It's Accountability Time In the Construction Industry

Aug. 29, 2017 -  When it comes to protecting construction workers in the underground economy, the history of California has found that the buck stops . . . nowhere.

Most of the cheating, most of the rip-offs, most of the theft of workers’ wages takes place two or three rungs down from the general contractors at the top of the construction pyramid. There’s so much of it that the overwhelmed state Department of Industrial Relations can’t keep up on the enforcement end. The outcome: tens of thousands of construction and other blue-collar workers are denied hundreds of millions of dollars a year in lost wages, while the state is shorted somewhere between $8.5 billion and $10 billion a year by employers who don’t pay their taxes.

It’s a situation studied to death by academicians while lawmakers have hesitated to throw up the stop sign.

Finally, somebody in Sacramento is doing something about it. Assembly member Tony Thurmond has taken the lead, and if his colleagues in the Legislature follow it, we might soon have a mechanism to crack down on the cheating.

Thurmond, a Democrat from Richmond, is the author of Assembly Bill 1701, a simple but powerful piece of legislation that will bring accountability to the private construction industry. The bill maintains that if you are the general contractor on a construction project, and if your sub-contractors -- or even their “sub-subs” – stiff a worker out of his or her pay, you are liable. End of story.

Making sure that workers get paid for their labor is as bedrock as it gets when it comes to old-fashioned American labor-management relations. Under Thurmond’s bill, it will be the employer-in-chief who will be responsible for holding everybody below him in line – and to make things right if they don’t.

General contractors on taxpayer-funded public works projects have been doing this for years, and they’ve had little trouble enforcing wage standards lower down in the construction food chain.

Now it’s time to extend this force of law to their counterparts in the private sector.

A 2014 study by the Economic Roundtable found that one-sixth of the state’s construction industry work force is hired on an “informal” basis. That means that unscrupulous employers paid some 144,000 workers cash under the table – if they paid them at all -- with no Social Security, tax, workers comp, disability or other withholdings.

This is the world of the underground economy.

The same study revealed that workers in this dog-eat-dog employment market made about half the earnings of their above-board brothers and sisters. While they shorted construction workers $1.2 billion in the underground economy, the same employers who either ran off with the ill-gotten gains or went out of business also cheated the state out of $774 million in taxes, the study found.

Sometimes, the exploited workers of the underground economy file complaints through the California Labor Commissioner’s office to regain their stolen labor. Sometimes, they actually win their claims. Rare is the occasion, though, when they actually collect – only 17 percent of the time, according to a review of 2008-2011 data conducted by the UCLA Labor Center in conjunction with the National Employment Law Project.  The UCLA/NELP analysis discovered that only $42 million in earnings was recovered by workers, out of the $282 million they had coming.

California’s industrial relations department and other state agencies do their best to try and stop these abuses. But the state can only afford to field 323 inspectors to investigate wage theft and fraud in an underground economy measured at $170 billion in 2015 by the Little Hoover Commission.  The inspectors’ jobs become even more impossible when the same limited numbers also are charged with ferreting out fraud in the rest of what the Little Hoover Commission report identified as a $2 trillion state economy.

So the need for change is clear.

It shouldn’t be a problem for legitimate contractors to comply with the terms of Assembly member Thurmond’s bill, as most of them prove every day. All they have to do is make sure their subs pay their workers their wages and fringe benefits. If they don’t, they might find themselves subject to lawsuits filed by the Labor Commissioner, or other “third parties,” such as the trust funds of the affiliated unions of the State Building and Construction Trades Council of California, which represents 400,000 workers.

AB 1701 also makes it easier for general contractors to keep tabs on their subs by requiring them to make their payroll records available to the top bosses upon request. The bill will also give general contractors 30 days to get everybody paid before any legal action can be taken against them.

If the provisions of this bill might force some general contractors to work a little harder to keep tabs on their subcontractors, we say good. If it prompts them to put forth a little more due diligence in examining the solvency of the smaller businesses they do business with, we say better. If it means that the subcontractors must post a bond to ensure that workers get paid, we say it’s about time.

The unfortunate fact is that in the construction industry, thousands of contractors go out of business every quarter and that thousands more workers lose jobs because of it. This happens in the competitive world of business.

What should never happen, though, is for somebody to not to get paid for an honest day’s work.

AB 1701 will make sure that the buck will not get passed when construction workers are denied the bucks that they have coming to them.

Robbie Hunter, President
State Building and Construction Trades Council


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