2 No. 64
In the Matter of Chesterfield
Associates,
Appellant, v. New York State Department of
Labor,
Respondent.
2005 NY Int. 65
May 3, 2005
This opinion is uncorrected and subject to revision before
publication in the New York Reports.
Greg A. Riolo, for appellant. Benjamin N. Gutman, for respondent.
READ, J.:
Petitioner, Chesterfield Associates, challenges
respondent Department of Labor's use of the "annualization" rule
(12 NYCRR 220.2 [d]) to assess whether a contractor has fulfilled
its obligation under the prevailing wage law (Labor Law, art 8)
to pay or provide prevailing supplements to employees for work on
a public project. For the reasons that follow, we conclude that
the Commissioner of Labor reasonably annualized the contributions
that Chesterfield made to a profit-sharing plan on behalf of its
employees working on the public projects at issue in this case. I. Article I, § 17 of the New York State Constitution
declares that
"[n]o laborer, worker or mechanic, in the
employ of a contractor or sub-contractor
engaged in the performance of any public
work, shall be . . . paid less than the rate
of wages prevailing in the same trade or
occupation in the locality within the state
where such public work is to be situated,
erected or used."
The prevailing wage law carries out the constitutional mandate in
Labor Law § 220 (3). This provision requires a contractor
undertaking a public work project to pay its employees the
prevailing rate of wages and to pay or provide them with
supplements[1]
in accordance with prevailing practices for private
sector work in the same locality. The Commissioner has established and annually updates a
schedule of prevailing wages and supplements, expressed as hourly
rates and pegged to collectively bargained wages and fringe
benefits for different work classifications (carpenters,
electricians, painters, etc.) in different localities ( id.; Labor Law § 220 [5] [a]; 12 NYCRR 220.3).[2]
The public entity attaches
the relevant prevailing rate schedule to its bid specifications
for a public project and to the eventual contract; the schedule
must be posted at the jobsite so that workers know how much
compensation they are entitled to receive (Labor Law § 220 [3-a]
[a], [b]). Contractors may provide or pay for supplements by
furnishing their employees with benefits whose value matches the
relevant supplements, paying the supplements in cash or combining
benefits and cash payments (12 NYCRR 220.2 [a]-[b]; Matter of
Action Elec. Contrs. Co. v Goldin, , 64 NY2d 213 [1984]). In
short, a contractor may provide supplements in any form or
combination so long as the sum total is not less than the
prevailing rate. The Commissioner enforces the prevailing wage law
through compliance investigations undertaken in response to a
complaint or on his own initiative (Labor Law § 220 [7]). After
a hearing, the Commissioner may issue an order determining that
the contractor is liable for underpayments -- the difference
between the prevailing wages or supplements that the schedules
call for and the sums actually paid or provided to employees --
plus interest (Labor Law § 220 [7], [8]). In addition to
liability for underpayments, contractors face potential civil and
criminal penalties for violating article 8 (Labor Law §§ 220 [8],
[9]). The prevailing wage law "has been characterized as an
attempt by the State to hold its territorial subdivisions to a
standard of social justice in their dealings with laborers,
workmen, and mechanics" ( Matter of Cayuga-Onondaga Counties Bd.
of Coop. Educ. Servs. v Sweeney, , 89 NY2d 395, 402 1996]
[quotations omitted]). As the Department puts it, section 220
"seeks to equalize competing contractors' labor costs, which
ensures that the winning bid on a public project is not made on
the backs of the contractor's employees."
Whether a contractor pays a prevailing wage is easy
enough to figure out, as wages are received by employees as
hourly cash payments or are easily converted into the equivalent.
How an employer's fringe benefits relate to a prevailing
supplement is less straightforward. Accordingly, the
Commissioner has adopted a regulation called the annualization
rule (12 NYCRR 220.2 [d]) for computing the hourly cash
equivalent of a supplement. Under the annualization rule, the Commissioner
divide[s] the [contractor's] actual contribution or cost for
providing a benefit by the total annual hours worked [by
employees] on both public and private work (12 NYCRR 220.2 [d]
[1]). The Commissioner then multiplies the hourly cash
equivalent thus derived by the total annual hours the
contractor's employees worked on the public project (which the
parties here refer to as public hours). The resulting figure
acts as a credit to offset the contractor's obligation to pay or
provide for supplements. In this case, the Department received complaints from
employees and union representatives that Chesterfield was not
paying or providing prevailing wages and supplements on five
public projects carried out during 1994 through 1997 to repair
certain bridges and roads in Nassau and Suffolk Counties.
