AGs in the News: Labor

A Workers’ Compensation Fraud Task Force investigation revealed that a total of $35 million in fraudulent transactions occurred at supermarkets owned by John Diaz, 45. Mercedes Avila-Diaz, 44 was also arrested for workers' compensation fraud. Diaz and Avila-Diaz collectively face up to 95 years in prison if convicted on all counts. The Miami-Dade County State Attorney’s office will be prosecuting this case.
 
Construction in Texas is a $54 billion-per-year industry. One out of every 13 workers in the state is employed in construction. Of the nearly 1 million construction laborers in the state, half are undocumented. Illegal immigration has not only pushed down wages, but also increased wage fraud and accident rates. Wage theft has also become prevalent since undocumented workers do not complain to Texas authorities. This has also created dangerous working conditions and a lack of benefits for laborers in need of medical attention due to on-site accidents.
 
The University of Texas at Austin and the nonprofit Workers Defense Project have released the results of a year-long research project , in a report entitled Building a Better Texas, on employee misclassification in the state's construction industry.  The report concludes that approximately 40% of construction workers in Texas - roughly 300,000 workers - are either misclassified or paid in cash off the books. This resulted in more than $54 million in lost unemployment tax revenue for Texas and $1.06 billion in lost federal tax revenue. The study was based on interviews with more than 1200 workers, project managers and contractors. The report comes as the Texas Workforce Commission has been holding hearings on the issue and construction industry leaders have been lobbying Texas lawmakers to address the problem.
 
Holliston Company to Pay More Than $169,000 for Violating MA Overtime Laws (Jan. 29, 2013)
Massachusetts Attorney General Martha Coakley has settled with landscaping company Grasshopper Tree and Landscape, Inc. for more than $169,000 in restitution and penalties. Attorney General Coakley launched an investigation into the company after receiving a complaint from a landscaper in April 2011 alleging that he was not being paid for hours worked over 40 each week. The Attorney General investigation concluded that Grasshopper failed to pay overtime to 41 employees from 2009 to 2011.
 
The Iowa Department of Workforce Development has signed a memorandum of understanding with the U.S. Department of Labor Wage and Hour Division aimed at preventing employer misclassification of workers as independent contractors. Under the agreement, the two agencies will share information and Iowa will have access to federal resources it did not previously. Iowa is the fourteenth state to sign an MOU with USDOL since September 11, 2011 in order address misclassification and level the playing field for responsible businesses.
Maine Simplifies Legal Definition of "Independent Contractor" (Jan. 3, 2013)
Maine has adopted a new standard for who may be properly classified as an "independent contractor," in an attempt to resolve confusion resulting from the use of divergent definitions by the Maine Department of Labor, the Maine Workers' Compensation Board and Maine Revenue Services individually.  The new definition mirrors the Maine Revenue Services' definition, which is itself modeled on the federal IRS definition.  "Under the old rules, a business could have a worker classified as an employee under worker's comp, but as an independent contractor for unemployment taxes," Jeanne Paquette, Maine's labor commissioner, said in a statement. "That made no sense so the administration and many interested parties from all sides came to the table and worked out a better definition..."
 
New York Attorney General Scheiderman announced settlements in two cases involving alleged minimum wage and overtime violations, and illegal deductions. More than 300 current and former employees of Flat Rate Movers will share $1.13m in restitution, while approximately 100 workers for clothing store Mystique Boutique will share $950,000 in restitution. "My office will vigorously enforce our state’s labor laws and ensure that workers receive the compensation they are legally owed," Attorney General Scheiderman said.
 
$97 Million in Fraud: 2012's Top 10 workers' Compensation Cases (Dec. 28, 2012)
The North Carolina workers' Compensation Journal compiles the top ten state-level workers' compensation fraud cases in 2012, assessed by dollar amount.  The top case, uncovered by a Florida state joitn task force, involved more than $70 million in undeclared payroll funneled to shell companies through money service business such as check cashing businesses. Of the ten cases, 3 came out of Florida, 3 from California, 2 from Massachusetts, one from Texas and one from Ohio.
 
Massachusetts Attorney General Martha Coakley has settled with a Lowell area hospital, Saints Medical Center, Inc., for $283,000 in restitution and penalties over allegations the hospital failed to comply with state meal break laws and failed to pay for all hours worked. the Attorney General's office became aware of possible violations via a complaint from an ICU nurse that the hospital was deducting time for meal breaks not taken as well as hours worked beyond scheduled shifts. Saints Medical cooperated fully with the AG investigation and has made administrative changes to ensure its record-keeping and pay practices are compliant with state law.
 
The N.C. Rate Bureau and the state's Industrial Commission have agreed to make public employers' workers' compensation insurance data, in a quick reversal of a summer 2012 legislative decision to make that information private after insurance companies were found to be using that data to solicit clients and a North Carolina newspaper used the data to expose employers who were cheating.  The legislature, who must enact the change, is expected to cooperate after the Rate Bureau polled the insurance companies it represents and found that they were amenable to making the information public. The Industrial Commission has long relied on the data in their efforts to resolve workers' compensation claims.
 
California State Compensation Fund employees receive significant training to identify and investigate fraud, including traditional methods such as "red flag" spotting in audits and work site visits, as well as increasing use of technology. the combination of methods is necessary to combat increasingly sophisticated fraudsters who have become experts in methods to avoid getting caught. State and local agencies have been using increased cooperation to identify and combat fraud; for example, more than 100 enforcement actions were taken in last June alone.
 
A California man convicted of workers' compensation premium fraud faces up to 18 years in prison when he is sentenced in the case. The Riverside County District Attorneys Office is also requesting that the business owner, Steven Morales, pay $3.1 million in restitution. The case, arising out of an 18-month investigation by the Riverside County DA’s Bureau of Investigation in partnership with the state Employment Development Department, has already resulted in a four-year prison term for Morales' son. The investigative team discovered that the two men had cheated up to 400 employees out of workers' compensation coverage.
 
Massachusetts Attorney general Martha Coakley has secured a guilty plea from the owner of a tree service company in Woburn MA, App Tree, over the owner's failure to accurately report his payroll or number of employees to his insurance carrier.  The investigation was launched after an App Tree employee was injured by a falling tree and filed a workers compensation claim, at the same time as the owner of App Tree claimed no employees other than himself. The owner, Edward App, was order to pay full restitution in the amount of $39,236 and received a two-and-a-half year suspended sentence and two years of probation.
 
