City Council bans Cleveland from doing business with companies that practice wage theft

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Published: Dec. 05, 2022 | Cleveland.com

By Courtney Astolfi

CLEVELAND, Ohio – Cleveland City Council approved on Monday an ordinance banning the city of Cleveland from doing business with companies found to practice wage theft and those that commit payroll fraud.

The new law bars Cleveland from granting financial assistance to such companies or entering into contracts with them for city services or construction.

The measure is a victory for advocacy group Guardians for Fair Work, which has been lobbying city officials this year to deliver wage-theft protections for Cleveland workers.

“This is an important step forward for working people in Cleveland. We believe the only way we succeed as a city and region is to put workers at the center of our economic development strategies. Without this worker centered approach we will not have shared prosperity,” organizer Nora Kelley said in a news release. She added that workers with the lowest wages are often the ones victimized by wage theft.

Businesses seeking city contracts or financial assistance will have to report to the city’s Fair Employment Wage Board any instances of a government agency finding that they or a subcontractor committed wage theft or payroll fraud within the last three years. Businesses that self-report those instances would not be eligible to receive city money or contracts.
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Minneapolis Construction Workers Fight Chronic Wage Theft

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BY CALEB BRENNAN | AUGUST 15, 2022

The Midwest building industry is notorious for cheating paychecks.

… Bravo, the executive director of the West Side Community Organization, alongside a coalition of workers’ rights advocates, union organizers, and general laborers, was there to protest poor working conditions within the construction industry. Their caravan would soon make its way into the heart of downtown Minneapolis to protest other build sites where blocky, five-on-one condominiums were under construction.

Bravo accused the firm, alongside a slew of other Minnesota real estate companies, of ignoring chronic concerns over safety, sexual harassment—and, most urgently, rampant wage theft.

“That was five decades ago,” Bravo continued. “And we have families today still facing wage theft while the construction industry is booming with millionaires and multimillionaires—all at the expense of exploiting the families that are working for them.”

Bravo was not exaggerating. The construction industry in the U.S. runs on wage theft. One study found that in Illinois, Wisconsin, and Minnesota, almost 1 out of every 5 workers suffer from payroll fraud. Another study focused specifically on Minnesota construction found a rate of 23 percent.

“One study found that in Illinois, Wisconsin, and Minnesota, almost 1 out of every 5 workers suffer from payroll fraud.

Minimum and overtime wage violations, specious deductions from paychecks, and misclassifying workers are all common tactics that Rust Belt construction firms and their subcontractors use to cut back on labor costs. Despite the brief impact of the COVID-19 lockdown, residential construction revenue in the U.S. is continuing on an upward trend—the size of the North American construction sector is set to reach $2.4 trillion by 2030.

In June of this year alone, domestic construction spending totaled $1.76 trillion.

This thievery, according to the Midwest Economic Policy Institute, costs taxpayers in these states $362 million each year. Similar levels are found on a national level, where everywhere from San Diego to Washington, D.C., sees a persistent flow of complaints and dollars extracted from workers.

The industry’s labor force is chronically unorganized, undocumented, and obstructed from legal recourse. As such, subcontractors can exploit atomized workers while their hiring firms can claim they had no knowledge of the conduct, leaving their precarious workforce economically and legally stranded.

Without political power or judicial leverage, atomized construction workers often have no means for resisting this subtle form of robbery.

That’s how Daniel Sanchez felt when he realized he had had over $100,000 worth of wages stolen from him over the course of two years. An immigrant laborer from Minnesota who has worked for both large national property development firms like R.J Ryan Construction and smaller, local ventures like Doran Companies, Sanchez has spent the past ten years cleaning and maintaining construction sites.

(Read More)

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ID and Tax Solution for Construction Worker Misclassification and Immigration Challenges

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By Charles Frantes
May 19, 2022

A recent presentation at the University of Saint Thomas in Houston highlighted how challenges associated with the outdated US immigration system have cultivated an inefficient, unethical, and unsafe shadow economy that threatens the sustainability of the construction industry. Stan Marek, CEO of MAREK, and Loren Steffy, award-winning author and business journalist, discussed how workforce shortages, the lack of a pathway for unauthorized immigrants to earn legal status, and the lack of enforcement against worker misclassification and payroll fraud have made it easier for unscrupulous employers in the construction industry to profit at the expense of law-abiding taxpayers, workers, and businesses. They called on lawmakers to pass a bipartisan ID and Tax policy as a solution.

