Tag Archives: John Doran

construction worker

DOL cracks down on illegal practices in construction industry

For the last five years, the Department of Labor has investigated 16 companies in Utah and Arizona for misclassifying employees as contractors. It came to a close on April 23 with $700,000 owed in back wages, damages and penalties for more than 1,000 construction industry workers in the Southwest.

However, this is hardly the end of the DOL’s targeting of the construction industry for illegal labor and wage practices.

“Many employers are feeling the squeeze in the construction industry from the recession and they’re looking for answers and sometimes innocently stumble on the answer of making people independent contractors,” says John Doran, attorney at Sherman & Howard.

The aforementioned case, for instance, included a company that asked its employees to form LLCs. It went from having employees one day to having none.

Misclassification of employees and contractors is more often than not unintentional, experts say. The easier said than done solution is educating employers and employees.

“Arizona does present additional challenges as a border state,” says Jesús Olivares, community outreach specialist for the DOL’s wage and hour division. “A lot of migrant workers and transient employees work here and then move on to other states. It’s a culture in which employees think in order to keep a job, they can put up with these illegal practices. Migrants have no options and that creates an additional obstacle for us. I think here, locally, more than 60 percent of employees who have been misclassified are Hispanic.”

Even if employees seem happy, says Tracy Miller, attorney at Ogletree, Deakins, Nash, Smoak & Stewart, it only takes one person to set an investigation in motion. Sometimes that catalyst is a competitor who is getting underbid by a company that can afford to charge less for a project due to money being saved by misclassifying employees. On average, misclassifying workers can save a company 30 to 35 percent of worker overhead, Olivares says.

“We try to educate our members,” says Arizona Builders Alliance Executive Director Mark Minter. “Employment law attorneys come to our conventions … I hope, as a result of those efforts, people are more aware of potential pitfalls.”

Minter says most calls from members seeking advice concern issues of travel time and apprenticeship classifications, not about righting the misclassification of employees. Minter understands the consequences of misclassification, citing a personal friend who lost his business because he improperly reported sales tax and was audited by the Department of Revenue.

The solution, for Minter, is transparency from the DOL. He recalls that shortly after the American Recovery and Reinvestment Act was passed, a lot of government projects were swept into the pipeline and scooped up by contractors who may have not understood federal classification rules.

“We tried to get guidelines from the DOL, but we were told, ‘We’ll look at the situation and advise after the fact,’” Minter recalls. This led to expensive misinterpretations of federal guidelines, he said.

Olivares, in concert with industry leaders, such as Sacks Tierney lawyers Matt Meaker and Helen Holden, and organizations like the ABA, launched the Employee Misclassification Compliance Assistance Program about a year ago to further the educational mission.

The EMCAP program is a self-audit tool developed to help contractors assess their classification practices. The program also offers a good faith model in which the agency will waive money going to the federal government.

“Peer pressure is a powerful tool,” says Meaker. “If the right players are involved and the right players know what they’re looking for, we’re going to make the light shine forward and force the bad actors into the dark further.”

Nonexempt Vs. Exempt Employees

Arizona employers face an onslaught of wage and hour claims

For Shayna Balch, business is booming.

Since the start of 2012, the labor attorney at Fisher & Phillips in Phoenix is seeing — on average — one to three wage and hour cases filed each day. This is compared with one or two a month in previous years. Nationally, the number of new Fair Labor Standards Act suits lodged in federal courts between 2010 and 2011 jumped more than 15 percent, according to Federal Judicial Caseload Statistics.

Historically, Balch says wage and hour cases have not been an issue in Arizona. Because of that, employers are not prepared for the trend and she worries that this a ticking time bomb waiting to explode.

“There are multiple causes (for the increase)” says John Thompson, who handles wage-hour cases at Fisher & Phillips and is the editor of the firm’s Wage Hour Laws Blog.

“They include a greater familiarity of plaintiff’s lawyers with wage-hour laws and with the many areas in which non-compliance can occur; workers’ increasing awareness of wage-hour requirements — including via the Internet and the media; the growing number and complexity of the laws themselves;  and the stepped-up enforcement efforts of government officials.”

