NEW UMASS AMHERST LABOR CENTER STUDY FINDS NEARLY 10% OF RHODE ISLAND EMPLOYERS MISCLASSIFY WORKERS, COSTING TAXPAYERS TENS OF MILLIONS OF DOLLARS

Posted by National Alliance for Fair Contracting on

February 14, 2022

Working paper co-produced by the Institute for Construction Economic Research finds costs to taxpayers may be as high as $54 million

AMHERST, Mass. – A new study released today by the University of Massachusetts Amherst Labor Center reveals that nearly 1-in-10 Rhode Island employers misclassified employees as independent contractors between 2016 and 2021, affecting an estimated 19,359 workers in the state in 2019 and costing taxpayers at least $25.1 million. Illegal misclassification allows firms to evade taxes while denying workers their legal rights to, among other things, unemployment insurance benefits, workers’ compensation insurance and overtime pay.

The study, which was co-produced by the Institute for Construction Economics Research (ICERES) and conducted by Tom Juravich, professor of labor studies and sociology at UMass Amherst, and Russell Ormiston, associate professor of business and economics at Allegheny College and president of the ICERES, relied on extensive data provided by the Rhode Island Department of Labor and Training.

“This research builds on the work we did in Massachusetts and shows that rampant worker misclassification and employer tax fraud is a problem across New England,” says Juravich.

Worker misclassification occurs in every industry of the Rhode Island economy, but is especially rampant among residential construction, janitorial services, landscapers and certain types of construction contractors, such as painting and finish carpentry.

“The illegal misclassification of workers as independent contractors in residential construction has created a hothouse for wage theft,” Juravich says.

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(PDF Copy of Study)

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Acting AG Bruck: New Jersey Supports Adoption of Stronger Federal Protections against Worker Misclassification

Posted by National Alliance for Fair Contracting on

For Immediate Release: February 10, 2022
Office of The Attorney General
Andrew J. Bruck, Acting Attorney General

TRENTON – Acting Attorney General Andrew J. Bruck announced today that New Jersey is co-leading a multistate effort to support the adoption by the National Labor Relations Board (NLRB) of stronger protections for workers whose employers would misclassify them as independent contractors — a designation that can deprive workers of wages earned, core workplace benefits and the ability to organize.

In an amicus brief filed with the NLRB today, New Jersey urges the Board to adopt a more worker-protective standard for determining whether a worker is an employee protected by federal labor laws safeguarding the right to organize and collectively bargain, or, in the alternative, an independent contractor not covered by such legal protections.

Acting Attorney General Bruck is co-leading today’s multi-state amicus brief to the NLRB along with Pennsylvania Attorney General Josh Shapiro. A total of 14 other Attorneys General have signed onto the brief, which describes misclassification as a burgeoning problem that harms both workers and states, and asserts that “this is not the time to weaken protections” against the employer tactic.

“Here in New Jersey, we care about workers’ rights,” said Acting Attorney General Bruck. “Workers who are misclassified as independent contractors end up suffering a whole host of disadvantages – including substandard wages, denial of workplace safety protections, denial of employment benefits they rightfully deserve and, crucially, the right to fight for improved working conditions by organizing and collectively bargaining.”

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Council moves to put a stop to wage theft

Posted by National Alliance for Fair Contracting on

FRIDAY, JANUARY 28, 2022
BY JO CLIFTON

Austin is taking a step toward joining El Paso and Houston in punishing employers that engage in wage theft, with a resolution City Council approved unanimously on Thursday. A dozen people signed up to tell Council members to approve the resolution, which was sponsored by Council Member Ann Kitchen.

The resolution directs City Manager Spencer Cronk to create a system for the city to receive complaints from workers about construction employers who fail to pay wages owed to employees, fail to maintain payroll records or improperly classify employees as independent contractors. Staff members are expected to come back to Council with an ordinance establishing criminal penalties and a civil complaint procedure relating to wage theft. …

District Attorney José Garza sent a letter to the mayor and Council urging them to approve the resolution. He noted that his office has launched an economic justice enforcement initiative, with some emphasis on deterring wage theft. However, he wrote, “As we have undertaken this initiative, it has become clear to us that there are not sufficient systems in place to support wage theft victims or deter these legal violations from recurring. We need additional partners in this work. I am hopeful that this resolution presents an opportunity for our office to deepen its collaboration with the city and strategize how we can strengthen avenues available for wage theft victims to seek justice.”

