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Michael F. Sabitoni: Contractors behaving badly: Secret economy cheats workers, state

01:00 AM EDT on Friday, August 29, 2008

MICHAEL F. SABITONI

RECENTLY, two stories in The Journal illustrated the lack of enforcement of existing laws in what many call the “underground construction economy.” This economy rewards contractors who skirt the law, provides inadequate protection for workers to be paid their legally owed wages and cheats taxpayers out of much-needed revenue.

On July 19 appeared a story (“Contractor squeezed kickbacks from workers”) on the front page of The Journal about a contractor working on public projects who pleaded guilty to defrauding his employees of wages legally earned and the government of taxes owed.

This contractor worked on projects in at least four different municipalities where he did not pay its employees “the prevailing wage as calculated by the Department of Labor . . . [and] also admitted that he failed to report more than $180,000 in income on his tax returns,” the story said.

On July 11, The Journal published a story (“4 Brazilians being held as illegal immigrants”) about four exploited undocumented construction workers employed by a contractor from Stoughton, Mass., driving to a construction site in Narragansett who were stopped for violating a traffic signal.

These actions occur far too frequently in the construction industry and they almost always go unreported. For example, the contractor in the first article worked in at least four different municipalities on numerous projects before he was caught.

Whether it is the hiring of exploited undocumented workers, not paying workers the wages they are legally entitled to or misclassifying workers as independent contractors, the lack of enforcement of various laws, including but not limited to wage-and-hour and tax laws, is rampant — and the cost to the taxpayers is staggering.

These same things are occurring elsewhere. According to a study conducted by the Harvard School of Public Health, misclassification of workers on prevailing-wage projects occurs 14 to 24 percent of the time, representing tens of millions of dollars in lost tax revenue to Massachusetts.

This has caused Massachusetts, as well as other states, to act. Governor Patrick issued an executive order last March that established a task force to deal with employers that flout wage and other labor-protection laws and misclassify workers as independent contractors.

Meanwhile, Illinois has made enforcement of wage-and-hour laws a “significant priority”; Connecticut has established an Employee Misclassification Advisory Board; and Washington recently developed a joint legislative task force to study the “underground construction economy.”

Massachusetts Atty. Gen. Martha Coakley recently issued an advisory that described the tests that employers must meet to classify a worker as an independent contractor. Illinois prosecuted 271 prevailing-wage cases that recouped $4.5 million in underpayment of wages legally owed to workers. Connecticut is in the infancy of implementation of its Employee Misclassification Advisory Board. Washington is still studying the issue.

U.S. Rep. Rob Andrews (D.-N.J.), chairman of the House Education and Labor Committee’s Subcommittee on Health, Employment, Labor and Pensions, recently introduced the Employee Misclassification Prevention Act (H.R. 6111), a “pro-employee, pro-employer and pro-taxpayer” bill that would penalize employers for misclassifying employees as independent contractors.

According to Andrews, the bill, which has 22 co-sponsors, would “protect employee benefits, remove incentives for employers to misclassify their workers and ensure that bad employers don’t line their pockets with unpaid payroll taxes.”

The Rhode Island Building and Construction Trades Council believes that the aforementioned Journal articles demonstrate that the Ocean State must also take action to address these important issues.

We recommend developing a multi-agency task force for Rhode Island similar to the one developed by Governor Patrick. This should include the Rhode Island Department of Labor and Training, the Office of the Attorney General, the Department of Revenue, the Contractors’ Registration Board and various community and business groups.

Together, they can develop laws, regulations and enforcement strategies to ensure adequate worker wage-and-hour projections, ensure that taxpayers receive the appropriate amount of taxes that employers are legally required to pay and make it difficult for unscrupulous contractors to cheat and line their pockets with taxpayers’ money. This would result in workers’ receiving the wages they are legally entitled to, law-abiding contractors’ being competitive, and the state getting a much-needed boost in revenue, which, as Massachusetts and Illinois have recently found, could be significant.

Michael F. Sabitoni is president of the Rhode Island Building and Construction Trades Council.

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