 
Massachusetts Attorney General Martha Coakley has announced the arraignment of an Amesbury  landscaping business and its owner, Bruce Bourassa, on 22 counts of non-payment of employer contributions for failing to pay more $445,000 into the state's unemployment trust fund. The case is part of a collaborative effort between the Attorney General's Office and the Executive Office of Labor and Workforce Development’s Department of Unemployment Assistance (EOLWD\DUA) to identify employers that evade their quarterly unemployment contribution. Bourassa allegedly stopped paying required taxes in 2006, although his former employees collected more than $595,000 in unemployment benefits during that time.
 

Enforcement Agencies find Millions of Dollars in Construction Industry Underground (Nov. 5, 2012)
State agencies including those in California, Florida and North Carolina has seen significant achievements in their efforts to crack down on the underground economy within the construction industry, and are being applauded by legitimate contractors for their efforts. In California, for example, the creation of a Joint Enforcement Strike Force's (JESF) Construction Enforcement Project (CEP) by the Contractors State License Board (CSLB) ha sled to 411 audit referrals for an estimated $48,553,626 in unreported wages; $25,832,017 in EDD and Franchise Tax Board outstanding tax and civil liability suspension amounts with $10,815,762 in penalties recovered; $17, 705, 752 in EDD tax and civil liability suspensions with $6,626, 208 in recovered tax liability; and additional license liability suspensions by the state's Department of Industrial Relations totaling $1,972,328 with $1,835,869 in penalties recovered. Organizations including the California Professional Association of Specialty Contractors, Valley Contractors Exchange,  and the Western Electrical Contractors Association support state efforts to create a level playing field for honest construction businesses by targeting unlicensed, uninsured, and off-the-books-paying contractors.
 

In its most recent meeting, a task force of North Carolina state leaders has stated its intention to dismantle barriers to identifying and catching businesses that misclassify employees or pay them off the books in order to evade mandatory taxes and insurance expenses. The task force - which includes representatives from the state's Labor Department, Revenue Department and Unemployment Tax Division, among others - was formed after a newspaper investigation highlighted the problem of employer payroll fraud and its harmful impacts on honest businesses, workers and the state budget. The agencies have already begun to collaborate, sharing data and preparing educational resources for businesses about their tax and insurance obligations.
 
California Insurance Commissioner Dave Jones announced the arrest of Fresno-based commercial floor care business owners on charges including workers compensation premium fraud, failure to pay taxes, tax evasion, and grand theft. Between April 20087 and October 2011, the owners of Floor Care Systems, Inc. are suspected of under-reporting over $5,000,000 in employee payroll, resulting in a loss of $782,000 in premiums that should have been paid to insurance carriers, and $187,000 in state tax withholdings. If convicted, the defendants face imprisonment and fines of up to $50,000 or double the amount of the fraud.
 
Federal Appeals Court Rules that Workers on Federal Building Projects Can Use False Claims Act for Back Pay and Damages (Oct. 22, 2012)
Cincinnati-based U.S. Court of Appeals for the Sixth Circuit has ruled that construction workers on federal projects can use the False Claims Act (FCA) to pursue back wages and damages from their employers. The Davis-Bacon act requires that contractors on federal projects pay set wages for certain job classifications and requires employers to submit payroll certifications to the U.S. Department of Labor (USDOL) each week. Previously, it was believed that only USDOL could make a determination as to whether an employer had properly classified its employees for the purposes of determining the relevant wage. Yet the Sixth Circuit in this case, U.S. ex rel. Brian Wall v. Circle C Construction LLC, found that the submissions of false payroll records is properly considered by a court under the FCA, which encourages private litigants to file suits against those who commit fraud against the U.S. government, and to receive a portion of any damages.
 
Florida Chief Financial Officer Jeff Atwater and Broward Sheriff Al Lamberti have announced the arrest of an owner of two money service industry businesses whose licenses were obtained through false pretenses. The defendant faces charges for workers' compensation fraud and grand theft for his role in fraud schemes through which business owners used shell companies to avoid the cost of worker's compensation coverage. The arrest is part of a larger investigation by the state's Workers’ Compensation Fraud Task Force, which has been able to successfully shut down 12 shell companies and identify $140 million in fraudulent transactions associated with these companies.
 
Recent audits by Massachusetts' Joint Enforcement Task Force on the Underground Economy and Employee Misclassification and the Executive Office of Labor and Workforce Development have discovered more than $1.17 million in unreported wages, 63 misclassified employees, and $85,907 in unpaid unemployment insurance (UI) taxes by subcontractors working on the Boston Marriott Copley Place renovation project. One contractor who got his employees from a Philadelphia drug rehabilitation ministry paid those workers only $4 an hour, half the state's required minimum. Six companies misclassified workers as independent contractors, with one violator misclassifying 28 workers and failing to report more than $410,000 in wages. Host Hotels & Resorts Inc., which owns the Marriott, said it was not aware of any violations until state Police began questioning workers on the job site  in January.
 
A coalition of contractor associations, unions and other organizations has applauded an announcement by Insurance Commission Dave Jones' that two contractors - a father and daughter who served as President and CFO of Safehome, Inc., respectively - had been convicted of workers' compensation insurance premium fraud and multiple counts of tax evasion.  The coalition, which includes the California Professional Association of Specialty Contractors (CALPASC) among others, stated: "As Coalition members, we are energized to see investigators from multiple agencies working with one another to remain hot on the trail of serial violators."  The San Joaquin Valley Premium Fraud Task Force represents a unique collaboration of district attorney offices from Kern, Fresno, Tulare, Kings and Merced counties, who have worked with CDI's Fraud Division, the Employment Development Department's Investigation Division and the National Insurance Crime Bureau to identify and develop cases against employers who commit payroll fraud. A guilty plea by the two contractors requires them to pay restitution to the State Compensation Insurance Fund and to face 10 years of probation.
Read more here: http://www.sacbee.com/2012/10/09/4896076/california-contractors-congratulate.html#storylink=cpy
 
Massachusetts Attorney General Martha Coakley has announced a $158,000 settlement with restaurant chain Ruby Tuesday over alleged child labor and meal break violations. Between 2007 and 2009, the chain allegedly employed minors without work permits and beyond permissible numbers of hours, and failed to provide required 30-minute meal breaks as required by law. The settlement terms require Ruby Tuesday to pay $125,000 to resolve the child labor allegations and $33,000 to resolve meal break allegations
 
The New York State Workers Compensation Board has issued a stop-work order to Bay Ridge nightclub Amnesia for failing to pay workers compensation premiums on its employees for over two years, a closure that will last until club owner Frank Sofia pays more than $126,000 in fines. Amnesia came to the Board's attention when an employee of the club was injured on the job. Owner Sofia claims that he simply forgot to make the payments, but was allegedly unresponsive to the Board's efforts to discuss the matter with him. A Board spokesman noted that Sofia  "can come to us and review the penalty amount. Our goal is compliance. Our goal is not to accumulate revenue."
 
