(1) Rebuilding a Vigorous Monitoring and Enforcement System in the Commonwealth

The regulatory structure at the federal and state level based on workers being classified as employees is deeply challenged by this new business model in non-union residential construction where the vast majority of workers are not direct employees. This reflects a larger trend with the growth of precarious work across the economy. Precisely at the moment when more resources are necessary to monitor these new workplace practices and enforce violations, the Commonwealth has not increased resources sufficiently or consistently to insure sustained monitoring and enforcement of wage theft and tax fraud.

Joanne F. Goldstein previously served as chief of the Fair Labor Division under Attorney General Martha Coakley and then as Secretary of Labor and Workforce Development in the Patrick Administration. She confirms that wage theft and tax fraud have not only become more rampant and part of the core of construction since her tenure but also that contractors, subcontractors and labor brokers have become more brazen and shameless because the law has not been updated and enforcement has not kept pace with their illegal actions. Goldstein suggests that state government needs to revisit this problem and address it by amending wage and hour laws to reflect current illegal models and practices and to dedicate more resources to enforcement.¹⁴⁸

The need for more resources is demonstrated by the activity of the Attorney General’s Office in monitoring the construction industry. For example, in 2019, the last full year before the COVID-19 shutdowns, the Attorney General’s Office in Massachusetts visited only 24 construction sites. It issued 205 citations against 102 construction companies where “850 employees will receive $1.6 million in restitution and the companies will pay nearly $1.3 million in fines.”¹⁴⁹ This is an industry of $22 billion in sales in 2019¹⁵⁰ with over 174,489¹⁵¹ employees and many more working off-the-books. Given the level of abuse and illegal activity we have documented, this is well below the level necessary to both compensate victims and to create deterrents to stop labor brokers and contractors from engaging in this behavior.

As Tom Flynn laments: “What little government oversight was there before, there’s none now because there’s nobody from the AG’s office working out in the field. There’s nobody that’s out in -- nobody from the USDOL, nobody from this agency, so for the unscrupulous developer it’s a license to print money.”¹⁵² A former carpenter now working in construction management concurs that onsite inspection is a top priority, “The key to this is for us, we need some more enforcement from the Department of Labor, onsite enforcement.”¹⁵³

This lack of resources is also clear in how the case against Alvarez and Combat drywall at the North Square Apartments played out. It was not until April 16, 2020, that the Massachusetts Attorney General’s Office issued three citations for violations of Massachusetts Wage and Hour Laws. The AG cited Alvarez Drywall, Inc. for “failure to make timely payment of wages from 4/22/2019 to 5/4/2019,” and ordered them to pay nine employees $11,686 in restitution and to pay a civil penalty of $2,500.¹⁵⁴ They were also cited for “Failure to furnish true and accurate payroll records to the AGO on 9/2/2019” and assessed a civil penalty of $15,000.¹⁵⁵

In most cases the Attorney General’s practice has been to charge only the labor broker, and not the general or sub-contractors for these wage theft violations. In this case, however, the AG also charged Combat Drywall, the subcontractor with “failure to make timely payment of wages and owing from 5/06/2019 to 5/25/2019,” and it ordered them to pay restitution of $12,291.85 and a civil penalty of $2,000.¹⁵⁶ Charging Combat and not just Alvarez, the labor broker, is a very significant development and recognition of the role of the subcontractor in facilitating wage theft.

At the same time, however, after ten months of waiting, the nine workers will potentially receive only $23,977.85—less than one half of what they were owed for the work they performed. They may not actually receive all these funds because labor brokers, who are not legitimate companies at all, are notorious for not making restitution and paying fines, often closing their operations and reopening up under new names to avoid liability. The restitution agreement did not indicate why the workers would receive such a small amount. In what way does this provide justice to these workers who were cheated out of their wages?

And it must be noted that the civil penalties can be incredibly small. The $2,000 penalty for Combat was little more than a slap on the wrist, and the $17,500 the AG assessed Alvarez can be more than covered by the money he stole from workers and not included in the restitution he was ordered to pay. In no way do these very small penalties deter employers like Combat and Alvarez – or others like them – from engaging in illegal practices.

The Commonwealth must step up and impose much larger penalties that carry real economic costs for all levels of construction companies at a job site who engage in illegal activity. It must provide a financial incentive for employers to comply with their legal and civic obligations if we expect to change the conditions for vulnerable workers in drywall and other industries as well as for Massachusetts taxpayers. We must also renew and expand efforts to make sure that these funds are in fact collected. This action is fundamental to stopping illegal misclassification, wage theft, tax fraud and the hyper-exploitation of undocumented workers.

We should remember, however, that the Combat workers were luckier than most undocumented workers cheated out of their wages. They had the support and advocacy of Frank Gomez and other staff from NASRCC who filed the case and advocated with the AG’s office on their behalf. Without any assistance by a union or a worker center, many undocumented workers would have to just accept the theft of their wages and move on.

In addition to this legal and moral imperative, there is an economic reason to rebuild our monitoring and enforcement capacity. As we have documented, under current business practices in construction, $68.2 million to $160.2 million in 2019 was not being paid into workers’ compensation, unemployment, and state tax coffers each year. Rebuilding and reimagining a vigorous enforcement system in the Commonwealth could contribute significant funds, particularly at a time when the state is grappling with budgets deeply impacted by the Covid pandemic. We can dramatically increase monitoring and enforcement activities in such a way that the additional costs of enforcement will lead to a significant increase in funds for the state budget as well as the workers’ compensation and unemployment systems.

It should be noted that the Commonwealth has a number of statues and policies in place to combat the issues we have documented in this research. In 2004, Massachusetts passed the Independent Contractors Law [Chapter 193 of the Acts of 2004] which codified what is known as the “ABC” test used in many other states to determine independent contractor status. Under Democratic Governor Deval Patrick, Executive Order #499 created the Joint Enforcement Task Force on the Underground Economy and Employee Misclassification in 2009 to coordinate the activities of a number of state agencies to address illegal misclassification, wage theft and the working conditions of those working in the underground economy.¹⁵⁷ The Task Force was codified in law in Chapter 144 of the Acts of 2014, changing its name to the Council on the Underground Economy (CUE). Massachusetts is one of eight states, along with the District of Columbia, that have these kinds of joint task forces. Virginia also just established its own “Worker Protection Unit.”¹⁵⁸

The Joint Task Force was very successful, recovering $21 million in the last half of 2011 and 2112, $15.5 million in 2013 and another $20.1 million in 2014. However, with the election of Republican Governor Charlie Baker, the commitment to combating the underground economy dropped significantly. Only $7.8 million was recovered in 2018, which is the last year that the Council issued an annual report. The last post on their website is a notice of the only meeting held by CUE in September 2019. The current state of the Council is unclear and suggests a continuing disinterest in addressing wage theft and tax fraud.¹⁵⁹ On January 20, 2021, the Attorney General’s Office expressed its concern to the Baker Administration about the effective demise of CUE and noted the need for “substantive . . . collaboration amongst the (CUE) members on how best to address the ever-growing issue of misclassification and payroll fraud in the Commonwealth.”¹⁶⁰

The Administration should reinvigorate the Council on the Underground Economy (CUE) and require the Secretary of Labor and Workforce Development to fulfill the statutory mandate of the CUE. All state agency members of the CUE should similarly be required to fulfill their statutory obligations under the CUE.