Workers in Arizona and Utah Cheated Out of $700,000 in Wages

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Workers in Arizona and Utah Cheated Out of $700,000 in Wages

Jessica Mason Pieklo

Employers intentionally misclassified workers to avoid federal labor protections, according to a settlement reached between 16 companies and the Department of Labor.

A multi-year investigation by the Department of Labor into allegations of wage theft ended with judgments of $700,000 in back wages and penalties for construction workers in Utah and Arizona.

Sixteen defendants, operating collectively as CSG Workforce Partners, Universal Contracting, LLC and Arizona Tract/Arizona CLA, had claimed their workers were not employees, according to the Department of Labor. The department alleged the defendants required the construction workers to become “member/owners” of limited liability companies, which stripped them of federal and state protections that come with employee status.

Those protections include minimum wage guarantees, overtime protections, workers’ compensation, unemployment insurance, and other workplace protections.

Employers often wrongly classify workers to reduce labor costs and avoid employment taxes.

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As alleged by the Department of Labor, the construction workers were building houses in Utah and Arizona as employees one day, and then as “member/owners” of the LLC the next. In other words, they were performing the same work on the same job sites for the same companies, but without the protection of federal and state wage and safety laws.

The companies, in turn, avoided paying hundreds of thousands in payroll taxes, the department found.

“Hiding behind deceptive legal partnerships to reduce wages owed to employees is wrong. We will not tolerate denying overtime and other employment rights to workers,” U.S. Secretary of Labor Thomas Perez said in a statement following the consent judgments.

“Employers who misclassify workers do not pay their fair share of payroll taxes, which cheats critical state and federal programs,” Perez added. “The misclassification of workers shortchanges every single taxpayer by forcing them to pick up the slack for those who break the law.”

The consent judgments are the result of a combined effort of the U.S. Department of Labor, U.S. Department of Justice, and the state of Utah. The investigation began in southern Utah and moved to Arizona after the passage of state legislation in Utah that required LLCs to provide workers’ compensation and unemployment insurance to their “members.” The defendants moved their operations south to Arizona to avoid legal jeopardy in Utah, the investigation found.

Federal courts in Utah and Arizona approved the consent judgments at the end of April. The judgments require the defendants to pay $600,000 in back wages and liquidated damages to employees in Utah and Arizona and an additional $100,000 in civil penalties.

The judgment directs the companies to stop using limited liability companies to avoid Fair Labor Standards Act (FLSA) compliance. The businesses must work with the Department of Labor to identify workers who were harmed by the misclassification scheme and determine proper payment of back wages.

The FLSA requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and a half their regular rates of pay, including commissions, bonuses, piece-rate earnings and incentive pay, for hours worked beyond 40 per week. The law requires that accurate records of employees’ wages, hours, and other conditions of employment be maintained.

“Legitimate independent contractors are valuable contributors to our economy, but those who deliberately misclassify actual employees as independent contractors—or partners—are a serious problem in many industries, especially in construction,” Wage and Hour Division administrator David Weil said in a statement following the judgment.

The Department of Labor, in a separate but related case, obtained a consent judgment against a major client of the Arizona defendants in this case. The judgment in the U.S. District Court for the District of Arizona against Paul Johnson Drywall, LLC, required the company to stop using the Arizona defendants’ unlawful LLC business model and to pay $600,000 in back wages, liquidated damages, and civil money penalties.