When Is a Worker Not an Employee?
On July 30, 2007, Celso Mena, a 57-year-old construction worker who was helping put up a school building site in Hinsdale, N.H., fell from scaffolding and broke his ankle.
It was a serious injury, and tough luck for the hard-working Panamanian immigrant, a legal resident of the United States. Not only was he in pain; he was on the hook for tens of thousands of dollars in medical bills, and he had to scrounge some way to try to make a living now that he could no longer do construction work. No Workers Compensation benefits for him.
He had agreed to work for a drywall subcontractor, GNPB/Kal-Vin, of Hudson, N.H., not as an employee but as an independent contractor, apparently because he could earn a higher wage that way.
A GBPB/Kal-Vin supervisor told him what to do every day. His starting time and quitting time were determined by the firm. He used the company’s tools. But both he and the subcontractor considered him an independent contractor.
The law did not. Eight months later, the New Hampshire Department of Labor ruled that Mena had been an employee of the company and eligible for Workers Compensation. He was awarded eight months of back pay and the company was ordered to continue to pay him 60 percent of his wages until he could return to work .
Though all this took place east of the Connecticut River, for two inter-related reasons – one general and one particular – there is a Vermont connection.
The general reason is that this misclassification of workers as independent contractors is widespread everywhere, including in Vermont, where some 14 percent of workers appear to be misclassified, according to Steve Monahan, the director of Workers Compensation and Safety for the Vermont Labor Department.
The practice – scorned as “1099ing,” by construction union officials (for the Internal Revenue Service form that freelance workers fill out) -short-changes Worker Compensation, Unemployment Insurance and Social Security funds. It also “creates an unlevel playing field,” in the words of Vermont Labor Commissioner Patricia Moulton Powden. Businesses that play by the rules can be underbid by their competitors who do not.
The specific reason is the company, GNPB/Kal-Vin , which sometimes goes by only one or the other of those names, and which is known by contractors, union leaders, and government officials as a company with a spotty labor law record.
The five illegal aliens seized while working at the Loewe’s store in Essex last November were working on a job for Kal-Vin. They, too, were classified as independent contractors, rather than company employees.
The company is also the dry-wall subcontractor for the $55.7 million James Jeffords Hall (pictured above) now under construction at the University of Vermont. Last year, construction unions led by the New England Regional Council of Carpenters wrote to UVM officials informing them about Kal-Vin’s record and urging the university to find another dry wall firm.
UVM spokesman Enrique Corredera said the university took the labor objection seriously, but “we had already entered into contract with our main contractor (who) had already developed a list of subcontractors . We didn’t feel we were in a position to break our contract, but we (made it clear to) the contractor…that we were not going to stand for any kind of violation on our job.”
According to Commissioner Powden, Vermont has no “responsible employer” statute, as some states do, which bans firms which repeatedly violate labor laws from working on publicly funded projects.
“We find it very disturbing that UVM, a socially responsible college, is allowing companies like this to work on their sites,” said Damon Hall of the Ironworkers Union. “We want it in law that companies that break the law get penalized.”
In response to a telephone message to the company, Val-Kin Faxed a message saying, “the information you intend to publish is false (though the message left with the company did not explain what information might be published). You should refrain from publishing those comments. If you do so, you do so at your own risk.”
In August of 2007, Norman Pomerleau, one of the firm’s two principle owners (the other is Gino Bernard) told the Brattleboro Reformer that “the unions don’t like us because we’re an open shop. And we’re very big.”
A plausible complaint. But almost all construction firms in northern New England, big and small are “open shops” (non-union) and the others have not aroused similar antipathy from organized labor.
But the employee misclassification problem is hardly limited to one company, or to the construction industry. It is found in trucking, hotels, and restaurants, officials said, and in one way or another can cost the public millions of dollars a year.
In the last year or so several states, including New York, Massachusetts, and New Hampshire, have strengthened their laws and intensified enforcement of worker classification. At least in the view of trade union officials, Vermont has not.
“There’s no enforcement,” said Bryan Bouchard, the South Burlington-based regional manager of the Council of Carpenters. “There’s nobody out there looking at this issue. Nobody is assigned to employee misclassification.”
Actually, one person is assigned to such enforcement, according to Rep. Warren Kitzmiller, the Montpelier Democrat who heads a task force on the issue set up by the Legislature last year.
