Building & Construction Trades Department v. Reich

HARRY T. EDWARDS, Chief Judge, dissenting:

In the wake of the Great Depression, Congress amended the Davis-Bacon Act, 40 U.S.C. §§ 276a to 276a-5 (1988), to prevent contractors on federal construction projects from extorting their laborers’ wages under the threat of termination. Today, the majority affirms the Secretary of Labor’s interpretation of that same Act to prevent construction laborers from voluntarily contributing a percentage of their wages to their unions as part of a plan to improve their own future employment prospects. This is surely an ironic result.

This case presents a dispute over the legality of union “job targeting” programs. Under these programs, union members authorize funds to be deducted from their pay on behalf of the union, to whom the funds are remitted. The union then holds the funds in a special account to be used in the future to support unionized contractors who are competing against non-union contractors in bids for construction contracts. The money in the special account is under the sole and strict control of the union, and there is no guarantee that an employer who is authorized by employees to deduct funds for contribution to the program will ever benefit from subsequent union support. Nonetheless, the Secretary, acting through the Labor Department’s Wage Appeals Board (“Board”), found that the assessments used to fund job targeting programs, if taken from wages paid on federal construction projects, violate regulations implementing both the Davis-Bacon Act and the Copeland Act, 18 U.S.C. § 874 (1988).

The Secretary does not contend that the Copeland Act supports the Board’s decision, nor could he. The Supreme Court made clear in United States v. Carbone, 327 U.S. 638, 640, 66 S.Ct. 734, 737, 90 L.Ed. 904 (1946), that the Copeland Act does not reach any alleged “evils relating to the internal management of unions.” It prohibits only “the narrow problem of kickbacks which Congress sought to remedy.” Id. at 642, 66 S.Ct. at 738. All parties agree that job targeting assessments are not kickbacks. Thus, if authority for the Secretary’s regulation exists, it must be provided by the Davis-Bacon Act.

The Davis-Bacon Act, however, provides no such authority. Its plain language provides for the payment of prevailing local wages without subsequent deduction by the “contractor or his subcontractor” in the singular, not contractors or subcontractors in the plural. 40 U.S.C. § 276a(a). In other words, the language focuses the Act narrowly on deductions taken for use by the very contractor or subcontractor who signs the paycheck. Under job targeting programs, however, deductions are taken for use by unions. Unions place these funds into an account from which they may disburse money to any union contractor in a given geographic area. The money taken may or may not ever benefit the contractor who paid the wages from which it was deducted. Even if the deducting contractor does receive job targeting program funds, it does so only on terms dictated by the union. The plain language of the Davis-Bacon Act does not prohibit deductions in support of such job targeting.

In my view, the Secretary’s interpretation perverts the purpose of the Davis-Bacon Act, transforming a statute designed to benefit laborers into one that bars them from benefiting themselves. Accordingly, I dissent.

I.

In recent years, contractors who have signed collective bargaining agreements with *1284unions have faced growing competition in contract bidding from non-union contractors who pay wages lower than the collectively bargained rate. Faced with the prospect of losing future work opportunities to their nonunion competitors, unions have responded with job targeting programs. These programs eliminate the labor cost differential between union and non-union contractors by reimbursing union contractors for a portion of their wage expenses. Specifically, under a job targeting program, the union membership voluntarily assesses itself a specified percentage of each member’s gross pay. That money is deducted from the members’ pay and deposited into an account allocated for operation of the job targeting program. Union laborers adopt these programs democratically, and only they administer the job targeting program account. Employers play no role in its management. Indeed, a union contractor seeking assistance from a job targeting program must identify a prospective project and submit a request to the union prior to bidding for that project. The union then unilaterally decides which projects to subsidize and sets the amount of the subsidy. Such a subsidy may take either of two forms. On some jobs, the union allows the contractor to pay employees at a rate less than the collectively bargained rate, and the job targeting program makes up the difference through direct payments to the employees. On other jobs, the contractor pays employees the full collectively bargained rate, and the job targeting program partially reimburses the contractor.

