State gets teeth for employee policing

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By Jack Zemlicka

Construction industry representatives are greeting with skepticism a state law that lets the Department of Workforce Development crack down on worker misclassification.

The law, which went into effect at the start of the year, strengthens DWD’s authority by, for instance, letting agency representatives visit job sites to investigate alleged violations, such as companies misclassifying employees as independent contractors.

Companies can misclassify employees as independent contractors to avoid paying for overtime and benefits.

If DWD agents find cause, they can shut down work on sites, which could cost contractors time and money.

“I’m not too crazy about shutting a job down because they think or heard something,” said Mike Long, co-owner of Triad Construction Inc., West Allis.

Previously, the extent of DWD’s misclassification investigation was done by the Unemployment Compensation Division, which audited employers to determine whether prior employees were properly classified for tax purposes.

Labor and employment attorney Daniel A. Kaplan of Foley & Lardner LLP, Milwaukee, said he expects an increase in job site visits and potential hassles for companies as a result of the law, even if companies are in compliance.

Officials from DWD did not immediately return calls for comment Monday.

If after a preliminary investigation a company is suspected of a violation, DWD can issue a stop-work order, after which employers have three days to provide proof they were in compliance with the law.

Otherwise, the employer could appeal the order in a process that could last up to 31 days before an appeals tribunal rules in the case.

So even if a tribunal finds a company abided by the law, the contractor could still have lost out on approximately a month of work. And an employer who violates a stop-work order can be fined $1,250 per day for each violation.

If DWD were to issue a string of stop-work orders that were reversed but still delayed construction, Kaplan said, companies could argue the department be held responsible for covering the costs associated with the work lapse.

“I wonder what it is going to take,” he said, “for the construction companies to fight back and hold the department liable for those damages.”

The new law could affect subcontractors as well, said labor and employment lawyer Troy D. Thompson of Axley Brynelson LLP, Madison. It’s common that work done by subcontractors from one company is contingent on employees from another employer finishing their job first, he said.

So, if a construction company is found to have misclassified workers and is subject to a work stoppage until the matter is resolved, everyone else on the project suffers, Thompson said.

“I think under those circumstances all of the parties proceed at their own peril,” he said. “In some cases, general contractors reserve the right to hire another contractor to get the work done so that work can proceed as scheduled.”

Long said Triad has always been vigilant in its classification of workers, but acknowledged the change in law will prompt employers, especially those who may not have been as attentive, to take stock of their employees.

Criteria used to determine classification of a worker as an independent contractor or employee differ depending on the law under which the analysis is made. A worker could be classified as an independent contractor for tax purposes, but considered an employee for worker’s compensation, unemployment, wage and hours, or other purposes.

To ensure compliance, employers under the new law need to maintain and provide to DWD records of all work done by employees, wages paid to employees and any deductions made related to benefits, health care coverage or otherwise.

“I would think this law will only make other contractors more diligent,” Long said, “and do things the way they should have been done in the first place.”