Chesterfield furnished supplements to its employees by way of
three categories of fringe benefits: paid vacation, sick days
and holidays; health insurance; and pension plans. These
benefits were supplied to all of Chesterfield's employees, even
those who performed no public work. Upon investigation, the Department concluded that
Chesterfield had underpaid wages and supplements on the projects
and the matter went to hearing. The parties stipulated to the
figures to be used to calculate the value of Chesterfield's
fringe benefits.[3]
Further, Chesterfield ultimately conceded that
its health insurance and vacation, holiday and sick pay benefits
should be annualized. Chesterfield disputed use of the annualization rule to
calculate the hourly cash equivalent of its contributions for
pension benefits, however, and so Chesterfield and the Department
computed this credit alternatively. They stipulated that if
pension contributions were not annualized and were instead given
what Chesterfield calls dollar-for-dollar credit (i.e., if
Chesterfield's pension contributions on behalf of employees who
worked on the public projects were divided by only the public
hours worked by these employees), Chesterfield would be entitled
to a credit of $7.92 per hour to offset its supplement
obligation;[4]
if annualized (i.e., if Chesterfield's pension
contributions on behalf of employees who worked on the public
projects were divided by the total hours worked by these
employees), the credit decreased by approximately two-thirds to
$2.54 an hour. The practical effect was a swing in
Chesterfield's liability for underpayment of supplements from
roughly $18,000 (if not annualized) to almost $600,000 (if
annualized). From 1994 through 1997, Chesterfield made contributions
to a profit-sharing pension plan. Under this plan, an employee's
rights did not vest immediately; instead, an employee became
fully vested (at a rate of 20 percent per year) only at the end
of five years. According to the Department,[5]
Chesterfield's
contributions to the plan were allocated to individual employees
based on their total earnings for the year; that is, without
regard to whether or for how many hours the employee worked on a
public project.[6]After nine days of hearings spanning roughly 21 months,
the Department's hearing officer issued a report and
recommendation concluding, among other things, that the
Department had "permissibly and properly" annualized
Chesterfield's contributions for pension benefits. He
consequently concluded that Chesterfield had underpaid
supplements by almost $600,000.The Commissioner issued a determination and order
adopting the hearing officer's findings of fact, conclusions of
law and recommendations in their entirety, and Chesterfield
commenced this article 78 proceeding pursuant to Labor Law § 220
(8). The Appellate Division confirmed the Commissioner's
determination, denied Chesterfield's petition and dismissed the
proceeding. We subsequently granted Chesterfield leave to
appeal, and now affirm. II. Chesterfield contests only the annualization of its
contributions for pension benefits. Specifically, Chesterfield
argues that annualization violates Labor Law § 220 (3) by
penalizing contractors unless they provide for supplements at the
prevailing rate on both public and private work or, alternatively,
pay the supplements in cash. To prove this point, Chesterfield describes a benefit
plan into which a contractor contributes at the prevailing rate
for public hours and at a lesser rate for private hours.
According to the Department, however, this is a hypothetical plan
that in no way resembles Chesterfield's actual profit-sharing
plan; Chesterfield's pension contributions were allocated to
individual employees based on their total annual earnings and
without regard to whether or how many hours they worked on public
projects. Chesterfield also relies on Tom Mistick & Sons v Reich
(312 US App DC 67 [1995]). There, the D.C. Circuit determined
that it was unreasonable for the federal Department of Labor to
annualize the employer's contributions to a fringe benefit plan
established to comply with the Davis-Bacon Act, 40 USC § 276a et
seq., the federal prevailing wage law. The contractor in
Mistick, however, maintained and made contributions to two
separate fringe benefit plans -- the Davis-Bacon plan for public
work only and another fringe benefit plan for private work only.
We cannot conclude from this record that Chesterfield similarly
maintained and contributed to separate profit-sharing plans for
its employees' public and private work. This appeal does not call on us to engage in "pure
statutory reading and analysis, dependent only on accurate
apprehension of legislative intent" ( Kurcsics v Merchants Mut.
Ins. Co., , 49 NY2d 451, 459 [1980]). Rather, we are asked to
decide whether the Commissioner applied a reasonable methodology
to evaluate Chesterfield's compliance with its obligation under
Labor Law § 220 (3) to pay or provide for supplements at the
prevailing rate on the five public projects at issue.
Accordingly, the Commissioner's determination to annualize
Chesterfield's contributions to the profit-sharing plan is
entitled to deference ( Matter of Howard v Wyman, , 28 NY2d 434, 438
[1971] ["construction given statutes and regulations by the
agency responsible for their administration, if not irrational or
unreasonable, should be upheld"]). Chesterfield seeks credit for the full cost of its
contributions to the profit-sharing plan on behalf of employees
who worked full- or part-time on the five public projects.
Because Chesterfield contributed to the profit-sharing plan not
only for its employees' public work but also for their private
work, however, there was room for shifting costs on paper to
overstate its payments on behalf of public hours, which would
have bestowed an unfair competitive advantage on Chesterfield and
denied its employees the full value of the supplements to which
they were entitled. To enforce against this potential cost
shifting, the Commissioner chose to average Chesterfield's
contributions over all work, both public and private, to which
pension benefits might be related. This resulted in a
proportionate credit to offset Chesterfield's supplement
obligations. We cannot say that the Commissioner acted
unreasonably or irrationally in taking this approach under the
circumstances of this case.
Nor can we say on this record that annualization
regulates private work or forces a contractor to pay cash
supplements in lieu of providing fringe benefits ( see Rondout
Elec., 335 F3d 162, 169 [2d Cir 2003] ["New York's annualization
regulation does not require prevailing wages or benefits for any
employee who works on a private contract. The only time the
prevailing wage standard is imposed is when an employee works on
a public project"]; see also Miree Constr. Corp. v Dole, 930 F2d
1536, 1546 [11th Cir 1991] ["if an employer chooses to make
contributions to a year-long [benefit] . . . such contributions
can only be credited on an annualized basis"]). In sum,
annualization is a methodology for valuing fringe benefits, which
the Commissioner reasonably applied here to compute the hourly
cash equivalent of Chesterfield's contributions to its profit-
sharing plan. Accordingly, the judgment of the Appellate Division
should be affirmed, with costs.
Footnotes
1 "Supplements" or fringe benefits include "all remuneration for
employment paid in any medium other than cash, or reimbursement for expenses,
or any payments which are not 'wages' within the meaning of the law" (Labor Law § 220 [5] [b]).
2 The Commissioner issues the schedules separately for General
Construction Projects (buildings, heavy and highway, tunnel and water and
sewer projects) and Residential Construction Projects on a county-by-county
basis (Labor Law § 220 [3-a] [a]; see also www.labor.state.ny.us/businessny/
employer_responsibilities/prevwage/3webwagetypestatus.htm). The Comptroller
of the City of New York, the City's chief fiscal officer, determines the
prevailing rate schedules and otherwise enforces article 8 for public projects
let by the City (Labor Law § 220 [3], [5] [e]).
3 Specifically, for the 1994-1997 time period the parties stipulated to
the amount that Chesterfield contributed on behalf of all of its employees
(i.e., those who worked exclusively on private sector work as well as those
who worked full- or part-time on the public projects) to a contractors'
benefit trust for health benefits only; the total hours worked by all of
Chesterfield's employees; the total hours worked by the employees who worked
on the public projects as well as the total public hours worked by these
employees (roughly 32 percent of the total hours worked); the total
supplements that the employees who worked on the public projects should have
been provided according to the prevailing rate schedule; the vacation, holiday
and sick pay that Chesterfield paid to the employees who worked on the public
projects; and the pension contributions made by Chesterfield on behalf of the
employees who worked on the public projects.
4 The Department evidently often used the dollar-for-dollar methodology
to calculate a benefit's hourly cash equivalent even after adopting the
annualization rule in 1992. Chesterfield regards the Department's post-1992
forbearance from annualizing as evidence of doubt about its authority to do
so. The Department, however, attributes any seeming inconsistencies in its
enforcement policies to uncertainty as to how the federal Employee Retirement
Income Security Act (ERISA), 29 USC § 1001 et seq., might affect supplements
( compare General Elec. Co. v New York State Dept. of Labor, 891 F2d 25 [2d Cir
1989] [prevailing wage law may not be enforced with respect to ERISA benefits]
with Burgio & Campofelice, Inc. v New York State Dept. of Labor, 107 F3d 1000
[2d Cir 1997] [ERISA does not preempt the State's prevailing wage law because
it does not mandate a particular set of benefits]; see also HMI Mech. Sys. v
McGowan, 266 F3d 142 [2d Cir 2001] [ERISA does not preempt the Department's
implementation of the prevailing wage law using an annualization formula]).
The Department did not annualize Chesterfield's pension contributions to
determine underpayments until after the Second Circuit's decision in HMI.
6 Chesterfield also made small contributions in 1994 to the so-called
Plan Data plan, a retirement plan and trust administered by Plan Data, Inc.
The Plan Data plan was apparently discontinued during 1994. The record
contains no information to describe it, or to show the degree to which any
contributions to the Plan Data plan were attributable to the projects and time
periods at issue in this case. We therefore limit our discussion to
Chesterfield's profit-sharing plan.
The hearing officer also recommended that the Commissioner determine
and order that Chesterfield was liable for failure to pay prevailing wages
totaling roughly $50,000; that Chesterfield was liable for interest on the
underpayment of prevailing wages and supplements at the rate of 16 percent per
year from the date of underpayment to the date of restitution, minus a 19-
month period of delay on account of the Department's re-auditing of the public
projects; that Chesterfield's failure to pay prevailing wages constituted a
single willful violation of Labor Law § 220; and that the Commissioner assess
a civil penalty amounting to 10 percent of the underpaid wages.