Michigan Legislature Considers Package of Bills Addressing Wage Theft, Independent Contractors, and Noncompetes (MI)

Posted by National Alliance for Fair Contracting on

The National Law Review
Friday, September 6, 2019

On August 29, 2019, legislators from the Michigan House of Representatives announced an ambitious package of 12 bills aimed at creating new criminal and civil penalties to combat employers that fail to properly pay wages and overtime pay. The legislation would also establish enhanced protections and penalties under Michigan’s whistleblower statute and create new civil remedies against employers for overzealous enforcement of noncompete agreements and for misclassifying employees as independent contractors.

Background

The bills’ highly publicized announcement, which was coordinated with local labor union leaders to occur just before the Labor Day holiday, aligns with Michigan Attorney General Dana Nessel’s Payroll Fraud Enforcement initiative. Nessel introduced the initiative in April 2019 when she created a payroll fraud hotline for reporting suspected violations of existing payroll and wage theft laws in effect in Michigan.

The new legislation would make employee-friendly modifications to several Michigan statutes, including the Payment of Wages and Fringe Benefits Act (PWFBA), the Whistleblowers’ Protection Act (WPA), the Michigan Antitrust Reform Act (MARA), and the Improved Workforce Opportunity Wage Act (IWOWA), and would amend the Michigan Code of Criminal Procedure to create a new felony offense for employers that commit a second or subsequent violation of certain provisions of the PWFBA.

Summary Analysis of the Bills

Below is a summary of the initial drafts of the ten House bills in the package that would have the most significant effect on private employers. It is important to note, however, that these are initial drafts of proposed legislation and are a long way from being enacted into law, especially given the current composition of the Michigan Legislature. However, the intense interest from the attorney general’s office and any changes in the makeup of the House and Senate could give the bills momentum.

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Final Thoughts

As Jimmy Stewart taught us all in his 1939 film Mr. Smith Goes to Washington, bills introduced on the legislative floor have a long way to go before they become law. To be sure, the potential for civil fines ranging from $5,000 to $10,000 per violation, mandatory assessment of attorneys and lost wages, and the possibility of felony criminal penalties make the legislative package something that will garner a lot of attention. Moreover, given the intense interest from the attorney general’s office and Michigan labor leaders, it is unlikely that the bills will die without significant debate and perhaps some provisions being passed into law.

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Lawmakers: Misclassifying workers costing millions in revenue (PA)

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Bucks County Reps. John Galloway, Perry Warren and other area legislators support bills that would address the problem of misusing the independent contractor designation.

By Chris English
Posted Sep 4, 2019 at 3:11 PM

Misuse of the independent contractor designation for workers, primarily in the construction industry, is costing the state and federal governments a combined total of about $300 million in lost revenue, two local state lawmakers said during a news conference Wednesday.

State Reps. John Galloway, D-140, and Perry Warren, D-31, are pushing for passage of two pieces of legislation that would address the problem. One, House Bill 716, would establish a joint agency task force on employee misclassifications. The group would investigate the practice and work toward creating solutions to reduce misclassification throughout Pennsylvania. That bill recently passed the House 198-0, Galloway said.

The other proposed bill, HB 715, would among other provisions tighten the definition of what constitutes an independent contractor to only allow use of the term if a worker’s written contract is project and time specific, with no exceptions.

Also attending the news conference, held at Galloway’s Falls office, to speak in support of the bills were Bryan Allen, chief of staff for state Rep. Tina Davis, D-141, of Bristol Township; Amy Masgay, legislative assistant for state Sen. Steve Santarsiero, D-10, Lower Makefield; and union carpenter Kevin Morrow of Perkasie.

Improperly designating workers as independent contractors gets employers out of paying health and worker’s compensation insurance. If those workers are injured, those needs are often taken care of by the state or federal governments and that places additional burdens on taxpayers, Galloway and Warren said.

Misclassifying workers also leads to the nonpayment or underpayment of state and federal income taxes, they added. The millions in lost revenue could be going toward improving schools and infrastructure and other areas, the two lawmakers said.

“This is done deliberately to cut labor costs, pay less in taxes and avoid paying our working class a fair compensation,” said Galloway, of Falls. “This is a practice that hurts the workers who are entitled to the benefits they’ve rightfully earned, their families that they work hard to provide for, and our economy.