It is undisputed that there is no statutory provision expressly prohibiting job targeting programs. However, the Secretary claims that he has properly construed regulations promulgated pursuant to the Copeland and Davis-Bacon Acts to outlaw such programs. Both statutes protect laborers’ wages. The Copeland Act establishes a criminal penalty for the exaction of wage “kickbacks” — the coerced return of wages paid to a laborer— on federal construction projects. See 18 U.S.C. § 874 (prohibiting use of “force, intimidation, or threat of procuring dismissal from employment,” or any other means, to induce a person to give up compensation due under an employment contract on a federally financed construction project). The Davis-Bacon Act complements the Copeland Act, requiring contracts for more than $2,000 worth of construction work on federal projects to include a stipulation that the contractor will pay all laborers prevailing local wages “without subsequent deduction or rebate on any account.” 40 U.S.C. § 276a(a). The regulation relied upon by the Board implements both statutes by requiring federal construction contracts to provide for payment of prevailing local wages without subsequent deduction or rebate, except for payroll deductions specifically authorized by the Secretary’s regulations. 29 C.F.R. § 5.5(a)(1) (1993). In this case, the Board held that a regulation allowing deductions to pay union “membership dues,” 29 C.F.R. § 3.5(i) (1993), does not authorize job targeting program assessments.

The Labor Department nowhere defines the term “membership dues” in its regulations, and the parties search in vain for clues to its meaning. The Secretary contends that the term should be construed consistently with the term “periodic dues” in the National Labor Relations Act, 29 U.S.C. § 158(a)(3) (1988), as interpreted narrowly by the Supreme Court to encompass only payments made to support union activities “germane to collective bargaining, contract administration, and grievance adjustment.” Communications Workers of America v. Beck, 487 U.S. 735, 745, 108 S.Ct. 2641, 2648, 101 L.Ed.2d 634 (1988). By contrast, Appellants favor construing the term consistently with the same “periodic dues” language as interpreted broadly in a recent advice memorandum by the National Labor Relations Board General Counsel to encompass job targeting assessments. See NLRB, Office of the GeneRal CouNSEL, AjDVICE MEMORANDUM (July 8, 1993), reprinted in Addendum to Brief on Behalf of the Appellant-Appellee Unions and Employer Associations at A-9. In fact, either construction is possible. The term “membership dues” inherently neither includes nor excludes job targeting program assessments. Faced with such ambiguity, the court normally would defer to the Board’s interpretation “unless it is plainly erroneous or inconsistent with the regula*1285tion,” Secretary of Labor v. Western Fuels-Utah, Inc., 900 F.2d 318, 321 (D.C.Cir.1990) (quoting Bowles v. Seminole Rock Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 1217, 89 L.Ed. 1700 (1945)), or unless it would unfairly surprise those whom it would penalize, see Gates & Fox Co., Inc. v. Occupational Safety and Health Review Comm’n, 790 F.2d 154, 156 (D.C.Cir.1986) (Scalia, J.) (due process clause prevents deference paid to administrative interpretation “from validating the application of a regulation that fails to give fair warning of the conduct it prohibits or requires”); see also Rollins Envtl. Serv., Inc. v. EPA, 937 F.2d 649, 654 (D.C.Cir.1991) (Edwards, J., dissenting and concurring in part) (“If a regulation does not give ‘fair warning’ of the conduct it prohibits or requires, no violation can be found.”). Here, however, the Board simply has provided the court with nothing to defer to save some misguided notions of statutory policy.

II.

The three separate opinions of the Board fail to explain the statutory basis for the prohibition of authorized payroll deductions to support job targeting programs. The Board members’ opinions also fail to offer any clear basis for the decision that “membership dues” do not encompass job targeting program assessments.

Two members of the Board expressly disavowed any reliance on the Supreme Court’s Beck decision. See Building & Constr. Trades Unions Job Targeting Programs, WAB Case No. 90-02, at 10 (June 13, 1991) (Member Peters, concurring), reprinted in Joint Appendix (“J.A.”) 38; id. at 11 (Member Rothman, concurring and dissenting in part), reprinted in J.A. 39. Member O’Brien, in what is ostensibly the Board’s majority opinion, suggested that “membership dues” must exclude job targeting program assessments to prevent the skewing of locally prevailing wages. Id. at 9, reprinted in J.A. 37. However, neither of his colleagues endorsed this view, and the Secretary has not pursued it in this litigation. The only view that appears to have persuaded a majority of the Board is that “membership dues” must exclude job targeting program assessments to effectuate the general policy of the Copeland and Davis-Bacon Acts that wages may not revert to the benefit of contractors. Thus, Member O’Brien stated that

[t]he Secretary’s Part 3 Regulations are designed to effectuate the public policies of both the Copeland and the Davis-Bacon Acts, which are complementary statutes. The substantive provisions of the Copeland Act prohibit the return of wages to an employer, just as the Davis-Bacon Act requires the payment of wages “without subsequent deduction or rebate on any account.” 40 U.S.C. § 276a.

