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May
2015
14

Mass. Study Reveals Misclassification “Epidemic” Despite Crackdown; ABC Opposes Important New Bills

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New research from the University of Massachusetts-Amherst claims that wage theft “has reached epidemic levels” in the Bay State.  The paper, The Epidemic of Wage Theft in Residential Construction in Massachusetts, concludes that wage theft in the construction industry has grown exponentially since the great recession and particularly affects undocumented immigrant workers whose citizenship status leaves them easily exploitable. 

The working paper examined case studies of regional drywall-hanging companies, affordable housing construction projects, and subcontractors for one of the nation’s largest homebuilding companies.  They found that the business model of misclassifying workers was partially a result of the industry’s collapse during the recession, and partially due to the lack of recourse for the misclassified:

“By not paying taxes on workers’ wages and by not contributing to worker compensation funds, contractors reduced their building costs by 30 percent.  These contingent workers—the majority of who are undocumented immigrants—are routinely cheated out of their wages by contractors who pay late, do not compensate for overtime, and sometimes do not pay for work at all. Firms generate profits by victimizing some of the most vulnerable workers in Massachusetts, delivering poor quality homes to consumers, and leaving citizens of the commonwealth on the hook to make up for hundreds of millions in lost tax revenue.”

In the past year and a half the Massachusetts State Attorney General’s Office has issued 253 wage violation citations to construction companies, more than any other sector.  More than $1.6 million in penalties and unpaid wages were recovered.  Pulte Construction, the national homebuilder studied in the working paper, had five subcontractors cited for nearly $500,000 in back wages.  The study shows, however, that Pulte was legally insulated from being further charged. Many of the firms never paid their penalties, simply closing up shop and reopening under a new name.  

Not unlike Pulte’s subcontractors, many drywall industry violators simply changed their names to avoid prosecution and continue operations:

“Because no existing mechanism prevents such firms from avoiding prosecution, we have seen an explosion of firms that employ illegal misclassification and wage theft in the drywall industry.  This phenomenon deeply threatens the economic viability of legitimate contractors who play by the rules. Perhaps more troubling is that the growth of these companies who make their profits from illegal employment practices has begun to move beyond residential construction into more commercial and public types of construction.”

The paper recommends policy changes to halt the practice of illegal misclassification, including strict enforcement of penalties and fines, public identification of violators, better permanent inter-agency coordination, and a dramatic increase in workplace raids.

“We have seen how woefully inadequate the regulatory structure has been and watched the emergence of a whole new production regime in residential construction built upon a foundation wage theft.  Without concerted change, these new methods of production will both intensify and spread to other forms of construction victimizing largely immigrant workers in the industry. The quality of construction will continue to decline delivering a poor value to homeowners while leaving the taxpayer on the hook to cover lost revenue and the medical cost of those not covered by workers’ compensation.”

The terrifying part of these discoveries is that Massachusetts has actually been on the forefront of this issue for some time. The state’s Council on the Underground Economy has been used as a model for other states seeking solutions to the wage theft epidemic.  The Council has recovered more than $20 million in unpaid wages, payroll and insurance taxes, and related penalties.  A report commissioned by the council estimated that the state could be losing $350 million a year in unpaid wages.

Legislation currently filed in the Massachusetts House and Senate would give the state more power to deal with companies that misclassify and allow agencies to hold lead employers accountable for the actions of their subcontractors.  The legislation would also give the state the power to place stop-work orders on sites where workers are being misclassified or paid in cash.

Not surprisingly, the legislation was objected to by the staunchly anti-worker Associated Builders and Contractors (ABC) of Massachusetts, whose president Greg Beeman admitted that wage theft was an issue but insists most workers are treated fairly.  Beeman said that holding lead employers responsible for the actions of their subcontractors, despite the lead employer profiting from the practice, would “create an unfair burden.”  

The vague, one-sided assertion is textbook ABC.

The new anti-misclassification legislation has yet to have a hearing in either the house or the senate.  

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