Workers cheated as federal contractors prosper

Introduction

For 11 years, Karla Quezada assembled sandwiches at the Subway in the food court of the Ronald Reagan Building and International Trade Center, a sprawling complex in downtown Washington, D.C., owned by the U.S. General Services Administration.

She routinely worked more than 40 hours a week, with no overtime pay. She worked holidays, also without extra compensation. Her paychecks took a hit whenever she stayed home sick.

“I knew it was a federal building, but since everyone else was paying low wages, too, I just figured that’s how it was supposed to be,” Quezada, 40, said in a recent interview at her home in Arlington, Virginia.

Actually, that’s not how it’s supposed to be. But each year, thousands of contractors enriched by tax dollars skirt federal labor laws and shortchange workers. In fact, U.S. Department of Labor data show that upwards of 70 percent of all cases lodged against federal contractors and investigated by the department since 2012 yielded substantive violations.

But many of these violators go on to receive more federal contracts. An Obama administration effort to change that practice was derailed in late March by President Donald Trump. 

The Center for Public Integrity examined a subset of 1,154 egregious violators — those with the biggest fines, highest number of violations or most employees impacted — included in the Labor Department’s Wage and Hour Division enforcement database and cross-referenced them with more than 300,000 contract records from the Treasury Department. The Center found that between January 2015 and July 2016:

• Federal agencies modified or granted contracts worth a total of $18 billion to 68 contractors with proven wage violations. Among them: health-care provider Sterling Medical Associates, Cornell University and Corrections Corporation of America
• Of all agencies, the U.S. Department of Defense employed the most wage violators — 49, which collectively owed $4.7 million in back pay to almost 6,200 workers. The department paid those 49 contractors a combined $15 billion.
• Violations by the 68 contractors affected some 11,000 workers around the country — about the same number of people who moved to D.C. in 2016.

Federal contractors account for almost a quarter of the American workforce and took in more than $470 billion in taxpayer funds in 2016, according to USASpending.gov. But the government’s methods for tracking labor-law scofflaws are unreliable, making it easy for violations to go unnoticed. Even when violations are documented, they rarely play a role in contracting decisions.

The Labor Department tried to address the problem in 2016 with a rule that would have required federal contractors to disclose wage and safety violations and come into compliance with the law if they wanted to keep doing business with the government. Invoking a statute rarely used prior to the Trump administration, however, Congress voted to undo the regulation — already on hold because of a legal challenge — and Trump sealed its fate with his signature.

In a statement in February, the White House said the rule “would bog down Federal procurement with unnecessary and burdensome processes…” Now that it has been repealed, labor advocates say more cases like Karla Quezada’s can be expected.

In 2013, having worked at Subway more than a decade, the native of El Salvador filed a complaint with the Labor Department, seeking thousands of dollars in back pay. She recalls regularly working up to 15 hours of overtime each week, but says she was never paid the time-and-a-half owed to her under the Fair Labor Standards Act. Some weeks, her pay stub wouldn’t explicitly say how many hours she had worked; other weeks, she would get two stubs — as if she had worked less than 40 hours at separate Subway locations.

“Sometimes, out of necessity, you just work,” Quezada said in Spanish. “I’m a single mom, and I would work from 6 to 6 sometimes, more than 40 hours. To me, the check seemed okay, but I’ve come to realize they were cheating.”

Quezada and other food-court workers at the Reagan building, organized by the labor group Good Jobs Nation, went on strike 15 times from 2013 to 2016. Management, she said, cut her hours sharply in response and threatened to call immigration officials on workers who were undocumented. Quezada, a permanent U.S. resident, said she encouraged them to continue striking.

In 2014, the White House recognized Quezada as a “Champion of Change” for her efforts. But the reduction in her hours forced her to quit, she said. She took on two part-time jobs that together pay less than her old one, and she and her 12-year-old son had to move into a single room in a relative’s apartment. Her two older children remain in El Salvador.

After two years, the Labor Department found in Quezada’s favor, but the statute of limitations and missing documentation led to an unsatisfying payout: $226.

“I’ve had to deprive my kids of many things,” she said. “We ended up completely screwed.”

