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Building industry wages probed
Immigrant labor scheme alleged
By Yvonne Abraham, Globe Staff | November 27, 2005

On paper, it appears Hanani Medina is doing quite well.

The year-end tax documents filed by his employer say the Honduran immigrant was paid $103,770.55 last year. Not bad for a man who arrived in the United States just eight years ago, starting off as a hotel worker before becoming a building framer.

But Medina did not really make all that money. Instead, he contends, he was a conduit for his employer, Olympic Painting & Roofing, which made payments through Medina, who was on the books, to a dozen other employees who were not. Time sheets and copies of checks reviewed by the Globe show that the owner of Olympic, George Vasiliades, gave Medina checks to cover the whole team's wages. Medina then wrote personal checks to the workers he oversaw, some of whom he says were undocumented immigrants, and none of whom, he added, are in the company's official records.

Because Olympic classified Medina as a self-employed contractor, the men he supervised effectively became Medina's employees. This allowed Olympic to avoid large workers' compensation insurance bills and Social Security and other taxes.

This is the kind of arrangement upon which the construction industry in Massachusetts has become dependent, say workers, labor union officials, and immigration policy analysts. As companies try to cash in on the development boom, they are filling their workforces with cheap labor -- often immigrants who will work for half the union rate -- and classifying those workers who are on the books as independent contractors rather than employees. This allows them to withstand IRS scrutiny and frees them of the financial, legal, and safety responsibilities that burden employers who operate aboveboard.

''There is this whole world of under-the-table employee relations," said Mark Erlich, executive secretary-treasurer of the New England Regional Council of Carpenters. ''It is a huge social problem. [Millions] of dollars a year [in taxes] are not getting collected."

The attorney general's office is currently investigating Olympic, based in Peabody, looking into allegations by Medina and others that the company misclassified workers, calling them independent contractors rather than employees to avoid extra expenses and obligations. Attorneys are investigating allegations that Olympic did not pay workers on time -- or at all in some cases -- and failed to pay overtime rates for workweeks as long as 64 hours.

A lawyer for Olympic denied all of the allegations.

''To the best of my knowledge, all the subcontracts are very legitimate," said Matthew Luz. ''All of the subcontractors have their own equipment and do work for other entities as well as Olympic."

The carpenters' union opposes practices such as those alleged against Olympic because they undercut pay and benefits for union members. Erlich introduced Medina to the Globe after the carpenter joined the union and told organizers his story. The attorney general's investigation began with a complaint from the union.

Many benefit from the current climate. Because they skirt labor laws to keep costs down, subcontractor companies win more work for themselves and their employees. And, because they charge less, the companies that accept their bids make tidier profits. Finally, the immigrant workers gladly work for low wages because it is often the only work they can get.

The attorney general's office has tried to crack down on misclassification after legislation tightened regulations on subcontractors last year. However, only a few of the companies that violate the law are punished, union officials say.

''It's like the Wild West out there," Erlich said. ''By the time a case gets to an enforcement agency, the [construction] job is over."

In 1998, Olympic's owner, Vasiliades, pleaded guilty to charges of workers' compensation fraud and failure to pay unemployment tax contributions. He also admitted to sufficient facts to find him guilty of nonpayment of wages and of failing to keep accurate and true payroll records, according to the attorney general's office. He was sentenced to one year of probation, ordered to pay a fine of $250 and court costs, and to pay $4,880 in restitution to three employees.

Union officials say Medina and the men he supervised qualified as Olympic employees under criteria set forth by Massachusetts law, which prohibits classifying a worker as a contractor if he is under direct supervision, is told to work particular hours, or does work that is in the employer's usual course of business.

Each week, Medina turned in time sheets for a dozen men under his supervision. According to payment notifications and cancelled checks reviewed by the Globe, Vasiliades issued checks to Medina based on those hours. Medina says he then deposited the checks into his personal account and wrote personal checks to the men under him, who were paid between $11 and $15 an hour, while Medina received $18 an hour. Erik Castillo and Ever Ochoa, two of the men who worked under Medina, said Medina paid them with checks from his personal bank account. Records show that Vasiliades also deducted money from the checks he gave Medina for tools and cellphones used by some of the men Medina supervised.

The records of Vasiliades's payments to Medina show no overtime payments in weeks when workers worked 50 to 64 hours: State law requires employers to pay time and a half for every hour worked over 40 in any week. Some of the records show the men were paid only half what they were owed some weeks.

''If I'm on a contract, how come I got to bring this sheet to him and say, 'I worked 54 hours?' " Medina said. ''He had me fill in the time sheet every week, he figured out all the hours, and he said, 'OK, all of this is $9,000 or whatever.' "

Unlike some of the men who worked under him, Medina has permission to work in the United States. Like many Hondurans, he was granted temporary protected status after Hurricane Mitch hit his country in 1998.

Medina worked on several Olympic projects last year, including a luxury apartment development in Quincy, the Village at Quarry Hills. The owner of the development is The Finger Cos., based in Houston. The contractor on the project is Milford-based Plumb House Inc., owned by Richard K. Anderson. Plumb House subcontracted framing and painting work to Olympic. Representatives of The Finger Cos. and Plumb House did not return calls seeking comment on Olympic's alleged workplace practices.

If the attorney general's investigation finds that Olympic misclassified workers, neither the property developer nor the general contractor would be penalized, Erlich said.

''The whole system is set up to give employers plausible deniability," said Steven Camarota, director of research at the Center for Immigration Studies, a Washington think-tank that favors stricter immigration policies. ''If an employer wants to hire illegals, it can either do that by taking false documents and then saying 'We didn't know' . . . Or it can create a buffer for itself, as it did here."

Many US citizens are misclassified as subcontractors, analysts say, but the practice is disproportionately common among immigrant workers.

In Massachusetts, about 58,000 construction workers -- about 30 percent of workers in the industry -- are misclassified, said Andrew Sum, director of the Center for Labor Market Studies at Northeastern University.

''A lot of people openly admit this," he said. ''A large part of the industry has been organized on this basis."

Misclassified employees in the construction industry cost the state $4 million a year in unemployment insurance payments and $4 million a year in Massachusetts payroll taxes, according to a study by the Center for Social Policy at the University of Massachusetts at Boston and the Construction Policy Research Center at Harvard Law School. In addition, employers avoid paying about $7 million a year in workers' compensation premiums to insurance companies through misclassification, according to the study.

But there are even more serious costs, say opponents of the practice.

''We think these people who are hiring illegal aliens are taking jobs away from Americans, avoid paying benefits, and create an underclass of people," said Bob Casimiro, executive director of the Massachusetts Coalition for Immigration Reform, which favors stricter limits on immigration.

''It's not just about those workers," said Josh Bernstein, director of federal policy at the National Immigration Law Center in Washington, D.C. ''The entire workplace is degraded because some employers are willing to cut corners. And the rest of them are put at a competitive disadvantage."

Medina is now a member of the carpenters' union. He makes $37 an hour, including benefits. But he also must file tax returns, and he is concerned he will owe taxes on the money Olympic says he was paid in 2004.

''Now I got to pay 20 percent of that money, and I don't make that money," Medina said.

He said he knows many immigrants who, without citizenship or work permits, are still vulnerable to shady employment practices.

''If they offer them a job for 60 hours for $10 an hour, they're going to take it," Medina said. ''They are not legal persons. They don't care if you just put their [year-end tax notification] at $3,000 or $300,000 because they are never going to pay money back to the IRS. And don't get me wrong, but white people are never going to work for $5 an hour doing roofing."