“Employee misclassification is nothing less than theft from our families, friends, neighbors and coworkers, and it creates an uneven playing field for law abiding businesses.”

The state has laws on the books to address the problem, but they aren’t strong or detailed enough and the state Department of Labor doesn’t have enough “boots on the ground” to properly enforce them, Galloway said.

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Games Contractors and Subs Play – Thinking about Playing the Wage Theft Game? Think Again

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by Jim Kollaer | May 23, 2019

We have posted in the past about the Wage Theft Game and how rampant it is in construction around the globe. Globally, this game is played through the use of forced labor, conscripted labor, labor trafficking and a variety of other less than honest methods. Government officials in some second and third tier countries around the globe take bribes, kick-backs, endorse nepotism, make deals with the cartels and generally use a variety of illegal and underhanded methods to get projects built. Those projects range in size from major infrastructure projects such as bridges, dams, highways to palaces, second homes, schools and individual homes.

So, it is no wonder that many Contractors and Subs have either borrowed or brought with them the methods of the Wage Theft Game to the construction industry in the United States. Owners and investors may or may not know that these games are being played on their projects and we thought that we would reiterate some of the ways that Wage Theft games are being played on projects in your local market so that you would recognize it when you see it being played.

There are generally four variants of the Wage Theft Game that we see in our markets and that are defined in a recent article in Construction Dive. Those include non-payment, underpayment, misclassification and unauthorized deductions. Let’s take a quick look at each of them to see what they look like.

Non-payment – This one is relatively straightforward. Workers or subs do the work and the contractor or owner refuses to pay for that work. In today’s marketplace where we are seeing tight labor markets, contractors and subs are getting away with it as the result of the wider use of illegal workers – workers who have no recourse when a sub or contractor withholds paychecks and tells the illegal workers that if they complain that the Contractor will call ICE on them and their families and see that they are sent back to their home countries.

Underpayment – Many contractors and subs underpay their workers by using the “sub-sub” method where the prime sub gets a project for a specific bid or negotiated price and then subs the work to another work crew for a lower price and tells that crew that, ” I only have X dollars in this job and you can have it if you take it for that price.” The crew and the craft workers get shorted either by hourly rates or by flat rates for the project while the prime makes profit on the spread.

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Dept. of Labor forces contractor to pay New Orleans laborers $180,000 back pay, follows class action lawsuit (LA)

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BY ANTHONY MCAULEY
MAY 21, 2019 – 2:06 PM

The U.S. Department of Labor said Tuesday it had forced a Florida-based contractor, Gomez Drywall Construction Inc., to pay 108 Louisiana-based workers nearly $180,000 in back pay for breaking federal rules on overtime compensation.

The Department of Labor said the action followed an investigation into claims Gomez misclassified workers as independent contractors and subsequently failed to pay them overtime when they worked more than 40 hours in a workweek, a violation of the Fair Labor Standards Act.

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Lawmakers to vote to make wage theft a felony crime in Minnesota (MN)

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Law also increases state’s budget for enforcement.

By Stephen Montemayor
MAY 23, 2019 – 8:40PM

Minnesota lawmakers and labor groups hailed a bipartisan agreement Thursday to hold employers responsible for holding back workers’ wages, one of the nation’s firmest policies to beat back wage theft.

For the first time, refusing to pay workers would be a felony under an agreement lawmakers plan to vote on in special session. The law would also broaden the state’s ability to prosecute employers in an effort to prevent the loss of an estimated $12 million in unpaid wages from roughly 39,000 Minnesota workers each year.

“In my view it’s the best piece of policy legislation that’s going to pass and I’m very happy about it,” Attorney General Keith Ellison said in an interview Thursday.

Under the new law, wage theft in excess of $1,000 would become a felony crime. It would also penalize retaliation against employees who report wage theft. It also boosts the Department of Labor and Industry’s budget by nearly $4 million to expand prevention and inspection efforts.

Labor and Industry Commissioner Nancy Leppink, who called for the new law and increased resources to enforce it, praised the deal on Thursday.

“The Wage Theft law will level the playing field for Minnesota employers who both play by the rules and create decent jobs for their workers,” Leppink said in a statement Thursday. “The law will also ensure workers receive the wages they have earned.”

The issue emerged as a leading priority for House Democrats early this session and was also backed Sen. Eric Pratt, a Prior Lake Republican. Ellison and Leppink also called for new legislation criminalizing the practice. Wage theft can occur when employers don’t compensate workers through measures like failing to pay overtime, misclassifying employees as independent contractors or declining to pay them outright.