In the construction industry where workforce shortages are rampant and competition for bids is fierce, Marek explained that one way that many companies cut costs is by classifying their workers as independent contractors instead of employees. Many businesses also pay workers off the books in cash. This allows those employers to avoid paying payroll taxes and providing benefits like health insurance and workers’ compensation. Doing this not only allows those employers to undercut and underbid companies that are following the rules, it also cheats taxpayers, and leads to a degradation of the trades due to a lack of emphasis on training and the treatment of workers as disposable.

Marek stressed the importance of the employer-to-employee relationship and the safety and skills training that comes along with it and explained how doing things the right way can actually end up saving costs in the long run and even help to alleviate rising housing costs.

“When you have a system where everybody is an independent contractor and you don’t have an employee to employer relationship, they don’t get the training that employees do. Our company prides itself on safety. Job sites are dangerous. Safety is number one, and then skills training. Somebody that is trained to do a specific function does it better. A big problem we have in construction is doing it twice. So many people, when they’re not trained, make a mistake and it has to be redone. It’s estimated 20-25% of projects have to be redone because people don’t have the skills training,” said Marek.

(Read More)

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AG Racine Releases Report on Payroll Fraud in District Construction Industry (DC)

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Report Details How Companies Evade Taxes and Reduce Workers’ Take-Home Pay by Illegally Misclassifying Workers as Independent Contractors

by Construction Citizen | September 20, 2019

Attorney General Karl A. Racine released a report last week demonstrating how District of Columbia construction companies hurt workers, cheat taxpayers, and undercut law-abiding competitors when they illegally misclassify workers as independent contractors. Worker misclassification is a form of payroll fraud where employers categorize workers who should be considered direct employees as independent contractors. This practice is used by unscrupulous employers to get around labor laws and reduce costs, and it is especially common in the construction industry. The Office of the Attorney General (OAG) commissioned this report as part of a broader effort to crack down on wage theft in the District.

“Companies that illegally misclassify employees as independent contractors are stealing from workers, evading taxes, and gaining an unlawful edge over competitors,” said AG Racine. “The Office of the Attorney General commissioned this study to better understand the dynamics of worker misclassification and how we can fight it – and the economic analysis shows just how much this illegal practice costs workers and the community. Indeed, my office has already taken several companies to court to stop this kind of payroll fraud, and we will continue to act to protect workers when businesses violate the District’s labor laws.”

In the District, businesses are legally required to pay employees a minimum wage, contribute toward their state and federal taxes, and provide overtime pay and other benefits. Businesses do not have the same responsibilities to independent contractors, who must pay all their own taxes, are not protected by most labor laws, and do not have access to workers’ compensation or unemployment insurance. Numerous studies have documented that employee misclassification schemes are pervasive in the construction industry.

The District’s Workplace Fraud Act, which applies to the construction industry, requires companies to classify workers as employees in most circumstances. To classify a worker as an independent contractor, construction companies must prove that an individual is free from the employer’s direction and control, is economically independent, and that their work falls outside of the core business of that company.

OAG’s new report, which includes analysis by labor economists Dr. Dale Belman and Dr. Aaron Sojourner, reveals that District construction companies that misclassify workers unlawfully avoid at least 16.7 percent in labor costs compared to companies that operate legally. They do this by failing to pay overtime, shifting tax burdens to workers, and evading other taxes and required payments entirely. When employers who misclassify workers evade taxes, the District loses out on funding for critical social safety net programs. If these companies are engaged in other forms of wage theft, their savings at the expense of workers can exceed 40 percent.

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OAG’s Increased Efforts to Protect Workers

OAG’s efforts to fight worker misclassification are just one part of a broader push to protect District workers. Last year, OAG stepped up wage theft enforcement after working with the D.C. Council on legislation granting the agency independent authority to investigate and bring these cases and increased penalties on employers who violate the District’s wage and hour laws. Wage theft is the illegal practice of denying workers’ wages or benefits they have earned. This happens when employers withhold pay, pay less than the required minimum wage, force workers to work extra hours without pay, refuse to pay overtime, or misclassify employees as contractors. Wage theft affects millions of workers nationally and happens across job types and income levels. Workers in low-wage jobs and immigrants are especially vulnerable to this type of exploitation.

Since it gained new enforcement authority, OAG can now seek to recover stolen wages, restitution of up to three times the amount of unpaid wages, and penalties from employers, and can also bring criminal charges. So far, OAG has launched more than 30 investigations into wage theft and payroll fraud, and has taken action against a home health care service provider, a national electrical contracting firm, KFC franchises, a cell phone store, a cafe chain, and other businesses that harmed District workers. To date, OAG has obtained over $400,000.00 in judgments and settlements against businesses that have stolen wages from District workers.

