State orders stop-work at Patterson Club
The state labor department, for the past two years, has been cracking down on companies that falsely classify their workers in order to avoid paying employee taxes, workers' compensation insurance and unemployment insurance.
Called "1099 misclassification," violations can include tax and insurance fraud (employers calling workers "independent contractors" to avoid taxes or insurance costs) and "gaming the system" (contractors claiming they don't have to pay taxes, insurance or workers' compensation for 1099 subcontractors).
As a result, more than 275 stop-work orders have been issued in the past two years, statewide.
Right now, five red-colored stop-work orders are currently hanging on a fence at the Patterson Club, a private country club with an 18-hole golf course that is adding a $17 million, 53,000-square-foot clubhouse. The orders were posted Nov. 2 by the Department of Labor. The individuals named in the stop-work orders were working for Laredo Construction out of East Hartford.
Shortly after those stop-work orders were issued, members of Carpenters Union Local 210 -- accompanied by a 12-foot inflatable rat holding an 8-iron golf club -- began protesting at the site. There have been at least three protests a week and the Local 210 members don't plan to pack it in anytime soon.
Ted Duarte, organizer for the New England Regional Council of Carpenters, said companies sometimes get their workers to fill out 1099 forms -- making them, at least on paper, "independent subcontractors instead of the employees that they are." When this is done, the "subcontractors" are paid in cash or by business check at the end of the week. This practice allows them to submit substantially lower bids on projects, often leaving the law-abiding contractor out of the running for work in these tough economic times.
The general contractor for the clubhouse project is AP Construction, but Duarte claims AP Construction hired a subcontractor who in turn hired another subcontractor, which was Laredo.
"This is an example of the many layers construction companies use to insulate themselves from the law-breaking that goes on in the construction industry," said Duarte.
Fred Clemente, who was involved in Wednesday's protest, asked, "How could you properly bid a job if these guys are using unfair tactics?"
In some cases, employees may opt to sign a form to be classified as an "independent contractor" if their boss is offering them $30 an hour instead of $20 an hour, for example. However, because there is no buy-in to unemployment insurance, said Duarte, the greater money up front ends up costing them in the long run if work dries up and they're out of work for an extended period of time.
Companies that making a habit of turning their employees into independent contractors can bid at 30 percent lower than a company that is a law-abiding contractor, according to Duarte. Because of this, contractors may feel forced to do the same type of thing just to compete get the job.
"Over time it's become what we call `the race to the bottom,' " Duarte said.
Some employees knowingly fill out the forms and work as independent contractors, while in some cases, others find out their bosses made them independent contractors without their knowledge. Duarte said he knows one individual who was shocked to receive a $7,000 bill from the Internal Revenue Service.
Individuals who get stop-work orders levied against them, here in Fairfield and across the state, have to be put on the company payroll for the job in question to resume working, according to Duarte. If their bosses don't want to make them official employees and pay the proper associated costs, the individuals are out of the job they had before the stop-work orders.
The law defines an employee as a worker who is under the control and supervision of and employer and who performs services that are integral to the employer's business. In that case, the employer must pay workers' compensation insurance, unemployment insurance and employee taxes. Duarte said if someone on the job site is being told "what to do, when to do it and how to do it," then that person is an employee, not an "independent contractor."
The misclassification practices by certain contractors have the state losing millions in revenue each year. A recent study by Dr. William Alpert, an economist at the University of Connecticut, found that estimated federal income tax losses in the Nutmeg State in 2008 was somewhere between a low of $672 million and a high of $1.6 billion. The low figure on estimated payroll taxes lost was $332 million. The high was close to $8 billion. The estimated workers compensation lost ranged from $204 million and $474 million. Similarly, the low and high regarding estimated Connecticut income tax lost was $180 million and $433 million, respectively.
Jan Kaplanski, a protester Wednesday, said employees deserve to be treated by their bosses as what they are -- employees -- not independent subcontractors. Kaplanski said he participates in protests at the Patterson Club because the "law was broken."
Clemente said that this is "our own back yard," and a lot of law-abiding contractors and their employees could use the work. Local 210 has a membership of 2,000.
Michael Robinson, an organizer for the New England Regional Council of Carpenters, said the protests take place to "show the community that the Patterson Club is hiring people who don't follow labor standards."
He added, "In this economy, where you have good, honest American taxpayers out of work, they're hiring people who don't pay taxes."
Duarte said some companies never even turn in 1099 forms to the government because they're using undocumented workers who might have a Social Security card they got in Brooklyn for $25. However, Duarte said the protests at the Patterson Club aren't about companies using illegal immigrants. Rather, the protests are about employee misclassification and how it's hurting law-abiding citizens and the state economy as well.
Protester Jim Lohr said 25,000 people in the construction business, in this state alone, lost their jobs in the last two years.
"It's hard to compete against folks that aren't following the rules," he said.
"It's about the bottom dollar. It's not about the law-abiding contractor," added Clemente.
Calls to a Patterson Club representative went unreturned as of press time.
The Fairfield Citizen was unable to locate a phone number or Web address for Lardeo Construction, based in East Hartford. Phone calls to "Laredo Concrete Work LLC in Meriden" were unsuccessful.