Investigators determined that the Subway in the Reagan building owed eight workers, including Quezada, about $3,000 in back wages. They opened investigations into the eight other Subways owned by Quezada’s employer, Amer Ghalayini, and found wage violations affecting 28 workers.

The Labor Department reached a settlement with Ghalayini, who agreed to pay more than $33,000 in back wages and damages while admitting no wrongdoing. The department also found overtime and minimum-wage violations at four other restaurants in the Reagan building’s food court.

The Subway that employed Quezada is licensed by Trade Center Management Associates, which holds a contract with the General Services Administration to operate restaurants in the Reagan building. Officials at Subway’s corporate offices and at Trade Center Management Associates declined to comment.

Reached by phone, Ghalayini disputed Quezada’s claims but declined to elaborate.

“What happened, happened,” he said.

‘I feel like I’m being robbed’

In theory, ensuring federal contractor compliance with labor laws should be easy. In practice, it’s complicated.

The task of policing the nation’s businesses lies with the Labor Department’s Wage and Hour Division. Established under Franklin D. Roosevelt and long housed in the department’s Employment Standards Administration, the division enforces laws governing pay, family and medical leave and visas, among other things. When the administration was abolished in 2009, its four components — Wage and Hour and the offices of Federal Contract Compliance Programs, Labor Management Standards and Workers’ Compensation Programs — became stand-alone divisions. Since then, the Wage and Hour Division’s budget has remained relatively flat; it was $227.5 million in fiscal year 2016.

The division relies heavily on complaints from workers to identify delinquent employers, placing the workers in a precarious position while they try to retrieve the wages they believe they’re owed. Once a case enters the system, it can stagnate because of employer appeals or disputes over legal technicalities.

In fiscal year 2011, the division took, on average, six months to resolve a complaint and closed 33,000 cases. In fiscal year 2016, the average complaint was resolved in four months but only 29,000 cases were closed.

It’s often hard for workers to know what exactly constitutes wage theft — a $50 billion-a-year problem in the U.S., one 2014 study found — since it can take so many forms. Employers can skirt overtime regulations or artificially depress wages. Or, workers can be asked to perform increased responsibilities without a corresponding bump in pay, a potential violation.

Obama’sFair Pay and Safe Workplaces order, which led to last year’s rule, was supposed to ensure that wage and other labor violations were taken into consideration during the contracting process. The order came on the heels of a 2013report by Senate Democrats, which found that 49 companies collectively cited for 1,776 violations between 2007 and 2012 were awarded $81 billion in federal contracts in 2012.

When contractors don’t follow the law, workers like Latoya Williams feel the squeeze.

As a senior customer service representative for a subcontractor to the Federal Emergency Management Agency, Williams spends her days helping agents, homeowners and mortgage companies untangle the details of the National Flood Insurance Program. Most calls are routine, but sometimes distraught homeowners need help filing a claim.

“You have to let people know that you care — like, you really care,” said Williams, who lives in Kensington, Maryland, and has worked at Lionel Henderson & Co. for six years. “Someone just lost their whole house underwater, [and] you want me to be on the phone just straight talking about policies? No. I want to know how you’re doing.”

Williams can empathize with the callers: She was homeless for her first two years on the job, paying friends who let her stay with them.

“I understand the struggle,” Williams said. “I understand what it is to lose everything, to not have somewhere to lay your head at night. I put myself [in their place] when they call.”

Williams is paid $14.28 an hour by Lionel Henderson, a subcontractor until recently to Aon National Flood Services Inc., which has a contract with FEMA, worth up to $163.4 million, to administer the flood insurance program. Under prevailing-wage classifications in the Service Contract Act, she should be getting between $16.24 and $18.74 an hour, according to the Communications Workers of America, which filed a complaint with the Labor Department in December seeking back wages for Williams and her colleagues. The department opened an investigation of Williams’ case in March.

Reached by phone at Lionel Henderson’s corporate office in Atlanta, the company’s human resources director, Alanna Smith, declined to comment.Torrent Technologies Inc. won the FEMA contract in September, but won’t begin administering it until later this year. Torrent’s chief executive officer, Ian Macartney, said the company had no role in deciding Williams’s pay.