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Employers Misclassifying Workers as Independent Contractors: A Six-Pack of Employee Misclassification Laws

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The National Law Review
Friday, January 24, 2020

… Gov. Murphy signed 6 new laws that address the misclassification issue and provide for significant liabilities for those employers found to have misclassified workers. …

A 5838 – Stop Orders

Under this law, the New Jersey Department of Labor (“DOL”) is now empowered to issue stop-work orders against any employer who is found to be a violation of “any State, wage, benefit and tax law.” This would include failure to pay wages required by law and misclassification of a worker as an independent contractor. The stop-work order would require the cessation of all business operations at the place where the violation exists. …

A 5839 – Additional Penalties

… New penalties are now available against employers who misclassify workers. The new law provides an administrative “misclassification penalty” of up to $250 for each misclassified employee for first violations, and up to $1,000 per employee for each subsequent violation. In addition, a penalty will be paid to the misclassified worker of “not more than 5 percent of the worker’s gross earnings over the past twelve months from the employer who failed to properly classify them.”

A 5840 – Joint Liability

… Gov. Murphy amended the Wage Theft Act so that there is also joint and several liability when the state employment tax laws are violated. So, if you use contract employees and your contractor improperly classifies its workers as independent contractors, you could be liable for all the fines, penalties, and damages resulting from this misclassification.

A 5843 – Notice Posting

This law requires employers to post in the workplace a notice of the prohibition against misclassifying workers, the benefits and protections available to employees and the remedies available under all of the new laws. The DOL is tasked with developing and issuing a form of notice for employers. The law also … provides a private cause of action for employees who are retaliated against. Finally, any employer who violates any part of this law shall be guilty of a disorderly person’s offense and pay fines between $100 and $1,000. …

S 4226 – DOL Website Posting

This law permits the DOL to post on its website the name of any person who is found to be in violation of any state wage, benefit, or tax law, and who has had a final order issued against them by the DOL Commissioner. …

S 4228 – Tax Data Sharing

This law permits the State Division of Taxation to share with the DOL the following information (which was previously deemed confidential): tax information statements, reports, audit files, returns, or reports of any investigation for the purpose of labor market research or assisting in investigations pursuant to any state wage, benefit or tax law.

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Power Design to Pay $2.75 Million to Resolve Wage Theft Lawsuit (DC)

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D.C. Office of the Attorney General alleges national electrical contracting company misclassified more than 500 workers as independent contractors. This settlement is OAG’s largest recovery to date in a wage enforcement action.

January 23, 2020

Attorney General Karl A. Racine recently announced that Power Design, Inc., a national electrical contractor headquartered in St. Petersburg, Fla., will be required to pay $2.75 million to workers and the District as part of a settlement in a wage theft and worker misclassification case. The settlement with the Office of the Attorney General (OAG) resolves a 2018 lawsuit against Power Design and two subcontractors that staffed its worksites for allegedly misclassifying more than 500 electrical workers as independent contractors instead of employees to cut labor costs. OAG also alleged that Power Design cheated workers out of wages and benefits and failed to pay District unemployment insurance taxes.

Under the terms of the settlement, Power Design will be required to: …

  • Pay $50,000 to support apprenticeships, job training, or workforce development opportunities to District residents.
  • Implement new policies and procedures to ensure compliance with the District’s minimum wage, overtime, paid sick leave, and worker misclassification laws.

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Hennepin County Attorney announces charges of insurance fraud and theft by swindle against former owners of Merit Drywall (MN)

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January 21, 2020

Today, the Hennepin County Attorney announced charges of insurance fraud and theft by swindle against the former owners of Merit Drywall. According to the criminal complaint, the two defendants, Leroy and Joyce Mehr, misclassified workers as independent contractors to avoid paying more than $300,000 in workers compensation insurance premiums.

“Wage theft, insurance fraud and worker classification fraud have no place in Minnesota. It is critical that the legal system hold those who are accused of these crimes against construction workers accountable,” said Jessica Looman, Executive Director of the Minnesota Building and Construction Trades Council, an advocate for Minnesota’s union construction industry. “We want to thank the Hennepin County Attorneys office, the Minnesota Department of Commerce Fraud Bureau, and the Building Trades Unions in our state for protecting workers and our industry.”