As the economy suffered and employers looked for ways to reduce labor costs, many of the cost-cutting measures conflicted with employment laws, according to Phoenix attorney John Doran of Sherman & Howard, and that has led to an avalanche of wage and hour claims. The number of collective actions has increased by more than 400 percent nationally in the last decade. In Arizona, the increase has been even more dramatic.

“In Arizona, there has been a sudden and dramatic increase in wage and hour collective and class actions,” Doran says. “This should be a source of serious concern for Arizona employers.”

It’s particularly stressful for employers desperately trying to recover from the recession.

“Employers have looked for every possible angle to reduce labor costs including overtime, and many of those angles simply do not jive with the wage and hour laws,” Doran says. “This has been especially true with employers trying to convert their employees into independent contractors, which is an extremely difficult, and often mishandled strategy that has the attention of the Department of Labor and the I.R.S.”

The Department of Labor has increased its strength thanks to a significant bump in funding under the Obama Administration, increasing both its enforcement and public awareness campaigns. More than 250 new investigators have been hired and the revitalized Wage & Hour Division launched its “We Can Help” campaign in 2010 to increase visibility and accessibility to workers.

“The DOL has also been more aggressive in pursuing employers, by expanding the scope of wage and hour investigations, issuing more administrative subpoenas, and imposing more penalties on employers,” says Phoenix attorney Tracy A. Miller, shareholder. Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

And the DOL is making it even easier for employees to build cases against their employers. Last year, the DOL developed a smartphone application that allowed employees to keep track of their own time and monitor employer compliance with certain wage and hour requirements. The DOL also created hard copy “exhibits” for employees to track their time. In taking these steps, the DOL has stated that employees must be paid for any work they do, regardless of where they do it.

Empowered with DOL-provided tools, “We are seeing more individuals who file suit on their own behalf,” says Stephanie Quincy, a partner in the labor and employment practice group for Steptoe & Johnson. “In Arizona, if wages are not paid when they are due or the wages are withheld without a good faith reason, the employee is entitled to three times the amount, as a punishment for the employer. We are seeing employees filing these suits themselves, without an attorney.”

So where are employers most susceptible?

“The biggest increase has been in lawsuits and investigations involving workers who claim to be misclassified as independent contractors,” Miller says. “Failing to pay workers for pre-shift and post-shift activities, such as computer boot-up and power-down, is also still a hot issue. Another common mistake that the DOL and private litigants are focusing on is the failure to include bonuses and commissions when calculating overtime. Wage payments during temporary company shut downs and furloughs has been a hot issue, although usually these issues are resolved without a lawsuit.  Cases involving the misuse of the tip credit or tip pools have also been on the rise.  Finally, we continue to see off-the-clock cases from employees who work remotely and/or routinely use smartphones.”

All of this is a conundrum for employers, considering the changing face of the economy and the workplace. The DOL is encouraging employers to comply with the Fair Labor Standards Act, which was enacted in 1938 when people worked at work. Now, thanks to technology, many of us can work anywhere and anytime.

To protect themselves, employers of all sizes should engage in serious introspection, Doran advises.

“An internal wage and hour audit, if not a must, is still the most valuable tool employers have to fend off such claims,” Doran says, “Annual or bi-annual audits would include analyzing job descriptions and comparing them with what is actually happening in the workplace day to day; examining timekeeper practices; ensuring that supervisors and managers are adequately and accurately carrying out otherwise compliant pay practices; and much, much more. These audits are best conducted through outside legal counsel in order to cloak them in attorney-client privilege.”

Quincy says employers should examine each employee and determine if the employee — not the position — is doing the type of work that is considered “exempt” or “non-exempt.” Non-exempt employees must be paid overtime. Employers should also carefully examine deductions from pay and time, including automatic deductions such as rest and meal breaks. Employers must train supervisors that any changes to hours worked must be explained to the employee and the employee must sign off on them.  The employer should hold supervisors accountable for encouraging — or pressuring — employees to work off the clock or not to accurately record their hours.

“Often businesses feel as though they must be in compliance because they have been paying workers in the same way for years without any problems,” Miller says. “Very few businesses are completely in compliance with the wage and hour laws, however, and an investigation or a lawsuit is an expensive way to learn about violations.  Businesses that proactively audit their pay practices end up saving a lot of money in the long run.”