How to Report Wage Theft Violations

Workers who believe that they have experienced wage theft or other wage and hour violations can submit a complaint to OAG by phone at (202) 442-9854. Workers can learn about their rights under District law and how they can get help if their rights are being violated on the OAG website.

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“Unfair competition for law-abiding companies: The increase in the proportion of construction workers who are misclassified as independent contractors impacts how business is done in the construction industry. Companies that fraudulently misclassify gain the advantage of reduced labor costs. They are in a position to submit lower bids than competitors who follow the law. As the number of companies that misclassify increases, law-abiding companies win fewer bids, and have less work. Over time, misclassification progresses from a method used by unscrupulous companies to earn additional profits to the price of survival in the industry. Reducing the use of misclassified workers provides a level playing field for law-abiding companies.” – According to Dr. Dale Belman and Dr. Aaron Sojourner whose economic analysis is cited in the report.

(PDF Copy of OAG Report on – Illegal Worker Misclassification: Payroll Fraud in the District’s Construction Industry)

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Nessel exploring criminal, civil charges in payroll fraud cases (MN)

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By Derek Robertson
July 2, 2019

State Attorney General Dana Nessel announced Tuesday that her office could soon file criminal or civil charges against Michigan businesses accused of payroll fraud.
In a statement, a Nessel spokesperson wrote that by the end of the week her office “will have sent letters demanding business records to at least 10 businesses operating in Michigan and plans to use subpoenas and warrants in other cases to obtain vital information from Michigan-based businesses allegedly operating fraudulent payroll schemes.”

“No family should live in poverty because greedy businesses cheat the system and refuse to play by the rules,” Nessel said in her statement. “This has gone on for far too long and Michigan isn’t going to wait any longer to crack down on these crimes.”

When asked about the 10 businesses in question, Nessel spokesperson Kelly Rossman-McKinney told the Advance that the attorney general and her team are “not naming any names until we take formal action.”

In April, Nessel formed a “Payroll Fraud Enforcement Unit” to investigate claims of such fraud, which usually takes the form of employee misclassification, failure to pay overtime and outright wage theft. Her office said Tuesday that it’s received nearly 100 complaints since its launch.

…

A 2017 report from the liberal Economic Policy Institute said that between 2013 and 2015, payroll fraud cost Michigan residents more than $400 million. Nessel’s office cites that report and a 2009 study from Michigan State University that reported that misclassification costs the state $107 million a year in revenue through tax fraud.

The attorney general’s office said it’s collaborating in its investigation with the U.S. Department of Labor, the Internal Revenue Service, the Michigan Department of Treasury, the state’s Wage and Hour Bureau and its Unemployment Insurance Agency.

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Column: Payroll fraud robs workers of overtime pay and wages (MI)

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By Nate Shannon, Special to MediaNews Group
Apr 27, 201

Every year, unethical businesses are unfairly stealing from their own workers. These businesses misclassify their workers as “1099 Independent Contractors” to rob their workers of overtime pay. In Michigan, minimum wage workers have 27 percent of their wages stolen by their employers.

An analysis by the Economic Policy Institute estimates that Michigan workers were robbed of $429 million in stolen overtime wages between 2013 and 2015. More than 2.8 million Michigan workers were victims of this scam within that short timespan.

When workers are robbed of their wages, they’re more likely to end up in poverty. EPI estimates that one-third of cheated workers depend on public assistance programs to feed their families and pay the bills.

Recently, I joined my fellow legislators in introducing legislation to crack down on payroll and tax fraud to close any loopholes.

To tackle this crime, we must have enforcement with tougher penalties for businesses that take advantage of their employees.

An enforcement unit to investigate violations of wage and hourly laws has been proposed in Michigan by the Attorney General. This team will be made up of professionals from the AG’s office as well as, Michigan’s Occupational Safety and Health Administration, the state Department of Licensing and Regulatory Affairs, the Michigan State Police and other relevant departments. By bringing these departments together, we can better coordinate law enforcement activities and uphold fairness for our employees.

This is a critical piece of the puzzle to protect Michigan workers. I’m also joining my colleagues in co-sponsoring legislative proposals to address wage and overtime theft, by increasing punishments against lawbreakers. Additionally, we will be focusing on protecting those that speak out when they see these unfair practices in the workplace.

(Read More)

Northam signs executive order establishing task force on worker misclassification, payroll fraud (VA)

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AUTHOR – Augusta Free Press
PUBLISHED – Aug 11, 2018

Governor Ralph Northam signed an Executive Order establishing an interagency task force on worker misclassification and payroll fraud. The misclassification of employees as “independent contractors” undermines businesses that follow the law, deprives the Commonwealth of millions of dollars in tax revenues, and prevents workers from receiving legal protections and benefits.

