Prevailing Wage and False Claims Acts

The Intersection of the Prevailing Wage Laws and False Claims Acts

Federal and state prevailing wage laws set hourly rates for workers on “public works,” which are government-financed construction, renovation, and other projects. Federal and state false claims acts (also called “qui tam” laws) allow private individuals to bring claims to recover money obtained by government contractors under false pretenses. When a contractor or subcontractor on a public work fails to pay their workers the prevailing wage, a false claim lawsuit is often possible. In these cases, the person who blows the whistle can recover a percentage of the amount recovered for the government.

For workers, this adds an incentive to come forward with knowledge of prevailing wage violations, and potentially recover significant damages.

The Davis Bacon Act and the False Claims Act

The Davis Bacon Act, 40 U.S.C. 276a, is the federal prevailing wage law. It sets the wage rates contractors must pay employees who perform certain types of work on federal construction projects costing more than $2,000. The rate is known as the “prevailing wage rate,” and it is set by the Department of Labor. The purpose of the law is to create a level playing field for contractors bidding on government-founded projects. By requiring certain minimum wage rates, contractors cannot decrease wages lower than the wage for a specific type of work in the area to win a government bid. The prevailing wage laws also give local laborers and contractors fair opportunity to participate in government projects by preventing large construction companies from underbidding them through low wage rates.

Specifically, the Davis Bacon Act requires contractors and subcontractors to pay workers no less than the prevailing wage for the specific type of work performed, which the government sets. The contractor can meet the prevailing wage rate by paying simply regular wages, or by paying a combination of regular wages and employer-provided fringe benefits.

The government enforces the Davis Bacon Act by requiring contractors and subcontractors to submit weekly certified payroll records to the government agency in charge of the project. Contractors thus have to classify each worker based on the type of work performed, and then pay the worker according to the rate set by the Department of Labor for that specific type of work. The government agency in charge of the construction project will not pay the contractor unless it receives these weekly certified payroll reports. Contractors are also responsible for ensuring that any sub-contractors engaged on the project comply with the prevailing wage rates and submit weekly payroll reports either to the prime contractor or to the government directly.

The Davis Bacon Act, however, does not create a private right of action for individuals, meaning that the law does not allow individuals to sue for violations of the Davis Bacon Act. However, the federal False Claims Act, 31 U.S.C. § 3729, et. seq., goes hand in hand with the Davis Bacon Act because the False Claims Act prohibits individuals or companies from submitting false claims to the government for payment. An individual violates the False Claims Act when (1) he or she makes a false statement or creates a false record, either knowing that it is false or with deliberate ignorance that it is false, (2) he or she submits a claim for payment to the federal government, (3) he or she makes the false statement or record with the purpose of getting a false claim paid or approved by the government, and (4) the false statement or record was important to the government’s decision to make the payment.

Thus, if a contractor submits a certified payroll report as required by the Davis Bacon Act in order to receive money from the government to fund the project, but has misclassified workers or falsely claims to be paying prevailing wages to its workers, the contractor not only violates the Davis Bacon Act, but also the False Claims Act. In most cases, a violation of the Davis Bacon Act will result in a violation of the False Claims Act. In this way, workers can enforce their rights to prevailing wages by bringing cases under the False Claims Act when they believe their employer is violating the Davis Bacon Act.

Recent Prevailing Wage False Claims Cases

The federal courts have recently reinforced the principle that violations of the Davis Bacon Act create liability under the False Claims Act.

For example, in Wall v. Circle C Construction, 2014 WL 4477367 (6th Cir. 2012) a federal court held the defendant contractor liable for violations of both the Davis Bacon Act and the False Claims Act. In that case, the defendant, Circle C, won a federal contract to construct buildings on a military base. Circle C signed a contract in which it agreed to pay all workers involved in the project at the applicable prevailing wage rates. Circle C then hired a separate company as a sub-contractor to complete the project’s electrical work. When Circle C submitted its certified payroll reports to the government, as required by the Davis Bacon Act, it failed to include the sub-contracted electricians. However, Circle C did submit payroll reports for its other subcontractors. Circle C did not inform the electrical subcontractor of the Davis Bacon Act obligations or verify that the subcontractor would submit its own payroll reports.

The court ultimately found Circle C in violation of the Davis Bacon Act because it failed to include the electricians in its payroll reports, and because the electricians had been paid less than the prevailing wage rate. The court also held that Circle C had violated the federal False Claims Act. Circle C made two false representations to the government: first, Circle C failed to include all of the electricians working on the project in its payroll reports; and second, the payroll reports falsely asserted that Circle C paid the prevailing wage rate to its employees. These payroll reports were submitted to the government in order to get the government to pay Circle C for the project. Lastly, the Circle C case affirmed that prime contractors are responsible for the prevailing wage violations of their sub-contractors.