“We have one enforcement officer for all fraud other than Unemployment Insurance,” he said. New Hampshire has 16 just for Workers Comp. One of the reasons fraud is so prevalent is the bad actors know they can get away it. We’re losing an unknown amount of money. By extrapolation, I can say we’re losing several million dollars. If everybody were fairly paying the cost would go down.”
But Steve Monahan of the Labor Department said the ten Unemployment Insurance enforcement officers come across evidence of Workers Compensation violations, and can tip off the fraud investigator. Unfortunately, he said, the law forbids that investigator from using that information “for prosecution purposes.” He can only use it as a tip. Then he has to make the misclassification case separately.
The task force is made up of two legislators, representatives from business and labor, and Commissioner Powden. They all seem to agree that the problem is serious and that enforcement should be strengthened. Even the task force’s member from the Association General Contractors, Ernie Smalley of Rutland, said, “Our association’s take is there has to be insurance across the board. End of the story.
What the task force members do not agree on is how to get from here to there, and, not surprisingly, politics seems to have entered the equation.
Powden said that before adding more enforcement officers, the state should streamline its laws, which now include “no fewer than three definitions” of how to distinguish between employees and independent contractors, so that “it can be very confusing for small business to know which way (it is) supposed to go.”
With her boss, Gov. Jim Douglas, intent on cutting the state work-force, Powden could hardly support adding more workers to her own department. Bouchard of the Carpenters Union said Powden was too concerned with being considered “anti-business” if her department cracked down on labor law violators. But Powden said one step she favored was increasing the fines that companies in violation now pay.
“Some firms may look at this (fines for misclassifying) as the cost of doing business. A $5,000 fine. Well, whoopee, I’m saving $35,000. Hitting folks where it hurts is going to have a greater impact on them.”
Two months ago Celso Mena reached a settlement with the Workers Compensation insurance company providing him with a lump sum payment, according to his lawyer, Terrence Daley of Manchester, N.H. Daley, who called employee misclassification, “the biggest fraud in the Workers Compensation System, said Mena is now “able to do a little work,” but did not know whether he had yet found a job.
LATE UPDATE: A comment (since removed) purporting to be from Gino Bernard, one of the owners of Kal-Vin Construction, was deleted after I was unable to confirm that the message was in fact from Mr. Bernard.
LATER UPDATE: Well, it seems really to have been he, and though the comment once deleted can not be restored under “comments,” here it is, word-for-word verbatim as they like to say in Congress: “thank for shoing me my job look nice.”
Tags: Construction, Labor unions
March 20th, 2009 at 4:50 am
The news guy wrote: ‘But Steve Monahan of the Labor Department said the ten Unemployment Insurance enforcement officers come across evidence of Workers Compensation violations, and can tip off the fraud investigator. Unfortunately, he said, the law forbids that investigator from using that information “for prosecution purposes.” He can only use it as a tip. Then he has to make the misclassification case separately.’
This has got to be the only case in Vermont where law enforcement from one jurisdiction cannot help to apprehend or prosecute a violation of law in another jurisdiction. It is not coincidental that this occurs in area that protects business owners from their employees legitimate grievances.
I work as an independent contractor doing web design and development. I am free to accept or not accept jobs, I determine my own hours, I use my own tools, I use my own processes and I do my work using my own knowledge, experience and code.
That is being an independent contractor.
March 20th, 2009 at 11:14 pm
Jon, thank you so much for this piece. It is as good a synopsis on what’s going on in construction that I have seen. The mainstream media has been absolutely negligent in reporting about misclassification. Hopefully, your story will light a fire.
The quote from UVM’s Enrique Corredera is extremely disappointing. The Fogel Administration is well aware of Kal-Vin’s track record, but has decided to do nothing about it. UVM clearly did not take labor’s objections seriously, as Kal-Vin is still working on campus. It is my understanding Kal-Vin also worked on the University Heights residential project in 2004.
Even more troubling, the Jeffords Hall endeavor involves $3 million secured by Sen. Patrick Leahy. Unfortunately, our leaders tend to take a “hands off” approach once earmarks from Washington reach the recipient. I, for one, would like to see my tax dollars supporting responsible businesses – not those that allegedly misclassify and exploit undocumented workers.