Under the Service Contract Act, Can Workers Bargain for Lower Than Prevailing Wages?
“Where free unions and collective bargaining are forbidden, freedom is lost.”
—Ronald Reagan
If employees are allowed to organize into unions and bargain collectively, can they be allowed to bargain improvidently under the Service Contract Act (“SCA”)?
Under section 4(c) of the SCA, the so-called successor contractor rule provides that a successor contractor must pay not less than the wages and fringe benefits set forth in the predecessor's collective bargaining agreement (“CBA”). 29 C.F.R 4.163. Accordingly, the section 4(c) CBA ordinarily takes the place of the prevailing wage determination. That means that the successor contractor only must pay the wages and fringe benefits set forth in the CBA, whether higher or lower than the SCA prevailing wage determination ("WD"). The CBA-based WD displaces the prevailing WD. Of course, usually the CBA has higher wages and benefits than the prevailing WD. But sometimes one or the other turns out to be lower. Even in that event, if the CBA has become the section 4(c) WD, it trumps the prevailing WD. The successor contractor only has to comply with the CBA. Under section 4(c) the contractor discharges its obligation by complying with the CBA terms since that is the WD that applies to the unionized bargaining unit workers, and the prevailing WD has no impact on this otherwise valid section 4(c) WD.
Notwithstanding this rule of law, sometimes unions and even the U.S. Department of Labor (“DOL”) want to apply the prevailing WD health and welfare (“H&W”) standards to the unionize bargaining unit work force under the guise that it is ostensibly required by the SCA regulation. Indeed, 29 C.F.R. 4.165(c), expressly states in the pertinent part: "However, if an applicable wage determination contains a wage or fringe benefit provision for a class of service employees which is higher than that specified in an existing union agreement, the determination's provision must be observed for any work performed on a contract subject to that determination." The issue thus posed is whether this rule nullifies the provisions of section 4(c) if the collectively bargained wages and benefits fall below the SCA prevailing rates.
The above SCA regulation, of course, applies when a contractor is negotiating its own CBA for the first time and displacing a prevailing WD which governs under the contract. In that circumstance the new CBA cannot have wages or benefits lower than the existing SCA prevailing WD for the base period of performance. A contractor cannot negotiate its own CBA and pay lower rates than the rates set forth in the prevailing WD already in the contract while the prevailing WD is in effect. However, where, for example, a bargaining unit has been covered by a section 4(c) CBA based WD since 2013, and the prevailing WD and the H&W benefits specified therein are not applicable to the bargaining unit or the workers in question on the subject contract, those workers simply are not subject to that prevailing WD. They are instead subject to a section 4(c) WD based on their own CBA. Accordingly, with respect to those unionized workers, the H&W benefit level of the prevailing WD is no longer relevant to any question of compliance with the SCA, and there is no legal bar to the parties negotiating lower rates then what prevail in the locality.
We know this is the case because there are several cases in which the unions have filed challenges to their own CBAs on the alleged basis they are substantially at variance to the wages or fringes paid in the locality where the work is being performed -- to wit, they are too low and under the prevailing WD rates. When the wage rates and fringe benefits in the CBA are found by the Secretary of Labor, after a hearing, to be "substantially at variance" with those prevailing in the locality for services of a similar character, the successor is not obligated to pay the CBA rates. 29 C.F.R. 4.10. Instead, the prevailing WD rates will supplant the unjustified CBA rates. A request for a hearing also can be made by the contracting agency or "other person affected," including contractors, prospective contractors, contractor associations, employee representatives or unions, and other "interested" government agencies. 29 C.F.R. § 4.10(b)(4) (emphasis added). In theory, wages or benefits negotiated in a CBA can be too low, and the union can try to get them declared to be substantially at variance. See Gracey v. Inti Brotherhood of Electrical Workers, 868 F.2d 671 (4th Cir. 1989) (suggesting that this would be an improper use of the exception). In the Gracey case, the union attempted to use the substantial variance proceedings to prove that the wages and fringes agreed to in collective bargaining were lower than those prevailing in the locality. Traditionally, DOL has allowed unions to bring variance proceedings seeking upward adjustments in wage rates set by collective bargaining. Holt Company challenged the proceeding and filed suit in the Eastern District of Virginia to stop the process. Both the District Court and the Fourth Circuit majority concluded that the Secretary cannot disregard a bargain reached at arms-length in the collective bargaining process. Most instructively, the Fourth Circuit stated as follows:
The language, context, and legislative history of the Service Contract Act lead to but one
conclusion: the wage and benefit levels of a successor agreement must at least meet those of
its predecessor. If, as in this case, that obligation is met, no power vests in the Secretary to set aside
an arms-length collective bargaining agreement solely because wages are below the prevailing rate.