Despite early disagreements on how to craft the law in a way that protected both workers and Minnesota businesses, Pratt and state Rep. Tim Mahoney, DFL-St. Paul, the bill’s House sponsor, managed to strike a deal that was acceptable to state officials and labor groups.

“A couple things we always agreed on is if you earn a wage you should be paid a wage – that was the underlying value statement that we shared which really enabled us to work on this together,” Pratt said. “Every job has its dignity and we need to be able to make sure that every Minnesota worker is treated with dignity.”

Mahoney added that stronger wage theft laws and enforcement would also benefit businesses that find themselves undercut by competitors who can get by with illegally failing to pay their workers. He took issue with language in the bill’s criminal section that requires proof of “intent to defraud,” which he said can be very difficult to prove in many cases.

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WI DWD Holds Worker Misclassification Roundtable (WI)

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05/14/19
WorkersCompensation.com

Waukesha, WI – The Department of Workforce Development (DWD), in collaboration with State Council of Carpenters and Painting and Allied Trades, held a Worker Misclassification Roundtable in Waukesha yesterday to gather information and input on the issue of Worker Misclassification in Wisconsin. The roundtable was hosted by Building Services Incorporated.

“Under Governor Evers, the rights of workers are first and foremost, and by ensuring that employees are properly classified, we are providing workers with the confidence that in the event of a separation or workplace issue, they will have proper supports in place,” DWD Secretary Caleb Frostman said. “The input of our employer partners and other stakeholders on this issue is absolutely vital as we move forward with implementing Governor Evers’ Joint Taskforce to combat Worker Misclassification and Payroll fraud.”

Last year alone, UI Division auditors conducted 2,459 audits, identifying 8,677 misclassified workers and recouping more than $1.5 million in Unemployment Insurance (UI) taxes, interest and penalties due to their efforts. The issue isn’t isolated to the UI program alone. Misclassified workers are often times denied access to worker’s compensation and various labor and civil rights protections. Employers who misclassify workers obtain a competitive advantage over their peers. Without action on this important issue, Wisconsin stands to lose tax revenue, employers who play by the rules lose work, and workers suffer.

Under Wisconsin law, workers are presumed to be employees and subject to tax unless determined by law to be independent contractors. An employer found to be utilizing misclassified workers may be liable for additional tax, interest and penalties. Employers engaged in the construction trades may also be subject to a stop work order. In addition, employers engaged in the painting or drywall finishing of buildings or other structures who willfully provide false information to DWD for the purpose of misclassifying or attempting to misclassify a worker as an independent contractor can be fined $25,000 for each violation.

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Dana Nessel, in a nod to Michigan workers, creates payroll fraud unit (MI)

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April 22, 2019
Lindsay VanHulle

Attorney General Dana Nessel on Monday said she will step up investigations of Michigan companies that don’t pay full wages and benefits to their employees.

The announcement is in keeping with her campaign promise to protect workers and labor unions. The event featured a number of union workers and Democratic lawmakers, but no Republicans, the majority party in the state House and Senate.

Nessel, a Democrat, is creating a payroll fraud enforcement unit within the Attorney General’s office to investigate such claims as wage theft, lack of overtime pay and misclassifying workers as independent contractors rather than employees.

The unit will be led by Zachary Risk, an assistant state attorney general, and housed within the office’s labor division. It will coordinate with other state departments and agencies – for example, the Department of Licensing and Regulatory Affairs’ Wage and Hour Division, or the Unemployment Insurance Agency – to investigate complaints against companies.

“These are companies that fraudulently report employees as self-employed and independent contractors, or they’re paying workers under the table,” Nessel said during a news conference in Lansing to unveil the payroll fraud unit.

“They refuse to pay overtime, benefits, health insurance and workers’ compensation. And because they cheat on time cards to keep costs off the books, they’re not paying their taxes,” Nessel said. “The majority of Michigan companies play by the rules, but those who don’t are cheating the system, raking in unfair profits and hurting Michigan in the process.”

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Labor Union Says Workplace Violations Widespread in N.H. (NH)

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By SARAH GIBSON * APR 16, 2019

A local labor union is urging lawmakers to support legislation to combat what it says is a growing problem with workers compensation and wage theft in New Hampshire.

