Administrative Review Board Decisions
The following case summaries were created by the Administrative Review Board staff.
Van v. JP Morgan Chase & Co., ARB No. 2023-0018, ALJ No. 2022-SOX-00028 (ARB Nov. 5, 2024) (Decision and Order Reversing and Remanding)
FAIR NOTICE PLEADING STANDARD; COMPLAINANT PROVIDED FAIR NOTICE OF PROTECTED ACTIVITY UNDER SOX AND THE CFPA
In Van v. JP Morgan Chase & Co., ARB No. 2023-0018, ALJ No. 2022-SOX-00028 (ARB Nov. 5, 2024), the ARB reversed and remanded the ALJ's Order dismissing Complainant's claim, finding that Complainant had sufficiently alleged in her complaint that she engaged in protected activity under SOX and the CFPA when she disclosed violations regarding Respondent's Customer Identification Program (CIP) to her supervisors and corporate management.
Complainant alleged that Respondents terminated her employment and took other adverse actions against her in violation of the whistleblower protection provisions of SOX and the CFPA. After OSHA dismissed her complaint, Complainant requested a hearing before the OALJ and attached a 30-page Restated Complaint. Complainant asserted that she engaged in several instances of protected activity under SOX and the CFPA when she reported violations of Respondent's Know Your Customer (KYC) process and CIP procedures. She detailed approximately fifteen specific instances of potential KYC and CIP violations and alleged that, in retaliation for making KYC-CIP protected disclosures, Respondent placed her on paid administrative leave, changed the locks to her office, terminated her employment, and submitted a false Uniform Termination Notice for Securities Industry Registration form, which had prevented her from securing employment in her field.
On January 20, 2023, the ALJ granted Respondent's Motion to Dismiss. The ALJ concluded that Complainant failed to make allegations in her Restated Complaint that met the requirements of a SOX claim, specifically that the conduct about which she complained concerned mail fraud, wire fraud, bank fraud, or securities fraud. The ALJ likewise determined that Complainant also failed to allege that she engaged in protected activity under the CFPA "pursuant to any of the 18 laws within the Consumer Financial Protection Bureau's jurisdiction." Accordingly, the ALJ dismissed Complainant's claim under SOX and the CFPA.
Complainant appealed the ALJ's Order to the ARB.
The ARB articulated that to survive a motion to dismiss in an administrative proceeding before an ALJ, a complainant needed to only provide "fair notice" of his or her claim. The ARB explained that the "fair notice" pleading standard was a less stringent legal standard for stating a claim than was required in federal litigation. Under the "fair notice" pleading standard, a complainant needed to only provide: (1) some facts about the protected activity, showing some relatedness to the laws and regulations of one of the statutes in the ARB's jurisdiction; (2) some facts about the adverse action; (3) a general assertion of causation; and (4) a description of the relief that is sought.
Regarding Complainant's SOX claim, the ARB found that the Restated Complaint provided some facts about alleged protected activity covered under SOX, sufficient to overcome a motion to dismiss. The ARB noted that the Restated Complaint alleged that Complainant reported KYC-CIP violations to her supervisors and corporate management because she reasonably believed that the violations constituted "wire fraud," and were, therefore, protected under 18 U.S.C. § 1514A(a). Complainant explained that because Respondent's business was conducted primarily through electronic applications, including the submission of identification forms to verify the identity of prospective customers, most of her CIP disclosures involved the use of wires. Complainant also alleged that she believed that she engaged in SOX-protected activity related to wire fraud because Respondent communicated and processed its representations about compliance with CIP anti-money laundering requirements via telephone, internet, and facsimile transmissions and because suspicious fund transfers involved the use of wires to transfer money.
