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Wage Fraud to Cost Contractor $395K

Monday, December 16, 2013

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A Chicago-based commercial contractor will pay nearly $400,000 in back wages and damages for cheating 96 painters, drywall hangers, masons and other workers out of their proper compensation, the Department of Labor has announced.

In addition to the $395,465 tab, Norwood Commercial Contractors Inc., of Bensenville, IL, will be spending time and resources to educate its employees and other contractors about workers' wage rights.

An investigation by the Labor Department’s Wage and Hour Division found that Norwood "repeatedly and willfully" violated the federal Fair Labor Standards Act in payments and record-keeping involving its employees.

Doug-Hudson
Norwood Commercial Contractors

Doug Hudson, president of Norwood Commercial Contractors, boasts "certifications in multiple aspects of both small and large construction."

Authorities said the company misclassified 16 workers as independent contractors and denied them and all of the others proper compensation for all hours worked.

About the Company

Founded in 1950, Norwood Commercial Contractors describes itself as a "third-generation firm delivering top-quality workmanship in all phases of the construction industry" and a "nationwide full-service contractor."

The company's website calls president Doug Hudson a U.S. Navy Seabees veteran with "certifications in multiple aspects of both small and large construction."

The company's annual gross sales volume is at least $500,000, according to DOL's complaint.

Short-Changing Workers

Fraudulent misclassification of employees remains a widespread practice in construction-related trades, depriving workers of benefits, unemployment insurance and other wage protections, said Thomas Gauza, the division’s district director in Chicago.

Misclassification also defrauds Social Security, Medicare, unemploment insurance and worker's compensation funds, the department says.

“The misclassification of employees as independent contractors denies workers of wages and benefits they are entitled to under the law," said Gauza.

Norwood-Commercial-Contractors
Norwood Commercial Contractors

Founded in 1950, the Chicago-based contractor has an extensive portfolio of commercial and residential projects.

"It also leads to unfair competition, because businesses that play by the rules operate at a disadvantage when compared with those that don’t."

Payroll Fraud

In this case, the Labor Department determined that carpenters, electricians, masons, laborers, painters, drywall hangers and finishers, and other employees were misclassified as independent contractors and denied proper compensation.

Many employees were not paid time-and-a-half overtime for hours worked beyond 40 in a workweek and were not paid for travel time to and from assignments when working away from home.

Additionally, authorities said, the company took illegal deductions from employees’ pay in overtime workweeks and "banked" some overtime hours to be paid at straight time in future workweeks. The company also reduced the number of hours worked when processing payroll, in violation of federal law, authorities said.

Contractors v. Employees

Federal labor laws require distinguishing an employment relationship from a strictly contractual one.

While no single rule or test determines the difference, the Department of Labor defines an employee as a person who, "as a matter of economic reality, follows the usual path of an employee and is dependent on the business that he serves."

An independent contract, on the other hand, "is engaged in a business of his or her own," according to DOL.

FLSA Poster
U.S. Department of Labor

Norwood must provide materials to employees informing them of their federal wage protections.

Federal law 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-one-half their regular rates (including commissions, bonuses and incentive pay) for hours worked beyond 40 per week.

Consent Judgment

The Consent Judgment, signed by Hudson and filed in U.S. District Court, requires not only the compensation, damages and interest but details a series of compliance provisions for the company.

The requirements include:

  • Designating an employee as a Compliance Officer to act as liaison with federal authorities;
  • Distributing a reference guide to federal wage law to all employees, along with the phone number of the local enforcement hotline and an assurance of confidentiality of those calls;
  • Maintaining accurate payroll records that are fully accessible to DOL inspectors;
  • Developing at least two presentations to contractor's associations on compliance with federal wage laws;
  • Creating online tools, including information on FSLA compliance, on the company’s website;
  • Detailing Fair Labor Standards Act compliance in the company's contracts and subcontracts; and
  • Creating a compliance-related question-and-answer forum on its Facebook page.

'A Clear Message'

Norwood has faced other record-keeping questions.

Federal-court records show that the non-union contractor was sued by several Chicago labor unions in 2006, alleging that it was an "alter ego" to a company called JJ Interior Specialties Inc., whose Collective Bargaining Agreements (CBA) included contributions to union trust funds.

The unions said that Norwood had refused to open its books to trust fund officials, in order to help JJ avoid its trust fund obligations. In June 2008, a federal magistrate judge found that Norwood was not a signatory to the CBAs, but that its records pertaining to employees who worked for both companies could be audited.

Regarding the current settlement, Gauza said: "This investigation should send a clear message to other employers to evaluate their pay practices and to ensure that they are in compliance with federal labor laws.”

   

Tagged categories: Business management; Commercial contractors; Enforcement; Painters; Residential contractors; Workers

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