Chapter Corner

What Happens When the Government Knocks on Your Door?

Posted in: Capital Watch, March 2013

Insights_JudgeCourt.gifI nodded to the few people I knew in the room and took a seat quickly, hoping not to draw any attention - just wanting to observe and support a member through a challenging situation. Challenging is an understatement. The situation was an administrative hearing in the Pennsylvania Department of Labor & Industry building with the Bureau of Labor Law Compliance making allegations of wrong-doing under the state prevailing wage laws. The penalty that the Bureau was pursuing was debarment – the contractor would not be allowed to bid on or participate in any publicly funded projects for three years. For a contractor whose work was 85 percent public projects, this would be a death sentence!

Many businesses have chosen to pay fines, settle legal cases, and pay unemployment claims even when they disagree or have significant evidence that could prove their point. They make those gut- wrenching choices because they know that paying legal fees and losing productivity from time spent fighting against questionable or fraudulent claims instead of completing revenue generating activities can be more costly than the claim itself.

Having made significant efforts to be cooperative and reasonable to no avail after multiple months, it was clear to the business owner in Pennsylvania that he was going to have to fight for his rights – for the sake of not only keeping his business open, but also as a matter of principle – to prove his innocence.

As I sat and observed the hearing on multiple dates, I could not have imagined the twists, turns, and extraordinary length of what could have been the scariest roller coaster ride I’ve ever witnessed. Now that the case has been closed, I feel it is worth-while to share some of the observations and lessons.

  1. Government administrative hearings do not follow normal discovery practices used in court. This means that if you are unable to reach an agreement and decide to go to a hearing, they do not have to tell you in advance what evidence they have or plan to present. You and your attorney can spend hours preparing and still be ambushed by unanticipated information and testimony.

  2. YOU are the expert about your industry and business, not the other way around. As the case in Pennsylvania clearly demonstrated, the investigators did not have any background in construction and were given little training in the field. Unfortunately, that meant that they usually followed any sort of “rules” that were in writing – like collective bargaining agreements between unions and contractors. Regrettably, the investigators had no idea that more than 87 percent of construction is done by merit shops that do not follow those collective bargaining agreements. Business owners, on the other hand, have spent years perfecting their business in order to attract and retain customers, meet code inspection requirements, as well as investing in training and continuing education to maintain licenses, insurance, and other requirements.

  3. “General practice” or “area practice” is what is followed. Under oath, multiple investigators admitted that they had never read the full prevailing wage law and regulations that applied. They did not carry it with them as a reference for use when questions might arise on a job site. How could they enforce laws and regulations if they didn’t even have strong knowledge of what those regulations contained? The answer was that the investigators called union halls for clarification on what “normal” construction practices were. In essence “area practice” = union practices.

  4. Businesses are asked to put extensive details in writing and certify that everything is true, but it is unlikely to be reciprocated. Investigators indicated they would give answers to contractors over the phone, but did not put anything in writing unless the Bureau attorneys reviewed it. It was clearly noted that if you call back and speak to someone different for additional clarification, you could get a totally different interpretation since there was no written documentation or guidance.

  5. No one likes to admit their mistakes. Only during sworn testimony did the Bureau acknowledge that they had lost some of the time cards that they were given by the contractor during the investigation. Prior to the hearing, the Bureau actually insisted that the contractor had never submitted the records and actually asked for more records. The second time having to submit documentation, the contractor actually hand delivered and waited for the records to be inspected or copied and did not relinquish control and run the risk of records being lost again.

  6. Following your own rules is not as easy as you would think. Bureau investigators acknowledged that they pursued complaints – even if they were beyond the statutory three month limit or if they were not correctly or completely filled out.

While this case was about prevailing wage laws, many of these observations would apply in other states and with other government entities – sales tax audits, unemployment compensation hearings, challenges to the authenticity of veteran or minority owned status, and other regulatory compliance. Perhaps you have been through such an audit or legal case and can relate closely to the observations I’ve listed, and probably even add more to the list!

For me, sitting in the hearing room was very eye-opening – in fact, I had a hard time reconciling the reality of what happened versus what I thought should have happened. In school, we learned about government and how it is supposed to operate – in an ideal manner that makes it immune from the normal legal boundaries for ordinary people and businesses.

What I have come to settle on is since government is run by people and we are all imperfect humans, there will be mistakes, bias, and inappropriate attempts to simplify things into just a few rules that apply to everything regardless of differing circumstances.  While there are good people, good intentions, and improvements to our country through our government, we must be cautious and diligent. Cautious that information in the public and given to our government represents the majority – and not just the noisy minority. We must be diligent that regulations and laws are followed as they are written, and not just through individual interpretation or perceived area practice.

Yes, it is difficult for small businesses to pay attention to the vast array of local, state, and federal laws and regulations that affect daily operations. The good news is that IEC provides a great source of education and advocacy in government affairs. Reading legislative alerts, communicating the issues to your legislators, and participating in the IEC Legislative Conference are all important ways to make sure that our government affairs is moving in the right direction. Sharing experiences, even difficult ones like this case, with fellow members is another important way to improve our industry and the regulatory environment in which our businesses operate. Success in government affairs is not just about passing legislation, but is also about preventive steps and modest improvements that are sometimes more difficult to measure.

Ultimately in the case referenced here, the Pennsylvania Secretary of Labor withdrew the charges against the contractor in July 2012.  From the time the Bureau contacted the contractor in 2008 until resolution in 2012, the legal fees alone exceeded more than $500,000.  While I can’t say that better laws, regulations, and better run government would have averted the Pennsylvania case,  I can share a final thought on the impact of government for business. A speaker at the IEC Legislative Conference once shared this enlightening statistic a few years ago: according to a 2010 report done under a contract with the Small Business Administration, in 2008 it cost businesses approximately $8,086 per employee on an annual basis to comply with all government regulations. In this case, it cost the business owner far more than that to prove his innocence. Thankfully, this IEC member stood up for his principles – and won! Will you and fellow IEC members do the same?

Christi Buker is the executive director of the Central Pennsylvania Chapter IEC. She urges IEC members to stay informed and advocate for their businesses in local, state, and federal arenas. The case referenced here was against Steve Leer and Leer Electric, Inc. Leer is a founding member of the Central Pennsylvania Chapter IEC. He has graciously agreed to allow members to contact him at sleer@leerelectric.com with any questions specific to this case.