“Treating Virginia workers fairly is central to building an economy that works for everyone, no matter who you are or where you live,” said Governor Northam. “Every employer in the Commonwealth should be playing by the same rules and this task force will come up with a comprehensive plan to make sure workers aren’t missing out on the protections and benefits they would receive if properly classified.”

A 2012 report of the Joint Legislative Audit and Review Commission (JLARC) found that one-third of audited employers in certain industries misclassify their employees. By failing to purchase workers’ compensation insurance, pay unemployment insurance and payroll taxes, or comply with minimum wage and overtime laws, employers lower their costs as much as 40%, placing other employers at a competitive disadvantage.

The task force will develop and implement a comprehensive plan with measurable goals, including identifying ways to hold companies working on state contracts who commit payroll fraud through misclassification of workers accountable, and identifying ways to deter future inappropriate conduct by recommending enforcement mechanisms.

Secretary of Commerce and Trade Brian Ball will chair the task force. It will include representatives from the Virginia Employment Commission, the Department of General Services, the Department of Labor and Industry, the Department of Professional and Occupational Regulation, the State Corporation Commission’s Bureau of Insurance, the Department of Taxation, the Workers’ Compensation Commission, and the Office of the Attorney General.

The group will develop a work plan by November 1, 2018 and report to the Governor on its progress by August 1, 2019.

The full text of Executive Order Sixteen can be found here.

(See Article)

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Wage Theft Is Costing Workers $50 Billion a Year in Stolen Pay

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THURSDAY, MAY 11, 2017, 3:33 PM
BY ELI HOROWITZ

 

Five local carpenters who were working on a mixed-use building that includes high-end apartments in downtown Worcester are claiming that they were victims of wage theft and payroll fraud.

The carpenters, who were employed by P&B Partitions, a contractor based in West Berlin, New Jersey, say they were victims of wage and hour violations. Three of the carpenters have filed wage complaints with the Massachusetts Attorney General’s office, according to a statement from the New England Regional Council of Carpenters.

According to the wage complaints, P&B did not pay the carpenters for all hours worked and frequently paid the workers for overtime hours in cash and at less than the rate required by state law.

Dave Minasian, a spokesman for the New England Regional Council of Carpenters, said the amount of money the workers claim they were bilked of is not being released at this time.

P&B said they did not have anyone immediately available to comment on the complaint. Minasian said P&B has not responded to his organization.

The Worcester Carpenters Union is assisting the workers in recovering the allegedly lost wages.

(Read More)

Roundtable exposes extent of wage theft

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By Steve Share
April 27, 2017

One worker after another, they described how employers failed to pay them for work they performed. They included a truck driver, a home health care worker, a retail cleaner and a school worker. All spoke at a roundtable Wednesday hosted by the University of Minnesota Labor Education Service and moderated by Lieutenant Governor Tina Smith.

The event highlighted the problem of wage theft in Minnesota and pointed to legislation to improve enforcement when wage theft occurs.

“It is so completely wrong,” Smith said. “Wage theft is stealing.”

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In some industries, such as construction, employers intentionally and routinely steal wages from workers, said Burt Johnson, attorney for the North Central States Regional Council of Carpenters. It is “a business model” that the union refers to as “payroll fraud.”

Lt. Gov. Smith said her understanding of wage theft has grown in recent years.

“I have to admit I thought it was something that was extremely rare and almost done by accident,” she said. “I have learned a lot since then,” noting “There are so many ways employers can steal from their employees, whether it’s five minutes at a time or two weeks at a time.”

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Washington state a leader in fighting payroll fraud, but problems still occur

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Dathan Williams wasn’t shy when it came to bragging to his workers about how he was breaking the law.The owner of a Seattle drywall company boasted to his employees about how he shortchanged them on pay and dodged taxes to gain an edge in bidding wars for work on government contracts.

The subcontractor also told his employees – many of whom were in the country illegally – how he reported workers to immigration authorities after they complained they were being underpaid.

Unfortunately for Williams, one of his workers was an undercover Seattle police officer.In July, Williams pleaded guilty in King County Superior Court to two counts of second-degree theft and one count of filing false payroll documents. He faces up to a year in jail and a $10,000 fine when he is sentenced later this month.

The Williams case is a high-profile example of the kind of payroll fraud that labor groups and state regulators say happens too often in Washington, despite the state being viewed as a model for detecting and prosecuting offenders