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According to New Study, 2.1 Million Construction Workers Misclassified

The Century Foundation (TCF) unveiled a groundbreaking report addressing the pervasive issue of misclassification and off-the-books payment of construction workers, According to the report, this causes significant financial losses for both taxpayers and workers. The first of its kind study estimates that in 2021, between 1.1 and 2.1 million construction workers nationwide were either misclassified or paid off the books. This constitutes 10 to 19 percent of the industry's workforce.

This study coincides with the upcoming release of the U.S. Department of Labor's final rule, which will realign the definitions of employee and independent contractor in accordance with longstanding Supreme Court and federal court decisions. This effectively reverses a policy change from the Trump era.

The misclassification of workers as independent contractors allows employers to reduce labor costs by evading legal obligations, including providing benefits and protections, as well as paying required taxes. Workers classified as independent contractors often lack legal protection against discrimination and harassment based on sex, race, and age.

“The construction industry is awash in worker misclassification, a practice that hurts workers, honest employers, and local governments alike,” said TCF Fellow and co-author of the report Laura Valle-Gutierrez. “Misclassification denies construction workers their legal rights and shortchanges these workers by $12 billion a year in lost wages and benefits nationwide. Misclassification also puts law-abiding employers at a significant cost disadvantage and amounts to tax fraud by corporations that skirt the law.”

Citizens pay a high cost for misclassification, estimated between $5 and $10 billion each year. The study identifies Vermont, Washington, D.C., Connecticut, Mississippi, Arkansas, and Georgia as the states with the highest rates of misclassification in the construction industry. TCF researchers caution that their estimates might underestimate the true extent of worker misclassification.

“I have felt firsthand how misclassification has hurt the working class,” said Jair Rodriguez, a member of the United Brotherhood of Carpenters (UBC) from Central Islip, New York. “Cheating contractors being able to pay less than the area standards and paying cash have been hurting me and my family, by me having to pay higher taxes and taking away good union jobs from those who are highly skilled, work safely and efficiently, and pay their taxes.”

The testimony of individuals like Jair Rodriguez illustrates the human cost of misclassification, with real consequences for the working class. However, misclassification is not isolated but often part of a broader system of disenfranchisement, especially in western states.

Leading the Charge

The study highlights States along the Eastern Seaboard through the South as having the highest rates on misclassification. In the western states, the issue is pervasive but it is just one of the ways in which workers are exploited.

Misclassification, in conjunction with other forms of wage theft including cash pay, nonpayment of wages, overtime or vacation pay or work off the clock all contributes to workers being underpaid and exploited. In the West and along the Southern border many workers are undocumented and unaware of their rights, making them more vulnerable.

"In our State, these criminal contractors use every trick in the book. They misclassify to cook the books when they have to, but many just pay cash and outright hide workers. These workers are faceless and nameless bodies provided by labor brokers. This is the epitome of no accountability. And because of many of the workers status, they don't know they have rights." says Jesse Garcia a labor activist in Southern California.

In light of the TCF report and the USDOL Final Rule, it has become imperative that all states devise a strategy to put an end to these criminal tactics. The State of California is aggressively tackling the issue under Labor Commissioner Lilia Garcia-brower. BDN recently spoke with Commissioner Garcia-Brower at a press conference announcing the settlement of a $1m lawsuit against Calcrete Construction. The Contractor was hit with numerous wage violations including failure to compensate workers for overtime, allocate pay for sick leave, and provide accurate wage statements.

California Labor Commissioner Lilia Garcia- Brower greets former Calcrete workers

"We need to have all the tools available to be able to respond to the criminal activity- the violations. With this case we pulled in our legal team from the judgement enforcement unit. We are doing cross training internally and in our legal department so that all of our attorneys know how to bring forward these cases. That's part of our tool set that we need to grow to be able to deal with these kinds of schemes and tactics."

Garcia-Brower also emphasizes legislative measures have been taken to strengthen statutes enforcing successor liability. She says this is not easy however, and it requires, "eyes and ears out there" to assist in following the paper trail. Partnerships with community organizations that are familiar with company structures and that have a good rapport with workers that are willing to come forward with information are necessary. In the case with Calcrete, "we were able to stop the illegal transfer of assets." before the company could reform as something else. "Continued conversations with workers is what made that possible."

Other offices in the Golden State are also stepping up under Garcia- Browers direction. For instance, San Diego, with its proximity to the southern border is a major epicenter of wage theft in California. The San Diego County District Attorney's Office estimates that the State of California loses around $10 million annually from wage fraud and in San Diego County alone, nearly 40,000 workers are victims of wage theft.

This year San Diego officials have implemented new rules in an effort to combat wage theft and crack down on contractors circumventing city rules. Contractors are now tasked with disclosing more information about previous labor law violations and licensing. San Diego also has a workplace justice unit under San Diego County District Attorney Summer Stephan, that encourages victims of wage theft to anonymously report violations. The Unit focuses on prosecuting unfair business practices, wage and hour violations, payroll tax evasion, wage theft and labor trafficking cases.

Inflection Point

The report notes that the issue crosses party lines as a significant portion of Democrats (69%) and a majority of Republicans (56%) express a likelihood to vote for a candidate addressing worker misclassification. Citizens are becoming aware of how serious a scourge the issue is. The more the different types of worker exploitation are highlighted, the clearer and more unmistakable the prevalence becomes as well as the need to put an end to it as soon as possible.

Worker misclassification along with other forms of wage theft, are a nationwide issue with profound economic, social, and legal implications. As the issue becomes more overt, the call to action is clear—policymakers, regulators, and citizens must unite to address this pervasive problem. All workers, regardless of their status, must be treated fairly, paid justly, and afforded the legal protections they rightfully deserve.

The findings are complete. The time for action is now.

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