Misclassification cheats every taxpayer, and it also undermines the competitiveness of employers who do the right thing and play by the rules. Unfortunately, this is one of the more pervasive and damaging trends in the 21st century workplace.
Imagine if one day you went to your job, and the very next day you went back to the same job — working for the very same boss in the same location and performing the same tasks — but your employer declared you to be an independent contractor or part of a limited liability company.
That’s exactly what one Utah construction company was doing, as part of a worker misclassification scheme that denied workers basic protections. But an investigation by the U.S. Department of Labor’s Wage and Hour Division shut down this business model and made the workers whole again, to the tune of hundreds of thousands of dollars.
The defendants in this legal matter (operating collectively as CSG Workforce Partners, Universal Contracting, LLC and later as Arizona Tract/Arizona CLA) required their workers to become “member/owners” of limited liability companies, stripping them of legal rights that come with employee status. That means no minimum wage guarantee, no time-and-a-half overtime pay, no workers’ compensation, no unemployment insurance and other benefits.
Misclassification of this kind is an underhanded tactic common in construction, as well as other industries. It doesn’t just take money out of workers' pockets — money that they have earned and need to support their families; it also means employers avoid paying payroll taxes, thus straining programs like Social Security and Medicare. Misclassification cheats every taxpayer, and it also undermines the competitiveness of employers who do the right thing and play by the rules.
Unfortunately, this is one of the more pervasive and damaging trends in the 21st century workplace by employers looking to skirt responsibility and cut costs. It is a serious problem in construction, as well as other industries, and it is exacerbated by increasingly fissured employment structures where work is contracted and subcontracted away from a core company.
The state of Utah was a helpful partner in our investigation, providing information from the state’s Worker Classification Coordinated Enforcement Council, an entity created by the Legislature to combat misclassification. But when the employers caught wind of our investigation and Utah’s misclassification crackdown, they packed up and headed to neighboring Arizona, setting up shop under a new name and picking up where they left off with the same scheme.
But employers can’t just run to another state or change the sign out front. When we identify fraudulent business models that violate the law, we will chase them and hold them accountable wherever they go. In Arizona, we opened an investigation of the so-called new company. After years of pursuit, we ended up recovering $600,000 in back wages and damages for workers here in Utah and across the border. Furthermore, we penalized the employers an additional $100,000 for their willful violations of employment laws.
Workers who believe they might be owed back wages by the defendants can contact the Wage and Hour Division’s Salt Lake City District Office at 801-524-5706.
Our legal victory sends a strong, clear message: Employers can’t hide behind deceptive business practices to cut corners and save money on the backs of their workers. And it shows that we are serious about using all enforcement tools at our disposal, including litigation and partnering with other federal and state agencies, to ensure that workers, taxpayers and law-abiding employers are protected against illegal and unfair practices. It’s our hope that this victory in Utah will serve as a credible deterrent that influences employer behavior here and nationwide for the better.
David Weil is the administrator of the U.S. Department of Labor’s Wage and Hour Division.