Koba Associates, Inc.

390 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD Koba Associates, Inc. and Office & Professional Employees International Union, Local 2, AFL- CIO, Petitioner. Case 5-RC-12553 June 28, 1988 DECISION ON REVIEW AND ORDER BY CHAIRMAN STEPHENS AND MEMBERS JOHANSEN AND CRACRAFT On November 25, 1985, the Regional Director issued a Decision and Direction of Election in which he found that, under the principles set forth in National Transportation Service, 240 NLRB 565 (1979), assertion of jurisdiction was warranted. On December 18, 1985, the Board granted the Em- ployer's request for review of that decision. On December 20, 1985, an election was conducted in the unit found appropriate by the Regional Direc- tor, and the ballots were impounded. On June 30, 1986, the Board issued an order remanding the case for further consideration in light of its decisions in Res-Care, Inc., 280 NLRB 670 (1986), and Long Stretch Youth Home, 280 NLRB 678 (1986), includ- ing, if necessary, reopening of the record. Subse- quently, the Regional Director ordered that the record be reopened and, on November 5, 1986, a further hearing was held. On January 13, 1987, the Regional Director issued a Decision and Order to Open and Count Impounded Ballots in which he concluded that assertion of jurisdiction over the Employer was appropriate. Thereafter, in accordance with Section 102.67 of the Board's Rules and Regulations, the Employer filed a timely request for review of the Regional Director's decision, in which the Employer con- tended that the Board should decline to assert juris- diction. By unpublished order dated April 8, 1987, the Board granted the request for review. The peti- tioner filed a brief on review. The National Labor Relations Board has delegat- ed its authority in this proceeding to a three- member panel. We have considered the entire record in this case, and conclude, in agreement with the Regional Director, that it is appropriate to assert jurisdiction herein. 1. The Employer provides management consulting services to governmental agencies . In the instant case, the Employer, under a contract with the Drug Enforcement Administration (DEA),1 pro- i The contract is between the DEA and the Small Business Adminis- tration (SBA), and the Employer is the subcontractor vides personnel for functions that are necessary to maintain the DEA's Narcotics and Dangerous Drugs Information System, functions which in- clude document review and data analysis. The Peti- tioner seeks to represent a unit of the Employer's full-time and regular part-time employees employed at the DEA headquarters. The Employer, as a contractor providing serv- ices to the Federal Government, is subject to the terms of the Service Contract Act of 1965, as amended, 41 U.S.C. § 351; as such, the wages and fringe benefits it provides its employees must equal at a minimum the standard established in a wage determination set by the Department of Labor (DOL). The wage determination sets forth the min- imum compensation rates prevailing in the locality for wages and benefits. See 41 U.S.C. § 351 (a)(1), (2); Dynaelectron Corp., 286 NLRB 302 (1987). In the instant case, the wage determination for 1985 set a minimum hourly wage for each of five classi- fications that ranged from $7.46 per hour for a coder/trainee to $12.30 per hour for a team super- visor. All service employees under the contract were to receive health and welfare benefits valued at 32 cents per hour, $12.80 per week, or $55.46 per month, a well as 2 weeks' vacation after a year of service and nine paid holidays each year. The dollar amounts required for wages and for health and welfare benefits in the wage determination are only minimum standards. The contract is a labor-hours contract with fixed billing rates; the Employer bills the agency for each hour worked, at a rate up to the ceiling speci- fied in the contract. The contract specifies the number and types of personnel required, the maxi- mum number of hours required for each labor cate- gory on each shift, and the billing rate for each classification.2 The billing rate includes overhead, general and administrative costs (G&A), and fringe benefits. The contract includes a total direct cost for each fiscal year, separated into direct labor costs for each job classification, and lists a maxi- mum sum for all other direct costs, including, for example, such items as parking, local travel, and postage. The Employer bills the DEA both for direct costs and for G&A, overhead, and fringe benefits, at the billing rate. Thus, should an em- ployee work 3 hours at a rate of $10 an hour, the Employer would bill the agency for $30, plus the percentage of the billing rate allocated for that par- ticular classification. The Employer does not re- 2 The DEA has permitted the Employer to transfer funds allocated for two specific job classifications between the two classifications , so long as the combined hours for the two classifications equal the total required under the contract and the cost does not exceed the total dollar amount for both classifications 289 NLRB No. 33 KOBA ASSOCIATES ceive the projected