Thread: AZ - llegal labor on industry radar

llegal labor on industry radar

Officials: Homebuilders tight-lipped on steps being taken

• Watchdog report

By Joe Dana12 News
Fri Oct 4, 2013 7:21 PM

Metro Phoenix’s largest homebuilders are aware of illegal employment practices likely contributing to construction of their houses, labor regulators say. But it’s unclear what steps homebuilding companies are taking to address the growing problem.

“There is a dialogue between national builders and the Department of Labor on this issue, and the industry is aware,” said Eric Murray, Phoenix district director of the U.S. Department of Labor, Wage and Hour Division.
Murray recently expressed concern that regulators are observing “disturbing trends” in subcontracting that they believe are eroding state construction-employment numbers. According to two government agencies, Arizona lost between 1,200 and 3,000 construction jobs in August. New-home construction has increased over the past 18 months but in recent weeks, the recovery has stalled.

Regulators are concerned that unlicensed work, potentially done by untrained or undocumented workers, may be affecting the contractors who compete against them. Labor-law experts call the practice “employee misclassification.” Others call it “the underground economy” and say the problem is worsening in the Arizona construction industry.

Although “employee misclassification” is not a new problem, Murray says he believes licensed subcontracting companies are increasingly paying workers “off the books” and in some cases firing employees only to hire them the next day as “independent contractors.” By doing so, companies avoid paying government taxes, employment insurance, liability coverage and legal wages, Murray said.

“Just because you call someone an ‘independent contractor’ doesn’t make them a legal independent contractor,” Murray said.

Representatives of the state’s biggest homebuilders recently declined requests by 12 News to discuss the issue on-camera.

“I can’t speak for them on why they won’t discuss the prob lem,” said Janet Gilbert, president of the American Subcontractors Association of Arizona. Gilbert said she has talked with executives of several Valley homebuilders about the issue.

“In general, I think a lot of them are not aware or choose not to be aware of these practices. Some are made aware and still hire groups who do these practices,” Gilbert said.

She owns Gilbert Plumbing Co., which has been operating in Mesa since 1969. She said her company repeatedly lost bids for contracts on home-construction sites to other subcontractors who were able to bid 20percent to 30 percent less for the same job.

“The only thing that can account for a large percentage like that is the fact that people are using illegal labor practices,” she said.

Gilbert added that the problem has deflated rates so badly that reputable Valley companies in plumbing, framing and roofing have shut their doors in recent years because they no longer were able to compete with illegal subcontractors.

“A lot of the better-quality people are leaving the business,” Gilbert said.

Homebuilders usually are not held legally responsible for any unlicensed construction because they are two or three degrees removed from the issue, labor attorneys say. Homebuilders hire general contractors, who are responsible for lining up the subcontractors.

Retired flooring-business owner John Walker said subcontractors are being hurt by dramatically low bids. Companies are forced to play outside the rules to secure business, he said.

“When you are bidding for a job, there are 10 other people in line to do the work, if you’re not,” he said.
Walker said he believes the Arizona State Registrar of Contractors needs to be more proactive. “The ROC and the builders have to come up with a solution because everyone (in construction) is getting burned in this situation,” he said.


http://www.azcentral.com/business/realestate/articles/20131002illegal-labor-on-industry-radar.html

VIDEO AT THIS LINK>

Undercover sting targets illegal contractors

Joe Dana’s ongoing investigation of the “underground economy” profiles a recent sting operation by the Arizona Registrar of Contractors

http://www.azcentral.com/video/1848545423001

Activist works to stop unlicensed contractors

By Joe Dana12 NewsSat
Sep 28, 2013 3:52 PM

John Jackson has been labeled both a snitch and a hero in home-construction circles.

The 51-year-old tile craftsman from Casa Grande began a crusade two years ago to expose unlicensed construction after Jackson says it became impossible for him to secure flooring contracts on new-home sites. He said the going rate for tile work dropped to unrealistic levels because subcontractors were willing to take legal shortcuts to complete the work.

“The people that are willing to break the law are the ones who get the jobs,” Jackson said.

He has filed dozens of public complaints and invited 12 News to new-home construction sites where alleged unlicensed work was carried out, potentially done by untrained or undocumented workers. Although not everyone agrees with Jackson’s methods, public officials acknowledge that in many cases, he appears to be right.

Labor-law experts call the practice “employee misclassification.” Others call it “the underground economy” and say the problem is worsening in the Arizona construction industry.

“We’ve seen misclassification quite a while. However, we’ve seen trends lately that are very disturbing to us,” said Eric Murray, district director for the U.S. Department of Labor, Wage and Hour Division.

