importantly, these measures also help prevent wage theft and protect federal contractor employee rights.

Violations of applicable wage laws in a federally funded or assisted construction project may take many forms, including but not limited to situations where contractors and/or subcontractors:

1. Pay their employees below wage rates required by the Davis-Bacon Act;

1. Fail to pay workers for overtime work, in violation of the CWHSSA; or

1. Misrepresent the hours of work of their employees;

1. Misclassify workers when there is no technical ambiguity regarding the proper classification (e.g., classifying unskilled employees as skilled laborers in order to charge at a higher rate, or, vice versa, classifying skilled laborers as unskilled employees in order to pay them a lower wage).

Recent False Claims Act Cases on Wage Law Violations

On July 13, 2021, the Court of Appeals for the Third Circuit affirmed a $1 million judgement against the Farfield Company ("Farfield") for underpaying workers on a construction project partially funded by the federal government. In 2009, an International Brotherhood of Electrical Workers local filed a complaint in Philadelphia alleging that Farfield intentionally misclassified its workers. Specifically, workers who performed more skilled, higher-paid tasks were classified as "laborers" or "groundmen," both of which were entitled lower wages. In 2019, a court-appointed special master found that nearly $160,000 was underpaid to the misclassified workers and that Farfield falsely certified compliance every week for more than two years of the five year project. The special master then recommended a judgement of more than $1 million which the District Court adopted in full. The Court of Appeals upheld the judgement, saying that "undercutting the local labor market for over two years is neither minor nor insubstantial."[4]

In March 2021, construction company S.A. Taylor, LLC ("S.A. Taylor") agreed to pay the United States over $560,000 to settle FCA allegations. S.A. Taylor bid on and was awarded subcontracts to work on two United States Department of Veterans Affairs ("VA") construction projects. Relator's allegations stated that the company paid significantly less than the prevailing wage and that it "submitted falsified payroll records [to the prime contractor] to make it seem as if the prevailing wage had been paid."[5] The prime contractor, unaware of the falsity, submitted the payroll to the VA, and S.A. Taylor was reimbursed for the payroll. S.A. Taylor was later found to have kept two sets of payroll records: one for the amount which should have been paid to the workers, and the other showing the fraudulently deflated actual amount. S.A. Taylor's executives kept the difference between the lower paid wage and the higher reimbursed amount, a classic example of wage theft. Acting U.S. Attorney Williams commented, "Today’s settlement reflects the reality that individuals and entities that exploit workers will be held accountable by the government."[6]

In August 2019, construction contractor Nagan Construction, Inc. ("Nagan") admitted submitting false certified payroll reports and underpaying employees, and agreed to pay the United States a sum of $435,000 to settle the FCA lawsuit against it, with around half of the settlement payment went to the former Nagan employees who suffered from the wage theft. In 2012 and 2014, Nagan was awarded two federally funded renovation contracts in New York. During the course of the projects, Nagan submitted monthly reports which included certified payroll amounts to the government contracting agencies. In these reports, Nagan misclassified thousands of hours of skilled work, such as carpentry and bricklayer tasks, as unskilled "laborer" work, such as cleaning and transporting materials and equipment. At least twenty workers should have been paid substantially higher wages than what they received. Nagan admitted knowingly underpaying employees and misclassifying work performed by these employees, and agreed to implement measures to ensure future compliance with applicable wage laws.

WHAT SHOULD YOU DO IF YOU ENCOUNTER FALSE CLAIMS ACT VIOLATIONS?

Under the False Claims Act, employees or other persons with knowledge who become aware of conduct leading to false claims on the government can file a qui tam lawsuit on behalf of the government to address these practices. Whistleblowers who sue on behalf of the government may receive between 15 to 30 percent of the money recovered by the government, if the suit is successful.

The whistleblower attorneys at Goldberg Kohn can help. If you are aware of false claims being made on the government, call Goldberg Kohn at 312-284-3258 or contact us online. We are always willing to provide you with a free, confidential consultation to discuss a potential case.

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[1] Federal Acquisition Regulation, § 52.222-6

[2] Federal Acquisition Regulation, § 52.222-4

[3] Federal Acquisition Regulation, § 52.222-8

[4] United States ex rel. Int'l Bhd. of Elec. Workers Loc. Union No. 98 v. Farfield Co., No. 20-1922, 2021 WL 2933212, at *2 (3d. Cir. 2021)

[5] Subcontractor Agrees to Pay the United States $500k+ in Damages After Failing to Pay Prevailing Wages on VA Construction Projects, https://www.justice.gov/usao-edpa/pr/subcontractor-agrees-pay-united-states-500k-damages-after-failing-pay-prevailing-wages

[6] Id.