Contractors Beware: Raising The Stakes In Davis-Bacon Compliance

by McNees Wallace & Nurick LLC

A recent decision by a Pennsylvania district court lends support for a growing trend of filing claims under the Federal False Claims Act based on allegations that contractors on federally funded construction projects submitted "false claims" to the U.S. government due to prevailing wage violations.  In United States ex rel. International Brotherhood of Electrical Workers, Local Union No. 98 v. The Farfield Co. (available here), the electrical workers union filed a complaint in federal court alleging that the contractor had violated the False Claims Act by submitting false certified payrolls that misclassified certain workers on public works projects in the Philadelphia area.  Although this type of complaint would normally fall within the exclusive jurisdiction of the U.S. Department of Labor, the judge nonetheless allowed the union’s case to proceed in court on a False Claims Act theory. With judicial recognition of this type of legal claim, not only does the DOL have the ability to investigate contractors for prevailing wage violations under the Davis-Bacon Act, but private citizens can also attack alleged violations under the False Claims Act.  

As construction contractors and subcontractors who perform work on federally funded projects are well aware, the Davis-Bacon Act requires covered contractors to pay all laborers and mechanics performing work on a covered project not less than the prevailing wage and fringe benefits for the applicable classification of work. The prevailing wage rates are set by the DOL in each geographic area. Each week, covered contractors and sub-contractors are required to submit payroll reports for all covered workers and certify that workers have been paid not less than the applicable wage rates. The authority to investigate violations of the Davis-Bacon Act, including alleged misclassification of workers, rests exclusively with the DOL.

The False Claims Act is a federal statute that imposes significant liability on a person who "knowingly makes, uses or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government." Effectively, the False Claims Act punishes individuals who submit claims for payment or reimbursement that they know to be false in order to obtain payment from the government to which they are not entitled. The False Claims Act also permits qui tam suits to be filed by citizen "whistle-blowers"; private citizens filing such suits on behalf of the government may then be entitled to a portion of any ultimate recovery. Potential damages under the False Claims Act can be significant, including penalties of up to $11,000 per violation, damages for any loss to the U.S. Treasury, and potential treble damages.

In the Farfield case, the union, relying on the qui tam provision, filed a complaint alleging that Farfield had intentionally misclassified workers performing electrical work on public works contracts as laborers and groundsmen, resulting in lower wage and fringe benefit payments to the workers. The union argued that this conduct was not only a violation of the Davis-Bacon Act, but also constituted a violation of the False Claims Act when Farfield submitted certified payroll reports to the government.

Other federal courts have recognized that a False Claims Act cause of action may exist when a construction contractor falsely claims that the wages reported on a certified payroll were paid, when they were not; this case, however, did not involve a contractor overreporting the amount of wages paid to its workers. In this case, there was no question that the contractor sought payment of only those amounts it actually paid to the workers. Rather, the union based its False Claims Act claim on allegations that the workers were misclassified and that the amount paid to the workers was below the prevailing wage for the work they actually performed. 

Farfield filed a motion to dismiss the complaint on various legal grounds, including that the union failed to adequately allege fraud and that, to the extent the case turns on the proper classification of workers, the matter falls within the jurisdiction of the DOL, not the court. The judge rejected all of the contractor’s arguments and permitted the claims to proceed. Essentially, the District Court held that the union adequately alleged that the workers in question performed electrical work but that Farfield had classified them otherwise and intentionally submitted false certifications in order to support their claim for payment on the projects. The judge’s decision is significant because it allows a False Claims Act cause of action to proceed based upon an alleged misclassification of workers. Most courts that previously have considered this issue have held that the DOL should have primary jurisdiction over cases involving worker misclassification, not private citizens through the court system.

It has always been important for construction contractors performing work on federally funded projects to comply with the Davis-Bacon Act requirements. The court's recent decision in Farfield emphasizes just how important it is to ensure that certified payrolls submitted are true and accurate and that all workers are properly classified based on the work they actually perform. False Claims Act claims open up the possibility of significant additional damages and penalties against contractors who submit false certified payrolls. These issues must be taken into account on federally funded construction projects. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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