Our readers know all too well that the problem of payroll fraud, or worker misclassification, has become a cancer for the construction industry and that quite a few states have made moves to try to deal with the problem. Now, it appears there may be a legitimate effort in Washington to try to deal with it at a federal level.
From McClatchy News:
“Senator Bob Casey, D-PA, estimates the payroll theft has cost taxpayers tens of billions of dollars. He introduced legislation November 12 that would make misclassification a violation of the Fair Labor Standards Act, would assign penalties for each case of payroll fraud and would create rights for employees to know what their status is and require employers tell workers their status. ‘I think a lot of people would be stunned to learn that under current federal law it is not a violation of the Fair Labor Standards Act to engage in this kind of misclassification, this kind of fraud,’ Casey said in an interview after the hearing. ‘It should be illegal and it’s unfortunately not unless you violate some other law.’”
Casey and other lawmakers last week heard from business owners and workers who have been harmed by the practice during a Senate hearing.
Daniel Odom, the COO of Odom Construction Systems in Tennessee, told the committee that “the prevalence of those (unethical) players in the market, coupled with reduced opportunity overall due to recession, is phasing out law-abiding businesses like ours until there won’t be anything left but the bad operators. If we wait until that happens, then when action comes, it will be too late. Trades people are leaving our industry en masse to seek employment in other safer industries with wages that haven’t been beaten into the ground by the criminal operators. This is not going to be a light switch we can turn back on and fix once the workforce disappears. Without action, construction stands to go the way of many elements of manufacturing in our country’s history. Yet, this time, it is not being sent overseas. It is happening right under our noses on our soil, and it is hurting workers and their families, as well as shutting down a whole industry of contractors that believe in building middle-class jobs and who are just trying to do things the right way and make a reasonable profit to support their own families.”
A carpenter from Michigan named Matthew Anderson also testified before the committee and I'd like to share a lengthy excerpt from what he said. It's important to understand just how this problem affects real people:
“My carpentry work was in the high-skill end of the trade; installing interior trim, like crown molding. My employer was Rush Construction Services, Inc. Rush had a contract with the carpenters union, and they paid me an hourly wage with health and pension benefits. There was training, daily instructions, and I was supplied with building materials, power tools and other construction equipment. When I made mistakes or didn’t meet production quotas I got a tongue lashing. Rush deducted income taxes, paid employment taxes, paid unemployment contributions, time-and-a-half for overtime, and provided workers’ compensation protection. In other words, I and my fellow workers were employees. That is how it was for six years.
“But things changed for the worse. The recession cut into Rush’s bottom line and they were having problems competing for jobs. Marty Stuedle, an owner, and Dave Marracco, his right-hand man, told the Rush workers that they wanted us to switch over to another company they jointly owned called Dave & Marty, Inc. (DMI). We were given a choice: work for DMI as independent contractors or don’t work at all. There were five Rush field employees at the time. My fellow workers and I had families to support and we saw how bad the economy was, so we went along with it. Marracco and Stuedle told us to register as d/b/a’s (a doing-business-as persons). I passed the instructions to my wife and she did the registration. I was never incorporated. I never had a business card or operated a business. Still that simple and solitary d/b/a registration would come back to haunt us. DMI knew what they were doing.
“DMI’s official address was David Marracco’s house, but the actual business office was still Rush’s. I worked for DMI for 2½ years. I was paid by the hour, I received training, daily instructions and building materials, power tools and other construction equipment. When I made mistakes or didn’t meet production quotas I received a tongue lashing. So, I was still treated the same as before, but instead of being an employee and receiving a W-2 at the end of the year I received a 1099 form. There were no more deductions from my pay. I paid my portion of employment taxes and I paid DMI’s as well. There were no more health and pension contributions, and we didn’t get time-and-a-half for overtime.
“Then came the injury. On February 9, 2011 my left hand slipped into a table saw blade, severing my ring finger and severely injuring three others. Our lives were changed forever.
“I was rushed to the hospital for surgery to save my hand. While there, I was told that the bills would not be covered by workers’ compensation insurance because I was an independent contractor. There would be some help from health insurance my wife and I had, but I had to pay them back. My medical treatment was long and painful. So far I’ve had eight surgeries and I need one more. The damage was so bad that bones had to be taken from my wrist, hip and a cadaver for reconstruction.
“I couldn’t work, and medical bills piled up and were in the range of $100,000. That is more than my wife and I make in an entire year. I got an attorney and filed a workers’ compensation claim. DMI had workers’ compensation, but they refused to pay, claiming I was an independent contractor. Because of the d/b/a filing, my attorney said we would probably lose the case, and he advised me to settle. We eventually settled with DMI and their insurance carrier, but they bargained hard, and I didn’t get enough money to pay all of the medical bills or make up for my lost time. My wife and I were left with $25,000 of bills to pay.”
I hope Senator Casey is sincere in his efforts and that Republicans and Democrats alike join together to solve the problem. We'll monitor the bill's progress on the Hill for you and report back here on Construction Citizen. In the meantime, you can listen to the entire hearing including the above testimonies in the hour and ten minute video published by C-SPAN, and as always, your comments are welcome.
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