Today, Lionel Henderson’s starting pay for a customer-service representative with two years’ experience is 22 cents an hour higher than what Williams makes after six. Williams said she has trained company representatives who perform the same duties as she does but earn more. “And I’m just sitting there like — I feel like I’m being robbed.”

An asthmatic, Williams said she can’t afford inhalers on her current salary. Nor can she afford doctor copays. Some months, she gets donations from churches, takes out small loans or calls her parents to see if they can help with expenses. To supplement her income, she styles hair out of her home on weekends. She takes just a few clients because a bulging disc in her back makes it hard to stand for long periods.

“I’m a hard worker,” Williams said. “And, you know, when you tell people where you work, they’re like, ‘Aw, man, you’re working there? I know you making good money.’ But you’re just sitting there like, ‘Only if you knew.’”

Uncertain future for wage enforcement

It’s unclear how the Trump administration will approach enforcement of the nation’s panoply of labor laws, from the Family and Medical Leave Act, which provides employees with unpaid maternity and health leave, to the Davis-Bacon Act, which sets a prevailing wage for workers on government construction jobs.

Trump has tapped R. Alexander Acosta — dean of the Florida International University law school — to lead the Labor Department. Acosta is a former member of the National Labor Relations Board and a former U.S. attorney for the Southern District of Florida. The previous nominee, fast-food executive Andrew Puzder, withdrew amid outcry over his support of workplace automation, an undocumented housekeeper he employed tax-free, and domestic violence allegations stemming from his 1987 divorce.

Days after his inauguration, Trump issued an order to freeze hiring throughout the federal government, raising concerns that the much-criticized Wage and Hour Division may end up losing ground. Trump’s fiscal year 2018 budget calls for an overall Labor Department cut of 21 percent. The department did not respond to interview requests.

The Wage and Hour Division had been in the midst of an overhaul following missteps during the George W. Bush administration. In 2009, the Government Accountability Office reported that the division had mishandled nine of every 10 complaints lodged by auditors posing as victims of wage theft.

“Far too often many of America’s most vulnerable workers find themselves dealing with an agency concerned about resource limitations, with ineffective processes, and without certain tools necessary to perform timely and effective investigations of wage theft complaints,” the GAO concluded.

On one occasion, an auditor posing as a janitor claimed to have been paid less than the minimum wage. The Labor Department investigator didn’t try to call the fictitious employer until months later, didn’t respond to the complainant when he tried to follow up and ultimately suggested he look for another job instead of pursuing his case. The complaint was never recorded in the Wage and Hour Division’s database.

The sting operation was a black eye for the department and led to the hiring of about 300 investigators early in Barack Obama’s first term.

In May 2014, the division got its first permanent administrator in a decade: David Weil, a Boston University professor who had been fiercely critical of the Labor Department’s ability to oversee work-on-demand employment and the proliferation of subcontractors hired to do what were once core company functions. The number of investigators had dropped steadily during the Bush administration, from a high of 949 to a 40-year low of 731 investigators in 2008, shortly before Obama took office.

Under Obama, the number of investigators jumped to about 1,000 — the highest level since the 1980s. Even so, the division is stretched thin: those investigators must monitor 7.3 million businesses.

The division investigated 2,025 cases involving federal contractors in 2016. It found violations in 77 percent of these cases.

“If you get the benefit of doing work for the public through a federal contract, you should be treating your workforce in the way we as a society have said is the appropriate way,” Weil said in an interview in December. “You should be models of what we do.”

Last fiscal year, the division found 32,487 violations of the Service Contract Act, which sets prevailing wages and benefits for workers on most service contracts, and 12,567 violations of the Davis-Bacon Act. The Contract Work Hours and Safety Standards Act, which applies to construction contracts, accounted for 4,044 violations in 389 cases.

In all, the division found, nearly 32,000 federal contract workers were owed slightly more than $50 million in back pay due to wage-law violations.

Violators during the 18-month period covered by the Center’s analysis include names familiar and arcane. Sterling Medical Associates, a healthcare provider that holds at least $53 million in contracts with the Department of Veterans Affairs and other agencies, was flagged for 730 violations and ordered to pay nearly $1.6 million in back wages. Cornell University, which received around $21 million worth of contracts with various agencies, recorded 1,460 violations and was told to repay nearly $200,000. Corrections Corporation of America, the nation’s second-largest private prison firm, received more than $500 million in contracts with the departments of Justice and Homeland Security. It had 750 violations and had to pay more than $600,000 in back wages.