The New Jersey Senate and General Assembly are considering parallel bills - S1450 and A1578 respectively - that would impose criminal penalties and fines on trucking industry employers who misclassify their drivers as independent contractors. The bills would create a presumption of an employer-employee relationship in the drayage trucking or parcel delivery industries unless the state’s Department of Labor and Workforce Development finds otherwise according to a three-part test. Additionally, the bills would empower individuals to file individual or class civil actions against employers (for damages and attorneys’ fees), and would allow labor organizations to bring class actions as well. The bill texts are available here and here.
 
Leaders in the Texas construction and homebuilding industries are pushing lawmakers in their state to close loopholes in state law that protect contractors who hire illegal immigrants and misclassify their employees as independent contractors - or pay them in cash off the books - in order to avoid paying payroll taxes, workers' compensation and overtime. Business leaders plan to lobby Texas lawmakers to assign greater resources to preventing payroll fraud, arguing that the investment will bring huge returns to the state in tax dollars, not to mention benefitting workers who are denied their rights or face retaliation from employers if they speak out. John Kafka, owner of a roofing and waterproofing company with offices in Texas and Oklahoma, noted that payroll fraud by unscrupulous contractors allows them to underbid their law-abiding competitors: "If you have a low price, you’re going to get the work. What you end up doing is depressing the wages for the American worker.”
 
MA AG Coakley's Office Recovers More than $649K for Woburn Bakery Workers (Sept. 5, 2012)
Working in collaboration with Chelsea Collaborative and Greater Boston Legal Services, Massachusetts Attorney General Martha Coakley has reached a settlement with a temp staffing firm and its client company, a bakery, to resolve allegations that the two companies underpaid more than 1200 workers.  The companies will pay more than $649,000 in restitution, in addition to civil penalties.  The settlement requires on-site training for the staffing agency's supervisors and managers on wage and hour laws, and the provision of notices to current and future employees outlining  information as to their work assignments and rights on the job.
 
Massachusetts Construction Company Owes $37K for Labor Violations (Sept. 5, 2012)
Attorney General Martha Coakley has secured a guilty plea on seven counts by Dedham Massachusetts construction company Lancaster Enterprises, Inc., who received two years probation and was order to pay $37k in restitution to 10 employees. Lancaster and its owner Marie Raftes pled guilty to a variety of payroll fraud-related violations, including willful misclassification of employees as independent contractors, failure to maintain and submit accurate payroll records, and failure to pay the prevailing wage. Raftes and Lancaster are prohibited from bidding on or contracting for public construction projects for five years, although they are permitted to complete public projects they had under contract prior to the pleas.
 
This last in a three-part series on payroll fraud in North Carolina examines the state regulatory practices that could significantly improve identification of workers' compensation fraud, off the books pay and other violations by employers. In particular, a lack of communication and cooperation between state agencies - including the state Department of Revenue, Division of Employment Security, Department of Labor, and Industrial Commission - results in glaring missed opportunities to improve enforcement. Agency heads say that lack of resources, an antiquated data collection and storage system, and laws prohibiting the sharing of tax information are to blame for the intransigence.  A number of states have recently attempted to crack down on worker misclassification, including through information-sharing agreements - known as Memoranda of Understanding - with the Internal Revenue Service, but North Carolina's legislature does not currently seem inclined to address the matter. In the meantime, honest employers continue to struggle in competition with employers who cheat.
 
Payroll Fraud in NC: Injured Worker Pays for Employers Gamble (Aug. 20, 2012)
The second in a three-part series on payroll fraud in North Carolina examines the costs imposed on others by a subcontractor, Jimmy Worrell,  who evaded $29,000 in insurance premiums by misclassifying his employees. When one of Worrell's longtime employees, Clementé Hernandez Gonzalez, was paralyzed from the chest down during an auto accident while on a job, the lack of insurance coverage resulted in a quarter million dollars in unpaid medical bills, an inability to get needed care, the loss of his house and the fracturing of his family. Worrell, meanwhile, is out of business under threat of criminal fraud charges. The insurance companies involved and state regulators are expending millions in litigation costs. Fraudulent insurance schemes of this sort are by no means rare in North Carolina, with a newspaper investigation revealing more than 30,000 business lacking any insurance coverage and many more using fraudulent schemes such as misclassification to buy only minimal coverage. Lack of communication between state agencies and a failure by the state legislature to address the problem have contributed to its persistence. 
 
This first in a three-part series on payroll fraud in North Carolina examines the nature of payroll fraud and compares the experience and practices of honest and dishonest employers, as well as workers. Commercial masonry contractor Doug Burton has been regularly losing bids to competitors who misclassify their employees as independent contractors or pay them entirely off the books. Burton's compliance with tax and insurance laws is compared to the practices of Sabas Martin Galeana, another masonry subcontractor who allegedly openly fails to withhold state and federal taxes, pay unemployment insurance or make sufficient workers' compensation insurance for his employees, many of them illegal immigrants hesitant to report the practices. Galeana has been repeatedly cited by the state Division of Employment Security  and IRS for his violations but continues to be awarded contracts on some of the biggest projects in the state. Facing a $2 billion shortfall in unemployment taxes, the state Division of Employment Security claims to be ramping up enforcement, but the fraud persists while the construction industry has essentially ignored the problem.
 
Amendments to Maryland Workplace Fraud Act of 2009 have taken effect and change the Act's previous presumption that all all workers are classified as employees and not independent contractors. The amendments allow an employer to rebut this presumption by prducing documents establishing an independent contractor relationship. These documents include: a written contract between the employer and contractor, a signed affidavit by the contractor stating it is independent and able to accept work from other employers, the contractor's certificate of good standing from the Maryland State Department of Assessment and Taxation, proof of  the contractor's possession of all relevant occupational licenses, and proof of notice given to the contractor of the implications of independent contractor status.
 
