Public Contracts Act

views updated

Public Contracts Act

United States 1936

Synopsis

The Public Contracts Act (also known as the "Walsh-Healey Act") of 1936 was one of several important federal labor laws that Congress enacted during the mid-1930s. The act requires vendors who supply goods or services to the United States government to treat their employees "fairly and decently." The "fair and decent" labor practices required by the act include: paying prevailing minimum wages as determined by the secretary of labor, including overtime pay; not employing children or prison inmates; and providing safe and sanitary working conditions. The act also bars the government from dealing with vendors who are not manufacturers or regular dealers of the items to be supplied.

Timeline

1921: As the Allied Reparations Commission calls for payments of 132 billion gold marks, inflation in Germany begins to climb.
1926: Britain paralyzed by the general strike.
1931: Financial crisis widens in the United States and Europe, which reel from bank failures and climbing unemployment levels. In London, armies of the unemployed riot.
1933: Adolf Hitler becomes German chancellor, and the Nazi dictatorship begins.
1936: Germany reoccupies the Rhineland, while Italy annexes Ethiopia. Recognizing a commonality of aims, the two totalitarian powers sign the Rome-Berlin Axis Pact. (Japan will join them in 1940.)
1936: The election of a leftist Popular Front government in Spain in February precipitates an uprising by rightists under the leadership of Francisco Franco. Over the next three years, war will rage between the Loyalists and Franco's Nationalists. The Spanish Civil War will prove to be a lightning rod for the world's tensions, with the Nazis and fascists supporting the Nationalists, and the Soviets the Loyalists.
1936: Hitler uses the Summer Olympics in Berlin as an opportunity to showcase Nazi power and pageantry, but the real hero of the games is the African American track star Jesse Owens.
1939: Britain and France declare war against Germany after the 1 September invasion of Poland, but little happens in the way of mobilization.
1944: Allies land at Normandy on 6 June, conducting the largest amphibious invasion in history.
1951: Six western European nations form the European Coal and Steel Community, forerunner of the European Economic Community and the later European Union.

Event and Its Context

In the late nineteenth century, the American labor market was transformed by rapid industrialization. The jobs created by the industrial revolution drew workers away from farms to cities and transformed self-reliant agriculturists and artisans to wage-earning factory hands and laborers. Despite increasing the availability of consumer goods, the Industrial Revolution contributed to the misery of millions of workers. Women and children were tied to factories for long hours, often under brutal conditions. Men and boys were employed in hazardous, hard-labor industries such as mining and rail construction. Further, industrialization increased enormously the number of workers dependent on wages for their livelihood. Because of their relative interchangeability, however, individual workers lacked the bargaining power necessary to extract favorable terms of employment from the captains of industry who controlled their jobs.

Beginning in the nineteenth century, workers sought to ameliorate their situation, primarily using labor organizing and collective bargaining. Progressive Era (1890s-1920s) reformers battled both the business lobby and the Supreme Court to obtain limited state and federal legislative protection of workers. During the New Deal era (1933-1939), the U.S. Congress overcame the resistance of the Supreme Court and enacted a series of important federal statutes that permanently changed employer-employee relations. The Public Contracts Act of 1936, one statute in this series, improved the lot of some workers by prohibiting the federal government from contracting with private sector employers who did not adhere to certain "fair and decent" labor standards.

Before the 1936 act took effect, the U.S. government generally purchased needed goods and services from the lowest "responsible" bidder. In practice, any bidder who posted a bond guaranteeing fulfillment of the contract was deemed a "responsible" bidder. Several abusive practices emerged. Under "bid brokering" (or "vest-pocket dealing"), unscrupulous "bid brokers" secured government contracts by placing low bids, then subcontracting the work to sweatshops that relied on child labor or other substandard labor practices. In another practice known as the "kick-back" system, contractors nominally paid their employees a reasonable wage, but required employees to return a portion of their pay.

The Public Contracts Act sought to end such practices by establishing standards for fair labor practices in government contracting. The provisions of the act generally prohibit the U.S. government from contracting to purchase goods or services from any private vendor who: (1) pays its employees less than the "prevailing minimum wage" as determined by the secretary of labor; (2) works its employees more than 40 hours per week without paying overtime; (3) employs boys younger than 16 years or girls younger than 18 years; (4) employs prison inmates; (5) fails to provide a safe and sanitary work environment; or (6) does not manufacture or regularly deal in the type of goods or services to be supplied.

