The construction industry has a problem, and the problem is wage theft. At this year’s Catholic Labor Network annual meeting – held at the Catholic Social Ministry Gathering in January — CLN field organizer Ernesto Galeas reported on seven months of visiting construction sites in Washington DC and Maryland, and his findings were grim. Galeas, an immigrant from El Salvador with long experience in the construction industry, reported that on fully half the sites he visited, construction workers were misrepresented as “independent contractors,” allowing their employers to duck required social security contributions, workers compensation coverage, unemployment insurance payments, and workers’ required overtime pay.
In the DC Metro area, the problem typically relies on the use of “labor brokers,” intermediaries used by major construction contractors to enjoy the benefits of payroll fraud while preserving a level of legal deniability. Under this system a labor broker recruits the workers and leases them to the contractor, as if he were running a temp agency. However, the broker in turn tells the IRS that these workers are independent contractors (or simply pays them in cash and tells the IRS nothing at all). Unfair competition from these scofflaw contractors is driving legitimate businesses to the wall. A study commissioned by the Washington DC Attorney General found that this fraud allows employers to evade between 16.7% and 40% of labor costs. Workers lose out on overtime pay and potentially much more – if they are injured on the job they have no way to claim workers’ compensation benefits.
The problem, once confined to residential construction, has penetrated the commercial construction market and escalated to astonishing levels. In two major cases recently settled by DC Attorney General Karl Racine drywall installer Rock Spring and electrical contractor Power Design paid more than $3 million in lost wages and penalties.
Galeas’ testimony moved the listeners deeply and has been covered by the Catholic press (see Wage Theft, an Underreported Crime). In the months to come, CLN will be moving beyond researching the problem and assisting workers in filing complaints for lost wages. To see Galeas’ report at the CLN meeting, CLICK HERE.