US Department of Labor, State Agencies and Litigants Proceed With Challenges to Worker Misclassification (Aug. 14, 2012)
According to a American Bar Association national meeting panel, including US Department of Labor (DOL) solicitor M. Patricia Smith, federal and state agencies will continue to engage in coordinated efforts to fight worker misclassification. The coordinated effort of multiple agencies, at both the federal and state levels, will seek to demonstrate to employers the full impact their legal violations have on workers, state budgets and compliant businesses. Smith stated that worker misclassification has been a priority for the Obama administration and that memoranda of understanding signed last fall with 13 states have allowed the sharing of information and joint enforcement. In addition, panelists discussed the potential impact of the U.S. Supreme Court's recent decision in Christopher v. SmithKline Beecham Corp. d/b/a GlaxoSmithKline, 132 S. Ct. 2156, 19 WH Cases 2d 257 (2012), which held that pharmaceutical industry “detailers” were outside sales employees not entitled to protection under the Fair Labor Standards Act. The majority in that case also questioned USDOL's practice of taking positions on FLSA issues by filing amicus briefs in private cases rather than through formal rulemaking, but Smith said that the agency will continue to file such briefs.

Eight Florida Contractors Charged in $70 Million Workers Compensation Fraud Scheme (July 27, 2012)
Broward County Sheriff Al Lamberti and Florida Chief Financial Officer Jeff Atwater have announced charges against 8 contractors who allegedly participated in a complex workers' compensation fraud and money laundering scheme that allowed them to cut costs and underbid their law-abiding competitors. The scheme was accomplished by funneling $70 million in payroll through check cashing stores and paying employees with cash in lieu of paychecks. The charges are part of a cooperative effort involving the state and the Broward County sheriff's Office called "Operation Dirty Money," which has uncovered more than $140 million in fraudulent transactions involving 12 shell companies.

Wage and Hour Lawsuits Continue to Soar (July 27, 2012)
More than 7,000 Fair Labor Standards Act (FLSA) lawsuits have been filed in 2012, more than were filed in all of 2011 and more than double the amount of cases being filed a decade ago. At the same time, the United States Department of Labor (USDOL) has collected a record $224 million in wages from employers in the last fiscal year. A particular focus of private lawsuits - reflecting a major initiative by USDOL on the same issue - is the misclassification of workers as exempt or as independent contractors. Recent significant suits include a $5.29 million settlement between Wal-Mart and employees who were misclassified as exempt from overtime, and a federal court finding that two Dollar Store managers met the FLSA's executive exemption.

Opinion: Virginia Joint Legislative Audit and Review Commission (JLARC) Report Addresses Construction Payroll Fraud (July 26, 2012)
In this opinion piece, Brian Burns, president and CEO of Dynalectric Company in Sterling, Va., comments on the findings of the Virginia General Assembly's Joint Legislative Audit and Review Commission (JLARC) on what Burns calls "a major threat to legitimate construction firms in Virginia": deliberate misclassification of workers  as independent contractors. The practice enables subcontractors who engage in it to avoid payroll taxes, withholding, workers' compensation premiums and unemployment insurance taxes, reducing payroll costs by an average of 26 percent and allowing these firms to underbid those that do not engage in such fraud. The JLARC report concludes that most misclassification is intentional and results in state revenue losses of up to $28 million each year. Burns urges the virginia General Assembly to enact the JLARC Report's recommendations, including a coordinated agency approach to enforcement featuring data sharing, stepped-up audit efforts, use of a formal complaint process, penalties, stop-work orders, and debarment from state contracts.

Read the full JLARC report here.

United States Department of Labor Initiative to Push Wage and Hour Compliance in Virginia's Construction Industry (July 14, 2012)
The United States Department of Labor Wage & Hour Division (WHD) has announced an enforcement initiative focused on misclassification of workers in Virginia's construction industry.  The initiative is a response to  WHD's identification of significant noncompliance with the minimum wage, overtime and record-keeping provisions of the Fair Labor Standards Act  throughout the U.S. construction industry. The Division's Richmond office has, since 2008, recovered more than $1.6 million in back wages for approximately 1800 workers. Investigators are enlisting the cooperation of general contractors, third-party staffing companies, workers, industry associations, community organizations, unions, consulates, state and local agencies, and other stakeholders to inform them of the initiative and seek their participation. Similar initiatives are underway in Connecticut, Oklahoma, Texas, and Guam. View the UDOL wage and Hour Division's press release on the initiative here.

New York Attorney General Eric Schneiderman has asserted that  government contractors who violate labor laws will no longer pay only a civil fine but will face criminal charges and possible jail time for their transgressions. Schneiderman's office has already filed felony charges against six such contractors, including co-owners and a manager at Mahopac-based Decora Construction LLC, which performed work at Laguardia Airport.  A firm supervisor was sentenced to four months in jail for underpaying 39 works and the two owners received five years probation and were banned from government work for five years, and required to pay $800,000 in restitution to underpaid workers on the Laguardia Project and a city housing project.
The California Court of Appeals affirmed a trial court order denying class certification for a proposed class of employees who were alleged to have been misclassified as independent contractors by their employer Medianews Group, a conglomerate of California newspaper publishers.  The trial court - in Sotelo v. Medianews Group, Inc., Case No. HG06-278184 - held that there was no objective method of determining who was a member of the class, because it was not possible to give notice to workers who did not have a recorded relationship with any of the defendant newspapers. In addition, two tests - the "right to control" test and "multifactor test" - are used to determine whether a given worker was properly classified as an independent contractor. Because common questions applicable to all class members must predominate in class-action litigation, and because the multi-factor test requires analysis of 14 highly individualized factors, the court found that common questions did not predominate and the class could therefore not be certified.
 
A two-day coordinated sweep by various state agencies responsible for regulating contractors resulted in 104 enforcement actions in counties across California. Participating in the sweep were detectives from the Department of Insurance, the Contractors State License Board, the California Employment Development Department and county district attorneys’ offices. Labeled "Operation Underground," the sweep sought to target "off the books" activities by contractors, identifying violations including failure to carry workers’ comp insurance, under-reporting of payroll in order to pay less for insurance and less in payroll withholding tax, and cash payment to hide unregulated practices. A press release by the state noted that these practices rob workers of legal protections and benefits, drive up insurance premiums and undercut legitimate businesses by creating an uneven playing field.
 