The ARB also determined that the Restated Complaint sufficiently alleged that Complainant engaged in SOX-protected activity under 18 U.S.C. § 1514A(a)(1) because she reported conduct that she reasonably believed to be a violation of a rule or regulation of the SEC. The ARB related that Complainant alleged in her Complaint that she believed that Respondent was violating SEC Rule 13a-15(e), which required Respondent to evaluate the effectiveness of its internal controls over financial reporting and disclose any material weaknesses or deficiencies in the design or operation of its internal controls. The ARB determined that, in construing the alleged facts in favor of Complainant, the Restated Complaint sufficiently contained facts indicating that Complainant reported Respondent's continued KYC-VIP violations to her supervisors and corporate management because she reasonably believed these disclosures "related" to a violation of the SEC's rule requiring publicly traded companies to have effective internal controls. Accordingly, the ARB reversed the ALJ's dismissal of Complainant's SOX claim and remanded the case to the ALJ to properly consider whether each of the alleged instances of protected activity in the Restated Complaint provided "fair notice" of Complainant's SOX claim and to proceed with evidentiary proceedings regarding those specific instances of alleged SOX-protected activity.
The ARB also found that the Restated Complaint provided some facts about alleged protected activity covered under the CFPA. The ARB noted that the ALJ had determined that Complainant failed to allege that she engaged in protected activity "pursuant to any of the 18 laws within the Consumer Financial Protection Bureau's jurisdiction." The ARB determined, however, that the ALJ failed to consider whether Complainant alleged CFPA-protected activity pursuant to the other categories of consumer financial laws under 12 U.S.C. § 5567(a). The ARB indicated that section 5536 of the CFPA prohibited covered persons and service providers from engaging in unfair, deceptive, or abusive acts in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The ARB determined that the Restated Complaint alleged some facts related to the CFPA's prohibition against unfair practices when it asserted that Respondent's failure to follow KYC account eligibility requirements could result in the freezing or seizing of prospective customer's account funds. The Restated Complaint also asserted facts related to the CFPA's prohibition against deceptive practices because it contended that Respondent was intentionally misleading customers to open, maintain, and use their accounts regardless of account eligibility and identification requirements. Furthermore, the Restated Complaint alleged facts related to the CFPA's prohibition against abusive practices because it asserted that Respondent was taking advantage of the large client base of "foreign born customers" who had difficulty understanding federally required account eligibility standards due to language and cultural barriers. Accordingly, the ARB held that because Complainant provided "some facts" about alleged protected activity that she reasonably believed were related to the CFPA's prohibition against engaging in unfair, deceptive, or abusive acts or practices against consumers, the Restated Complaint provided "fair notice" of her CFPA claim. The ARB, therefore, reversed the ALJ's dismissal of the CFPA claim and remanded the case for the ALJ to proceed with evidentiary proceedings.
Administrator, Wage and Hour Div., USDOL v. America's Staffing Partner Inc., ARB No. 2023-0019, ALJ No. 2020-SCA-00010 (ARB Nov. 12, 2024) (Decision and Order)
SCA; DEBARMENT; UNUSUAL CIRCUMSTANCES TEST
In Administrator, Wage and Hour Div., USDOL v. America's Staffing Partner Inc., ARB No. 2023-0019, ALJ No. 2020-SCA-00010 (ARB Nov. 12, 2024), the ARB affirmed the ALJ's Decision and Order of Debarment.
Before the ALJ, it was undisputed that Respondents had violated the SCA. Therefore, the issue was whether "unusual circumstances" were present to warrant relief from debarment for their SCA violations. The ALJ found Respondents failed to establish "unusual circumstances" necessary for relief from debarment. Because the preponderance of evidence supported the ALJ's findings, the ARB affirmed the ALJ.
SCA REQUIREMENTS; RELIEF FROM DEBARMENT UNDER UNUSUAL CIRCUMSTANCES TEST
The SCA implementing regulations require contractors to pay the prevailing wage rate and provide fringe benefits to all covered workers for "each hour worked." Violations of the SCA requirements result in an automatic three-year debarment unless the contractor can demonstrate that unusual circumstances warrant relief.
To establish unusual circumstances, contractors must satisfy each stage of a three-step test. Step One—the only step the ALJ reached here—prohibits relief if any of four aggravating factors exacerbate a violation: (1) the conduct was willful, deliberate, or of an aggravated nature; (2) the violations were the result of culpable conduct, including culpable neglect or culpable disregard; (3) a contractor has a history of similar violations or repeatedly violated the SCA; or (4) any previous violations were serious in nature.
