The Commonwealth's Attorney General's Office continues its crackdown on employers who misclassify their workforce. Recently, Attorney General Martha Coakley announced her office has reached settlement with and issued citations in three separate cases involving companies that violated the Commonwealth's prevailing wage, record keeping, and employee misclassification laws. As a result of these settlements, the employers will be forced to pay more than $2.8 million in restitution, fines and penalties.
I. The Laws.
The Massachusetts Prevailing Wage Law applies to all construction work done on public works projects in the Commonwealth and calls for a standardized rate of pay to workers on those projects. The Department of Labor Standards is responsible for setting the prevailing wage rates for all public construction projects in Massachusetts. Massachusetts law also allows certain state agencies to monitor spending on public construction projects through records submitted by contractors. Companies and their owners that violate these laws are subject to both civil and criminal penalties.
In addition, the Massachusetts Employee Misclassification Law (a/k/a the Independent Contractor Law) establishes the standard for determining whether an individual performing services for another should be classified as an employee or as an independent contractor.
Any violation of the Massachusetts Employee Misclassification Law or any other sections of the wage statute results in treble damages, plus the aggrieved employee's attorneys' fees and costs. Notably, individuals are presumed to be employees and not independent contractors under Massachusetts law.
II. The Cases.
In the first of the settled cases, the Attorney General cited Tri State Drywall Systems, LLC and its owner for violating the Commonwealth's prevailing wage law and the requirement to maintain payroll records. After receiving a complaint and conducting an investigation into Tri State's pay practices, the Attorney General concluded Tri State failed to pay its employees the correct prevailing wage rate and failed to submit true and accurate certified payroll records to the awarding authorities for various construction projects as required by law. The Attorney General also determined Tri State misclassified all its employees as independent contractors.
Although the Attorney General noted that Tri State fully cooperated with the investigation and even conducted a self-audit of its records, the Attorney General nevertheless cited Tri State for its prevailing wage, recordkeeping, and misclassification infractions and ordered Tri State to pay $928,000 in fines and restitution.
Similarly, following another investigation, the Attorney General ordered National Water Main Cleaning Company and its president to pay more than $1 million for violating the Commonwealth's prevailing wage laws by intentionally failing to pay employees the prevailing wage rate for maintenance and repair work, and for failing to submit true and accurate payroll records to the appropriate awarding authorities.
The Attorney General also ordered Central Mass Disposal to pay more than $870,000 in restitution and penalties in order to resolve allegations it violated the Commonwealth's prevailing wage law. Following an investigation, the Attorney General's Fair Labor Division determined Central Mass Disposal had contracted for solid waste and recyclable material collection services with eight communities in Massachusetts, but had failed to pay the proper prevailing wage rate to its employees who worked on those projects. Like Tri State, Central Mass Disposal fully cooperated with the Attorney General's investigation and agreed to conduct a self-audit of its records. Nevertheless, the Attorney General ordered Central Mass Disposal to pay over $750,000 in restitution to its employees, plus a $120,000 civil penalty.
III. The Impact.
These cases serve as an important reminder to all employers to (1) properly classify their workforce; (2) pay their employees properly (including the prevailing wage rate, where applicable); and (3) maintain true and accurate payroll records. Employers who classify and pay individuals as independent contractors rather than employees must make certain that such individuals actually meet the definition of an independent contractor under Massachusetts law, or risk consequent violations of state wage and hour laws. Failure to accurately classify employees, or to otherwise comply with wage and hour requirements, may result in the imposition of treble damages and the awarding of attorneys' fees and costs if challenged successfully.
In light of the Attorney General's ongoing increased enforcement efforts, employers are well-advised to seek advice from experienced employment counsel on all wage and classification issues. If you currently have individuals classified as independent contractors, we recommend that an audit be conducted to ensure that such individuals are properly classified. Please contact us if you would like assistance with such an audit.
Marc Terry and Mike Murphy will be discussing misclassification issues in detail at the Labor, Employment & Employee Benefits Seminar on
April 4, 2012 at the Doubletree Hotel in Westborough, MA.