It seems surprising in this litigious town, but a weapon developed by the Labor Department -- without clear congressional authority -- to force government contractors to comply with wage standards has been challenged in court only twice in the 36 years it has been in operation. The ruling in the second case came down last month, and, like the first in 1961, it upheld the government.
At issue is the power of the Labor Department to blacklist companies that pay too little to workers on jobs funded in part by the Treasury, either because the basic rate is lower than local standards on commercial jobs or because the company does not pay the required overtime premium. If Labor decided the low payment is not merely an administrative mistake but is a willful decision, the department can make the firm ineligible for further work for the government or for local governments using federal grants.
A paving contractor deemed to have violated the overtime provisions on community redevelopment and highway construction jobs sued, claiming such debarment was too drastic a penalty. In some labor legislation, Congress has called for debarment of repeated violators. But in the overtime pay statute, lawmakers left it up to Labor to decide how to enforce the law. The department announced the debarment possibility in a 1951 regulation.
At that time, memories of wartime rationing and black market profiteers were still fresh. In 1944, the Supreme Court ruled that the Office of Price Administration had the power to stop distributors who had violated rationing regulations from getting any more of the scarce commodities they had been shunting to the wrong outlets. The cutoff wasn't a penal sanction that needed a specific authorization from Congress, the justices said, but merely a method of ensuring that rationing worked. The power to issue such orders was inherent in the legislation setting up the rationing system.
That reasoning provided the underpinning for the 1961 ruling approving the Labor debarment regulation and for the similar ruling in Janik Paving v. Brock handed down by the U.S. Court of Appeals in New York on Sept. 9. The regulation clearly punishes companies that violate the law, but that is not its main intent, the judges reasoned. It is designed primarily to see that the law is followed, and that makes it a reasonable way to enforce the law, something that Congress told Labor to do.
In other cases, courts ruled that: Bankruptcy judges can't punish uncooperative debtors. An exasperated bankruptcy judge handling an involuntary bankruptcy petition held the corporation's sole stockholder in contempt of court -- and ordered him jailed -- when the executive failed to give the court a requested corporate statement of affairs and master mailing list. That order overstepped the judge's authority, the U.S. Court of Appeals in San Francisco decided. Congress in 1978 gave bankruptcy judges broad powers, but cut them back after the Supreme Court ruled that the lawmakers had gone too far. Lost in the cutback was the power to issue civil contempt orders, the ruling said.
Plastiras v. Idell, Sept. 14 Mass-producing modular housing units is not the construction business. A company turning out such components countered a citation from the Occupational Safety and Health Administration for not providing workers the proper protective equipment by saying it should not be held to standards for manufacturers because its activities put it in the construction industry. The U.S. Court of Appeals in Cincinnati refused to buy the argument. The key is not the kind of work being done, the judges said, but the location; in this case, that was inside a factory, not on a building site. Brock v. Cardinal Industries, Sept. 4 A note carrying a variable interest rate may give the borrower a lot more protection than one with a fixed rate. Under the Uniform Commercial Code, a note is usually deemed a "negotiable instrument," which means the lender can sell it to someone else and the borrower has full responsibility to pay off that buyer. The borrower can't even refuse to pay because he or she has already paid off the original lender if the note has not been voided. But the Virginia Supreme Court recently decided that for a "negotiable instrument" rule to apply, all pertinent details must be contained in the note. Because a variable rate note bases interest on some outside element -- usually the published prime rate -- it doesn't qualify. Taylor v. Roeder, Sept. 4 Country clubs and similar not-for-profit groups get a tax break. Clubs that run activities for nonmembers have to pay income tax on the profits from such events. They also have to pay income tax on investment earnings on their endowments. But the Internal Revenue Service said the two accounts had to be segregated, and that dividends on investments could not be balanced off against losses on activities run for nonmembers, especially if there was little chance of those undertakings earning a profit in the first place. But the U.S. Tax Court said all the taxable activities can be lumped together, with losses lowering the taxes due on gains. North-Ridge Country Club v. Commissioner, Sept. 15Moskowitz covers legal affairs for McGraw-Hill World News.