If a vendor who has contracted to supply goods or services to the federal government fails to honor the Public Contracts Act's labor practice requirements, the government may cancel the contract and fulfill it elsewhere. In that event, the violating vendor is liable to reimburse the government for any costs incurred in consequence of switching vendors. The vendor may also be blacklisted from receiving any further government contracts for a period of three years.

Labor Standards Pre-Lochner: 1800-1905

From 1800 to 1840 many trade unions representing skilled craftsmen ant artisans bargained successfully with employers to obtain a 10-hour workday for their members. On 31 March 1840 President Martin Van Buren, persuaded by the National Trades Union, issued an executive order establishing a 10-hour workday for laborers and mechanics employed by the federal government.

During the 1860s eight-hour leagues, beginning in Boston, spread to numerous cities. The National Labor League, a combination of various trades advocating eight-hour days, met in Baltimore in 1867. Subsequently, eight states passed advisory eight-hour day legislation. On 25 June 1868 Congress enacted a National Eight-Hour Law applicable to federal government employees.

In 1874 Massachusetts enacted the first enforceable maximum hours law that covered private sector employees. The law set a maximum of 60 hours per week for female workers. Other states soon followed suit. In Holden v. Hardy (1898), the U.S. Supreme Court upheld a Utah state law that restricted the maximum daily working hours of men engaged in hazardous mining and smelting industries to eight. In Muller v. Oregon (1908), the Court upheld an Oregon law that restricted the maximum working hours of working women.

In the 1905 case of Lochner v. New York, however, the Supreme Court cast doubt on the constitutionality of state maximum hours laws by striking down a state law that restricted bakers to a 10-hour workday. The Court held that the restriction violated the "liberty of contract" purportedly protected against state government interference by the due process clause of the Fourteenth Amendment.

Lochner to the Public Contracts Act: 1905-1936

Before the twentieth century, the U.S. Congress never sought to regulate the wages or working conditions of private sector employees. By 1910, however, Congress felt increasing pressure to take action in response to a wave of fatal industrial accidents. Mining disasters claimed more than 3,000 lives in 1907 alone. Influenced by the progressive political activists of the era, Congress established several specialized administrative agencies, such as the Bureau of Mines (1910), to investigate industrial conditions and recommend legislative initiatives that might be needed to protect specific labor groups.

In 1912 Congress enacted the Federal Public Works Act, which required the inclusion of an eight-hour day clause in every U.S. government contract. In 1915 the La Follette Seaman's Act regulated safety, living conditions, working hours, payment terms, and food standards for maritime workers. The 1916 Adamson Act granted rail workers an eight-hour day and overtime pay. By 1920 the Supreme Court had upheld both the Seaman's Act and the Adamson Act as valid exercises of Congress's constitutional authority to regulate interstate commerce.

Between 1913 and 1918, 16 states had separately enacted minimum wage laws on behalf of women and minors, and Congress enacted a minimum wage law for women working in the District of Columbia. However, in Adkins v. Children's Hospital (1923), the U.S. Supreme Court found the D.C. women's minimum wage law to be unconstitutional. The Adkins decision, combined with the Court's earlier decision in Lochner striking down a state maximum hours law, diminished the prospects for successful implementation of any wide-reaching state or federal legislation governing labor standards.

In 1916 Congress enacted the Keating-Owen Act, the first national child labor law. By that time, almost every state had passed some form of child labor law, varying on issues of age, industries covered, and conditions. The national legislation established minimum acceptable child labor standards. The Supreme Court, however, ruled the Keating-Owen Act unconstitutional in Hammer v. Dagenhart (1918) on the grounds that congressional power to regulate interstate commerce did not extend to the conditions of labor. Congress responded to the Dagenhart decision by enacting the federal Child Labor Tax Law of 1919, which imposed a special excise tax on the profits of companies that employed children younger than 14 year in mills, workshops, or manufacture, or children younger than 16 in mines or quarries. The Supreme Court declared this law unconstitutional in 1922. Following these judicial reversals, efforts were mounted for a constitutional amendment to allow Congress to regulate child labor.

