As we've written numerous times, a primary way to deter cheating in the labor market in construction is for the hammer to be dropped on companies that don't follow the law. All too often, ethical contractors that properly classify their workers as employees are bidding against companies that can offer customers a lower price because they're paying people as “independent contractors” or, in an interesting twist, as “member/owners.” This misclassification gives cheaters a competitive advantage that they should be punished for, plain and simple.
That was the case with an Arizona company that was on the hook earlier this year for $600,000. The National Roofing Contractors Association reported the case on the group's website:
“As a result of a Wage and Hour investigation, Paul Johnson Drywall Inc., Prescott, Arizona, severed its relationship with Arizona Tract LLC., Phoenix, a construction labor contractor. Beginning April 2013, Paul Johnson Drywall entered into a contract with Arizona Tract for the provision of drywall labor. Arizona Tract classified former Paul Johnson Drywall workers as ‘member/owners’ instead of employees, which stripped them of basic worker protections afforded to employees.
“On May 19, the Department of Labor filed a consent judgment in the U.S. District Court for the District of Arizona by which Paul Johnson Drywall and its owner Robert Cole Johnson agreed to take concrete steps to ensure misclassification of the company's workforce does not happen again and to pay $556,000 in overtime back wages and liquidated damages to at least 445 current and former employees. The employer also agreed to pay $44,000 in civil monetary penalties.
“‘This case exemplifies our commitment to eradicating unfair competition and pay schemes that result in employees not getting their fair pay for honest, hard work,’ says Administrator of the Wage and Hour Division David Weil. ‘Employers in this industry and others should take notice that we will not tolerate the misclassification of employees as independent contractors, and we will use all legal remedies available to recover unpaid wages for these workers.’
“The judgment resolves an investigation by the department's Wage and Hour Division in Phoenix that began to look into construction contractors Arizona Tract solicited. Investigators found the drywall contractor violated the Fair Labor Standards Act's (FLSA's) overtime and record-keeping provisions.”
The company wasn't merely on the hook for monetary damages:
“Paul Johnson Drywall also agreed to implement an educational campaign to promote awareness of the importance of compliance with the FLSA in the Arizona residential construction industry. In the months ahead, Paul Johnson Drywall will make presentations to local home builder associations, addressing the importance of properly classifying and paying workers in the drywall industry as employees and identifying the costs workers, taxpayers and law-abiding employers – because of the resulting unfair competition – endure from the unlawful misclassification of employees as independent contractors.
“Under the FLSA, employers must distinguish employees from bona fide independent contractors. The inquiry to determine a worker's status as employee or independent contractor is whether the worker, as a matter of economic reality, is dependent on the employer or in business for himself. For more information, click here.”
The Department of Labor is catching some of the cheaters, but states could do more to combat the problem as well.
Tennessee has gotten really aggressive about it, and Texas is taking what I'd describe charitably as baby steps. It is encouraging to see the Texas House taking a fresh look at the problem. Perhaps when lawmakers reconvene next year, they'll get serious about dealing with those who cheat workers and taxpayers alike.
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