The federal government last week stopped all payments to a Bremerton-based Puget Sound Naval Shipyard contractor after citing violations of federal law.

The Department of Labor on Sept. 1 told PSNS to withhold all payments from Puget Sound Environmental for violations of federal worker protection laws, according to a PSNS official.

Gary Whitehead, the shipyard contract services officer charged with overseeing the contract, said that along with the request, his office received instructions to deposit the money in a Department of Labor account for distribution to workers with claims against the company.

The letter specified that the company had been found in violation of the McNamara-O’Hara Service Contract Act, Whitehead said. The act specifies that employees of federal contractors be paid a prevailing wage, Whitehead said, and that they also be given either health coverage or a cash equivalent.

When asked for a copy of the letter, Whitehead said that his office had been instructed by the DOL not to release information on the case, and that a Freedom of Information Act request would have to be filed.

The DOL did not return calls for comment on the issue.

Puget Sound Environmental CEO Carlos Moreno Tuesday acknowledged that his company was under investigation. He said the DOL had met him and Lopez Monday and laid out breaches of the minimum wage, hazard pay, and health benefits section of the Service Contract Act.

Rick Lopez, a director at PSE, said Sept. 9 that earlier in the day the shipyard had canceled its weekly personnel order with the company.

In response to the cancellation, he said, PSE was laying off the eight non-administrative employees that remained after a larger round of scheduled mid-August layoffs.

Moreno said the hazard pay violations were the result of a misunderstanding of the nature of the work on the part of the investigator, and that the minimum wage issue resulted from a misclassification in the original contract of the work being done.

Lopez admitted some violations of the law had occurred when the company allowed its insurance coverage for the employees to lapse, but only for three months at the start of the year when the company switched insurance providers.

Outside Lopez’ office, former employee John Norman waited with questions about a photocopied check he received in place of a paycheck.

Lopez said that since the shipyard began withholding payment on the company’s invoices, employees were temporarily being issued photocopied checks as IOUs.

Blake Larson, formerly PSE’s accounting administrator, said that he left the company in July after he realized that the company was funneling workers’ health insurance payments into a company operated in the name of the son of the PSE President Carlos Moreno and did not hold federally-required longshoreman’s insurance for its shipyard workers.

Larson said the company also broke an agreement it made with him about pay.

Larson, who worked at PSE from October 2010 through July of this year, said that he was responsible for maintaining the company’s financial records.

During the ten months he worked there, Larson said he saw payments for golf memberships, health insurance payments for the Morenos, for the Carlos Moreno’s horse breeding business, and for personal vehicle insurance for the family, but never for longshoreman’s insurance.

Larson said that a company called More Support Services was contracted to provide health insurance for his company’s workers, but that More was owned by a Moreno family-member. Initially, he said, it was under the name of “Carlos Moreno,” but soon after his arrival Moreno’s son David took over running it.

When employees tried to use the insurance, Larson said, instead of going to More Support Services, the bills eventually made their way onto his desk at PSE. Then, Larson said, Moreno would sometimes pay them directly out of PSE’s accounts, sometimes out of More’s accounts, or sometimes not at all.

When he left the company in July, Larson said, the company had already been found by the Department of Labor in a previous audit to owe more than $320,000 in unpaid health benefits.

Jeff Pritchard, who started as a laborer and  worked his way up to a managerial position, called PSE’s healthcare “a joke.”

The company switched providers five times duing the three years he worked there, Pritchard said. Pritchard tried to use the different plans six times, but every time he received notices from the provider that the insurance account didn’t exist.

Bills for all six visits were eventually payed by PSE directly, Pritchard said.

Money was also taken out of former employee Jonathan Simpson’s paycheck for coverage.

But when Harper was assaulted in January, four months after starting work, and ended up with a $7,487.24 hospital bill, PSE told him that his coverage had been stopped, he said.

That didn’t stop them, he said, from continuing to take money out of his paycheck for it each month, all the way through April, when he left the company.

The bill, Simpson said, has since gone to collections, but he hasn’t heard anything from PSE.

“You don’t forget a number like that. Not when they’re saying you owe us all this money,” said Simpson.

Lopez admitted that the company had left “a few” bills unpaid, but only when in employees sent in bills too vague to justify payment.

The Kitsap County Prosecutor’s Office did not return calls for comment on whether it was looking into any aspects of the case.

Beyond a conspiracy amongst disgruntled employees, Lopez said he could not understand why anyone would feel cheated by the company.