Misclassification of Workers (Part 2)

Mark L. Johnson / September 2015

Reputable drywall firms would benefit if most, if not all, construction companies classified their workers as employees. A misclassified employee—one paid in cash as an “independent contractor” and offered no benefits—can save an exploiting company 30 percent in payroll taxes and labor, and that’s not fair. It’s also fraudulent.

Can we fix this problem?

Community Conscience    
Last month, I wrote about the United States Department of Labor’s Wage and Hour Division and its efforts to enforce proper pay. Now, I’d like to write about you—the private sector—joining the action.

“The important players in construction want to live by the rules and not have ‘mis-classifiers’ drive the market,” says David Weil, Ph.D., administrator at DOL’s Wage and Hour.

Indeed, a kind of “building community conscience” with respect to mistreated workers has developed in certain areas.

Phoenix labor officials in 2013, for example, formed the Employee Misclassification Compliance Assistance Program. But EMCAP is not just for regulators to use to police misclassification. No, the program is designed to be collaborative, so that government and the private sector together can straighten up worker mistreatment.

“We have interesting things happening in the contractor community in Phoenix,” Weil says. “Leading general contractors there have made it clear that they only want to work with subcontractors who are following the law.”

Weil likes to see such joint initiatives and says Wage and Hour’s district director in Phoenix works closely with EMCAP’s steering committee.

“It’s a powerful model that speaks to another way that we work,” Weil says. “Aggressively with our enforcement tools, but also aggressively in this kind of outreach—working with employers to make the responsible road the best road in construction.”

Another initiative has emerged in Houston. It’s called the Construction Career Collaborative, or C3. Stan Marek, president and CEO of Houston-based Marek Family of Companies, says C3 includes project owners, general contractors and subcontractors who agree to provide workers with hourly wages, overtime and training. Marek says C3 is making a difference on high-profile Houston building projects.

In the Crosshairs?
Clearly, momentum over righting employee classification wrongs is growing.

In the past year, independent contractor misclassification lawsuits have hit many high-profile companies, including DirecTV, FedEx, Lowe’s, Macy’s, the NFL and more. Class action lawsuits have been brought in the freelance “gig” economy against Google, Lyft, Uber and others.

In a case in Nederland, Texas, reported in May, Specialty Painting & Wall Covering, Inc. and M&S Enterprise paid 22 painters and gypsum board installers $108,783 in overtime back wages after an investigation by Wage and Hour.

Last year, a nearly five-year federal investigation of illegal practices by 16 defendants in Utah and Arizona yielded $700,000 in back wages, damages, penalties and other guarantees for more than 1,000 construction industry workers, states a Wage and Hour news release. Also last year, General Interior Systems, Inc., Liverpool, N.Y., agreed to pay $380,000 in back wages to more than 300 employees misclassified as independent contractors, and Summit Drywall, Inc. in Seattle was ordered to pay $550,000 in unpaid wages and damages to 384 workers, according to Wage and Hour releases.

Momentum is growing so much that disreputable companies should worry about being in the crosshairs of regulators. Richard Reibstein, partner at Pepper Hamilton LLP, has assembled an industry “hit list” on forbes.com. Reibstein reviewed public statements, press releases and congressional testimony made by federal officials. Several industries are at risk, he says. He names the construction industry among them.

Now, Weil never mentioned to me that construction companies are a special target for Wage and Hour, but he did say the agency has set high goals.

“We are not just seeking the back wages the workers deserve,” he says, “but we are also trying to absolutely end the practice of changing employees into independent contractor companies.”

That gets my attention. How about you?

Mark L. Johnson tweets at @markjohnsoncomm and connects at linkedin.com/in/markjohnsoncommunications.

Payroll Fraud?        
Call Wage and Hour at 866-4US-WAGE.
Visit Wage and Hour at dol.gov/whd to learn more.