Id. at 8-9, reprinted in J.A. 36-37. Member Peters concurred on the basis of “the public policy considerations ... noted in the majority opinion.” Id. at 10, reprinted in J.A. 38.

What is most noteworthy about the Board’s decision is that it is devoid of any coherent interpretation of either Act. Member O’Brien’s sole discussion of statutory language was his reference to the Davis-Bacon Act’s requirement that prevailing local wages be paid “without subsequent deduction or rebate on any account.” Id. at 9 (quoting 40 U.S.C. § 276a(a)), reprinted in J.A. 37. All parties agree, however, that this language cannot be read literally to bar all wage deductions, for, as the Labor Department’s regulations make evident, numerous deductions from employees’ wages are legal, and, indeed, are necessary to comply with other laws and generally to conduct day-to-day affairs. See, e.g., 29 C.F.R. § 3.5(a) (1993) (allowing deductions to comply with federal, state, or local law); id. § 3.5(d) (allowing deductions constituting contributions to funds established for employee medical care, pensions, etc.); id. § 3.5(h) (allowing deductions to make charitable contributions). The Secretary offers the court a solution to this interpretive puzzle: he argues that the language of the Davis-Bacon Act takes its content from the Labor Department’s regulations. However, a fundamental principle of administrative law holds that “regulations, in order to be valid, must be consistent with the statute under which they are promulgated.” United States v. Larionoff, 431 U.S. 864, 873, 97 S.Ct. 2150, 2156, 53 L.Ed.2d 48 (1977); see also Stinson v. United States, — U.S. -, *1286-, 113 S.Ct. 1913, 1919, 123 L.Ed.2d 598 (1993) (agency’s interpretation of its own regulation must be given controlling weight so long as it “does not violate the Constitution or a federal statute”). The Secretary’s argument turns this principle on its head. The statute cannot take its content from the regulations; the regulations must take their content from the statute. The Secretary’s argument, therefore, fails to clarify the Board’s vague pronouncements.

The Board suggests that the statutes embody a policy forbidding wages paid on federal construction contracts from reverting to the benefit of contractors. However, the deductions that fund job targeting programs are not taken to benefit contractors. The deductions are taken to benefit union members through increased future employment opportunities. Although unionized contractors in general do benefit from receiving job targeting program dollars, this benefit is incidental to the purpose of the programs, and the reason for which they are adopted. The Board ignores this distinction in blind adherence to its view that the authorizing statutes reflect a policy prohibiting wages from providing any benefit to contractors, no matter how incidental.

III.

In my view, the Board’s understanding of the statute is simply wrong. Applying “traditional tools of statutory construction,” Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 n. 9, 104 S.Ct. 2778, 2781 n. 9, 81 L.Ed.2d 694 (1984), I find nothing in either the Copeland Act or the Davis-Baeon Act to support the Board’s conclusion. In fact, the language and legislative history of these statutes demonstrates that Congress intended to prohibit a specific practice that all parties agree is not at issue here. Thus, no deference to the Board’s interpretation is warranted. See id. (“The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.”).

Of the two statutes, Congress passed the Copeland Act first. The original Davis-Bacon Act, ch. 411, 46 Stat. 1494 (1931), requiring payment of prevailing wages on federal construction contracts, was enacted in 1931. Soon afterward, however, Congress discovered numerous enforcement problems, not the least of which was “the so-called ‘kick-back racket’ by which a contractor on a Government project pays his laborers wages at the rate the Government requires him to pay them, but thereafter forces them to give back to him a part of the wages they have received.” H.R.Rep. No. 1750, 73d Cong., 2d Sess. 1 (1934). Congress responded to this problem in 1934 with the Copeland Act.

As noted above, the Secretary does not contend that the Copeland Act supports the Board’s decision. So the only question is whether such authority can be found in the Davis-Bacon Act. The Board cites to nothing in the terms of the statute, resting instead on its vague reading of “statutory policy.” But it is impossible to divine a “policy” prohibiting job targeting programs from a statute that focuses narrowly on deductions taken for use by the very contractor or subcontractor who pays the employees. See 40 U.S.C. § 276a(a). Under job targeting programs, deductions voluntarily authorized by the affected employees are taken for use by the unions, not the contractor who deducts the funds. The Davis-Baeon Act does not prohibit such an arrangement.

