Fraud Case Against Bus Maker Shows Risks of Pay Promises in City Contracts

In recent decades, government agencies across the country have used their buying power to benefit American workers.

When cities begin development projects or buy expensive equipment, they sometimes award contracts or subsidies contingent on job creation, or they impose wage requirements. The Obama administration required federal contractors to pay workers more than $10 an hour and to provide paid sick leave.

But enforcing such provisions can be a challenge, especially for local governments. Now, a fraud complaint against a major contractor is raising questions about the effectiveness of such commitments and the viability of the overall approach.

The contractor, New Flyer of America, a subsidiary of one of North America’s largest bus makers, is a supplier to New York and other major cities. In a 2012 proposal to the Los Angeles County Metropolitan Transportation Authority for an order of up to 900 buses, New Flyer said it would create more than 50 full-time positions that paid $11 to nearly $50 an hour.

New Flyer won the contract, worth about $500 million. But the company did not pay the wages it said it would and misrepresented the value of the benefits it was providing, according to pay stubs and corporate reports recently unsealed in the fraud case.

“It was a commitment — it matters,” said Madeline Janis, the executive director of Jobs to Move America, the nonprofit group that filed the complaint against New Flyer in California state court. “This case is about holding a huge company’s feet to the fire.”

Jobs to Move America helped devise a model, applied by a number of agencies, in which manufacturers of public transportation equipment commit to creating American jobs as part of the contracting process. It helped persuade the Los Angeles agency, known as L.A. Metro, to link its purchasing to job commitments in a 2012 rail-car contract. The New Flyer contract took effect a short time later, in 2013.

Since then, at least eight other agencies — including New York’s Metropolitan Transportation Authority, the Chicago Transit Authority and Amtrak — have sought promises from transportation contractors to create manufacturing jobs using the template that Ms. Janis’s group developed.

Timothy J. Bartik, an economist at the Upjohn Institute in Michigan, said that the approach would most likely result in higher costs for government agencies, because companies bidding on contracts would probably raise prices to help finance the jobs they pledged to create. But he said it was plausible that the economic benefits would exceed the costs, and that the manufacturing jobs would probably provide some social benefit, too.

The New Flyer bid laid out the number of full-time-equivalent jobs the company planned to create and tallied the dollar value of the wages and benefits the workers in those jobs would receive over the contract’s life. L.A. Metro then applied an economic multiplier to estimate the overall value of the jobs: nearly $18 million.

The agency deducted the amount from the price when evaluating the company’s proposal, which widened its advantage over the next lowest bidder.

In its complaint, Jobs to Move America contends that New Flyer submitted at least two types of false information to L.A. Metro.

The company stated in its proposal that more than 90 percent of its new jobs in California would pay at least $18.35 an hour. But in quarterly progress reports to L.A. Metro in 2014, New Flyer said that most workers were earning $17 an hour or less.

In the same reports, the company said that the workers’ benefits were worth $11.75 an hour, or about $2,000 a month. But pay stubs and other documents obtained by Jobs to Move America and reviewed by The New York Times show that the benefits were typically worth half that at best. (The group does not accuse the company of falling short on the number of jobs it created.)

Lindy Norris, a New Flyer spokeswoman, said that the company believed it had “fulfilled the terms and conditions” of its employment commitments. She declined to comment on pending litigation but said that the company would “vigorously defend this action.”

L.A. Metro declined to comment, citing the pending litigation. Jobs to Move America is bringing the complaint on behalf of the agency and the state under a whistle-blower provision of an anti-fraud law.

Debbie Pitts, who worked at the New Flyer plant in Ontario, Calif., that completed production of the buses for L.A. Metro, was hired late in 2013. Her job was to put final touches, like decals, on buses and deliver them. According to a letter the company sent her on Dec. 2, 2013, her starting wage was $17 an hour, over $1 less than New Flyer had said it would pay such workers.

Ms. Pitts saved many of her payroll stubs, which itemized the value of her benefits and showed that they were typically worth less than $500 a month. The value of her benefits was lower than the benefits some of her colleagues received because she declined health insurance.

But documentation for nine workers at a unionized New Flyer plant in Minnesota show that the company typically spent $500 to $1,000 a month on health insurance for workers making similar wages.

Ms. Pitts, who left New Flyer in 2017, said in an interview that the payroll stubs reflected all of her benefits, except for the occasional hat, cup or T-shirt that the company gave out. As for the $2,000 in monthly benefits that New Flyer reported, Ms. Pitts said, “That was outrageous for them to even say that.”

The New Flyer contract with L.A. Metro has ambiguous language about whether the company was obligated merely to deliver a certain aggregate level of compensation or — as Jobs to Move America argues — to deliver specific wages and benefits to workers in specific job categories.

Either way, New Flyer submitted false information about employee benefits in its quarterly statements, according to the complaint.

California’s False Claims Act, under which the complaint was brought, bars fraudulent claims for payment from the state and local governments. Stephen M. Kohn, a lawyer who represents whistle-blowers and has brought numerous false-claims cases, said that failure to live up to wage commitments would be a potential violation, as would submitting false reports showing compliance.

If Jobs to Move America prevails, New Flyer could face significant penalties, including up to $11,000 for each false claim, and possible damages tied to underpayment of workers or harm to the government agency.

New Flyer is not the only company whose compliance with a contract Ms. Janis’s group has questioned.

In an earlier case in Los Angeles, Jobs to Move America alerted city and state authorities that another bus manufacturer, the Chinese company BYD, had hired fewer workers than it promised and had paid workers less than the required wage for employees of companies receiving city contracts or subsidies.

BYD said at the time that it intended to hire more workers and that it believed it was exempt from the so-called living-wage rule. The dispute was effectively resolved after BYD reached an agreement with a group of nonprofits and unions, which led to better pay for workers.

Ms. Janis said the New Flyer case and others like it showed that public agencies could not simply write provisions into contracts and expect companies to honor them.

“They make deals with public agencies and promise whatever, and think they don’t have to follow through,” she said.

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