The ALJ found Respondents could not satisfy Step One of the unusual circumstances test. Thus, the ALJ barred relief without reaching the Step Two or Three of the test.
ASP’S UNDISPUTED SCA VIOLATIONS
Respondent ASP, a staffing corporation, received eight contracts to provide personnel support to different government entities between 2013 and 2017. This case arose from WHD investigations into Respondents' SCA compliance on three contracts: 1) the Fort Hood contract; 2) the Keesler contract; and 3) the Robins contract.
WHD's investigation began in October 2015 on the Fort Hood contract. During the investigation, Respondents admitted they knowingly failed to timely provide SCA-required health and welfare benefits to their employees, but blamed their noncompliance on a lack of liquidity caused by an unexpected tax complication, where the IRS mistakenly and temporarily offset funds from Respondents' contracts. Faced with a liquidity crunch, Respondents deliberately chose to underpay health and welfare benefits in the first half of 2016, claiming they did so to avoid underpaying wages.
WHD assessed two violations: (1) a failure to pay the prevailing wage rate regarding holiday pay; and (2) a failure to pay the full fringe health and welfare benefit. At the final conference in September 2016, Respondents acknowledged the violations and, in October 2016, agreed to pay to remedy them. Notably, a WHD Investigator explicitly advised Respondents at that time of their ongoing SCA obligations on every contract to promptly pay the prevailing wage, and to pay health and welfare benefits "according to the wage determination incorporated into [each] contract."
Subsequently, a different WHD investigator headed a separate corporate-wide SCA investigation into each of Respondents' open contracts, including the Keesler and Robins contracts.
Respondents received the Keesler contract in September 2016. Despite the WHD's explicit warning at the Fort Hood final conference, WHD found Respondents committed similar violations at Keesler, including: (1) failure to pay full health and welfare benefits, and (2) failure to pay prevailing wages for two years. In the 2017 and 2018 option years, WHD issued two new wage determinations that required Respondents to increase their employees' prevailing wages. Respondents admitted that they failed to pay the increased wages, but claimed they would retroactively pay the increases once they received an equitable adjustment to their billing to offset the increases.
Respondents received the Robins contract in July 2017. Similar to the previous violations, WHD determined that Respondents underpaid health and welfare benefits on the Robins contract, including failure to make full fringe benefits contributions for all hours paid.
ALJ RULING; RESPONDENT FAILED STEP ONE OF UNUSUAL CIRCUMSTANCES TEST
The ALJ held a hearing to determine whether Respondents could demonstrate unusual circumstances to establish debarment relief. The ALJ found Respondents could not satisfy Step One of the unusual circumstances test because three aggravating factors exacerbated Respondents' undisputed SCA violations.
First, the ALJ found Respondents' failure to pay the prevailing wage rate upon the government's exercise of the Keesler contract's option years constituted culpable neglect. The ALJ noted that the Keesler contract incorporated the SCA regulations' requirement that Respondents pay each employee "as specified in [the] wage determination." The ALJ thus rejected Respondents' argument that they reasonably believed that they could retroactively pay the higher wage rate once they had obtained an equitable adjustment to the contract.
Second, the ALJ found Respondents' failure to timely pay full health and welfare benefits under the Keesler and Robins contracts constituted culpable disregard, rejecting Respondents' various arguments that conditions outside their control justified their actions. The ALJ stressed the SCA mandate for federal contractors to promptly pay full wages and benefits when they are due. The ALJ then rejected Respondents' argument that the IRS's erroneous temporary withholding excused Respondents' late payments. The ALJ further found the withholding "immaterial" because it occurred during the Fort Hood contract in 2016 and could not have directly impacted the Keesler and Robins contracts years later.
Likewise, the ALJ also rejected Respondents' assertion they were not culpable because they did not know the applicable wage determinations required health and welfare benefits based on hours paid, or because they were waiting to adopt corrective measures at the behest of WHD. The ALJ pointed out that the WHD investigator specifically reminded Respondents at the Fort Hood final conference of their obligations to promptly pay wages and benefits based on hours paid. Therefore, the ALJ reasoned Respondents were aware of their obligations at the outset of the Keesler and Robins contracts.