“The case against the former owners of Merit Drywall shows the strength of the construction community when we stand together and demand action when workers complain of wage theft and worker misclassification,” said Dan McConnell, Business Manager of the Minneapolis Building and Construction Trades Council. “Our members have lost their patience with those developers and general contractors who have profited from schemes like the one alleged here. Together, the Building Trades Unions will do everything we can to continue to assist in ensuring that those who are complicit in the exploitation of workers are held accountable.”

Minnesota’s Building Trades Unions have launched an initiative to combat wage theft, exploitation, and labor trafficking which poses a growing threat to the welfare of immigrant workers and the health of the state’s construction industry. The “Not On My Watch” or “Ya No Mas” campaign enlists union members in efforts to identify cases of abuse, and to assist exploited construction workers on Minnesota jobsites.

The Minnesota and Minneapolis Building and Construction Trades Councils will continue to support efforts to protect all Minnesota construction workers. #notonmywatch.

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New Jersey Is About to Take Another Step Towards Eliminating the Use of Independent Contractors by Providing Them with Benefits (NJ)

Posted by National Alliance for Fair Contracting on

October 30, 2019
J.D. Supra

Executive Summary: The New Jersey Legislature appears poised to pass S67, the Portable Benefits Act for Independent Contractors, in the upcoming lame-duck session. If passed, the Governor is expected to sign the bill before the end of the year. The bill doubles down the current administration’s effort to end misclassification of independent contractors by creating a financial disincentive to utilizing contractors. Though the intent of the bill seems to be directed at online companies such as Uber, Lyft, Amazon, Handy and others, the impact will affect any business that relies on contractors. The bill also appears to subtly create new opportunities for organized labor through the creation of “Qualified Benefit Providers.” At least half of the members of the Boards of these funds must be worker representatives or workers. Though not in its final form, it appears some form of this bill will soon become law.

Summary of Bill Provisions: In sum, the Bill requires any entity that utilizes 50 or more contractors in 12 consecutive months within the state of New Jersey to contribute funds to a Qualified Benefit Provider for the benefit of the independent contractors. The amount contributed must equal 25 percent of the contractor’s total fee or $6.00 per hour, prorated to ten cents per minute. Contributions must be made on no less than a monthly basis.

Contributions are made to Qualified Benefit Providers, who will create trust funds to provide contractors with workers’ compensation and other benefits, which are to be selected by the contractors. Qualified Benefit Providers may use up to five percent of the amounts collected to cover administrative costs. The New Jersey Department of Labor (NJDOL) will determine who may be a Qualified Benefit Provider utilizing the following criteria: 1) must be a nonprofit, 2) half the board must consist of workers or organizations representing workers, 3) board members may not have any interest in entities that utilize contract workers, 4) the organization must work toward maximizing benefits for workers, 5) the board has a fiduciary responsibility to the workers and 5) the organization must demonstrate adequate viability and financial sufficiency. These criteria seem to place organized labor in a prime position to be selected to run these new trust funds.
The bill only exempts four types of contractors: real estate agents; financial product salespersons; anyone subject to a collective bargaining agreement; or anyone who solicits orders as a sales representative of the principal entity. NJDOL will be responsible for monitoring, overseeing these new benefit providers, ensuring workers’ compensation insurance is provided, and establishing a fee to charge entities utilizing contractors to fund their efforts. Failure to comply with this Act may be enforced by either the NJDOL or a private right of action on behalf of the contractors.

Employers’ Bottom Line: Although it is unclear what the language of the final law will be, it is clear that New Jersey is aggressively attempting to eliminate reliance on independent contractors. We expect this legislation to become New Jersey law soon, which will substantially increase the cost of utilizing independent contractors within New Jersey.

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California advances bill tightening definition of independent contractors (CA)

Posted by National Alliance for Fair Contracting on

Author – Kim Slowey
Published – June 19, 2019

Dive Brief:

  • A California Senate labor committee is reviewing a bill that could narrow the definition of an independent contractor and limit its use in the state’s construction industry. The state assembly approved the measure at the end of last month.
  • If enacted, California employers would be required to use a strict method, called the ABC test, to determine if a worker is either an independent contractor or an employee entitled to the protections and benefits that go along with that status.
  • The assembly added exceptions for certain professions to the proposed measure before it went to the state senate. Some professions that would be exempt from the new law would be engineers, architects, real estate licensees and direct sales salespeople.