Contractors who hire laborers “off-the-books” don’t pay taxes, employment insurance and liability insurance. They save at least 30 percent on costs and therefore can bid for jobs at lower rates than subcontractors who play by the rules, labor experts say.
“The folks trying to abide by the law are at a significant, unfair competitive disadvantage,” Murray said.

The practice not only creates unlevel playing fields for business owners but deprives the state of revenue and quality jobs that are supposed to be by-products of a rebounding economy.

The Associated General Contractors of America on Sept. 20 reported that Arizona lost 3,100 construction jobs in August, despite a yearlong trend of steadily growing home-construction permits. The state reported 1,900 construction job losses during August, according to the Arizona Office of Employment and Population Statistics.

Murray said the job losses may be a result of construction employees being moved off the books by business owners.
“The department has a theory that misclassification is playing a role in these ‘job losses,’ ” he said.

Enforcing the laws

Jackson said his business has been crippled because he has not been willing to accept work for such low rates. He was forced to let go both of his employees. Some of his peers say his reputation also took a hit when he spoke up.
“He’s been blackballed,” retired tile-business owner John Williams said. “Sometimes you shouldn’t voice your opinion. You have to stand there and watch. And John refuses to do that.”

The ROC regulates residential and commercial contractors. In response to questions about enforcement, the agency provided 12 News with 30 cases it has investigated since 2011, resulting in license suspensions, revocations and financial penalties. Only one case, which the ROC says originated from a complaint by Jackson, involved work done on a new-home construction site.

Jackson said he blames the ROC for not being proactive against home developers.

“Until the Registrar of Contractors shows a presence on these job sites to show the builders they’re not messing around, that they’re trying to find out who are employees and who are not, then the builders aren’t gonna do nothing,” Jackson said.
Bill Mundell, director of the ROC, said his office vigorously enforces unlicensed “aiding and abetting” laws against licensed contractors who hire illegal labor. According to the ROC, 6 percent of the 773 citations issued to all contractors last year involved aiding and abetting, and the agency submitted 339 criminal cases involving unlicensed contracting.

But Mundell said the law prevents investigators from randomly visiting construction sites looking for violations. Very specific information is needed to investigate and prosecute complaints of unlicensed contractors, he said.
“These are very difficult cases to prove, and the courts have said so. So we are doing the very best we can with the staff that we have,” Mundell said.

On a federal level, the U.S. Department of Labor is in the second year of a misclassification initiative launched under Vice President Joe Biden’s Middle Class Task Force meant to prosecute companies and individuals found guilty of misclassification practices.

In the past fiscal year, the division’s Phoenix District Office focused on electrical subcontractors. The majority of companies investigated were found to have violated misclassification laws, Murray said.

“In Arizona, misclassification takes multiple forms,” he said. “Those include cash pay, workers not on the records, improper designation of 1099 independent contractors and K-1 partnership schemes.”

According to a June report by the Office of the Auditor General, auditors reviewed five cases of unlicensed contracting received between 2008 and 2012 and found that the ROC took between 11 and 99 days to handle the cases and submit for criminal prosecution.

Educating subcontractors

Mundell said he is focusing on the “carrot and stick” approach of enforcement by educating construction contractors and builders of their obligations.

For the first time in the agency’s history, the ROC in June posted a policy statement and checklist on its website to help contractors determine if they are complying with the law, Mundell said.

There are other efforts to educate contractors Valley-wide. Last week Valley employment attorney Julie Pace briefed more than 100 members of the American Subcontractors Association of Arizona about laws regarding independent contractors.
Pace said misconceptions remain among subcontractors about under what circumstances it is legal to hire licensed “independent contractors.”

Subcontractors began “a slippery slope” in an effort to remain competitive in 2007 after the housing market collapsed, she said. They began illegally hiring independent contractors, and many paid cash for their services. The practice is getting worse every year, Pace said.

“Homebuilders need to question who they are hiring, their subcontractors. The subcontractors need to relook at their wage and hour compliance and the things they are supposed to be doing,” Pace said. “Now is the time to clean it up, while the economy is getting back on track.”

http://www.azcentral.com/business/realestate/articles/20130927unlicensed-contractors-activist.html

Video reports.

Unlicensed construction on new home sites

http://www.azcentral.com/video/2698443325001

ROC: Unlicensed labor on Fulton Homes site

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Silence from homebuilding association about illegal labor

The Home Builders Association of Central Arizona will not comment about the employment misclassification problem that authorities say has reached alarming levels on construction sites.


http://www.azcentral.com/video/#top#.../2767283049001