Finally, the ALJ found that the Fort Hood investigation was a separate investigation and did not comprise one part of a single corporate-wide investigation at Keesler and Robins, illustrating there was a history of similar violations. Regardless of whether it was separate, however, the ALJ found Respondents knew of their affirmative duty to timely pay wages and benefits under the SCA no later than the final conference at Fort Hood given the WHD investigator's explicit warning. Respondents' failure to do so after that instruction created a "history of similar violations." Because of the aggravating factors present, the ALJ found Respondents could not satisfy the first element of the unusual circumstances test. Thus, the ALJ barred relief without reaching the second or third elements of the test.
UNUSUAL CIRCUMSTANCES; NO RELIEF FROM DEBARMENT BECAUSE RESPONDENTS FAILED STEP ONE OF UNUSUAL CIRCUMSTANCES TEST
The ARB affirmed the ALJ because Respondents failed the first step of the "unusual circumstances" test on at least three distinct grounds. First, Respondents acted with at least culpable neglect when they knowingly failed to raise workers' pay to match an increase in the prevailing wage rate in the Keesler contract. Second, Respondents' failure to promptly pay health and welfare fringe benefits in the Keesler and Robins contracts resulted from their "culpable disregard" of whether withholding those funds would violate the SCA. Finally, Respondents created "a history of similar violations" from "repeatedly violat[ing] the provisions of the Act." Each of these findings independently prohibited debarment relief.
(1) Culpable Neglect: Respondents Failed to Pay Prevailing Rate in Keesler Contract
The preponderance of the evidence confirmed Respondents acted with culpable neglect by paying less than the prevailing rate in the Keesler contract. A contractor cannot receive debarment relief where its violations result from "culpable neglect."
The SCA regulations provide that wages "shall be paid" to employees "promptly and in no event later than one pay period following the end of the pay period in which they are earned." Further, the parties had incorporated into the Keesler contract 29 C.F.R. § 4.6(b)(1)'s requirement that "each service employee" shall "be paid not less than the minimum monetary wages" specified "in any wage determination attached to this contract."
It was undisputed that Respondents "did not pay its employees the increased prevailing wage rate at the start of each option year" in 2017 and 2018. The failure to follow the SCA and the contract alone established culpable neglect.
In addition, the ALJ found that ASP's Senior Vice President lacked credibility when he testified that ASP believed they could pay their workers' wages retroactively once they received an equitable adjustment to the contract. The ARB found the credibility finding reasonable—particularly because WHD had reminded Respondents of their responsibility to promptly pay wages at the conclusion of the Fort Hood investigation.
(2) Culpable Disregard: Respondents Failed to Pay Health and Welfare Benefits in the Keesler and Robins Contracts
The preponderance of the evidence confirmed Respondents acted with culpable disregard in failing to pay health and welfare fringe benefits.
The text of the SCA, its regulations, and the Keesler and Robins contracts obligated Respondents to promptly pay full health and welfare benefits. And Respondents' undisputed failure to promptly pay them again established Respondents' culpability with no need to go further.
The ALJ aptly rejected Respondents' post hoc justifications for nonpayment. As the ALJ reasoned, nothing in the plain text of the SCA or the caselaw permits a contractor to pass on its financial hardships (such as a liquidity problem caused by tax issues) to its employees.
Furthermore, the ALJ recognized the undisputed facts belied Respondents' pleas of ignorance of the law; the WHD investigator "explicitly told" Respondents at the conclusion of the Fort Hood investigation they had to pay health and welfare fringe benefits "for all hours paid up to 40 in a workweek according to the wage determination incorporated into the contract."
(3) Respondents' History of Violations
Respondents' history of violations further precluded relief from debarment. Debarment is mandatory "where a contractor has a history of similar violations, where a contractor has repeatedly violated the provisions of the Act, or where previous violations were serious in nature."
Respondents repeatedly violated the SCA in similar ways over the course of approximately three years on three different contracts. Moreover, Respondents were explicitly warned following their initial violations on the Fort Hood investigation and subsequently still knowingly violated the SCA.
