Comptroller V. Kolsch, Inc

1

Comptroller v. Kolsch, Inc.

OATH Index No. 674/06 (May 10, 2006)

Prevailing wage case in which respondents defaulted. ALJ found willful violation of Labor Law section 220 as to two complaining electricians who performed work on public works contract let by Metropolitan Transportation Authority in 1992. Monetary award consisting of underpayments to claimants, statutory interest of 16 percent per annum and penalty of 10 percent per annum on underpayments assessed. Prime contractor financially responsible for underpayments of subcontractor.

______

NEW YORK CITY OFFICE OF

1

ADMINISTRATIVE TRIALS AND HEARINGS

In the Matter of

OFFICE OF THE COMPTROLLER

Petitioner

-against-

GEORGE F. KOLSCH, INC. & LIPCO/ACTION. J.V.

Respondents

______

REPORT AND RECOMMENDATION

DONNA R. MERRIS, Administrative Law Judge

This is a prevailing wage enforcement proceeding, brought by petitioner, the Comptroller of the City of New York, pursuant to sections 220 (8) and 220-b (2) of the Labor Law (Lexis 2006). Petitioner alleges that, from October 1992 to October 1995, respondents, George F. Kolsch, Inc. (Subcontractor) and Lipco/Action, J.V. (Prime Contractor) (collectively "Kolsch") failed to pay two employees the requisite wages and supplemental benefits for work performed as electricians on contract No. E-31080 entered into with the New York City Metropolitan Transit Authority ("MTA" or "Transit Authority"). The Comptroller seeks $61,021.29 in monetary relief for the employees, interest, and civil penalties (ALJ Ex. 1, amended January 11, 2006).

A hearing was held before me on January 11, 2006. The Comptroller was represented by counsel and presented the testimony of two witnesses. Upon respondent's failure to appear, petitioner presented proof of service of the charges and notice of hearing on the respondents by regular and certified mail (Pet. Exs. 1-4) as required by statute and the Comptroller's regulations. See Labor Law § 220 (8) (Lexis 2006); 44 RCNY § 2-02(b)(1). In addition, petitioner attempted to contact respondents through the addresses listed for service of process on the businesses' certificates of incorporation filed with the Secretary of State (Pet. Exs. 2 & 4; Tr. 6-9). These documents confirmed the two corporations' last known business addresses. The certified mail notice to Lipco/Action, J.V. was returned to the Comptroller's Office by the U.S. Postal Service marked "attempted not known" (Pet. Ex. 4).

It is to be noted that during the Comptroller's investigation, a letter demanding document production and an appearance was sent to George F. Kolsch, Inc. at respondent's last known address on September 18, 1997. Kolsch did produce copies of its payroll records and some cancelled checks in response to the 1997 letter (Tr. 16-17); see also letter from MTA Capital Program Management to the Comptroller dated March 27, 1998 (Pet. Ex. 8, Kolsch responded to a request to search payroll records). Thus, there is evidence that Kolsch had actual knowledge of the Comptroller's investigation.

Based upon the record, I conclude that service to the respondents' last known addresses and to their agents of record was reasonably calculated to achieve actual notice to these respondents. Accordingly, I find that service was legally sufficient. 48 RCNY § 1-23. See Comptroller v. Central Absorption, Inc., OATH Index No. 1138/96, Comptroller's Decision (Apr. 30, 1996).

ANALYSIS

To establish a claim under Labor Law section 220, the Comptroller must prove by a preponderance of the credible evidence that the contractor failed to pay the employees prevailing wages and benefit supplements for work performed on the MTA contract at issue here. See Comptroller v. G.A. Energy Maintenance, Inc., OATH Index No. 411/92 (Feb. 26, 1992). The Comptroller has satisfied his burden of proof in this case.

Pursuant to a contract with the MTA entered into in 1992, Lipco Electrical Corporation/Action Electrical Contractor, Joint Venture, was responsible for the rehabilitation of power facilities, vent plants, pumping facilities tunnel lighting, and water remedy of the Concourse Line "B" Division (IND) (Pet. Ex. 7). Where, as here, a public entity such as the MTA is a party to a contract involving the employment of workers, laborers or mechanics and the project constitutes public work, the prevailing-wage law applies. See Matter of Erie County Industrial Development Agency v. Roberts, 94 A.D.2d 532 (4thDep't 1983), aff'd, 63 N.Y.2d 810 (1984); Office of the Comptroller v. Picone, OATH Index No. 976-78/97 (Apr. 21, 1997), rev. and remanded, Comptroller's Dec. (June 17, 1997). The New York State Constitution requires contractors and subcontractors on public works projects to pay their workers, laborers and mechanics no less than the rate of wages and supplements prevailing for the applicable trade or occupation in the locality where the project is located. 4 N.Y. Const., art. I, § 17. The labor law implements the constitutional requirement and the Comptroller sets the prevailing rates. Here, the contract included the Comptroller's schedule of prevailing wage and supplements rates (Pet. Ex. 7). The language in the schedules admonishes the contractor that

All wage and benefit rates in this schedule are basic straight time rates and do not include overtime, shift differentials, holiday, Saturday, Sunday, or any other type of premium rates. . . The Labor Law Division maintains copies of each prevailing Collective Bargaining Agreement used in promulgating this schedule, which are available for inspection by appointment. . . (Tr. 19-20; Pet. Exs. 11-14).