Dive Insight:

Under the three-part ABC test, workers can only be classified as independent contractors if they perform their work free from the control and direction of the employer; offer services that are outside the hiring contractor’s normal scope of work; and usually work as part of a business.

According to a report from Material Handling & Logistics, some business groups are putting pressure on the California senate to add more exceptions to the measure prior to a vote.

Proponents of AB-5 seek to codify into law a 2018 state Supreme Court ruling, although that decision is under appeal.

Unscrupulous employers sometimes classify workers as independent contractors instead of employees to avoid paying them a fair wage, paying payroll taxes on their behalf and being forced to provide health insurance or workers’ compensation coverage.

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California Independent Contractor Test Applies Retroactively (CA)

Posted by National Alliance for Fair Contracting on
  • ‘Legal tradition’ is to apply judicial decisions retroactively
  • Applying ABC test to pending cases serves wage law’s goals

Posted May 2, 2019, 12:44 PM

A California Supreme Court ruling that created a strict standard for determining who is an “employee” applies retroactively, the Ninth Circuit held May 2 in a ruling expected to have a wide reach.

The decision means a legal test created last year by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court-making it harder for companies to classify workers as independent contractors-will be applied to cases going forward, as well as to disputes dating back to before the new test was enacted. Formal “employee” status comes with additional rights and benefits to workers.

The U.S. Court of Appeals for the Ninth Circuit’s opinion has major implications for California employers that rely on independent contractors, including gig economy companies like Uber Technologies and Postmates, and could even compel some businesses to simply reclassify contractors as employees and change pay and benefits. …

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Springfield can be the first to end construction tax fraud [Guest viewpoint] (MA)

Posted by National Alliance for Fair Contracting on

Posted May 6, 12:46 PM
By Tim Craw

I’m proud to work in Springfield. The people here are tough, hardworking, and innovative. It’s no surprise that the city is known as ‘The City of Firsts.’

Now, Springfield has the chance to be the first city to stop the epidemic tax fraud taking place in the construction industry. Criminal contractors are cheating the public, honest businesses, and local workers by neglecting to pay their fair share of employment and payroll taxes. It costs the American people $80 every second, and up to $2.6 billion a year in lost federal and state income.

Tax fraud is often committed through underhanded bookkeeping and worker exploitation. Frequently, developers and contractors will use labor brokers to do the dirty work of hiring employees off the record. Approximately 1.2 million workers are paid ‘off the books’ each year in the U.S., allowing contractors to avoid rules around safe jobs sites, deny benefits and workers compensation, skip out on payroll taxes, and even withhold or minimize workers’ payments. Other times a contractor might use ‘on the books’ methods, but cheat by requiring the worker to carry tax and other employment obligations. Nearly 300,000 construction workers are misclassified as ‘independent contractors,’ even though they work a full-time employee’s job.

In Massachusetts, illegal practices like these, particularly wage theft, denied overtime, and minimum wage violations, result in $700 million in losses to employees annually. The Massachusetts Attorney General reported in a 2018 fair labor report that wage theft, worker misclassification, and exploitation of young workers resulted in restitution and penalties of $9.6 million.

The contractors who skip taxes and shortchange workers can gain up to a 30% savings on labor costs, putting honest employers at a disadvantage. They do business the right way but aren’t able to issue as competitive bids, and are cheated of potential work.

The public is also affected by this problem, because when taxes go unpaid, tax pools receive less funding. Public services such as schools, roads, bridges, first responders, and Medicaid and Social Security suffer. The Massachusetts Joint Enforcement Task Force on the Underground Economy and Employee Misclassification reported that in 2014 alone, $16.5 million was recovered in lost payroll taxes and unemployment insurance. The money being pocketed through tax fraud schemes should be helping keep our state safe or close the gap in funding for our schools. These improvements could all be made without creating more debt.

…

Tim Craw is a Council Representative with the New England Council of Carpenters and a member of Local 336.

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