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Tennessee’s Worker Misclassification Crackdown is Already Making a Difference

The Construction Citizen team has been tracking the progress of worker misclassification laws across the country, including the newly minted crackdown in Tennessee.  Elizabeth McPherson wrote about that when it was first passed last year.  Now we get word out of Nashville that a drywall contractor based in Music City has agreed to pay more than $300,000 in penalties for understating his payroll and misclassifying workers to avoid paying the required taxes and workers compensation insurance.

Here’s a copy of the settlement.

More from Bloomberg News:

“A settlement between the labor department and TJ Drywall and its owner, Rafael Jimenez, was reached under the state's new law allowing the agency to impose penalties on construction companies that misclassify workers (59 CLR 419, 5/30/13).  The law took effect July 1, 2013.

“An investigation led by the Workers Compensation Division of the labor department found that TJ Drywall was only paying 5 percent of what was required to fulfill workers compensation and unemployment insurance premium standards while doing business from July 1, 2013, through May 1, 2014.

“According to the labor department investigation, TJ Drywall workers were misclassified as contract workers instead of full-time employees.  Scott Yarbrough, an attorney who represented the Workers' Compensation Division, told Bloomberg BNA June 18 ‘It is estimated that payroll for approximately 80 employees was not disclosed, resulting in a large underpayment of premium to the insurance carrier.  The statute defines underreporting of payroll or using a less risky class code as a misclassification in violation of the law.’

“Jimenez agreed to resolve the matter by paying $303,319 to the labor department, $40,000 of which was scheduled to be paid before May 15 and an additional $30,000 scheduled for payment June 15.

“The settlement states that Jimenez will begin making monthly payments of about $6,000 beginning Nov. 15, 2014, and continuing until the remaining penalty is paid off.

“Jimenez June 17 told Bloomberg BNA that his company currently employs about 12 workers and continues to work with several subcontractors on various projects.  Jimenez did not comment on the settlement.”

Back here in Texas, Governor Rick Perry signed a targeted crackdown on misclassification into law this past year but, as we’ve told you many times, much more needs to be done.  The Texas House is studying whether to go forward with a broader crackdown of the type pushed in the Texas Senate by Senator John Carona, R-Dallas.

Though worker misclassification is rampant in construction, it is not confined to the industry.

Don Dyer, an executive at Professional Janitorial Services, told lawmakers in April that his company operates in major cities around Texas, with the exception of the Dallas/Fort Worth area because “you cannot do business in Dallas, Texas unless you operate illegally.”  He said that his company has enjoyed great expansion as the Texas economy has grown, but there has simultaneously been a huge increase in the number of companies cheating taxpayers and undercutting ethical businesses.  Calling the trend “alarming,” Dyer pointed out that misclassification is already illegal, but “because of weak enforcement mechanisms, there are virtually no tangible consequences for violating the law.”

Dyer is right.  Without consequences that can be felt – like having to pay a $300,000 fine – lawbreakers will continue to roam free in Texas while ethical operators will struggle to stay in the field.

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