Test-y Rules: Employees of Accurate Balancing Agency, like Mike May, are at the crux of a pay debate between company owner Alan Penson and state regulators. IMAGE: chrisryanphoto.com

It’s not pretty watching a small-business owner get crushed by a state agency.

But that’s what’s happening to Alan Penson, who owns Beaverton-based Accurate Balancing Agency Inc. Over the past four years, Penson paid his employees based on a ruling in a 2003 letter from the Oregon Bureau of Labor and Industries, which administers state employment laws.

Now, BOLI says that crucial 4-year-old ruling is invalid and that Penson must pay two ex-employees three years’ back wages and penalties totaling nearly $100,000.

That’s about 15 percent of his company’s annual gross revenues. Penson says the retroactive ruling could devastate his operation, as well as those of other competitors who similarly bid on government contracts based on BOLI’s earlier conclusion.

“All I’ve ever done is followed their ruling,” says Penson, 55. “Now they’re trying to put me out of business.”

Penson’s company is one of a dozen or so small firms in Oregon that test and balance new heating, ventilation and air-conditioning systems.

His predicament carries larger implications beyond financially crippling the state’s independent testing firms.

If BOLI prevails, the result will be slightly higher costs for taxpayers on public works projects, Penson says. Perhaps most troubling, says Penson attorney Amanda Gamblin, is the precedent this would set, allowing BOLI to apply new interpretations of wage rules retroactively.

“Can you imagine having gone to a state agency for a ruling, only to have that agency say, ‘Forget what we said, you owe three years back wages and penalties’?” says Gamblin, who regularly represents clients before BOLI.

At issue is the “prevailing wage” rate overseen by BOLI that governs most public sector contracts in Oregon. That essentially means workers doing manual labor—rather than “mental, professional or managerial” work—must be paid according to union scale.

In 2003, Penson asked BOLI if he should be paying his employees prevailing wage on public sector work.

“Testing and balancing of HVAC controls, following the installation of the HVAC system, is not manual or physical in nature and is considered professional and, therefore, not subject to” the prevailing wage rate requirements, responded BOLI’s Dana Woodward in a January 2003 letter.

Other testing and balancing companies told WW they had received similar letters as long ago as 1983 and as recently as 2006. “BOLI has been very consistent on that point,” says Greg Pelser, president of Hunter-Davisson Inc., a Portland HVAC contractor.

But early this year, two of Penson’s employees filed prevailing-wage complaints with BOLI for work his company did on new prison construction in Madras.

On April 6, BOLI investigator Gerhard Taeubel wrote Penson that the work should be considered manual labor because it involved “making physical adjustments to a system,” after measurements had been taken. Thus, it was covered under prevailing wage, and BOLI ultimately determined that Penson owed back wages and penalties.

“I’ve had to let a couple of guys go, and I’ve spent a couple hundred grand in legal fees I don’t have,” Penson says. “What BOLI is doing to my company is just not right.”

His attorney argues BOLI is treating Penson unfairly by invalidating its earlier letter to him without warning and then slapping him with retroactive penalties.

Christine Hammond, administrator of BOLI’s wage and hour division, says the fault is Penson’s. She says BOLI officials observed the complainants’ work and determined it was “manual labor rather than technical.” Hammond says BOLI’s previous letters were based on the companies’ characterization of the work, rather than the agency’s own observations.

“We were told that the work was technical,” Hammond says. “That may not have been accurate.”

Hammond says BOLI can make companies pay up to six years in back wages if workers were improperly classified. No decision has been made about whether to go after the other testing companies.

Testing-company owners say they’ll pay prevailing wage going forward for testing workers. But they strenuously object to BOLI’s plan to lump testing workers in with the sheet-metal workers who build HVAC systems. “The training is totally different, and the job is totally different,” says Denny Whitzel of Pacific Coast Air Balancing.

Willy Myers, business agent for the 2,200-member Sheet Metal Workers Local 16, disagrees. “The BOLI definition of testing and balancing dates from the 1950s,” Myers says. “And it’s finally being updated.”

Pelser of Hunter-Davisson says BOLI Commissioner Dan Gardner, a former electrical union official, is building political capital with trades unions by forcing a reclassification of HVAC testing work. Under Gardner’s leadership, BOLI has moved aggressively to expand the scope of prevailing wages, losing lawsuits against the City of Salem and the Portland Development Commission, but winning in the Legislature.

“Politically, there’s only upside for Dan in this move,” says Shawn Miller, a lobbyist for Associated Builders and Contractors, which opposes the reclassification to sheet-metal workers.

Hammond, Gardner’s deputy, counters that a committee Gardner formed to settle the reclassification dispute consists of six union members and six testing-company owners. “Dan could have just done the reclassification and said, ‘That’s our position.’’’ Hammond says. “Instead, he set up this committee to find a compromise.”

Penson is negotiating a settlement with BOLI.