Members of the New England Regional Council of Carpenters say companies are using a loophole to underpay workers and underreport employees, by misclassifying these employees as independent contractors.

At an event organized by the union Monday, Rudolph Ogden, a deputy commissioner at the N.H. Department of Labor, told NHPR it’s not just carpenters who are getting shortchanged.

“For 20 years people have talked about misclassification and they said it’s all in construction and many said it’s all drywallers,” he said. “Now we’re seeing that it’s not just in construction; it’s in a variety of industries.”

When a company pretends its employees are independent contractors, it doesn’t have to provide workers comp if they’re injured, and it doesn’t pay as much in business taxes.

“We can’t compete with a company that doesn’t pay its workers and that doesn’t pay workers’ compensation,” said Richard Pelletier, of Auburn, N.H. His company, Universal Drywall, was fined for misclassification for projects in Massachusetts, but he says he’s since become a union contractor.

Pelletier and other representatives from union contractors said they do most of their business in Massachusetts because they’re so often undercut by companies in New Hampshire that reduce overhead costs by misclassifying workers and paying many under the table in cash.

The union is backing Senate Bill 151, a Democrat-sponsored bill that would make it easier for the DOL to issue stop work orders, but some in the industry fear it would slow down building projects.

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Bill aims to better classify California construction workers (CA)

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AUTHOR – Kim Slowey
PUBLISHED – April 2, 2019

Dive Brief:

  • California legislators are considering a new test for contractors to use when deciding if construction workers qualify as independent contractors, according to the San Francisco Chronicle, making the misclassification of workers more difficult.
  • The proposed state law would require employers to use the “ABC” method of determining whether a worker is a legitimate independent contractor or an employee. Under ABC, which was upheld by the California Supreme Court in April 2018, a worker can be classified as an independent contractor if he or she is free from the control and direction of the employer as it relates to the performance of the work; performs work that is normally outside the scope of work of the hiring contractor; and is usually engaged in the same type of work as part of the business. Through the legislation, legislators are seeking to codify the court’s decision.
  • A University of California Berkeley Labor Center study found that construction workers were one of three occupations in California routinely misclassified and not paid employee benefits due to them. Independent contractors, according to UC Berkeley, make up about 26% of the state’s construction workforce.

Dive Insight: 

Three other states – New Jersey, Massachusetts and Connecticut – also use the ABC test in their wage and hour laws, according to a report from the National Employment Law Project, and about half of all states apply it in some form in their unemployment laws. Ten states use it in relation to their labor laws for high-risk sectors like construction.
There are other tests contractors can use to determine whether a worker is an independent contractor, including one from the Internal Revenue Service that considers how the worker is paid, if the relationship with the hiring business is permanent, and whether the individual will achieve a profit or loss as part of his or her operations, among other factors.  
There are still some contractors, however, that leapfrog over the responsibility to classify workers correctly. They often count on not having to pay for things like workers’ compensation coverage, health insurance, federal and payroll taxes, figuring those savings into their bids.

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Local building unions, immigrant labor advocates unite over worker misclassification (LA)

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By: Michael Joe, Reporter

February 8, 2019

On a recent Saturday in January at Corpus Christi Church in the 7th Ward, Curiel stood in the afterglow. A workers’ forum aimed at “bringing immigrants out of the shadows” had just concluded. And it was jointly organized by the Southeastern Louisiana Building and Construction Trades Council and three community organizations focused on workers’ rights and economic justice – Step Up Louisiana, the Workplace Justice Project and the New Orleans Workers’ Center for Racial Justice, a grassroots group founded after the storm by immigrants and African Americans.

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Organizers said the goal on Jan. 26 was to educate immigrant workers about their rights and highlight what they say is a common problem that hurts unions and immigrant workers alike: the misclassification of workers as independent contractors – rather than employees – by construction contractors and subcontractors.

When you call an employee an independent contractor – when they are actually an employee – that allows you to not pay workers’ compensation, not pay social security and not pay time and a half for overtime. Not only is the worker being exploited, it’s creating an unfair playing field for the contractors that are actually doing the right thing,” said Chip Fleetwood, marketing manager with the Painters and Allied Trades International Union, District Council 80, in Kenner.

Union contractors are even more disadvantaged when bidding on jobs, because they are also paying for the health and welfare benefits of unionized workers, Fleetwood added.

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