Even though it is not a requirement for a history of violations, the ALJ also found the Fort Hood investigation was separate from the Keesler and Robins investigations. The ALJ correctly determined a significant period separated the Fort Hood investigation from the Keesler and Robins investigations, different investigators conducted them, and though the investigations uncovered similar violations, they were not identical.
CASE LAW; RESPONDENTS’ CASE LAW DOES NOT RELIEVE DEBARMENT
Respondents argued on appeal that a liquidity shortfall caused by government interference or government delay creates special exceptions to the aggravating factors at Step One. The ARB disagreed.
The ARB has held that an employer's "unfortunate financial circumstances" neither excuses its legal responsibility to pay its workers "on time and in full under the SCA" nor allows a contractor to escape the legal consequences of underpaying its workers.
Furthermore, the ARB found the cases Respondents cited did not create an exception to aggravating circumstances under Step One of the unusual circumstances test. Respondents cited to Price Gordon and Elaine's Cleaning Service, claiming that the cases allowed for relief for debarment due to government interference in the contractor's ability to pay. However, the ARB held that the cases did not apply to the present case. First, in Price Gordon,anyanalysis of payment occurred at Step Three of the analysis—and had no relevance here where the ALJ correctly found both culpable conduct and a history of violations at Step One. Second, in Elaine's Cleaning Service, the Sixth Circuit vacated a debarment order finding the ALJ's decision "unintelligible" and that it failed to tie its debarment decision to facts in the record. The Sixth Circuit said nothing about the legal sufficiency of the contractor's argument that they had underpaid benefits because of delays in receiving payments from the government. The ALJ's decision here, by contrast, was a clear-eyed accounting of Respondents' repeated and serious violations. Respondents' case law did not support a finding of "unusual circumstances."
Management & Training Corp. v. Administrator, Wage and Hour Div., USDOL, ARB No. 2025-0004 (ARB Nov. 13, 2024) (Order Dismissing Petition for Review Without Prejudice)
ORDER OF DISMISSAL; ARB LACKED JURISDICTION WHERE ADMINISTRATOR'S DECISION WAS NOT A FINAL RULING
In Management & Training Corp. v. Adm'r, Wage and Hour Div., USDOL, ARB No. 2025-0004 (ARB Nov. 13, 2024), the ARB dismissed Petitioner's Petition for Review for lack of jurisdiction. Petitioner filed a Petition for Review with the ARB seeking review of a decision made by the Branch Chief for the Branch of Service Contract Wage Determinations in the U.S. Department of Labor's Wage and Hour Division. After the ARB accepted the matter for review, the parties filed a Joint Motion to Dismiss, requesting that the ARB dismiss the appeal without prejudice.
In the Motion, the parties asserted that the ARB did not have jurisdiction to hear the appeal under 29 C.F.R. § 8.1(b), which provides that "[t]he Board has jurisdiction to hear and decide in its discretion appeals concerning questions of law and fact from final decisions of the Administrator of the Wage and Hour Division or authorized representative . . . arising under the Service Contract Act." In the Motion, the Administrator represented that the Branch Chief's determination letter was not a "final decision" of the Administrator. In light of the Administrator's representation, the ARB dismissed the Petition for Review without prejudice for lack of jurisdiction.
Administrator, Wage and Hour Div., USDOL v. Covanex, Inc., ARB No. 2025-0006, ALJ No. 2021-LCA-00011 (ARB Nov. 26, 2024) (Order of Dismissal)
ORDER OF DISMISSAL; APPEAL DISMISSED WHERE ADMINISTRATOR DECLINED TO PROSECUTE APPEAL
In Administrator, Wage and Hour Div., USDOL v. Covanex, Inc., ARB No. 2025-0006, ALJ No. 2021-LCA-00011 (ARB Nov. 26, 2024), the ARB issued an Order of Dismissal. On November 22, 2024, the Administrator filed a Notice That Administrator Will Not File Petition for Review, in which the Administrator notified the ARB that she would not pursue an appeal in the matter. Accordingly, the ARB dismissed the appeal.