While the Secretary had advanced a different interpretation of this legislation in the district court,
she has not participated in this appeal for reasons which do not appear in the record. Courts are in
any event sworn to safeguard the clear and unambiguous intent of Congress, administrative
interpretations to the contrary notwithstanding.
868 F.2d at 677 (emphasis added).
If it were the reverse case that the section 4(c) H&W benefits in the CBA could never be less than the prevailing WD H&W benefits, then how do we explain the need for a union, as was the situation in Gracey, to challenge its own CBA as too low. That substantially at variance proceeding would not be necessary if the prevailing WD H&W levels had independent application and set a floor under which the CBA can't go. But that is not the case. The CBA can have lower H&W benefits but require higher wages, vacation, holiday or a multitude of other fringe benefits not seen in a prevailing WD (like sick leave, extra holidays, more vacation, tuition reimbursement, daycare, pension contributions, union training funds, etc.). If the H&W rates here were allegedly too low, the union, the contracting agency, another interested party or even DOL should have started a "substantially at variance" proceeding before an ALJ at DOL in a time manner.
And that is what actually happens. By way of an example, one union in particular -- the United Government Security Officers of America ("UGSOA") --seems to have been aggressively attacking its own CBAs as containing wages that are too low compared to prevailing wages. In Matter of: Applicability of Wage Rates Collectively Bargained by Am-Gard, Inc., and UGSOA, Local No. 50, under a Contract for Court Security Officers in Denver, Pueblo, and Colorado Springs. Colorado, No. 2006-CBV-00001 (Jan. 19, 2006), and Matter of: The Applicability of Wage Rates Collectively Bargained by U. S. Protect, Inc., and UGSOA, Local No. 52, under a Contract for Security Officers in San Diego, California, No. 2006-CBV-00002 (Mar. 7, 2006), two different ALJs held that the union that negotiated a CBA had standing to assert that the negotiated wages were too low and, hence, substantially at variance with prevailing wages in the locality. In reaching this result, both ALJs, citing the Gracey case, noted that the U.S. Court of Appeals for the Fourth Circuit has determined that subsection 4(c) of the SCA does not authorize DOL to set aside the wage and benefit provisions of a collective bargaining agreement if, as in these cases, the wages and benefits in the agreement are less than the prevailing rates in the same locality for similar work. The ALJs also recognized that the Administrator of the Wage and Hour Division subsequently adopted the Gracey decision's interpretation of subsection 4(c). However, in 2003 the Administrator's interpretation was rejected by the DOL Administrative Review Board ("ARB"). Hence, the ARB follows the Gracey holding only in cases arising in the Fourth Circuit and DOL ALJs must apply the ARB's interpretation of subsection 4(c) in cases arising in all the other federal circuits.
Conclusion
In sum, the SCA doesn’t make the prevailing wage rate a floor in a section 4(c) unionized collective bargaining situation. The regulatory admonition that the prevailing wage floor “must be observed for any work performed on a contract subject to that determination” doesn’t apply since the contract is now subject to a section 4(c) WD and not the prevailing WD.