Davis-Bacon Contractors May Be Required to Cover Actual Employee Lodging Costs
The U.S. Department of Labor’s (DOL) Administrative Review Board (ARB) released its long-awaited opinion in the Weeks Marine case. In that decision, ARB announced a rule that is an important development for contractors working on Davis-Bacon projects: when contractors use employees who must travel away from their homes and live near the job site, the Davis-Bacon Act requires that contractor pay for their housing. At least that is the case when the employees’ traveling to, and living near, the job site is for the benefit of the employer/contractor. The obligation does not arise if the travel and lodging is primarily for the benefit and convenience of the employees rather than the employer, and either the company regularly furnishes such lodging to all of its employees or such lodging is customarily furnished by other employers in the same type of business. Furthermore, the ARB made clear that, where the lodging is for the benefit of the employer, the employees need to be awarded their actual costs, less any payment specifically made to defray those costs that were not used to otherwise satisfy the Davis-Bacon prevailing wage and benefit obligations.
The case concerns a Davis-Bacon contract that included dredging of the Fire Island inlet in New York. Weeks Marine had a collective bargaining agreement (CBA) with a union that gave to union members, living in certain states, priority to work on the Fire Island project. Generally, all of the employees who were referred to Weeks Marine through the CBA needed to travel from their homes to the worksite in New York. While the CBA required, and the company provided, the payment of a $35 per day per diem, the employee’s lodging expenses exceeded that amount.
Among other things, the Davis-Bacon Act forbids a contractor’s requiring an employee to “kick back” any portion of the prevailing wages and benefits paid to that employee on the Davis-Bacon project. DOL took the position that requiring the employees to pay for their lodging expenses near the job site primarily benefitted Weeks Marine, and, therefore, its failure to fully reimburse those employees for the lodging costs was a de facto kickback of a portion of their Davis-Bacon wages and benefits.
At the original administrative hearing, the administrative law judge (ALJ) agreed with DOL, but, instead of ordering payment of employees’ full out-of-pocket expenses (less the subsistence allowance), the ALJ created a formula based, among other things, on the lowest price paid for lodging by any employee. Both Weeks Marine and DOL appealed the ALJ’s ruling to the ARB.
The ARB held that, if the employees’ lodging was “for the benefit of the employer,” Weeks Marine’s failure to reimburse the lodging expenses was, indeed, a de facto kickback. However, it remanded to the ALJ to gather further evidence to establish whether the employees’ lodging was for the “benefit of the employer.” The ARB also reversed the ALJ’s method of computing damages. Rather than the ALJ’s formula, the ARB directed that the employees were to be reimbursed their actual lodging costs, less the CBA’s per diem, if the ALJ concluded through her fact-finding that the lodging was for the “benefit of the employer.”
To avoid the uncertainty and burden of unlimited reimbursement costs but still be compliant, the ARB said, contractors have numerous options. For example, the company may directly provide reasonable lodging to employees, or it may identify reasonable housing for employees to pay for and be reimbursed.
AGC is keeping a close eye on this case and will consider supporting the employer in the event that the case is eventually appealed in court.
Editor’s Note: This article is largely based on an article written by attorneys Glenn Schlabs and Joe Hunt of the law firm Sherman & Howard LLC and is reprinted with permission. Like all AGC articles, this article does not provide legal advice for any specific situation and does not create any attorney-client relationship.
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