Officials with Sterling Medical Associates and Cornell University did not respond to requests for comment. A spokesman for Corrections Corporation of America, recently rebranded as CoreCivic, said that both of the facilities where the Labor Department found wage violations are in compliance with the Service Contract Act today.

‘Burdensome new regulatory regime’

During the most recent fiscal year, the government entered into or modified contracts with nearly 70,000 companies or their subsidiaries to deliver hundreds of thousands of distinct goods and services.

To figure out which companies to hire, agencies begin by posting solicitations, usually on FedBizOpps.gov, where registered contractors can sift through opportunities. When an agency puts out a solicitation, dozens of companies might submit proposals. Each one, in theory, should be vetted to ensure it is a cost-conscious, responsible seller.

Federal guidelines offer some clues along these lines: How solid are the company’s finances? How did it perform on previous contracts, if any? Businesses that fall into certain categories — including small, veteran and minority-owned enterprises — may be given preference.

When contracting officers need to research a company’s history, they can access the Past Performance Information Retrieval System, or PPIRS. But the information kept in the database doesn’t include contractor compliance with labor laws. And some of the data PPIRS pulls in from other databases like the Federal Awardee Performance and Integrity Information System or FAPIIS, is not reliable.

The 2013 Senate report, for example, found that energy company BP had no misconduct entries in FAPIIS related to the 2010 Deepwater Horizon offshore oil rig explosion, which killed 11 workers and sullied the Gulf of Mexico with 4 million barrels of crude oil. The accident prompted the U.S. Environmental Protection Agency to ban BP from all federal contracts for 16 months, but the ban wasn’t reflected in the database.

The Office of Federal Procurement Policy, which oversees contracting standards, issued a memo in 2013 calling for staff to submit company performance reviews more often. It found that such reviews were entered less than 30 percent of the time at some agencies, leaving the government “vulnerable to poor acquisition outcomes in the future.”

Obama’s executive order expanded procurement guidelines to include a review of would-be contractors’ labor records. The subsequent Labor Department rule required contracting staff to consider a company’s history of compliance with 14 labor laws. Among them were the Fair Labor Standards Act, which covers wages; the Occupational Safety and Health Act; and laws forbidding discrimination on the basis of race, sex, religion and disability, to name a few. The rule required any company seeking a contract to check a box to indicate whether it had blemishes on its record, going back three years.

The vehicle for the rule’s undoing by Congress was the rarely used Congressional Review Act, through which recently finalized regulations can be dismantled by simple majorities in the House and Senate. The act prohibits federal agencies from crafting similar rules in the future unless authorized to do so by Congress.

Even without the short-lived regulation, companies that break the law on a federal job can be debarred or suspended from receiving further contracts. Last year, the Labor Department debarred 49 firms.

“The [Obama] executive order was not intended to deny a contractor an award, or to send them to suspending and debarring; it was about getting them into compliance,” said Lafe Solomon, who joined the Labor Department in 2014 to develop what became the Fair Pay and Safe Workplaces rule. Specialists would help agencies decide how to address violations by contractors. Companies with more serious violations would be allowed to develop corrective plans.

Among the 939 written comments on the rule sent to the Labor Department were letters of support from groups such as the International Association of Machinists and Aerospace Workers and individuals such as William Clegg, who used to work for a halfway house under contract with the federal government in Greensboro, North Carolina.

“If I hadn’t been living with my mother, I would have been sleeping on the street with what I was getting paid and would have been forced to go on public assistance,” Clegg wrote. “How safe do you think our communities [will be] when we can’t pay a living wage to those that assist with our safety?”

But the rule was wildly unpopular with many contractors and their trade associations. Associated General Contractors of America, for example, denounced an early version as “unfounded, unnecessary, unworkable and unlawful.”

The AGC’s regulatory counsel, Jimmy Christianson, elaborated in an interview. The government, he said, should improve its own contractor vetting instead of laying the burden on companies.