The onset of the Great Depression (1929-1940) exacerbated the harms caused by the abusive employment practices (e.g., substandard wages, excessive hours, unsafe working conditions, child and convict labor) that Congress and the state legislatures had been fighting since the beginning of the twentieth entury. Although such employment practices had always been harmful to the welfare of workers who labored under them, their additional harms to the national economy were amplified by two interrelated economic problems that erupted during the Great Depression: widespread unemployment and diminished aggregate consumer demand. In particular, national unemployment rates rose when employers largely ignored President Herbert Hoover's call to reduce excessive work hours and "spread the work around." The unemployment problem was further exacerbated by employment of child and convict laborers as low-wage alternatives to the employment of adult men. At the same time, substandard wages harmed the national economy by preventing workers from earning income sufficient to stimulate consumer demand.

To combat these harms, without waiting for any constitutional amendment, President Franklin Roosevelt and his allies in Congress enacted a comprehensive package of "New Deal" legislation during the 1930s, including a series of statutes that extended wage and hour protection and to an ever-expanding portion of the American labor force. The Public Contracts Act was one in that series of statutes and an important precursor to the Fair Labor Standards Act of 1938 (FLSA).

The first important "New Deal" labor statute enacted during the Great Depression was the Davis-Bacon Act of 1931, which required employers who won U.S. government contracts to construct, maintain or repair public works to pay their construction workers the prevailing minimum wage at the work site, as determined by local union contracts. These workers were protected by eight-hour days but not by 40-hour weeks. In enacting the Davis-Bacon Act, Congress relied on the authority of Atkin v. Kansas (1903), in which the Supreme Court had sustained a state law that prohibited private vendors working to fulfill state government contracts from requiring employees to work more than eight hours per day. Five years later, the Public Contracts Act would expand the Davis-Bacon Act's protections to all workers whose employers held government contracts.

In 1932 Senator Hugo Black (D-AL) introduced the Black-Connery bill, which would have mandated a 30-hour week for most U.S. laborers. The bill passed the Senate but died in the House of Representatives when both organized labor and the president shifted their support to the National Industrial Recovery Act (NIRA). NIRA, enacted in 1933, was a comprehensive labor law that vested organized labor with an ongoing role in setting legally enforceable labor standards on an industry-by-industry basis. Under share-the-work provisions of these codes, maximum working hours per week were generally set at 35 to 40 hours and minimum wages at $12 to $15 per week. In Schechter Poultry v. United States (1935), however, the Supreme Court struck down the NIRA as unconstitutional.

In 1936 the American Federation of Labor (AFL) called for minimum wage legislation for women and children—but not for men. Many union men preferred to secure their wages through collective bargaining, maintaining that "the minimum tends to become the maximum." That same year however, the Supreme Court in Morehead v. NY ex rel Tipaldo undermined the momentum toward enactment of such legislation when it held that neither the states nor the federal government could enact a general minimum wage law applicable to private sector employees.

Public Contracts Debate

The restrictive decisions of the Supreme Court in Schechter Poultry (1935) and Tipaldo (1936) did not surprise President Roosevelt or his secretary of labor, Frances Perkins. Rather, in anticipation of the Schechter decision, Perkins suggested reenactment of a more limited bill that would codify the labor standards that had been promulgated under the National Recover Administration (NRA; created under the NIRA). This time, however, the law would apply only to employees of private vendors working to fulfill federal contracts. Perkins's proposal was adopted in a bill introduced by Senator David Walsh (DMA). An amended Walsh bill, introduced in the House of Representatives in 1936 by Representative Arthur Daniel Healey (D-MA), was more narrowly drafted and did not rely on the NRA codes.

Two principal objections to the Public Contracts bill were raised during floor debate in the House of Representatives. First, Representative Earl C. Michener (R-MI), joined by Representative James W. Wadsworth Jr. (R-NY), claimed that the bill was a rear-guard effort to reinstate the NIRA, which had recently been declared unconstitutional. These legislators claimed that the two laws differed only in that the secretary of labor would determine industry codes under Public Contracts, whereas the NIRA had allowed each industry to determine its own code, subject to presidential approval. Representative Thomas Lindsay Blanton (D-TX) also characterized the Public Contracts bill as "another NRA in the miniature." Representative Clarence Hancock (R-NY) argued that the "meat in the coconut" of the Public Contracts bill was maximum hour and minimum wage legislation and that the bill would vest the secretary of labor with too much discretionary power to "unduly interfere with and harass businessmen." In Michener's words, "We want as few inspectors as possible from Washington swarming about the country, snooping into everybody's business and telling the honest community businessman just what he must do."