total contract price should there be a slowdown in production; the DEA is billed only for the hours worked. The contract is for a 1-year period, renewable for a total period not to exceed 3 years. A price adjustment clause is included that provides that if the DOL issues a new wage determination during the term of the contract, the parties may negotiate an amendment to reflect that change at the next re- newal period. If, however, nonlabor costs increase, the DEA will only pay the established rate. Before the contract was awarded , the DEA or the Defense Contract Audit Agency (DCAA) au- dited the Employer to determine whether it had the capability to perform the contract. The DCAA examined the Employer's proposal for wages and estimated indirect cost items, from photoduplica- tion costs to officers' salaries. If the DCAA dis- agreed with the Employer regarding the projected rate for a particular item, the DCAA would pro- pose a rate it considered more reasonable, but under which the Employer would be able to oper- ate without a loss. The Employer must maintain accounting proce- dures that show all cost incurred, and the DEA may examine the Employer's records for accuracy of the cost and pricing data. The DEA may re- quest an audit of invoices before final payment, and payments previously made are subject to reduction for overpayment or to increase for underpayment. Certain Federal acquisition regulations (FARs) are incorporated in the contract that permit the DEA to terminate the contract in whole or in part if it is in the interest of the Government. These regulations also permit termination if the contrac- tor fails to perform services within the times speci- fied, fails to make progress on the contract, or oth- erwise fails to perform contractual provisions. One of the Employer's vice presidents, Ilene Baylinson, testified that because the billing rate is fixed, the Employer has no flexibility to change wage and benefit rates once the contract is negoti- ated with the DEA, but she was unable to point to any section of the contract that bars increases or changes in wages and benefits. She also stated that, in practice, the FARs prevent the Employer from changing wages and benefits because such changes would be considered defective cost pricing; howev- er, she conceded that the regulations do not ex- pressly prohibit increases. Baylinson also acknowl- edged that certain employees were paid more than the minimums required by the wage determination. Furthermore, another vice president, Michael Bonner, testified that the Employer is free to award wages and benefits that exceed the minimum specified in the wage determination. 391 To receive payment under the contract, the Em- ployer submits invoices twice a month to the DEA to show expenditures. After the Employer substan- tiates the hours worked, the DEA reimburses the Employer for all costs incurred within certain line items. If the Employer bills the DEA for nonap- proved items or for amounts that exceed line items, the DEA may challenge the sum. Thus, if the Em- ployer were customarily to submit an invoice for 100 hours for a particular classification and then submit an invoice for 500 hours, the DEA might reject it on the basis that it would be unnecessary to use that many employees in one category. During negotiations for a final contract, the Em- ployer complied with a DEA request to standard- ize wages. Initially, the Employer, which was then acting under a preliminary letter contract, set wages by awarding individual employees a certain percentage above a standard wage rate, which could result in increases varying between 5 and 17.5 percent. As a result, employees within the same classification received widely different wage rates. The Employer also complied with a DEA request that it set the hours for eligibility for a night-shift differential to correspond with those hours set by the DEA. Further, the Employer changed its basis for awarding increases on request of the DEA. The Employer at first based merit in- creases on productivity, time, and attendance, but it agreed to base awards solely on production so that its employees would not receive more awards than would the employees of the DEA. In support of the Employer's allegation that its ability to bargain is limited, Vice President Bonner testified that the contract specifies that the employ- er may expend $3000 each quarter for merit in- creases, although to support this statement, he pointed to contract language prohibiting total other direct costs from exceeding that amount. Moreover he also testified that there is nothing in the contract to prevent the Employer from expending more than the amount specified. The cost of the components of the fringe benefit package are incorporated into the fixed billing rate. Baylinson testified that the Employer is unable to make financial changes in the fringe benefits pack- age because the DEA would find it to be defective cost pricing, but again, she was unable to cite to particular regulations that prohibit such changes. She also testified that the Employer could in effect award greater benefits out of corporate