The Ohio Bureau of Workers' Compensation secured 11 convictions/guilty pleas for workers' compensation fraud in May, including a number of employers who failed to properly report payroll, carry workers' compensation insurance or who falsified documents.  Punishments ranged from payments of $3K for restitution and investigative costs to payment of approximately $92K in restitution, and six months incarceration.
 
New York Mayor has signed into law a bill that extends whistle-blower protections to private contractors working on city projects.  The bill's sponsor, City Councilman Dan Garodnick, says that it was a response to the City Time payroll scandal, in which a project to modernize timekeeping for city employees went hundreds of millions of dollars over budget due to fraud and inadequate city oversight; the contractor hired to oversee the project agreed to pay the city more than $500 million in restitution and penalties. The city currently has 17,000 private sector contracts performing public work worth $10 billion.
 
An Oklahoma law that takes effect on November 1 will require all contractors seeking to bid on a public construction project to be able to show proof of current employer identification number issued by the Oklahoma Tax Commission, the Oklahoma Employment Security Commission, the Internal Revenue Service and the Social Security Administration. A contractor failing to supply the number will be subject to fines of up to 10% of the contractor's total bid, a penalty large enough to put a moderate-sized contractor out of business. In addition, the law, H.B. 2258, requires a number of state agencies to share information and coordinate investigation and enforcement efforts against employers who misclassify  employees as independent contractors in order to avoid paying social security, unemployment taxes or workers compensation premiums. A number of contractors praised the law, saying that their business is suffering as a result of competitors who evade state tax and labor laws.
 
The California Senate has passed a bill that would target tax evasion, tax fraud, cash payments, under the table cash payments and other aspects of California's underground economy. The bill, SB 1185, would establish an information-sharing partnership between the State Board of Equalization, Franchise Tax Board and Employment Development Department, with the goal of tracking down people who avoid paying California taxes. A senate analysis estimates that the bill could cost $2.55 million to enact while the Board of Equalization estimates that the bill could allow California to collect an additional $32 million in taxes. In January of 2012, seven state agencies and local district attorney formed a Labor Enforcement Task Force to address the issue.
 
In an economy in which low-wage work has increased and employers seek to cut costs, the practice of underpaying or not paying workers for their labor - what advocates call "wage theft" - is on the rise. It is estimated that millions of workers are affected by wage theft of some sort, with high relative incidence in fast food, domestic work, agriculture, retail, hotel and tourism and home health care, as well as warehousing and construction. A number of cities  - including Kansas City, Mo.; Miami-Dade County; Denver; San Francisco; Seattle; and Austin, Texas - have already enacted legislation addressing the issue, and dozens more - such as Houston, Memphis, Los Angeles and Grand rapids, Michigan - are considering action.
 
California Department of Insurance Action in Two Fraud Cases Applauded by Honest Subcontractors (May 14, 2012)
The California Department of Insurance (CDI) has reported action in two cases involving employer payroll fraud. CDI and the Orange County District Attorney's Office announced an indictment of construction business owner George Osumi II for underreporting more than $3.5 million in payroll, generating a loss to the State's workers' compensation fund of more than $814,000 in premiums. The indictment reportedly includes a number of felony counts, including "misrepresenting facts to State Compensation Insurance Fund; failing to file a return with intent to evade tax; and willful failure to pay tax, unemployment insurance, and disability insurance deductions." A week later, CDI announced the arrest of two Bay Area business owners for paying workers in cash while failing to report payroll or pay payroll taxes." Brad Diede, Executive Director of the California Professional Association of Specialty Contractors (CALPASC), applauded the two actions: "All too often subcontractors who cheat the system are awarded work by builders, general contractors and owners, while honest contractors continue to struggle and go out of business. When this happens, employees' safety goes at risk, the quality of work suffers and legitimate contractors lose much needed work in this poor economy."
 
A Massachusetts Court has awarded $3 million to plaintiffs in a case against janitorial franchisor Coverall, finding the company had improperly misclassified some of its employees - mostly new immigrants - as franchisees and required those employees to pay fees in order to keep their jobs. The damages calculation included the return of those fees, interest and lawsuit costs. The claims stem from the way Coverall's franchise arrangements are structured; Coverall assigns the franchisees their clients, assigns contracts, collects bills and then issues franchisees their share.  In most franchise arrangements, the franchisee performs most administrative duties, performs the contracted work and simply pays a share of profits to the franchisor. More than 700 additional Massachusetts Coverall workers are still pressing their claims.
 
The Washington State Attorney General's Office has hired two new attorneys to investigate and prosecute workers compensation fraud cases in support of the Department of Labor and Industries’ Fraud Investigations Program. The two attorneys, Richard Weber and Tienney Milnor, are experienced prosecutors, and will assist a Fraud Investigations Program that conducted nearly 6000 investigations in 2011 and assessed more than $30 million in unpaid workers' compensation premiums.
 
Florida Chief Financial Officer Jeff Atwater has announced the arrest of a Miami shell company owner who is alleged to have created more than 250 fraudulent certificates of insurance to help uninsured contractors avoid $2.1 million in workers compensation premiums. The charges came after a joint investigation by the Department of Financial Services’ Division of Insurance Fraud and the Broward County Sheriff’s Office. Florida has taken significant steps in the past few years to crack down on insurance fraud, including the convening of an August 2011 working group on the check cashing industry, awarding nearly $275,000 to more than 40 citizens as part of its Anti-Fraud Reward Program, and the passage of new legislation, HB 1277, to address workers' compensation fraud
 
A Florida construction company president, Randall Morton Seltzer, has been charged with falsifying payroll information to avoid workers’ compensation premiums, after an investigation by the state's Department of Financial Services’ Division of Insurance Fraud. The investigation was launched after a referral by the department's Division of Insurance Fraud, which had issued two stop-work orders within five years. The investigation found that Seltzer created a shell company to evade the stop-work orders and consistently under-reported his payroll to his insurance carrier. Seltzer could face up to 30 years in prison and be required to pay over $2.8 million in restitution if convicted.
 
