4 N.Y.3d 597 (2005)

Under New York’s prevailing wage law, the Commissioner of Labor may reasonably annualize a contractor’s contributions to a profit-sharing plan when calculating the hourly cash equivalent of supplement obligations, especially when the contributions are allocated without regard to the employee’s work on public projects.

Summary

Chesterfield Associates challenged the Department of Labor’s (DOL) use of the annualization rule to determine if Chesterfield met its prevailing wage obligations for public works projects. The DOL determined that Chesterfield underpaid wages and supplements. The key dispute was whether Chesterfield’s contributions to a profit-sharing pension plan should be annualized, or credited dollar-for-dollar. Annualization significantly increased Chesterfield’s liability. The Court of Appeals affirmed the Commissioner’s decision to annualize, holding that it was a reasonable method to prevent cost-shifting and ensure employees receive the full value of required supplements.

Facts

Chesterfield Associates performed work on five public projects between 1994 and 1997. The Department of Labor investigated complaints that Chesterfield was not paying prevailing wages and supplements. Chesterfield provided supplements via paid time off, health insurance, and pension plans. Chesterfield’s contributions to its profit-sharing pension plan were allocated to employees based on total earnings, irrespective of time spent on public projects. The rights to those contributions vested over five years. The parties stipulated to most figures, but disagreed on whether pension contributions should be annualized.

Procedural History

Following an investigation and hearings, the Commissioner of Labor determined that Chesterfield had underpaid supplements. Chesterfield filed an Article 78 proceeding challenging the determination. The Appellate Division confirmed the Commissioner’s determination and dismissed the proceeding. The Court of Appeals granted leave to appeal.

Issue(s)

Whether the Commissioner of Labor’s decision to annualize Chesterfield’s contributions to its profit-sharing plan, to determine compliance with prevailing wage supplement obligations, was a reasonable application of Labor Law § 220(3).

Holding

Yes, because the Commissioner’s annualization method reasonably prevents cost-shifting that could unfairly advantage contractors and deny employees the full value of supplements, especially when pension contributions are allocated without regard to an employee’s time spent on public projects.

Court’s Reasoning

The Court emphasized that the prevailing wage law aims to ensure fair labor costs on public projects. The annualization rule (12 NYCRR 220.2[d]) is a method used to calculate the hourly cash equivalent of supplements. The court distinguished this case from Tom Mistick & Sons, Inc. v. Reich, noting that Chesterfield did not maintain separate benefit plans for public and private work. The Court stated, “construction given statutes and regulations by the agency responsible for their administration, if not irrational or unreasonable, should be upheld.” The Court reasoned that without annualization, Chesterfield could shift costs to overstate payments on behalf of public hours, gaining an unfair competitive advantage and depriving employees of their rightful supplements. Annualization ensures a proportionate credit, reflecting the fact that pension benefits are tied to both public and private work. The court emphasized that annualization is simply a valuation methodology and does not regulate private work or force contractors to pay cash supplements. The court directly quoted Rondout Elec., Inc. v New York State Dept. of Labor, stating, “New York’s annualization regulation does not require prevailing wages or benefits for any employee who works on a private contract. The only time the prevailing wage standard is imposed is when an employee works on a public project.”