All parties agree that there is nothing unlawful about unions adopting job targeting programs to support bids to get work for their members — the only question here is the arrangement used to collect the funds. At oral argument, counsel for the Secretary conceded that the regulations do not prohibit unions from increasing their general dues assessment and then internally allocating a portion of that assessment to fund job targeting programs. The Secretary's interpretation thus elevates form over substance. It attributes to Congress the trivial purpose of prohibiting each and every deduction that might incidentally revert to benefit a contractor — but only if specifically earmarked as such. This makes no sense, and the statute certainly does not require such a result.

IV.

The legislative history of the Davis-Bacon Act further refutes the Board’s position. It *1287demonstrates that, in requiring “the contractor or his subcontractor [to] pay all mechanics and laborers ... unconditionally ... and without subsequent deduction or rebate on any account, the full amounts accrued at time of payment,” 40 U.S.C. § 276a(a), Congress intended to prohibit only the same forced wage rebates already criminally proscribed by the Copeland Act. Shortly after Congress passed the Copeland Act, a subcommittee of the Senate Committee on Education and Labor reported on its investigation of “the relationship between employees and contractors on public works.” S.Rep. No. 332, 74th Cong., 1st Sess. 1 (1935). This report described how contractors used numerous schemes to evade the Davis-Bacon Act’s prevailing wage rate requirement and recommended legislation to address these problems. Among the committee’s observations was that,

[although the Copeland Act has not been on the statute books sufficiently long to make a full report upon its effectiveness, it is understood that it has been difficult to conduct successful prosecutions against contractors on projects where complaints of the “kickback” have been made, owing to the fact that it is not easy to obtain evidence showing that the general contractor or subcontractors were the beneficiaries of rebates exacted by foremen or other employees from workmen. Legislation is desirable which would cause the general contractor to be primarily responsible for making restitution to any workman on the project from whom refunds were exacted, regardless of whether the person who received the refund was the contractor himself a subcontractor or agent. Such an amendment would make enforcement easier by tending to compel the general contractor, for his own protection, to police the wage practices of the subcontractors.

Id., pt. 2, at 6. Later in the report, the committee followed up on this discussion by specifically recommending legislation “[t]o provide remedies for laborers and mechanics aggrieved by forced rebates or failure to pay the prevailing rate of wages.” Id., pt. 2, at 7 (emphasis added). Congress incorporated this recommendation in S. 3303, a bill passed in 1935 to amend the Davis-Bacon Act by adding the “without subsequent deduction or rebate” language. See H.R.Rep. No. 1756, 74th Cong., 1st Sess. 2 (1935) (stating that all of the investigatory committee’s recommendations “are embodied in the bill”); S.Rep. No. 1155, 74th Cong., 1st Sess. 2 (1935) (same); see also 79 Cong.Reo. 12,073 (1935) (statement of Sen. Walsh) (S. 3303 would “provide remedies for laborers and mechanics aggrieved by forced rebates or failure to pay the prevailing rate of wages”) (emphasis added).

Most significantly, both the House and Senate reports on the 1935 Davis-Bacon Act amendment speak directly to the purpose of the “without subsequent deduction or rebate” language, stating that it was designed to place upon contractors “[t]he burden of seeing to it that the illegal practices of exacting rebates' or kick-backs is [sic] eliminated.” H.R.Rep. No. 1756 at 3; S.Rep. No. 1155 at 3. This statement is important for two reasons. First, by focusing the provision on “illegal practices,” it confirms other suggestions in the legislative history that Congress sought to provide a new remedy for rebates or kickbacks that already were prohibited. The only rebates or kickbacks prohibited at the time were those barred by the Copeland Act. Second, the statement refers to the practice of “exacting” rebates and kickbacks. Inherent in this term is the use of force or coercion. See WebsteR’s Third New International Dictionary 790 (1976) (exact means “to demand and force or compel”). Thus, when Congress added the “without subsequent deduction or rebate” language to the Davis-Bacon Act, it intended only to provide laborers with a civil remedy for the same forced or coerced kickbacks already made criminal by the Copeland Act.