The Comptroller's schedules for the relevant period, July 1992 through June 1996 set the hourly rates for electricians. During that period, the rate increased from $30.00 per hour plus benefits to $32.00 per hour plus benefits. In conjunction with the agreement between the Contractor's Association and Local Union No. 3, electrical workers were to be paid straight time for a seven-hour work day and were to be paid at the rate of time and one-half for hours worked in excess of seven hours (Pet. Exs. 11-14 & 15-16).

The evidence is undisputed that Lipco/Action subcontracted the electrical work required by the contract to Kolsch and the Transit Authority directed the joint venture to perform the contract work during off-peak hours. Much of the electrical work was performed on weekends. The two employees who filed complaints with the Comptroller worked on the contract between 1992 and 1995. Based on their description of the work performed, Edgar Carmona was employed as a journeyman electrician and Richard Justesen was employed as "lead" electrician (Pet. Exs. 5 & 6). Petitioner's auditor, Carolyn Canton, reviewed the material in the form of pay stubs attached to the employee complaint statements, the payroll reports provided to the Comptroller by Kolsch and the prevailing wage schedules to determine whether or not the two employees had been underpaid while working on the contract in issue (Tr. 24-25). It is uncontroverted that the employees were to be paid at the rate for A electrician, a seven-hour trade (Tr. 29; Pet. Exs. 11-14).

Ms. Canton detailed the hours worked each day by denoting whether the employee worked a straight seven-hour day, overtime of one hour (eighth hour), overtime greater than the eighth hour, Saturday, Sunday or holiday seven hours worked, Saturday, Sunday or holiday eighth hour worked and/or Saturday, Sunday or holiday greater than the eighth hour worked. Ms. Canton then reviewed the wages paid as indicated on either the contractor's payroll worksheet or on the pay stub provided by the two complaining employees. The prevailing straight hourly pay rate was taken from the Comptroller's prevailing wage schedule. Thus, the prevailing straight gross pay reflected on the audit is a combination of the prevailing straight rate multiplied by the straight hours worked. Similarly, the prevailing overtime rate paid for any work performed after seven hours a day, including the eighth hour and all hours greater than the eighth hour, was calculated by multiplying the overtime rate by all hours worked greater than seven. The Saturday, Sunday and holiday rate was calculated at the same rate as the overtime computation (Tr. 27-28; Pet. Ex. 17).

It is Ms. Canton's conclusion that, for the most part, the violation occurred when the workers were not paid the prevailing rate or premium rate for weekend or overtime hours (Tr. 30).

As to employee Edgar Carmona, Ms. Canton reviewed the payments he received from July 8, 1993 through July 9, 1995. On every weekend or holiday that Mr. Carmona worked, he was not paid the overtime or premium rate mandated by the prevailing rate schedule and the union contract for all of the hours he worked. Kolsch paid the employee straight time for the first seven hours worked on each of those occasions and the premium rate for hours worked in addition to the first seven hours worked. It is the petitioner's position that the employees should have been paid at the premium rate for all hours worked on Saturday, Sunday or a holiday (Tr. 32-35). Accordingly, the audit reveals that, during the period July 8, 1993 through July 9, 1995, Kolsch failed to pay the proper wage and benefits to Mr. Carmona for a total of 176 hours. The

wage difference owed to Mr. Carmona is $14,161.79 and benefits owed are $10, 439.78 for a total of $24,601. 57 (Tr. 34-35, 39-42, 44; Pet. Ex. 17).

Employee Richard Justesen, according to the audit, worked fewer weekend and holiday hours than Mr. Carmona. Using the same audit techniques as with the material pertaining to Mr. Carmona, Ms. Canton concluded that Mr. Justesen was underpaid a total of $8,434.13 (Pet. Ex. 17).

Interest on the amounts due the employees was calculated at the rate of 16% on a daily basis from the day the evidence reveals that the work was actually performed until November 1, 2005. Therefore, the audits reveal that Mr. Carmona is owed a total of $45,264.88 and Mr. Justesen is owed a total of $15,756.41 (Tr. 45; Pet. Ex. 17).

The evidence presented was reliable. The complainants' information was corroborated by their identification in the payroll reports and supporting documentation. Thus, the preponderance of the credible evidence substantiates the claims that these two complainants worked as electricians on the MTA contract and were not totally compensated according to the prevailing wage and benefit supplement rates for all of that work.

As respondent failed to appear at the hearing, it presented no evidence to rebut the credible testimony of the witnesses or the reliable complaints entered into evidence by the petitioner.