Illinois Attorney General Lisa Madigan has announced a guilty plea by a foreman and subcontractor for a Melrose Park construction company, who is charged with 10 counts of forgery committed in furtherance of a scheme to defraud carpenters working on a construction project to soundproof homes near O’Hare Airport. Madigan's investigation revealed that the subcontractor, Mark Zwirecki, devised a scheme to cheat 10 carpenters - all of polish descent and who spoke no English -  of the legally required prevailing wage ($57.51 / hr.) on the public project. Cook County Circuit Court Judge Dennis Porter sentenced Zwirecki to serve 12 months probation and ordered him to pay $60,804 in restitution and a $10,333 fine.
 
Massachusetts Attorney General Martha Coakley has announced a settlement with three companies over allegations of wage and hour law violations.  The settlement includes over $2.8 million in penalties, fines and restitution. Tri State Drywall Systems LLC, National Water Main Clearing Company and Central Mass Disposal are alleged by AG Coakley to have violated Massachusetts prevailing wage laws and misclassification law, resulting in underpayment to workers of approximately $1.7 million. The companies were fined more than $1 million for the violations.
 
La. Workforce Commission Partners With U.S. Department of Labor to Fight Fraud (Feb. 13, 2012)
The Louisiana Workforce Commission has signed a memorandum of understanding with the U.S. Department of Labor (DOL) to address the practice of employers misclassifying employees as independent contractors in order to avoid providing employment protections such as family and medical leave, overtime compensation, minimum wage pay and Unemployment Insurance.  The memorandum will permit the two entities to share information and coordinate enforcement. The U.S. DOL has signed memorandums of understanding with 13 states and the I.R.S. as part of its Misclassification Initiative, which aims to level the playing field for compliant businesses and ensure workers receive the benefits and protections to which they are entitled.
 
Coakley Takes Action Against Subcontractors Over Wages (Jan. 18, 2012)
Massachusetts Attorney General Martha Coakley has announced enforcement actions against subcontractors on the sites of homebuilder Pulte Homes. AG Coakley is seeking more than $400,000 in unpaid wages and penalties from five construction companies and their presidents, who allegedly misclassified employees as independent contractors, failed to provide pay stubs to employees and failed to keep and provide proper pay records to state officials. The enforcement actions are the result of work by Coakley's office, the State’s Joint Enforcement Task Force on the Underground Economy and Employee Misclassification and the Executive Office of Labor and Workforce Development.
 
A new California law significantly increases the potential penalties imposed on businesses that willfully misclassify employees as “independent contractors.” The law, which is effective as of January 1, 2012, imposes fines as high as $15,000 for individual cases of misclassification and up to $25,000 per violation for businesses found to have engaged in a “pattern or practice” of misclassification. The law also imposes joint and several liability on any paid consultant who knowingly advises a business to classify an employee as an independent contractor in order to avoid the consequences of employee status. The law can be enforced by a variety of state agencies, including all the agencies, departments, commissions, boards and divisions of the Labor and Workforce Development Agency, which is composed of not only the Labor Commissioner but also the Workers' Compensation Board, and the Employment Development Department and its appellate arm, the California Unemployment Insurance Appeals Board. The statute is expected to increase private litigation as well, although it remains to be seen whether private individuals can enforce the law under California’s Private Attorney General Act, which authorizes private parties to file suit on behalf of the state and keep a quarter of any penalties collected.
 
The California Department of Industrial Relations (DIR) has announced the creation of a Labor Enforcement Task Force (LETF) to combat the state’s underground economy and create a level playing field for legitimate employers. The LETF is composed of DIR, the state’s Employment Development Department, Contractor's State Licensing Board, Board of Equalization, and the Bureau of Automotive Repair. The Task Force will collaborate with the Department of Insurance, the Attorney General, Local District Attorneys and community members. Tactically, LETF will focus on collaboration, wider information-sharing and use of new technology for enforcement. "By joining forces with other agencies conducting inspections, we can have a greater impact on stopping labor violations and the underground economy," said DIR Director Christine Baker. Violations typical of underground businesses include not paying income taxes, unemployment insurance or disability insurance; not carrying workers' compensation coverage; not paying proper wages; and not registering for required licenses or permits.
 
Massachusetts Attorney general Martha Coakley has announced a settlement with California-based health care provider Sun Healthcare Group, Inc. for allegedly failing to pay vacation wages owed to separated or terminated employees. The healthcare group and 21 affiliates will pay $60,000 in penalties and restitution, including more than $40,000 in restitution for unpaid vacation time and a civil penalty of $20,000 to the state. The Massachusetts AG's Office began looking into Sun Healthcare in 2010 after receiving a complaint from a former employee. The investigation allegedly found that between January 2009 and this past January, Sun failed to pay 348 former employees earned vacation wages. "Withholding vacation payments is the equivalent of withholding an employee's wages," Coakley said. "Employers that choose to provide vacation to their employees must follow the law and provide the vacation pay that has been rightly earned."
 
The Obama administration has proposed extending the minimum wage and overtime protections of the Fair Labor Standards Act to nearly 2 million home care workers, who have long been exempted from the Act. Labor unions and advocates argue that home care workers perform a crucial role in caring for the elderly, and deserve the same basic rights as other workers. Republicans and business groups criticized the proposed rule change, arguing that it would increase the cost of care, and reduce its availability, imposing higher costs on taxpayers. Medicare and Medicaid cover 75 percent of home health care and nearly 40 percent of home care workers rely on public benefits like Medicaid and food stamps. Secretary of Labor Hilda Solis argued that any increase in costs would be modest. Currently, twenty-two states exempt these workers from their wage and hour laws. The USDOL's announcement of the proposed rule is available at:  http://www.dol.gov/whd/flsa/companionNPRM.htm.
 
The Vermont Attorney General’s Office has announced that a home improvement contractor, Donald Bevins, is being ordered to pay $79,623.08 in restitution to two employees for failure to maintain workers’ compensation insurance. The charges stem from a joint investigation by the Vermont Attorney General's Office and the Vermont Department of Labor. The investigation discovered that while Bevins was operating without insurance and in violation of a work order, two of his employees suffered injuries that resulted in tens of thousands of dollars in uninsured medical bills and lost wages. The Vermont Attorney General maintains a home improvement fraud registry that homeowners can reference before hiring home improvement contractors, at http://www.atg.state.vt.us/assets/files/Home%20Improvement%20Fraud%20Registry.pdf.
 