profits, but she stated that its profit margin was too slim to support increases and, moreover, that the agency might conclude after a capabilities audit that the Employer was unable to perform the contract. Bonner, however, testified that the Employer may, 392 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD within the limits prescribed by the contract, modify the types of fringe benefits it provides employees. That is, beyond meeting at a minimum the wage determination and staying within the billing rate agreed on with the DEA, the Employer may change benefits, including changing health plans. The contract does not prohibit the Employer from increasing benefits or bar changing the components of the benefits package;3 the Employer simply cannot reduce the value of the benefits below that specified in the wage determination. The contract requires that the Employer main- tain two daily shifts and specifies that the size of the work force be equivalent to a certain number of full-time employees, although the Employer may use part-time employees to achieve the manning level. The contract provides for an effective work force of a certain number of person-weeks, with a 10-percent variance permitted over a 3-month period. The contract also specifies the time an em- ployee must spend in a particular classification before advancement. Any changes in promotion criteria must be approved by the DEA before in- corporation in the contract. The Employer interviews and hires applicants; although the DEA interviews applicants, its focus is on security matters. The Employer's employees work in a secure facility alongside the DEA's em- ployees, and thus need a security clearance; the Employer's employees wear identification badges issued by DEA security. In the past, the Employer has terminated an employee on notification by the DEA that he had breached security. The Employer determines who is eligible for merit increases. The Employer also assigns work and schedules vacations, and selects employees to work overtime, subject only to the contractual re- striction that such employees must have maintained a certain production rate. The Employer evaluates employees, and it weighs employees' error rates in evaluating performance. Both the DEA and the Employer maintain pro- cedures for quality control. If the DEA uncovers employee errors in the course of monitoring per- formance, the employer's supervisors decide whether an individual employee is chargeable with the error. The Employer has removed an employee from quality control functions who was not per- 8 Although the Employer asserted that it needed DEA approval to im- plement a change in the vesting schedule for its pension plan, the pension plan itself provides that the Employer has the right to amend, modify, or discontinue the plan at any time . The record does not show that DEA's authority to approve or disapprove amendments to the pension plan ex- tends beyond any effect on the billing rate; the Employer contributes a percentage of each employee's salary into the pension fund and that sum is included in the fringe benefit total. In any event , the modification pro- posed would have no financial impact on the Employer's contribution rate and no effect on the billing rate. forming properly after the DEA warned that unless the Employer did so, the agency would seek to modify the contract to eliminate the position. When employees perform functions in classifica- tions not covered by a wage determination, the Service Contract Act's accompanying regulations provide a conforming procedure for establishing pay. See 29 CFR § 4.6(b)(2)(i). For those job clas- sifications not included in the wage determination, wage rates are established by interested parties or employer-represented groups, and the Employer must report to the exempt entity on what wages and benefits those employees will be paid. Com- pensation must bear a rational relationship to that listed in the contract's wage determination. See 29 CFR § 4.6(b)(2)(ii). Thus any change, including adding a new classification, must be done by agree- ment of the Employer, the employees, and the DEA. To meet this requirement, an Employee Ad- visory Committee (EAC) was established to meet four times each year; it consists of six or seven elected employee representatives, as well as a project director, team supervisor, and vice presi- dent. As an example of the EAC's input, in the past the EAC has petitioned the DOL for a reclassifica- tion of wage rates, and in May 1983, the DOL issued a reclassification with wage increases and backpay. The EAC has also dealt with such mat- ters as problems with work supplies or the general work environment, and has considered the use of error rates in evaluations, On the other hand, there was testimony that employees did not participate in establishing the wage determination issued for the 1985 fiscal contract year, and that the EAC did not meet between the dates of the two hearings, No- vember 1985 and November 1986. II. In Res-Care, the Board clarified its test for whether an employer shares a governmental enti- ty's exemption from the Act. The test evolved from that