In defense of the bill, Representative William M. Citron (D-CT) countered that the bill did not regulate industry, interfere with business, or harass anyone. "It merely says that before anyone can make money out of the Government, or dip his fingers in the Government till, he shall maintain certain standards." Healey, the bill's sponsor, noted that it merely extended the prevailing minimum wage provisions of the 1931 Davis-Bacon Act to a wider class of employees of government contractors. He argued that the administration of the Public Contracts bill would be no more onerous than administration of Davis-Bacon, which had worked well.

Second, Wadsworth objected that 18 was too old a cut-off for defining child labor. Blanton claimed "the minimum age in the NRA bill was 16 years, and that was bad enough. . . . I have been the main breadwinner of a family ever since I was 10 years old, and I am proud of it." Representative John William Wright Patman (D-TX) argued that the precise age determination should be left up to the states.

Representative Walter (Clift) Chandler (D-TN) responded to these objections by proclaiming that "Boys and girls are not employed in factories because they are better workmen. It is because they are cheaper workmen and are paid less." Representative William P. Connery (D-MA) introduced an amendment to prohibit employment of males under 16 and females under 18. This amendment was adopted and remains in effect.

Despite these objections, Healey's amended Walsh bill passed Congress fairly easily. President Roosevelt signed the Public Contracts Act into law on 30 June 1936.

Administration of the Act

The Public Contracts Act vests the secretary of labor with power to make all rules, regulations, findings, and decisions under the act. Under a 1952 amendment, the secretary's actions are subject to judicial review.

The act had the immediate effect of smoothing a path for the broader FSLA legislation, although it eventually had an impact on the conditions of workers under employers with federal contracts. The FLSA became law in 1938 after the Supreme Court in West Coast Hotel Co. v. Parrish (1937) reversed its earlier decisions declaring state minimum wage laws unconstitutional. The FLSA extended maximum hours and minimum wages protections to most industrial workers employed in the private sector. It was sustained by the Supreme Court in United States v. Darby Lumber Company (1941).

After FLSA was enacted, the secretary of labor consolidated the administration of the Public Contracts Act into the Wage and Hour Division of the Employment Standards Bureau, which was created within the Department of Labor by the FLSA. Yet, despite the similarity of the FLSA provisions for hours, wages, and working conditions to those of the Public Contracts Act, organized labor supported retention of the Public Contracts Act as a separate law. The Public Contracts Act was seen as setting a national example of the government's commitment to fair labor practice, specifically in its own contracts.

Efforts to expand fair labor practices since the enactment of the Public Contracts Act have continued. Major post-New Deal landmarks include the Work Hours Act (1962), which ensures time-and-a-half pay for hours worked over 40; the Occupational Safety and Health Act (1970); and Executive Order 13126: Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor (12 June 1999). In Executive Order 13126, President Bill Clinton formally interpreted the Public Contracts Act to bar the U.S. government from contracting to purchase goods and services produced outside the United States from vendors whose employment practices in foreign jurisdictions do not conform to the act's standards. The FLSA, in contrast, does not govern the terms or conditions of any employment outside U.S. geographic territory.

Key Players

Healey, Arthur Daniel (1889-1948): Born in Somerville, Massachusetts, Healey was elected as a Democrat to the 73rd Congress and to the four succeeding congresses (1933-1942). He then accepted an appointment as judge of the United States District Court for Massachusetts. Healey served as a federal district judge until his death in 1948. Healey introduced the Public Contracts bill in the House of Representatives in 1936.

Perkins, Frances (1882-1965): U.S. secretary of labor from1933 to 1945. Originally from Massachusetts, Perkins graduated from Mount Holyoke College and trained as a social worker. She worked in settlement houses in Chicago and Philadelphia and was involved in reform efforts after the 1911 Triangle Shirtwaist Factory fire in New York City. She was the first female state Industrial Commissioner under New York governor Franklin Roosevelt, who later appointed her secretary of labor, making her the first female cabinet member. She championed labor and progressive reforms throughout the New Deal and until her death in 1965.

Walsh, David Ignatius (1872-1947): Born in Worcester County, Massachusetts, Walsh was elected as a Democrat to the U.S. Senate and served from 1919 to 1925. After failing to be reelected in 1924, Walsh was elected to the U.S. Senate in 1926 to fill the vacancy caused by Henry Cabot Lodge's death. Walsh retook his seat on 6 December 1926, and was reelected in 1928, 1934, and 1940 for the term ending in January 1947. He died in Boston in 1947. Walsh introduced the Public Contracts bill in the Senate in 1935.