There is nothing forced or coercive about the assessments taken to fund job targeting programs. Union laborers fund these programs voluntarily. They exist only where they have been adopted through union democratic processes. Consequently, they are beyond the reach of the Davis-Bacon Act.

The Secretary seeks support for the Board’s decision in the legislative history’s scattered references to voluntary wage re*1288bates. The Secretary points out that the Senate subcommittee that investigated the labor market in 1935 noted “the difficulty of preventing workmen from consenting and acquiescing to kick-back practice.” S.Rep. No. 332, pt. 3, at 3. The committee stated that, while unions normally could impose discipline on their members, “it was found that there were always men who were so pressed economically and whose families were so badly in need of support that they were willing, even anxious, to violate the rules in order to obtain employment and wages.” Id. This passage has no bearing on the case at bar. That Congress sought to aid those desperate workers who acquiesced to wage rebates demanded by employers as a condition of employment does not mean that Congress sought to bar laborers from voluntarily paying a self-imposed fee to their unions to further their own interests.

The Secretary also relies on the Davis-Bacon Act’s requirement that prevailing local wages must be paid without subsequent deduction or rebate “regardless of any contractual relationship which may be alleged to exist between the contractor or subcontractor and such laborers and mechanics.” 40 U.S.C. § 276a(a). But the legislative history reveals that Congress directed this language at a highly particularized practice not at issue here. The House and Senate reports on the amendment that added this language to the statute explain that it was required because “[t]he subcommittee had found several instances of the formation of partnerships between individual workmen and the letting to such partnerships of certain portions of the work under contract, the net results of which was [sic] to pay the members of the partnership less than the prevailing rate of wage.” H.R.Rep. No. 1757 at 3; S.Rep. No. 1155 at 3. The reports conclude that “[t]his provision would eliminate this particular device for circumventing the law.” Id. (emphasis added). A job targeting program is not such a partnership. The language cited by the Secretary is, therefore, irrelevant.1

V.

Thus, the Secretary has construed the term “membership dues,” 29 C.F.R. § 3.5(i), to reflect a statutory policy that does not exist. Neither the Copeland Act nor the Davis-Bacon Act authorizes the result reached here. Indeed, at the most fundamental level, the Secretary’s decision perverts the congressional purpose underlying these statutes. The Copeland and Davis-Bacon Acts were designed to protect the interests of laborers. See United States v. Binghamton Constr. Co., Inc., 347 U.S. 171, 177, 74 S.Ct. 438, 441, 98 L.Ed. 594 (1954) (Davis-Bacon Act was enacted “to protect ... employees from substandard earnings by fixing a floor under wages on Government projects”); Carbone, 327 U.S. at 640, 66 S.Ct. at 737 (Copeland Act was designed “to prevent workers from wrongfully being deprived of then- full wages”). The Secretary has transformed these statutes into obstacles that prevent laborers from protecting their own interests.

The Secretary’s position is not only unsupported, it is futile. Even in the face of the decision rendered by the majority today, unions may keep their job targeting programs. Today’s decision means only that unions may not explicitly earmark the assessments taken to fund such programs. It seems likely that unions will be resourceful enough to provide for job targeting programs through perfectly legal general dues assessments. Of course, on projects to which the Davis-Bacon Act is inapplicable, union members need not go to even this much trouble to fund job targeting programs. Even the Labor Department’s Wage and Hour Administrator admits that wage deductions on these projects are beyond the scope of the Department’s authority. Letter from Paula V. Smith, Wage and Hour Administrator, Department of Labor, to Terry R. Yellig, Counsel for the Building *1289and Construction Trades Department, AFL-CIO, and Gary L. Lieber, Counsel for the National Electrical Contractors Association 2 (Sept. 5, 1989), reprinted in J.A. 19.

In the end, therefore, the majority’s view is troubling for what it says about the purpose of the Davis-Baeon Act, but not for its practical impact. While I would reverse the decision below, its affirmance does not mean the end of job targeting programs. It means only that the deductions required to fund them will be taken under a different label.

Respectfully, I dissent.

. As demonstrated, the Secretary’s arguments with regard to the purpose of the Davis-Bacon Act are unpersuasive. It does not matter, however, for we may not look to these arguments in deciding this case. The Board did not make the arguments asserted by the Secretary, and "[i]t is well established that an agency’s action must be upheld, if at all, on the basis articulated by the agency itself." Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 50, 103 S.Ct. 2856, 2870, 77 L.Ed.2d 443 (1983).