set forth in National Transportation Serv- ice, 240 NLRB 565 (1979). Res-Care explained that whether the Board asserts jurisdiction is based on the extent of control retained by the employer over essential terms and conditions of employment and on the degree of control exercised by the exempt entity over the employer's labor relations policies. Thus, jurisdiction is asserted when the employer has the "final say on the entire package of employ- ee compensation, i.e., wages and fringe benefits." Id. at 674. The exempt entity in Res-Care placed direct limits on employee compensation and, as a conse- quence, the employer did not have the ability to bargain over economic terms and conditions of em- KOBA ASSOCIATES ployment. The DOL approved the initial wages, wage ranges, and benefits that were included in the proposed operating budget. Once the employer's budget was approved by the exempt entity, the contract price was based on the budget, and the employer effectively was prevented from increas- ing wages and benefits. Changes in approved amounts needed DOL clearance, and expenditures over budget were disallowed. The contract placed a ceiling on wages; employees could not receive more than that prevailing for other employees in the locality, wages were held to a top level of less than 10 percent over the wages that employees re- ceived at their former employment, and wage in- creases were limited to less than 10 percent. Per- sonnel policies were also subject to DOL approval. By contrast, the Board asserted jurisdiction in Long Stretch because the employer was able to engage in meaningful bargaining; although there was a ceiling on the employer's total budget, there were no specific limits on employee compensation. Id. at 682 fn. 14. The exempt entity set minimum standards and qualifications for employees and sug- gested minimum and maximum salary ranges. The employer, however, was free to pay more or less than what the exempt entity suggested. The em- ployer also submitted its proposed operating budget to the exempt entity, but the proposal was not the basis for the contract; instead it often varied from the actual budget. The Employer here is less restricted than the employer in Res-Care, first, because there are no limits on the wages or compensation that the Em- ployer proposes in submitting its operating budget. Beyond the wage determination' s imposed mini- mum standards, the Employer may set forth its own compensation levels in the proposed budget. Unlike Res-Care, the DEA does not establish maxi- mum levels at the outset; no ceiling was placed on wages or benefits in establishing contract terms. Bonner stated that the Employer could exceed the minimum specified in the wage determination, and wages under the contract have exceeded the wage determination. Res-Care is further distinguishable because here the Employer is not bound to keep wages under 110 percent of prior wages. Further- more, the Service Contract Act provides for substi- tution of collectively bargained wages and benefits for the prevailing compensation rates set forth in wage determinations. Dynaelectron, supra at 303, citing 41 U.S.C. § 351(a)(1) and (2).4 In Dynaelec- 4 If the wages and benefits agreed on are shown, however, to be sub- stantially at variance with those prevailing in the locality, or if reached after less than arm's-length negotiations, the DOL will not adopt those in setting a wage determination 41 U S C § 353(c); see Dynaelectron, supra at 304 393 tron, the Board held that the terms of the Service Contract Act alone do not bar meaningful bargain- ing. Thus, because under the Service Contract Act, the rates in a collective-bargaining agreement would be incorporated as the wage determination in the contract, in the absence of other contractual limits, the Employer, through the process of bar- gaining, may set the compensation levels in the ini- tial contract. Once the contract is awarded, the Employer's budget does place some limits on changes in com- pensation. The limits are not such, however, that prevent bargaining over terms and conditions of employment. As in Res-Care, the budget becomes the basis for the contract and, moreover, the Em- ployer may not bill the DEA for anything the DCAA has disallowed. Postaward, if the agency believes the Employer changed the components of the pricing structure, it may audit the Employer to determine whether it has the continued financial capability to perform the contract. If the Employer pays employees significantly more or less than what was recommended initially, the agency may conduct another audit with recommendations for wages and benefits that the Employer might pay under future contracts. Payment methods here display more similarities to those in Res-Care than to those in Long Stretch. In Res-Care, to receive contract funds, the employ- er periodically submitted vouchers to the exempt entity, and the agency, which made payment monthly, had the discretion to reduce the contract payment by the amount of any costs it disallowed. The payment method under the contract in Long Stretch differed markedly. State funding was not tied to employee compensation