Massachusetts Attorney General Martha Coakley has announced a settlement with two companies over their failure to pay more than $225,000 in vacation wages owed to terminated or separated employees, as required by state law. The two companies, Ryder Truck and Ryder Integrated Logistics, will pay a civil penalty of $71,300 in addition to repaying the wages owed to 170 former employees. After receiving a complaint from a former Ryder employee, the AG’s Fair Labor Division reviewed the companies’ vacation policies and payroll documents and identified the violations, which occurred over a three year period, from January 2006 to December 2009.
 
Working with the Louisiana workforce Commission, the Louisiana Attorney General’s Office has arrested more than fifty people for unemployment insurance fraud since April of 2011, and expects to make more arrests soon. Although the Workforce Commission disputes a U.S. Department of Labor assessment that fully 44 percent of unemployment insurance payments in Louisiana this year were improper, state officials concede that the state suffers from a significant amount of fraud in this area. “[W]e're trying to show everybody that we mean business and that we're not going to stand idly by and let these folks rip the taxpayers off anymore,” says Kurt Wall, Director of the Criminal Division at the Louisiana Attorney General's Office.
 
The office of Massachusetts Attorney General Martha Coakley has ordered the owners of two Boston-area chinese restaurants to pay more than $129,000 in penalties and $52,000 in restitution for violating a variety of state laws, including the minimum wage and child labor laws. Coakley’s office began an investigation into the restaurants after receiving tips from Massachusetts Coalition for Occupational Safety and Health (MassCOSH), Greater Boston Legal Services, and Justice at Work. The restaurants’ illegal practices included making kitchen workers work more than 70 hours a week for less than the minimum wage, having a 16 year-old work for more than 9 months without pay, and housing employees in crowded, restrictive conditions.
 
A new sector of the underground economy is emerging due to the increasing practice by employers of misclassifying full-time employees as independent contractors. The practice denies states and the federal government access to billions in revenue and denies workers access to protections such as overtime, workers’ compensation and unemployment insurance benefits. While some argue that the practice is a rational response by employers to overly burdensome government regulation and taxation, other analyses suggest cost pressures arising from deregulation and globalization are as much, if not more, of a factor. In the area of trucking, for example, these forces have meant that big shippers and their powerful customers, such as Target and Walmart, now set the cost of shipping. According to Rutger’s University’s David Bensman, this environment has resulted in “[f]ierce competition, ever-increasing service requirements, a contingent workforce, poverty level wages, no health care coverage, rampant safety violations, [and] ineffective or illusory enforcement.” The federal Internal Revenue Service, federal department of labor and seven states recently entered into a memorandum of understanding to increase cooperation in enforcing laws against misclassification.
 
The IRS has announced that it will allow employers to correct errors in classifying employees while paying drastically reduced penalties, and avoiding investigation and complicated administrative procedures.  The new “Voluntary Classification Settlement Program” (VCSP) allows employers to treat as employees workers it had previously classified as independent contractors as long as the employer consistently classified the individual as a nonemployee, filed all forms 990 for the workers over the past three years, not currently under audit for misclassification of workers and has complied with the results of any prior audit. Participants in the progam agree to properly classify workers in question going forward, to pay approximately 10% of the tax liability that would have been owed on a given worker’s compensation over the past year, amounting to approximately 1% of that worker’s compensation. Worker misclassification deprives states of a variety of tax revenue and denies workers access to benefits such as unemployment insurance, workers’ compensation and legal protections such as minimum wage, overtime, family and medical leave, and others.
 
The Labor Department is signing agreements with states that will share information about wage and hour violations. The Labor Department is targeting businesses that label workers as independent contractors or non-employees to get out of paying wages, overtime or federal taxes.  The Labor Department has also focused on industries where this is considered a large problem, like hotels, restaurants, and the health care industry.  The Labor Department collected about $4 million in back wages in 2010, 400% more than they did in 2008. 
 
The California legislature has passed Senate Bill 459, which prohibits the intentional misclassification of an employee as an independent contractor, establishing civil penalties of between $5,000 and $25,000 per violation. The bill also prohibits the imposition of any fees on a misclassified individual that would not have been permitted if the individual were not an independent contractor. An employer who violates the law would also be required to post on their website or in an area accessible to their employees and the public, 1.) that it had committed serious violation of the law; (2) it has changed its business practices to avoid further violations; and (3) that any employee who believes he is being misclassified may contact the state’s Labor and Workforce Development Agency. According to proponents of the law, misclassified workers represent 10% to 30% of the workforce and the practice causes billions in lost revenue to the state. Critics call the law a “job killer” and argue that the test for determining whether an individual is an employee or an independent contractor is overly vague. The law is expected to be signed into law by Governor Jerry Brown.
 
Massachusetts Attorney General Martha Coakley has issued a civil citation to Fall River business McGovern’s Restaurant and Banquet Facilities, and its President Patricia McGovern, seeking more than $236,000 in restitution and fines for violating state tip law. The AG office opened an investigation in 2009 after receiving complaints about the restaurant. An audit allegedly revealed that McGovern’s failed to properly distribute tips from banquet functions and that management took a share of tips, in violation of Massachusetts law. The McGovern family and their attorney deny the AG’s allegations, and assert that the restaurant accepted no gratuities on behalf of employees, but rather charged an “administrative fee” as part of the all-inclusive price for its banquet services. Coyne also alleges that part of the period over which the violations were alleged to have taken place – January 1, 2008 to December 31, 2010 – lies outside the statute of limitations.  McGovern’s filed an appeal of the AG’s determination with both the Attorney General’s Office and an administrative court of appeals.
 
The United States Department of Labor, Wage and Hour Division, has announced an investigation under the Fair Labor Standards Act into possible minimum wage and overtime violations in the residential construction industry. The Division has issued a letter to home builders – including PulteGroup Inc., Lennar Corp., D.R. Horton Inc. and KB Home – seeking names, addresses, Social Security numbers, pay rates and hours worked for all employees over the past two years.  Executives at residential construction firms argue that the Wage and Hour Division has not identified any issues justifying inquiry, that the Division’s requests for information are overly broad and burdensome, and that the inquiry amounts to a “regulatory intrusion” that “couldn't come at a worse time” for the struggling industry. The Labor Department asserts that the current investigation represents straightforward enforcement of law. Unions and regulators have expressed concern that home builders are using layers of subcontractors, which are rarely unionized, to minimize labor costs and evade liability for wage and hour violations.  While some states have laws that make general contractors automatically liable for the unpaid wages of their subcontractors, most states determine a general contractor’s liability based on factors such as whether the general contractor had authority to hire or fire employees, kept control over work schedules or maintained employee records.
 
In April 2011, the National State Attorneys General Program published a report on State Wage and Hour Enforcement.  The report can be accessed here:
 
 
Miami construction business owner Braynert Marquez has plead guilty to tax fraud in connection with “off-the-books” wage payments made to employees of his two companies, Bema Block corp. and Bema Group Corp. The payments were made in two-ways. In the first, checks were issued to a shell corporation and then cashed by a check cashing store that was aware of the scheme. The cash was then used to pay employees to the tune of $698,848.82 in 2007. In the second method, employees were paid with two checks, one on which employment taxes were withheld and another – which was issued by a shell corporation for this purpose – in which they were not. More than $1.13 million in wages were paid in this way. Marquez made the payments without reporting them on quarterly employment tax returns and without withholding or paying over employment taxes. Marquez faces a maximum 3 years in prison, 1 year of supervised release and a $250,000 fine. As part of his plea agreement, Marquez agreed to pay $280, 362 to the IRS in restitution.
 
Massachusetts Attorney General Martha Coakley announced a judgment against RPM Services Inc. and its owner for labor violations. Coakley’s office alleges RPM Services failed to pay over $104,000 in prevailing wages to 11 employees, more than $105,000 in wages to 13 employees, and over $4,500 in overtime to 5 employees. Additionally, Coakley alleges RPM Services willfully failed to submit accurate payroll records to the awarding authorities. RPM Services must pay $213,000 in restitution to affected employees and $257,000 in fines for the alleged labor law violations.    
 
 
The target of Oregon's first state criminal prosecution for antitrust violations has pled guilty. Steven Nagy admitted to antitrust and racketeering charges arising from his rigging a construction bidding process in favor of S&S Drywall Assemblies Inc., his contracting company. He also admitted to felon in possession of firearm charges. The court sentenced him to 30 days in jail, five years of probation and S&S drywall was ordered dissolved. The conviction comes in the wake of an 18-month investigation headed by the Oregon Department of Justice, led by Oregon Attorney General John Kroger. "The Department of Justice is committed to investigating and prosecuting complex racketeering and antitrust schemes that disrupt fair competition in Oregon's marketplace," he said.
 
 
Indiana Attorney General Greg Zoeller has filed a lawsuit against two former firefighters seeking repayment of $24,0000 in payment for hours they did not work. According to an audit conducted by the Indiana State Board of Accounts, Mike Rude owes $17,737.50 for hours he claimed when he was not scheduled to be on duty; while Anthony Slusher owes $7,810.16 for reporting overtime hours that he did not work. The audit report also stated that Rude's hours had been altered by unauthorized usage of a payroll password. Attorney General Zoeller emphasized the value the community places on firefighters while simultaneously lamenting the violation of the public trust as a result of the two former firefighters' actions.
 
 
Massachusetts Attorney General Martha Coakley has announced that Alexander and Tatiana Shlepakov will pay $58,000 in restitution and fines for alleged labor violations. The Shlepakovs, owners of Padi USA Inc. and Elad Industrial Inc., allegedly misclassified workers as independent contractor, failed to pay prevailing wages, and failed to keep proper records in violation of the Massachusetts Employee Misclassification Law. The couple will pay a $32,215.15 in withheld wages and $25,000 in fines to the state.
 
 
Massachusetts Attorney General Martha Coakley has fined the owners of five Dunkin’ Donuts franchises for violating state child labor laws. Timothy E. Cloe and Sebastian Agapite are being fined $6,000 after an audit revealed that in 2008, the franchises employed minors without work permits, before the earliest permissible hour, after the latest permissible hour and beyond the maximum number of daily hours. Massachusetts law restricts 16- and 17-year-olds from working over nine hours a day, 48 hours in a week, or more than six days a week. They are additionally restricted from working past 10 p.m. or before 6 a.m., with exceptions for nonschool days. According to Attorney General Coakley, the laws are designed to enable minors to balance jobs with education.
 
 
A bill co-authored by Illinois Attorney General Lisa Madigan that strengthens the state’s prevailing wage law has been approved by the Illinois Legislature. The bill, HB 3237, seeks to ensure the payment of fair and honest wages on publicly funded projects by making violations of the Illinois’s current Prevailing Wage Act a Class A misdemeanor punishable by up to one year in prison, and by imposing upon offending contractors and subcontractors automatic and immediate debarment by the Illinois Department of Labor for four years. If enacted, the bill would additionally permit local, state and federal law enforcement agencies to seek pertinent documents from potential violators, and would shorten from seven to three days the amount of notice contractors and subcontractors have prior to the inspection of documents. Upon passage of the bill, Attorney General Madigan issued a statement, saying: “This legislation ensures that employees working on projects paid for by the taxpayers are compensated fairly for their work.”
 
 
Massachusetts Attorney General Martha Coakley has ordered construction firm Hampton Building Company Inc. and its President to pay $100,000 in fines and restitution for alleged wage and record keeping violations. Specifically, the company is alleged to have violated prevailing wage, wage and hour, and payroll record keeping laws in its carpentry work on three public works projects: a housing project, a town hall and a police station. “All workers on public construction projects deserve to be properly paid for all of the hours they have worked,” Coakley said. “Any company that has the privilege of doing business with a public entity must abide by the rules.”
 
The United States Court of Appeals for the Eighth Circuit has upheld a district court ruling denying summary judgment to the defendant Applebee’s restaurant chain, in litigation brought by employees who are challenging Applebee’s practice of paying them the $2.13 minimum wage for tipped employees for significant time spent performing untipped duties, instead of the standard minimum wage of $7.25. At issue in the litigation was the proper minimum wage for employees defined as “tipped employees” under the Fair Labor Standards Act (FLSA) who are required to spend significant time doing nontipped work. Fast v. Applebee's Int'l, Inc., 2011 U.S. App. LEXIS 8178, 3 (8th Cir. Mo. Apr. 21, 2011). The FLSA allows employers to pay a wage of $2.13 to tipped employees, so long as an individual employee’s tips make up the difference between the $2.13 wage and the current $7.25 federal minimum wage.A group of servers and bartenders employed by the Applebee’s restaurant chain filed suit to challenge their employer’s practice of requiring them to perform non tip-producing duties for significant portions of their shift while compensating them at the lower $2.13 tipped rate