In another recent case, International Brotherhood of Electrical Workers, Local Union No. 98 v. Farfield Company, 2013 WL 3327505 (E.D. Pa. 2013), the court found the defendant liable under the Davis Bacon Act for misclassifying electricians as laborers and groundsmen in order to pay them at a lower prevailing wage rate. This misclassification allowed Farfield to underestimate its labor costs and underbid competitors in order to win several federally funded construction projects. Farfield tried to argue that because it actually saved the government money, it could not be liable under the False Claims Act. The court disagreed, holding that “false certification of [payroll records] creates liability when certification is a prerequisite to obtaining a government benefit.” Because Farfield had submitted a claim to the government stating that its workers were paid the proper prevailing wage in order to obtain money from the government, that was sufficient to find Farfield in violation of the False Claims Act.

State False Claims Laws

Most states have similar prevailing wage laws for state construction projects. For state contracts, various local agencies are responsible for setting the prevailing wage rate. For example, in Massachusetts, the state prevailing wage law, M.G.L. c. 149, § 26, et. seq. requires contractors on all “public works” projects to pay employees engaged as “mechanics and apprentices, teamsters, chauffeurs and laborers” at a “rate not less than the rate or rates of wages to be determined by the commissioner.” State “public works” projects include work on state or municipality projects, for example installing new equipment at public schools, or building a new police station. And, Massachusetts has a False Claims Act, M.G.L. c. 12, §§ 5A-5O, that prohibits false claims for payment to the state government.

In conjunction, these laws work much like the federal laws discussed above, but apply to construction projects funded by the state government. Notably, however, the Massachusetts prevailing wage law allows workers to bring a lawsuit to enforce its provisions, independent of a false claims lawsuit.

Likewise, California has a prevailing wage statute, Cal. Lab.Code §§ 1770-80, that is administered by the state’s Department of Industrial Relations. It applies to all public works construction projects valued at more than $1,000.00. California’s False Claims Act, Gov. Code, § 12651, mirrors the federal False Claims Act, and has been interpreted by California state courts to hold contractors liable for false claims in the context of prevailing wage violations. See, e.g., Thompson Pacific Construction, Inc. v. City of Sunnyvale, 66 Cal.Rptf.3d 175 (2007).

Similarly, New York’s prevailing wage law, N.Y. Lab. Law Art. 8 and Art. 9, enforces minimum wages on public works, and New York’s False Claims Act, N.Y. Fin. Law. §§ 187-194, prohibits the making of a false claim to the government.

Many other states also have enacted prevailing wage and false claims laws that operate to draw increasing attention to workers’ rights, and provide multiple legal avenues for workers to address violations.

Bringing a False Claims Case for Prevailing Wage Act Violations

Bringing a claim under the False Claims Act is somewhat different than most legal claims. The law prohibits individuals from making false claims to the government. As such, the “injured party” in these cases is the government. However, the Act allows individuals to bring claims on behalf of the government for violations that they witness or that affect them in some manner. This is known as a “qui tam” lawsuit, and the individual who brings the claim is known as a “relator,” or, more commonly, a “whistleblower.” Once a whistleblower files a False Claims Act complaint with the government, the government investigates the claim and decides whether it will intervene in the lawsuit itself, or whether the whistleblower can proceed with the action on his or her own.

The Act provides strong incentives for individuals with inside information, for example a worker who knows his supervisor is submitting false claims to the government, or not paying the prevailing wage, to come forward and report such violations. The initial complaint filed with the government is strictly confidential, and the law prohibits any form of retaliation against the whistleblower by the defendant. And, in cases where the government intervenes, whistleblowers receive 15%-25% of the total amount recovered from the defendant, in addition to attorneys’ fees. If the government does not intervene, and the whistleblower brings their own lawsuit against the defendant, the whistleblower is entitled to 25%-30% of the amount recovered from the defendant, plus attorneys’ fees.

In many cases, this amount is in the hundreds of thousands of dollars. The False Claims Act provides for a civil penalty of between $5,000 and $10,000 for each false claim, and each false payroll report submitted to the government is considered a separate violation. The Act also provides for treble damages, meaning the liable party is on the hook for three times the amount of money it receives from the government as a result of the false claim. Thus, the whistleblower stands to receive a significant reward.

False Claims Act cases must be filed within six years of the violation, or within three years of when an individual should reasonably know that a violation has occurred.

If you believe your employer is not paying you properly, feel free to call our office for a free and confidential consultation to discuss your rights and your options. Our Massachusetts law firm works with local counsel throughout the country to enforce workers’ rights and ensure that government funds are distributed properly.

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