and, instead, the employer received funds through the exempt entity from the state legislature based on reimbursement per resident. Here, the Employer submits specific invoices to the DEA, which reimburses it on review of the vouchers. The testimony indicates that if an invoice for a job classification shows a great increase, the DEA might question the basis for it and may refuse payment. The record does not show that the DEA would disallow payments for increased labor costs, unless, as with other items, they would exceed the contract price or un- dermine the Employer's ability to perform. The record shows, however, that the Employer retains control over several crucial elements. The Employer's contract established only minimum rates, and the Employer's wage rates for its em- ployees have exceeded those set by the DOL .5 The 5 Old Dominion Security, 289 NLRB 81 (1988), a somewhat similar case to that presented here, also involved an employer that was subject to the Continued 394 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD DOL's wage determination only sets a minimum dollar amount for all benefits, and the Employer is free to negotiate a higher fringe benefit dollar value with the DEA. In PHP Healthcare Corp., 285 NLRB 182 (1987), a case in which the Board did not assert jurisdiction, the employer was more con- stricted by a contract that set maximum as well as minimum wage limits and established percentages for increases. As we noted in Dynaelectron, supra at 304, the Service Contract Act does not require the Employer to agree to provide higher wage rates or benefit levels than those prevailing in the locality. The Employer asserted that the DEA's control over employee compensation is shown by restric- tions concerning merit increases. However, the tes- timony regarding merit increases does not show that the Employer cannot determine what amounts, if any, to award to its employees. The record indi- cates that included in the line item budget for total "other direct costs" is a specified sum for merit in- creases. A reading of the contract does not show that the sum for "other direct costs" is broken down to separate amounts, including a sum for merit increases. Apparently, nothing in the contract limits the Employer's ability to award increases as it believes warranted. If, during the term of the contract, the Employer were to enter into a collective-bargaining agree- ment with the Petitioner, because of the operation of the Service Contract Act, as stated above, the collectively bargained rates would become the new wage determination at the next renewal period.6 Any wage or benefits increase resulting from bar- gaining would be incorporated in the contract. Thus, unlike Res-Care, should the Employer and the Petitioner negotiate a collective-bargaining agreement that increases compensation levels, such Service Contract Act There, the Board asserted jurisdiction over the employer, observing, inter alia, that although the levels of employee com- pensation did not exceed the wage determination's minimum standards, the employer was not limited to those levels 6 The Petitioner points to the existence of the EAC as evidence of the Employer's ability to bargain, and the Employer, by contrast, contends that the EAC is currently inactive Neither position affects the outcome of this case DOL regulations contemplate employee involvement in set- ting wages. Any contractor who wishes to employ a class of employees not included in the contract's wage determination must first comply with a conformance procedure that requires the employer to submit a proposal regarding wages and benefits for review The employer must indicate whether the employees' authorized representative agrees with the wage proposal or, in the absence of such an authorized representative, whether the employees themselves approve the proposal 29 CFR § 4 6(b)(2)(u) Thus, if circumstances warrant, the EAC would be required to meet In Res-Care, the Board stated that whether an employer and a labor organization have entered into a collective-bargaining agreement is not determinative of its jurisdictional decision Id. at 674 fn 22 There, unlike the present case, the exempt entity had approval authority over all the terms in the collective-bargaining agreement and thereby controlled all economic terms and conditions of employment Here, however, the nego- tiated compensation levels automatically become the wage determination without agency participation See 41 U S C § 351(a), Dynaelectron, supra at 303-304 increases would not be disallowed, although under the contract the DEA still may ensure that the contract is performed and that the Employer is ca- pable of performing it.7 Hence, the Employer's contract with the DEA is less restrictive than that in Res-Care. Based on the above, we find that the Employer does have the ability to engage in meaningful bar- gaining with a labor organization. The Employer has greater ability than in Res-Care to set initial compensation rates and, under the Service Con- tract Act, collectively bargained wages become the new wage determination. There are some factual similarities