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By Daniel J. Finerty, Esq.
djf@kclegal.com
(414)423-1330
On December 28, 2004, the Wisconsin Court of Appeals affirmed the Department of Workforce Development’s (DWD's) decision to debar Kruczek Construction, Inc. of Green Bay from working on state or municipal contracts for six months. The basis for DWD’s debarment decision was the Company’s failure to pay the correct prevailing wage to one of its employees in the relatively minor amount of $4,400. The decision in Kruczek Construction v. Wisconsin Dept. of Workforce Development, 04-0090 (Ct. App. Dist. III) shows that even minor violations of Wisconsin’s prevailing wage statute with no credible explanation can result in serious consequences to Wisconsin employers that benefit from state or municipal contracts.
Background
Kruczek Construction, Inc., a Green Bay company, performs sewer and water construction work. As these projects are usually initiated and paid for by either state or municipal authorities, prevailing wages must be paid to all employees who work on those projects under state law. See §103.49, Wis. Stat. (state projects); §66.0903, Wis. Stat. (municipal projects).
In January 1999, a Kruczek Construction employee named Justin Francken filed a prevailing wage complaint with the Department of Workforce Development, which is processed by the Agency like a garden-variety labor standards wage complaint. Francken alleged that he was improperly paid by Kruczek Construction for three projects on which he worked. Francken alleged that he was improperly classified and paid a lower “flagman” rate as opposed to the higher “topman” rate and that he was not properly compensated for overtime.
After the Company denied any wrongdoing, DWD issued preliminary findings on February 23, 2000 (more than thirteen (13) months after the complaint was filed) that the Kruczek Construction had failed to pay Francken a total of $4,400. The parties eventually reached a $3,800 settlement of Francken’s claim. The terms of the settlement required Francken to voluntarily withdraw and dismiss his prevailing wage complaint, which he did. However, DWD did not sign off on the settlement agreement. Consequently, the settlement was not approved by DWD; rather, DWD accepted the agreement and closed the wage claim aspect of the case.
One year after the settlement, DWD sent Kruczek Construction a “Notice of Proposal to Debar” as a result of the DWD’s preliminary findings. After the Company objected to the Agency’s findings, DWD issued its final decision “debarring Kruczek Construction from bidding on state and municipal projects for six months” on February 28, 2003, more than 1½ years after its initial debarment proposal was sent out and more than four (4) years after Francken’s prevailing wage complaint was filed.
Kruczek Construction appealed DWD’s decision to Brown County Circuit Court. The Circuit Court rescinded DWD’s debarment of the Company from bidding on state contracts because the violation Francken contested occurred during a municipal project but upheld the debarment on municipal projects. Kruczek Construction appealed the debarment decision to the Court of Appeals and DWD cross-appealed the Circuit Court’s decision finding that Kruczek Construction should only have been barred from municipal contracts.
Court of Appeals
Kruczek Construction raised seven arguments to the Court of Appeals, all of which the Court rejected. Among the main arguments the Company raised were that DWD took too long to issue its debarment decision. Kruczek Construction argued the debarment decision was invalid, outside the time limitations imposed under the administrative code section that authorizes debarment of public works contractors and “violated due process.” Kruczek Construction also argued that Francken’s withdrawal of the original complaint left DWD with “insufficient evidence” of a prevailing wage violation.
The Court of Appeals found that the time limitation contained in Wisconsin Administrative Code Section DWD 294 was not mandatory, reasoning that there was “no pressing need for exigency in a debarment proceeding” and that the “protection of the public interest is effected at whatever time debarment begins.” The Court also held that Kruczek Construction had not shown any injury resulting from the fifteen (15) month delay between DWD’s notice and its final debarment decision, as the Company was not debarred from bidding on any state or municipal contracts during that period. The Court noted that “[a]lthough a fifteen-month delay in issuing a determination is not an example of government efficiency, it is not fatal to DWD’s debarment order.” The Company’s failure to show any injury due to the fifteen (15) month delay led the Court to reject Kruczek’s due process argument as well.
Kruczek Construction also argued that Francken’s withdrawal of the prevailing wage complaint through the settlement left DWD with “insufficient evidence” on which DWD’s debarment decision could be based. The Court rejected this argument, noting that “[w]e know of no law, and Kruczek cites none, that provides the facts constituting the record evaporate once a claim is settled or withdrawn. This holding emphasizes that a public agency’s involvement is not limited only to the pursuit of or settlement of the employee’s claim. For example, if an employer settles an Equal Employment Opportunity Commission charge filed by an employee, the Commission may still sue the employer in federal court seeking relief for members of a class of employees and other relief in the public interest.
The Court of Appeals also reversed the Circuit Court’s decision and reinstated DWD’s decision to debar Kruczek from work on both state and municipal public works contracts.
Lessons
The Kruczek Construction decision provides us with an opportunity it re-emphasize important lessons in the convergence of employment law and human resource policy that have larger implications. As a result of DWD’s findings that it underpaid Francken $4,400, Kruczek Construction was prohibited from bidding on any state or municipal public works contract for six months.
Here are a few tips to guide construction and other contractors that work on state and municipal public works contracts:
1. Review Hourly and Overtime Pay Practices to ensure your company is in compliance with Wisconsin’s prevailing wage statutes and their federal equivalent, the Davis-Bacon Act as well as Wisconsin’s Wage payments, claims and collections statute and the Fair Labor Standards Act. Specifically, the Department of Workforce Development can debar companies from state and municipal public works projects under Administrative Code DWD §294.05(2) based on a conviction or civil judgment of a Wisconsin court, a finding of any Wisconsin state agency (as in Kruczek) or local governmental unit, a DWD finding or an admission of one or more of the following:
- a. Failing to pay an employee the proper prevailing wage rate determined for a public works project.
- b. Failing to pay an employee at least 1.5 times the proper hourly basic rate of pay for all hours worked in excess of the prevailing hours of labor determined for a public works project.
- c. Inducing any employee to give up, waive or return any part of the proper prevailing wage rate determined for a public work project.
- d. Falsifying, deliberately destroying, or failing to keep required payroll records on a public works project.
2. Audit Employment Records to see if any prevailing wage complaints have been settled in the past that may come back to haunt your company so you can determine what, if any, steps need to be taken to deal with these loose ends. If the case was settled, review whether DWD is a signatory to the settlement agreement.
3. Make the Employee Whole if the prevailing wage claim is legitimate. One way to do this is to negotiate a settlement with the employee that is contingent on DWD’s signature on the agreement. To convince the Agency to sign off on the agreement, the settlement agreement should make the employee whole for any prevailing wage violations and the release should be narrowly tailored to include a waiver of wage claims only.
4. Gather Evidence To Show The Violation Was An Isolated Incident, Inconsistent With Your Company’s Normal Payroll Practices And Not The Result Of Bad Faith if DWD does not approve and sign the settlement agreement. In Kruczek Construction, in addition to the facts already mentioned, a DWD hearing examiner found also that (1) Francken worked for Kruczek for about four (4) months and was shorted by $1,000 per month; (2) Kruczek Construction’s own time records for Francken indicated he was a “topman” although he was paid at the lower “flagman” rate; (3) Francken was not paid overtime for a week in which he worked more than ten (10) hours per day; (4) Kruczek Construction did not issue Francken’s regular paychecks within the thirty-one day period under Wisconsin law; (4) Francken was not given a pay statement with his check. Gathering evidence to show how and why the prevailing wage violation occurred and that there was no bad faith are key to avoiding a debarment proceeding.
If you have questions concerning this decision or any other employment law issues, please contact our educational services department at (414)423-1330.
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