Pennsylvania Attorney General Josh Shapiro made the point in a recent press conference, saying, “When you misclassify employees, let me be clear what you are doing: You are stealing.”
Under the Construction Workplace Misclassification Act (Act 72), Pennsylvania law defines employees categorized as independent contractors as individuals with their own business contracting to perform services or tasks in exchange for payment, free from the employer’s control or direction. This state law provision, codified in 2011, has been actively enforced civilly by the Pennsylvania Department of Labor & Industry. However, its criminal teeth were rarely enforced, until now.
Attorney General Shapiro and Delaware County District Attorney Jack Stollsteimer recently introduced a joint enforcement pilot program prioritizing the criminal enforcement of employee misclassification across multiple industries.
Based on a tip, Delaware County, Pennsylvania law enforcement officials investigated and charged four individuals associated with a drywall contracting company for fraudulently classifying several employees as “independent contractors” on the construction of a branch location of a nationwide gym facility in Broomall, Pennsylvania. The drywall company categorized employees as “independent contractors” while paying them an hourly wage and issuing weekly paychecks. This fraudulent misclassification absolved the drywall contractor from paying benefits, including payroll tax, unemployment insurance, and workers’ compensation for work performed by at least seven of its employees. The individuals charged also face prosecution for a host of other crimes including conspiracy, theft by deception, deceitful business practices, and making false statements.
In addition to the potential workplace misclassification, employment documents bearing fraudulent Social Security numbers were discovered, and employees were hired despite their known undocumented immigration status. The drywall company required the employees to sign “fraudulent independent contractor contracts” containing terms that required the employees to purchase liability insurance with cash provided by the contractor. Because the workers were considered “independent contractors,” the drywall company avoided paying the laborers numerous benefits to which they were entitled.
Left unchecked, fraudulent misclassifications risk broader implications, including impacting state and local tax payments and depleting the funds available for unemployment benefits and workers’ compensation. Here at Cohen Seglias, we stand ready to provide advice and assistance to those who have questions about worker misclassifications and the associated risks. Please feel free to contact one of the attorneys in the Internal Investigations Group for further information.