between the instant case and Res-Care; the Employer's submitted budget is the basis for the contract price, and the Employer submits vouchers periodically to receive payment. Unlike Res-Care, however, here there are no restrictions imposed by the DEA on the maximum wages and benefits, and the Employer determines the compen- sation its individual employees will receive, subject only to the minimums specified in the contract. Also unlike Res-Care, the contract does not specify employees' wage ranges. There is no evidence that the exempt entity possesses authority to approve or disapprove any changes in wages, aside from ensur- ing that the Employer continues to be capable fi- nancially to perform the contract. With regard to benefits, the Employer is limited only by the mini- mum standard, beyond that specification, the Em- ployer is free to design a benefits package and to bargain over it with a labor organization." The Employer, as in Long Stretch, does not operate under any specific limits on employee compensa- tion expenditures beyond adhering to the minimum standards required under the Service Contract Act. With respect to the exempt entity's involvement in day-to-day operations and labor relations, the DEA maintains certain security measures that re- quire some input in hiring, and security breaches found by the DEA result in discipline. The use of a DEA facility and equipment requires that the DEA establish the hours of work and the number of em- 7 Although the Employer has complied with DEA requests regarding certain factors that affect compensation , such as overtime differential eli- gibility and standards for merit increases, these requests for some uni- formity on matters that also affect DEA employees at the same site do not limit the Employer's ability to engage in meaningful bargaining over its employees' essential economic terms and conditions of employment 8 Although Baylinson testified that the Employer was not free to alter components of the benefit package, the record as a whole does not sup- port this conclusory statement , the contract merely provides what the Employer must, at a minimum, expend per employee on an hourly, weekly, or monthly basis. Baylinson, on being asked what contract provi- sion prevented the Employer from altering the fringe benefits package, stated that regulations required that the cost and pricing data must be certified as accurate, but she did not point to any contract provision or regulation that prevented the Employer from allocating fringe benefits as it wishes. KOBA ASSOCIATES 395 ployees per shift, and the DEA approves the quali- fications for positions. Citing these facts, the Em- ployer contended that it lacked control in such matters as hiring, setting staffing levels, holidays, quality control, hours of work and overtime, pro- motions, demotions, and terminations, and work environment, and that therefore our assertion of ju- risdiction is not appropriate . We do not agree. Because of the type of work contracted for, the DEA sets the number and type of personnel, and because the DEA performs a security-related func- tion, it controls certain aspects of the work envi- ronment . The Employer, however , remains respon- sible for hiring, evaluating, and directing employ- ees, not the DEA, and the decision to discharge rests with the Employer. In Long Stretch, id. at 682 and fn. 15, the fact that the agency set minimum qualifications and could veto hires that did not meet these standards did not defeat jurisdiction, and in Res-Care, id. at 674 fn. 22, the Board specifi- cally disavowed reliance on operational controls in declining to assert jurisdiction . Here, the DEA's in- volvement in day-to-day operations and personnel matters to ensure contract compliance and security does not impinge on the Employer's ability to bar- gain. The Employer's employees are subject to the DEA's regulations, and the DEA may suggest dis- cipline, but the Employer remains responsible for personnel decisions . See Dynaelectron , supra at 305; Old Dominion Security , supra at 82 . Operational controls may permit monitoring of contract com- pliance, but they do not limit the Employer's abili- ty to bargain . Long Stretch, id. at 682 fn. 15; see Res-Care, id. at 674 fn. 22; Rustman Bus Co., 282 NLRB 152 (1986); see also Champlain Security Services, 243 NLRB 755 (1979); Atlas Guard Service, 237 NLRB 1067 (1978). In sum, we fmd that the Employer retains suffi- cient control over its employees' terms and condi- tions of employment to engage in meaningful col- lective bargaining, and that neither the DEA nor the DOL exercises any controls that affect the Em- ployer's ultimate discretion over wage and benefit levels. ARA Services, 283 NLRB 602, 604 (1987): Long Stretch , id. at 682 . We therefore hold that it will effectuate the purposes and policies of the Act to asset jurisdiction over the Employer . According- ly, the Regional Director's conclusion is affirmed, and we shall remand the proceeding to the Region- al Director for further appropriate action. ORDER The Regional Director's decision is affirmed and the case is remanded for further appropriate action.