“You’re the federal government,” Christianson said. “You’re the ones that are citing the contractors, don’t you have the information? Why does the contractor have to report it? Isn’t that kind of a joke?”

Two other trade groups went further than AGC. In October, Associated Builders and Contractors and the National Association of Security Companies sued the Labor Department and other agencies responsible for the rule’s implementation weeks before its first phase was to kick in. The groups called the rule unlawful, saying contractors could be penalized for cases that had been settled with no admissions of guilt or were still being contested.

“A cumbersome and burdensome new regulatory regime is being created to implement this misguided executive policy, which … violates the rights of government contractors, at considerable cost and with no benefits to taxpayers,” the complaint said.

A federal district court in Texas agreed that the groups had a strong case. The night before the rule was to have gone into effect, Judge Marcia Crone, who was appointed by President George W. Bush in 2003, enjoined most of its requirements, though one aspect was preserved: paycheck transparency. Employers that received contracts after January 1 had to give employees breakdowns of their pay rates and benefits so they could monitor their own paychecks for accuracy.

On the Senate floor March 6, Sen. Elizabeth Warren, D-Mass., urged her colleagues not to side with vested interests and vote for a resolution that would spell near-certain doom for the rule. “Instead of creating jobs or raising wages, they’re trying to make it easier for the companies that get big-time, taxpayer-funded government contracts to steal wages from their employees and injure their workers without admitting responsibility,” she said.

But the political muscle of government contractors is hard to overestimate.

In fiscal year 2016, the defense industry, which did $297.5 billion in business with the government, collectively spent $126 million on lobbying and gave almost $13 million to candidates for federal office — 59 percent to Republicans and 41 percent to Democrats, according to data compiled by the Center for Responsive Politics.

The construction industry, whose contracting totaled $28.6 billion, spent $52.2 million on lobbying and gave $32.6 million to candidates for federal office – 67 percent to Republicans and 33 percent to Democrats.

‘We just get by check to check’

When the U.S. Army was deciding whether to keep doing business with a cleaning company it employed at Fort Belvoir in Virginia, it checked the company’s record in the Federal Awardee Performance and Integrity Information System. FAPIIS is supposed to record contractors’ most serious missteps; the company, Brown & Pipkins, had a clean record. It hadn’t been debarred or suspended, nor had it been found guilty of defective pricing, human trafficking, or anything else FAPIIS tracks.

What the record didn’t show was that in 2013, a Labor Department investigation found that Brown & Pipkins owed its cleaning staff about $330,000 in back wages. It owed several thousand dollars to one worker: Carlos Umaña, a union leader. He was abruptly fired in December 2012 after he and his colleagues came to work wearing hats bearing the Service Employees International Union’s logo.

“It was our way of showing that we do have a voice in this,” Umaña, 72, said in Spanish during a recent interview in his Silver Spring, Maryland, home.

Umaña began working at Fort Belvoir in 1997. Within two years, the janitorial staff decided to join SEIU to protect its wages. The Army gives Fort Belvoir’s cleaning contracts to different companies every few years; once Brown & Pipkins took over in 2012, it stopped paying Umaña and 67 workers the wages outlined in their collective bargaining agreement. The Labor Department found that workers were underpaid between $4.08 and $5.73 an hour and didn’t receive paid holidays and sick leave.

After Umaña’s union filed a complaint with the National Labor Relations Board, Brown & Pipkins reinstated him. But during the half-year he was idled, he could find only part-time work. His pay — and wages earned by his wife, Cecilia, who does janitorial work at Walter Reed Army Medical Center — weren’t enough to cover expenses.

“With these jobs, we can’t save,” Cecilia said. “We just get by check to check.”

The Umañas are still working their way through the debt they accumulated. Their financial troubles weigh heavily on their 22-year-old son, who shares his father’s name. Carlos is trying to earn an associate’s degree by taking online classes after work. When his father was fired in 2012, he put off going to college full-time to help with the family’s expenses.

“Who doesn’t like seeing they’re going to get a job [done] cheaper?” Carlos said. “But there are people attached to it. There’s an income attached to it.”

Brown & Pipkins did not respond to requests for comment.

The company reached a settlement with the NLRB over the Fort Belvoir allegations in February 2017. In 2016, it received contracts totaling about $4.5 million from the Army, primarily for janitorial work in Virginia.

