A recently-filed indictment highlights the substantial personal liabilities that a company principal may face if the company fails to pay required minimum wages, and particularly if the company submits false certifications to the Government as to the wages paid. U.S. v. Marcus Butler, N.D. Ohio Case No. 1:15 CR 0415. Specifically, the Department of Justice and U.S. Attorney’s Office for the Northern District of Ohio announced this past week the filing of a 61-count indictment against the principal owner and operator of a Cleveland-based electrical company for making false statements to the Government in the form of false certifications as to wages paid to employees working on federally-funded housing projects. See Press Release here.
The indictment arose out of three separate Department of Housing & Urban Development funded multi-family housing projects, via the Cuyahoga Metropolitan Housing Agency (CMHA). These projects were undertaken by two separate general contractors, each of which hired LB Electric of Northeast Ohio, LLC (LB Electric), as the electrical subcontractor. An individual named Marcus Butler (Butler) was the principal owner and operator of LB Electric.
Under the respective contracts and subcontracts, LB Electric was required to pay its employees certain minimum wages complying with Davis-Bacon Act prevailing wage determinations, and also to submit weekly payroll certifications confirming payment of the required wage rates. According to the indictment, LB Electric submitted the required weekly payroll certifications on Department of Labor (DOL) Form WH-347 for each of the three projects over a five-month period covering August-December 2011. These weekly certifications were provided to the respective general contractor, which passed them along to CMHA in order to get paid. However, LB Electric allegedly had not actually paid the certified wage rates to its employees, and, to the contrary, paid them at rates “substantially less” than certified. The indictment alleges that the underpayments totaled $126,514.80.
The criminal indictment, issued by a Grand Jury, charges Butler with 61 counts of making false statements in violation of 18 U.S.C. §§ 1001 & 1002 – one count for each false weekly payroll certification under each of the three contracts. Each count carries a statutory penalty of up to five years imprisonment and/or fines of up to $250,000 for an individual, such as Butler here.
The indictment highlights several points of interest:
- The indictment runs against Butler as the owner and operator of LB Electric, rather than against the company itself, emphasizing that the principals of a company may face personal liability when they make or cause others to make false statements, and indeed the Department of Justice recently has made personal liability of corporate owners and officers a point of emphasis;
- The triggering violation here was the false certification, and not the actual wage underpayments; the liability thus was fixed as of the time each false certification was made, and would not be cured even if the company subsequently resolved the alleged underpayments;
- Each submitted false certification as a separate violation, with its own potential fine and imprisonment, showing how quickly a single course of action can escalate into multiple Government claims, and potential sentences and fines can grow;
- Both of the general contractors cooperated in this case, and, while not identified by name, are identified in the indictment as “Cooperating Witnesses; and
- Despite the fact that the subject events took place in August-December 2011, the indictment is only being lodged now, some five years later (i.e., the wheels of Justice may grind exceedingly slowly, but they do eventually move forward, and companies and individuals should not take comfort from the fact that they may appear to be getting away with something for a while).
Of course, at this point the indictment represents only allegations, and is not evidence of guilt. However, the indictment provides a vivid demonstration as to the criminal liabilities to which a company principal or other individual violator may be potentially subject, and re-emphasizes the fundamental maxim that “One Shall Not Lie to the Government.”
Also, while obviously very serious, the criminal penalties here are by no means the only potential liabilities in such a situation. Both the company and its principals (and other participating responsible individuals) also could face backpay and interest claims by DOL, civil damages (including treble damages) and penalties under the False Claims Act and other statutes and legal theories, as well as possible suspension and debarment from doing business with the Government.
Importantly, while this specific case arises under the Davis-Bacon Act, similarly liability could arise under other minimum wage laws, including the Service Contract Act, Fair Labor Standards Act and President Obama’s recently-implemented $10.10 minimum wage for covered Government contractors (soon to be $10.15 as of 1/1/16; see our recent Short Take). Contractors operating under any of these provisions thus also should pay close heed to the lessons here.
Finally, this case reaffirms that minimum wage compliance responsibilities extend to subcontractors, as well as primes. However, if you are a prime, do not lose sight of the fact that, as the prime, you are jointly and severally liable for any wage and benefits underpayments by your subcontractors. You therefore need to ensure their compliance, and timely report any identified non-compliance and cooperate with the Government, as the general contractors each did here.
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