It is to be noted that counsel for petitioner has asked this tribunal to examine whether or not the interest added to the amounts owed to the employees could be reduced in this case. It is counsel's belief that the contractor did not falsify its documents and cooperated, at least until such time as it ended its business, with the investigation. Primarily, it is counsel's argument, the application of a 16% interest rate on a daily basis for the entire length of time since the evidence of the violation would be, in this case, too punitive. Accordingly, the auditor, Ms. Canton, applied the interest rate from the date of the violation to November 1, 2005, the date of the receipt of the complaints by the Comptroller.

Pursuant to section 220 (8) of the Labor Law, the order of the fiscal officer charged with enforcing the finding that a violation has occurred must direct payment of the wages or benefits found to be due, including "interest at the rate of interest then in effect as prescribed by the superintendent of banks pursuant to section fourteen-a of the banking law per annum from thedate of the underpayment to the date of the payment . . ." Labor Law § 220 (8) (Lexis 2006). The current rate of interest prescribed by the Banking Law is 16% per annum. Banking Law § 14-a (2006) (Lexis 2006). While it would appear that the contractor should not be penalized for any delay in the process leading to the conclusion that a violation occurred and that there are wages due an employee or employees, the statutes do not allow discretion as to the imposition of the interest to be paid to the employee on the monies owed. Research on the issue reveals no case law that provides the relief sought by the Comptroller in this instance. Accordingly, the interest on the amount of the violations found here should be paid to the time of the Comptroller's final determination or payment to the employees.

Therefore, I find that these workers are owed amounts calculated in the Comptroller's audit report and set out above. In addition, the Comptroller should calculate the interest due on the monies owed in accordance with the prescribed language of the applicable statutes.

Willfulness

A violation of the prevailing wage law is willful if the contractor knew or should have known that he/she was violating the Labor Law. Hull-Hazard, Inc. v. Roberts, 129 A.D.2d 348, 352, 517 N.Y.S.2d 824, 827 (3rdDep't 1987, aff'd, 72 N.Y.2d 900, 532 N.Y.S.2d 748 (1988); Comptroller v. Manshul Construction, Inc., OATH Index No. 1631/99, at 6 (May 21, 1999), modified on penalty, Comptroller Dec. (June 14, 1999). All public works contractors and subcontractors are charged with knowledge of the prevailing rates of wages and benefits. Here, the record is clear that the joint venture, Lipco/Action, J.V., was informed at the time of entering into the contract with the MTA that section 220 of the Labor Law applied. In addition, the contractor was provided with the Comptroller's prevailing wage rate schedules and the MTA informed the joint venture that the majority of the work would have to be performed on weekends. The record also reflects that Kolsch was aware of the prevailing rates and benefits due its employees. Indeed, Kolsch generally paid the prevailing rate and benefits. The violation, for the most part, was in Kolsch's failure to pay the required overtime wages and benefits for the overtime and weekend work.

Based on the uncontroverted evidence that the joint venture and the subcontractor were aware of the prevailing rates and their application to the contract in issue, I find that the violations must have been willful.

Penalty

Labor Law section 220 (8) provides that an employer who violates the prevailing wage law may be assessed a civil penalty of up to 25 percent of the violation. Several factors should be considered in determining the amount of the penalty:

the size of the employer's business, the good faith of the employer, the gravity of the violation, the history of previous violations and the failure to comply with record keeping or other non-wage requirements.

Labor Law § 220 (8) (Lexis 2006).

In this case, the two companies appear to have gone out of business, although their non-appearance at the hearing deprived the record of information about their current status. If they have gone out of business, this would suggest small companies with limited resources, a factor that normally would suggest a lesser penalty. In addition, here, the company did present records for review and the gravity of the violation was not egregious. There is no evidence before me that these companies had any prior history of violations.

Accordingly, I recommend that a penalty of 10 percent of the total underpayment, an amount based solely upon the amount of the wage awards without interest, be assessed. See Comptroller v. G.A. Energy Maintenance, Inc., OATH Index No. 411/92 (Feb. 26, 1992), aff'd, Comptroller's Decision (Mar. 27, 1992).

FINDINGS AND CONCLUSIONS

1.Labor Law section 220 applies to the work performed by respondent George F. Kolsch, Inc. on the contract in issue.

2.Respondent Kolsch willfully violated Labor Law section 220 (3) by failing to pay prevailing wages and wage supplements to the electricians it employed on the MTA contract as calculated in the Comptroller's audit (Pet. Ex. 17).

3.Statutory interest at the rate of 16 percent per annum from the date of each underpayment to the date of payment is now due.

4.Pursuant to Labor Law section 223, Lipco/Action, J.V. is financially responsible for the non-compliance of project subcontractors.

5.For its willful violation, respondent George F. Kolsch, Inc. should be fined 10 percent of the total wage violation.

THEREFORE, I recommend that the petition be granted.

Donna R. Merris

Administrative Law Judge

May 10, 2006

SUBMITTED TO:

WILLIAM C. THOMPSON

Comptroller

ROBERT PALMER, ESQ.

Attorney for Petitioner

No Appearance by or for Respondents