A spokesperson for the U.S. Army Contracting Command said the agency considered Brown & Pipkins’ labor record before awarding the contracts, but didn’t find the as-yet unproven allegations to be disqualifying. Data reviewed by the Center show that the Army contracted with 34 companies with wage violations from the beginning of 2015 until mid-2016, for a total of $20 billion.

Trump and federal contractors

In the weeks before Election Day, Donald Trump released a 30-second television message to voters that crystallized his philosophy on how to help the American worker.

The ad — “Deals” —focused on Trump’s plan to renegotiate trade agreements and cut taxes on manufacturers. The voiceover ended with this promise: “Donald Trump knows business and he’ll fight for the American worker.”

Some of Trump’s biggest fights, even before he took office, involved federal contractors.

He threatened General Motors with higher taxes for moving its operations outside of the U.S. He decried “out of control” costs for Lockheed Martin’s F-35 military fighter jet and Boeing’s contract for a new Air Force One, which he suggestedbe canceled.

Since his inauguration, Trump has claimed he spurred job creation by federal contractors Ford, Fiat Chrysler, Amazon, Walmart, GM, Intel, and Lockheed Martin. (All the companies said their investments were in place before Trump took office.)

In December, as president-elect, Trump negotiated with the Carrier Corporation to keep jobs from moving to Mexico in exchange for $7 million in tax credits over 10 years. Trump said the deal saved 1,100 jobs, but union officials said only 730 people would be retained in the U.S. while 553 positions would still move across the border.

Greg Hayes–CEO of Carrier’s parent company, United Technologies Corp. – said “there was no quid pro quo” and that federal contracts were not mentioned during the discussions. But in a CNBC interview, he implied that the company agreed to negotiate, in part, to ensure a good relationship with the administration.

“There was a cost as we thought about keeping the Indiana plant open,” Hayes said. “At the same time … I was born at night, but not last night. I also know that about 10 percent of our revenue comes from the U.S. government.”

United Technologies received about $5.6 billion in revenue from federal contracts in 2016.

Labor organizers such as Joseph Geevarghese, director of Good Jobs Nation, a grassroots organization that advocates for federal contract workers, are hoping Trump will become an ally.

“As the CEO of the United States government, you have an opportunity to negotiate for all federal contractors, right? To make sure that federal contractors don’t screw workers who serve the American people,” Geevarghese said.

Best-case scenario in his view? Trump does what the labor movement spent eight years trying to get Obama to do: give preference in federal contracts to employers that pay “living wages” of at least $15 an hour with benefits, and are neutral on workplace organizing. Worst case? The gains federal contract workers have seen — a higher minimum wage, more benefits and stronger protections against harassment or discrimination — are erased.

Debbie Berkowitz, a senior fellow with the National Employment Law Project and a former senior policy advisor with the Labor Department’s Occupational Safety and Health Administration, said the undoing of the Fair Pay and Safe Workplaces rule was “like the opening salvo of the war on workers.

“The president and [Congress], if they wanted to do something for the American worker, this [was] the rule to keep in place,” Berkowitz said. “It would assure that companies that get taxpayer money to build the planes, provide the food for the military, or build large projects are providing good jobs.”

On a snowy day in February, federal contract workers rallied by Good Jobs Nationgathered outside the Capitol. The rally had been organized to protest Puzder’s scheduled Senate confirmation hearing. When he withdrew the day before, it became a celebration.

“You are the ones who make America great!” Geevarghese shouted into a microphone. “You’re the ones who get up every day and serve the American people! And you should be proud!”

Some workers waved American flags, while others held up cardboard shields etched with the words “Good Jobs Defense,” a campaign of Good Jobs Nation. Supporters, including Warren, Sen. Bernie Sanders, I-Vt., and actor Danny Glover riled up the crowd.

“We have shown that we are watching, we are going to pay attention and we are willing to fight,” Warren said. “And we know that when we fight …”

“We win!” the audience responded.

“When we fight …”

“… we win!”

Federal workers, Geevarghese said in an interview, will remind Trump of his promises.

“You won because you said you’re going to be a champion for the working class. Do it. And if you don’t? If you betray us? We’ll resist.”