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Wage theft is a serious problem in the United States that affects workers in many industries. The construction industry, both residential and commercial, is not immune to the growing epidemic of wage theft. Wage theft occurs when a worker is denied full payment of the wages and benefits they legally owed by their employer.
While accurate numbers are hard to pin down on the true extent of wage theft in the U.S., the problem seems to be growing in the construction industry. It is more common in residential construction workers, non-union employees, and immigrants who work as laborers or craft professionals.
In the construction industry, employers commit wage theft in many ways. It can be as simple as refusing to pay workers minimum wage, illegal deductions, refusing to pay overtime at the correct rate, writing bad checks, or simply refusing to pay workers. Misclassifying workers as independent contractors is another common way employers rip off their workers.
Independent contractors don’t have the same protections that an employee does under the Fair Labor Standards Act (FLSA). This means employers who misclassify construction workers as independent contractors aren’t required to pay a minimum wage, overtime, worker’s compensation and don’t have to withhold or pay any taxes on payments to contractors.
Another type of misclassification occurs when prevailing wages are required. Sometimes employers will misclassify the type of work an employee is performing, for example classifying an electrician as a laborer, to pay the worker less.
Recent Examples of Wage Theft in Construction
In New York, Queens-based Parkside Construction and their payroll company, Affinity Human Resources, stole $1.7 million in wages from 520 workers between 2014 and 2017 working on a number of hotel and high-rise building in New York City. They used face recognition software to record workers’ hours and then altered printouts of time sheets to reduce the number of hours they worked in order to steal their wages.
The payroll company also paid some workers with expense reimbursements to allow them from withholding taxes and unemployment insurance contributions. Parkside Construction also hid $40 million in payroll from the New York State Insurance Fund in order to avoid paying higher premiums on workers’ compensation insurance, resulting in $7.8 million in insurance fraud.
The investigation and charges against Parkside were the result of a joint task force formed back in December 2017 between a number of state and city agencies in New York to combat wage theft in construction.
The Ohio Department of Commerce is suing R & R Steel, LLC for allegedly violating prevailing wage law by misclassifying workers on a luxury apartment building project in Cincinnati. A total of 63 workers installing rebar on the project were paid around $151,000 less than what they were owed. The company also allegedly underpaid about 43 workers by around $12,000 on a public garage project.
The state has managed to collect around $117,000 in back wages and is currently seeking an additional $192,000 in unpaid wages and penalties. R & R Steel is also involved in another lawsuit with a TWC Concrete Services, LLC that used them as a subcontractor on a project where they settled a $105,000 wage dispute with the state and are looking for reimbursement along with compensation for attorney fees and expenses.
Six workers recently filed a class action lawsuit against San Antonio-based Zachry Construction Corporation and their Odebrecht Construction out of Brazil for wage theft for work done on the Grand Parkway project in Houston. Workers claim they were required to report working only eight hours a day when they often worked more than 12 hours a day to avoid having to pay them time-and-a-half for overtime.
The attorney that filed the suit also claims that workers were misclassified as independent contractors to avoid having to pay taxes and overtime. This is the third lawsuit that Zachry and Odebrecht have been jointly accused of wage violations. One was dismissed because the parties involved agreed to a settlement and the other was dismissed in order to solve the dispute in arbitration.
New Initiatives and Laws to Prevent Wage Theft in Construction
Many state and local agencies have limited resources to investigate and convict construction companies accused of wage theft. Workers are often hesitant to report wage theft out of fear of retaliation whether it's the termination of employment or the threat of being reported in the case of illegal immigrants. Recently, some states are enacting laws or considering legislation to crack down on wage theft in construction. Here are a few examples:
California
Last October, Governor Jerry Brown signed Assembly Bill 1701 which makes general contractors responsible for paying employees of subcontractors that don’t pay their workers. General contractors would even be responsible if they already paid their subcontractors for the work performed. Subcontractors are required to provide payroll records to general contractors when requested and the general contractor can withhold disputed funds if those records aren’t provided.
Colorado
Governor John Hickenlooper signed an executive order earlier this month to create a task force to address wage theft and worker misclassification in construction. The task force is comprised of the Colorado Department of Labor and other state agencies along with the Southwest Regional Council of Carpenters and Associated General Contractors of Colorado (AGC). Last year, Governor Hickenlooper signed the Wage Theft Transparency Act into law making information on wage violations accessible to public records requests.
Massachusetts
The Massachusetts Senate passed a bill last week that would hold general contractors and their subs liable for wages owed due to wage theft. The bill allows the attorney general to seek civil suits for wage theft and issue a stop work order until wage violations are resolved.
Maryland
Senate Bill 853 was enacted into law back on April 5, 2018. The new becomes effective on October 1 and holds general contractors liable for wage theft conducted by their subcontractors. Under the new law, if a subcontractor doesn’t pay an employee after two weeks, the employee can bring action against the general contractor and the court can award the employee up to three times what they are owed in addition to attorney fees and court costs.
Oregon
In February, the Oregon House passed HB 4154B to protect construction workers against wage theft. The bill is similar to the one in Maryland and would require general contractors to pay withheld wages or benefits to workers of their subcontractors if certain conditions are met. A worker would have to file a claim with the Oregon Bureau of Labor and Industries and have it investigated and found to be valid. The general contractor would not be responsible for wages if they can be collected from the subcontractor or if they have already fully paid the sub for the contract.
Final Thoughts on Construction Wage Theft
While it’s good to see more states taking action to combat wage theft, there is still more that can be done on the local, state and federal level to fight the despicable act of wage theft. On one hand, holding general contractors responsible for the actions of their subs and properly vetting who they sub work out to makes sense, but it’s also a bit unfair if the government isn’t willing to step up and do a better job of investigating and prosecuting companies guilty of wage theft.
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