It was only back on April 1 that a major dialogue was raised in Arizona about the negative results that flow from employee misclassification. That’s when Dr. David Weil of the Department of Labor Wage and Hour Division spoke to audiences in downtown Phoenix and elsewhere.
Dr. Weil spoke about the combination of carrots and sticks that would be brought to bear to face the challenge.
This week, we got to see a little of the stick as we read a press release. It opens:
“A nearly five-year federal investigation of illegal business practices by 16 defendants in Utah and Arizona has yielded $700,000 in back wages, damages, penalties and other guarantees for more than 1,000 construction industry workers in the Southwest, the U.S. Department of Labor announced today.”
“Consent judgments put an end to an effort by the defendants—operating collectively as CSG Workforce Partners, Universal Contracting, LLC and Arizona Tract/Arizona CLA—to claim that their workers were not employees. The defendants required the construction workers to become ‘member/owners’ of limited liability companies, stripping them of federal and state protections that come with employee status. These construction workers were building houses in Utah and Arizona as employees one day and then the next day were performing the same work on the same job sites for the same companies but without the protection of federal and state wage and safety laws. The companies, in turn, avoided paying hundreds of thousands of dollars in payroll taxes.”
You can read the entire release here. All of the targeted Arizona firms are listed at the bottom, as is the case name and caption number.
Adding to the value of the news to Arizona lawyers and others is a blog post by Labor Secretary Tom Perez himself. In it, he describes the legal action being taken in Utah and Arizona. And he gives valuable insight into the way this nefarious business gets done:
“The state of Utah was a helpful partner in the Wage and Hour Division’s investigation of these defendants, providing information from the state’s Worker Classification Coordinated Enforcement Council, an entity created by the state legislature to combat misclassification. The state ultimately outlawed the defendants’ business model by requiring workers compensation and unemployment insurance for members of LLCs. In response, the companies packed up, headed to Arizona, and set up shop under a new name, but with the same scheme.”
“The Utah and Arizona judgments send a strong, clear message: employers can’t hide behind deceptive legal partnerships to cut corners and save money on the backs of their employees. It’s our hope that this and other enforcement actions will serve as a credible deterrent that influences behavior throughout the economy. Especially in the fissured workplace, we will continue to be vigilant about protecting workers, taxpayers and law-abiding employers.”
If you represent clients in related industries, is this a wake-up call? Is misclassification as big a problem as it’s made out to be? Write to me at email@example.com.
P.S. Arizona has another close link to the Secretary: Four high-school kids from the Grand Canyon State just won an ABA award for best Magna Carta video. Among the luminaries they met in Washington DC in mid-April was Labor Secretary Perez. Here they all are: