Sixteen Arizona and Utah companies accused of misclassifying more than 1,000 construction workers agreed to pay $700,000 in back wages and penalties after a multi-year, multi-agency investigation led to consent judgments, which were recently approved by the federal district courts of Arizona and Utah.^[1] This latest win by the U.S. Department of Labor (DOL) and other enforcement agencies underscores the need for companies to carefully evaluate the classification of their production workers, particularly if the workers are classified as “member/owners” of limited liability companies.

According to the enforcement agencies, the targeted construction companies required their employees to become “member/owners” of limited liability companies, stripping them of the federal and state protections that come with employee status. A misclassified employee – with independent contractor or other non-employee status – lacks minimum wage, overtime, workers compensation, workplace safety, unemployment insurance and other legal protections.

As stated in the DOL’s news release,^[2] the workers in question were building houses as employees one day, and then the next day were performing the same work on the same job sites for the same companies but, because of their new LLC “member” status, they were doing so without the protections of federal and state wage and safety laws. The DOL emphasized that the targeted construction companies avoided paying hundreds of thousands of dollars in payroll taxes and other employee-related expenses, gaining an advantage over their competitors, especially when bidding for work.

The consent judgments are the culmination of a five-year investigation led by DOL, in conjunction with the U.S. Department of Justice, the State of Utah and the U.S. Attorney’s Office for the District of Utah.^[3]

The DOL continues to focus its efforts on the construction industry, according to DOL Wage and Hour Division administrator David Weil. For example, in the fiscal year 2014, investigations nationwide resulted in the recovery of more than $79 million in back wages for more than 109,000 workers. In Arizona, investigations resulted in more than $3.4 million in back wages for more than 1,700 workers.^[4]

Now more than ever, it is critical for employers, especially construction companies and related trades, to assess the classification of their workers – employee, independent contractor, LLC member/owner, etc. – and avoid being the target of agency action.

Notes

^[1] See Perez v. Universal Contracting LLC et al (Civil Action No.: 2:13-cv-253-DS) and Perez v. Arizona CLA LLC et al (Civil Action No.: 2:15-cv-00461-JAT).
^[2] See the DOL’s News Release.
^[3] The investigation began in southern Utah and then moved to Arizona after the passage of legislation in Utah that required LLCs to provide workers’ compensation and unemployment insurance to their “members.” To avoid legal jeopardy in Utah, the construction company defendants moved their operations south to Arizona.
^[4] The statements by Mr. Weil were given in his April 1, 2015 speech at a construction industry seminar in Phoenix, Arizona.