Common Mistakes For Contractors to Avoid: Labor and Employment Law
By: Jonathan Landesman
Having been a labor and employment lawyer for the last 20 years, it’s fair to say that I’ve been around the block a few times. I’ve represented hundreds of contractors, and I’ve seen them make the same mistakes, again and again. This article is not an academic exercise. In plain English, I’m going to tell you about some of the most common mistakes I have seen so that you can avoid them.
Mistake No. 1 – Failing to create appropriate documentation.
Whether you are dealing with an employee who is chronically absent or getting ready to fire a poor performer, I cannot overstate the importance of documentation. By far, this is the single biggest mistake my clients make. Here’s an example to illustrate the point. It’s Friday afternoon at 3:30 p.m. when my phone rings. It’s a long-standing client and even though he’s usually a laid back guy, this afternoon he sounds frustrated. He wants to immediately terminate an employee who works in an administrative position in his office. She just isn’t getting her work done fast enough and there are too many errors. To make matters worse, she has a terrible attitude. When I ask how long she’s been working for the company, the answer is 17 years. When I ask if she’s been written up for her poor attitude and/or lack of productivity, the answer is no. But then my client adds that she’s received “verbal counseling” a couple of times. Finally, I learn hat my client has given this employee “satisfactory” ratings on all of her annual performance reviews and that she has received the same wage increases and bonuses as her peers in the office. How do I advise this client? I tell him exactly what he doesn’t want to hear: that if he terminates the employee, he’ll be buying a lawsuit that I may not be able to successfully defend. If only this client had taken the time to create appropriate documentation, I wouldn’t have had to tie his hands.
Whether I’m presenting a case to a jury or an arbitrator, or if one of my clients is challenging unemployment compensation eligibility, labor and employment cases are won or lost based upon the quality and quantity of documentation in the personnel file. If the documentation is lacking, the case turns into a “he said, she said” scenario – which always involves a lot of risk. Why, then, do my contractor-clients, even the larger ones, consistently fail to create proper documentation? I believe that there are two main reasons. First, creating good documentation takes time and attention to detail, and supervisors and managers are too busy (or, in some cases, too lazy). Second, handing someone a disciplinary write-up or subpar performance evaluation can be difficult for a lot of people because human nature drives them to avoid confrontation.
So here’s the bottom line: every manager and supervisor in your company needs to understand the importance of documenting employee-related issues, especially performance, attitude, and attendance issue. Failure to do so will cost you big time, either in settlement dollars, legal fees, or, Heaven forbid, a jury verdict.
Mistake No. 2 – Misclassifying workers.
Did you know that there are more overtime lawsuits filed in federal court than sex, race, age, disability, and harassment lawsuits combined? Figuring out who is properly considered exempt and who must be paid overtime is not as straightforward as you might think. For example, a federal court in Philadelphia recently ruled that a highly compensated, salaried project manager was not exempt because he only supervised his subcontractor’s employees (and not people directly employed by his employer). Or what about your junior estimators or purchasing agents: have you assumed that they are exempt? Making assumptions in this area of the law can be very costly, and one of the reasons that these lawsuits are so popular
is that the plaintiff’s lawyers are entitled to seek their attorneys’ fees even if they recovery only a small amount of money for their clients.
On a related note, many of my clients mistakenly believe that they can convert a worker into an “independent contractor” simply by issuing him a Form 1099 instead of running wages through payroll. I’ve seen this issue pop up with all types of workers, from laborers in the field to sales representatives with their own LLCs working out of their homes. The vast majority of the time, the independent contractor label is inappropriate, and my client is sitting on a potential landmine.
Instead of relying on your intuition and leaving things to chance when it comes to classifying your workers as salaried-exempt or independent contractors, this is one area of compliance that you need to get right by discussing it with your labor and employment attorney before a claim is filed.
Mistake No. 3 – Botching certified payroll reports.
Did you ever notice the fine print at the bottom of your certified payroll reports where you are certifying that everything is true and that you are subject to criminal prosecution for falsification? Do you know anyone who has been prosecuted for prevailing wage violations and actually served time for it? Unfortunately, I do. Certified payroll reports need to be accurately completed each and every week. Everyone performing work on the job (i.e., working with the tools of the trade) needs to appear on your reports, including owners, relatives, day labor, probationary employees, foreman, and working supervisors. You need to pay the correct rate specified in the project specs, which may be higher than the rate stated in your collective bargaining agreement. And finally, you need to make sure that you are properly reporting and not taking inappropriate credits with respect to certain fringe benefits and unvested pension contributions.
Mistake No. 4 – Adopting a “monkey see, monkey do” approach to double-breasting.
If you have a union business, you can start a non-union business performing the same work so long as you have a separate corporation and tax ID number, and you put the company in your spouse’s name, right? Wrong! Everyone in the construction industry knows about companies who seem to have beaten the system and operate union and non-union companies at the same time. Why can’t you do it too? The answer is that the courts, arbitrators, and administrative agencies like the National Labor Relations Board look at a variety of different factors to determine whether two entities are truly separate or mere “alter egos” of one another. If the two entities are ultimately controlled by the same person or group of persons, especially with respect to personnel issues, or if the two companies share any back-office personnel, office space, managers, estimators, bonding, insurance, or other facilities, the chances of trouble are significant.
When it comes to double-breasting, it is true that some companies get away with murder for years, if not decades. Because of personal relationships or for other reasons, business agents may turn a blind eye to blatant violations. I’ve seen these situations many times and regardless of what others in the industry are doing or how long a violation has been going on, they are very difficult cases for the contractor to win.
Conclusion.
As you may have noticed, there is a theme developing here: contractors invariably find themselves in hot water when they fail to create appropriate and accurate documentation and rely upon intuition instead of seeking guidance from an experienced lawyer when confronting technical compliance issues. That is why I constantly preach preventative maintenance. It may be cliché, but when it comes to labor and employment law compliance, an ounce of prevention is worth a pound of cure.
