FLSA Arbitral Award Is Final Triggering Contractor Right to Seek Recovery of Cost From Government

“I don't want to achieve immortality through my work; I want to achieve immortality through not dying. I don't want to live on in the hearts of my countrymen; I want to live on in my apartment.”

―Woody Allen, The Illustrated Woody Allen Reader

The Armed Services Board of Contract Appeals (“ASBCA” or “Board”) had a chance to consider the finality of arbitration verses the infinite appeal process of disputes at DOL. This issue arose as a result of a claim for money made in a case called In the matter of Centerra Group, LLC, f/k/a The Wackenhut Services, Inc., ASBCA 61267 (11/16/18). In this case, the contractor was providing fire protection services to the Federal Government, and it had arbitrated and lost a case determining it owed back wages, liquidated damages, and attorney’s fees under the Fair Labor Standards Act to its employee firefighters.  

The Government claimed the case was not ripe for ASBCA review because the contractor needed to seek some kind of U.S. Department of Labor (“DOL”) review. The ASBCA decision denied the Government’s motion. The Board did not resolve whether the contractor gets to recover all these costs from the Government. It just ruled (and correctly in outcome if not reasoning) that the ASBCA had jurisdiction to resolve the claim. The case thus stands for the proposition that the contractor should have an opportunity to argue at the Board for the recovery the overtime backpay and other costs from the Federal government under its cost reimbursement contract. In these circumstances, there is no DOL procedures it has to exhaust first.   

I think the case outcome so far is correct, even if the way the Board got there is circuitous. The Court said it has no jurisdiction because overtime back pay isn’t subject to the Service Contract Act (“SCA”). However, this misstates the real legal issue in the case. The issue isn’t whether the SCA allows for an overtime claim. The ASBCA is absolutely correct that it does not. But it ignores the real issue of the meaning of the so-called “All Labor Standards Disputes” clause. It covers more than the SCA. It includes the Contract Work Hours and Safety Standards Act (“CWHSSA”), a law of general applicability, which allows DOL to assert an overtime claim for back wages and a $10 a day penalty against Federal contractors who have laborers and mechanics, and ordinary firefighters probably meet that CWHSSA definition. Thus, there is a DOL remedy/cause of action for overtime, albeit CWHSSA isn’t enforceable in a private arbitration. Only DOL can enforce CWHSSA, and DOL apparently declined to do so here, likely because of the parallel arbitral proceeding.  The key is that CWHSSA remedy isn’t the exclusive overtime remedy. The employees also have a parallel FLSA overtime cause of action, and an individual right of action, as well as contractual rights which they asserted in arbitration. However, to base the decision on the grounds there is no remedy at DOL for overtime claims under the SCA is misplaced, when there is another overtime law under which the contract’s All Labor Standards Disputes clause could have been engaged to divert the proceeding to DOL.   

Nonetheless, the outcome reached by the ASBCA was the correct one. Once the FLSA claim was finally decided (and no CWHSSA claim was presented first), whether in court, or arbitration, or by some settlement after a DOL investigation, the ASBCA is correct that there is nothing left to be decided at DOL, so there is no further administrative deferral. The cost claim thus is ripe and can be readily adjudicated by the ASBCA, since DOL doesn’t decide what sum the contractor gets reimbursed, at least ordinarily. In short, the ASBCA’s outcome determination in Centerra Group is correct, but the reasoning and the way they get there is confusing.  

As for what portion of contractor’s back wage, liquidated damage and attorney’s fee liability is reimbursed by the Government, that is a question of what is allowable, allocable, reasonable, permitted by the FAR cost rules, and otherwise subject to contract provisions on overtime.  Exactly how that plays out is unknown, since we don’t know the contract terms here. That is the next stage of the Centerra Group case. The FAR cost rules allow reimbursement of back pay as a retroactive adjustment of prior year’s salary or wages in certain circumstances. Specifically, the FAR provides that “Payments to employees resulting from underpaid work actually performed are allowable, if required by a negotiated settlement, order or court decree.” See FAR 31.206-6(h). Assuming the contractor isn’t over its cost ceiling, it should presumably recover the back wage portion of its arbitral award since that is an “order.”   

Perhaps the trickier cost issue posed by the next stage of Centerra Group is the question of FLSA liquidated (i.e., doubled) damages and reasonable plaintiff’s attorney’s fee reimbursement. Prevailing FLSA plaintiffs get paid their reasonable attorney’s fees, and they can get an award of liquidated damages in the sound discretion of the tribunal, in this case the arbitrator. I am guessing that the Government might claim any liquidated damages awarded or paid thereunder are a “penalty” or “fine”, and not back wages, and will refuse to reimburse that cost. See FAR 31.205-15. (I once litigated a DC Government SCA claim to judgment and won on a related point of law. See Appeal of VMT LONG TERM CARE MANAGEMENT, INC., CAB Nos. D-1356, 1439 (DC CAB 2015).  Of course, the liquidated damages are damages (not a fine) and are paid to the workers. Nor are they a penalty or fine paid to any government agency. So it isn’t clear that Government would succeed in this argument. And note there are complicated FAR and cost accounting rules about reimbursement of attorney’s fees. See FAR 31.205-47.

Accordingly, as a basic principle, it is more likely than not that the Government will be on the hook for most if not all of these costs, as long as there are no special terms in the contract, the cost reimbursement contractor behaved reasonably, and the contract costs are not in excess of the cost ceiling. But whether Centerra Group is able to navigate these traps has yet to be determined.