A new report from the Tennessee Bureau of Workers’ Compensation Compliance Program highlights how construction companies and subcontractors are misclassifying workers to avoid paying workers’ compensation. The report details several other practices rampant in the construction industry that deny protections to workers and give noncompliant businesses a financial edge when it comes to securing contracts.
These practices put workers at risk. If workers are injured on the job, for instance, there’s a chance their employers won’t compensate them because they’re listed as independent contractors rather than as employees. Noncompliance also costs the state tax dollars, though the amount of dollars owed is difficult to pin down, especially when employers try to hide information from assessors.
“It’s sort of like an iceberg,” says Amanda Terry, the bureau’s director of compliance. “What we believe that we’re seeing is only 10 percent — the part that’s above the surface.”Â
The state collects 4.4 percent on workers’ compensation premiums, and the report says that in 2016, insurance carriers may have lost as much as $296 million.
The report says many employers also hire workers through subcontractors known as labor brokers, which frequently misclassify employees. Contractors hire these brokers, who in turn provide workers for a construction site. Many of these brokers have also been accused of wage theft and other compliance issues.
“We find that ... when an employer is doing the wrong thing with their workers’ comp, they’re generally doing the wrong thing across the board,” says Terry.
These practices give labor brokers an unfair advantage. Victor White, director at Mid-South Carpenters Regional Council, a union representing carpenters, tells the Scene that a law-abiding contractor “walks in the door at a 20 percent disadvantage” compared to noncompliant businesses when it comes to bidding on contracts.
The carpenters’ union has also been vocal about wage theft on construction sites, saying construction workers at the Margaritaville Hotel and Joseph Hotel were denied overtime pay by the subcontractors and brokers who hired them.
Ernesto Arias, a compliance officer with the union, says that since labor brokers still receive the funding to pay for workers’ overtime, they’ll pocket whatever money they don’t give to their employees. White and Arias add that undocumented immigrants are often the victims of wage theft in these cases.
But penalizing noncompliant businesses has proven difficult. According to the report, the compliance program assessed more than $4.5 million in penalties from 2018 to 2019, but collected only $1.8 million in assessments. Currently, the compliance program sends a bill to the employer and can work either with a collection agency on smaller penalties or the state attorney general’s office for larger amounts. Some collection methods, like liens against property, require obtaining a ruling from a civil court. However, the report says the compliance program is starting to work with the attorney general’s office to pursue criminal prosecutions against noncompliant employers.
The report also describes a “revolving door” of noncompliant businesses that leave the state or otherwise disappear, and then return to the state under a new name. By reopening under a new name, they avoid paying penalties.
“They just thumb their nose at the state of Tennessee when it comes to abiding by the laws,” says White.
Terry says a so-called “successor in interest” law — that is, a policy that would determine whether the owner of a new business is accountable for any penalties assessed against their last venture — would hold business owners accountable for past noncompliance.
Additionally, contractors aren’t always held accountable for their subcontractor’s noncompliance. Terry says that while a contractor will pay for an injury claim if the subcontractor doesn’t, there is no similar “up the ladder” provision for penalties.
Other misconduct listed in the report includes employers signing up their workers for exemptions to workers’ compensation payments — a list meant exclusively for business owners. Out-of-state workers are also denied the proper coverage, according to the report.
Terry and White are calling for tougher laws and better collection tools to deal with noncompliant businesses, even if they reopen under new names.
A bill has been introduced in both chambers of the state legislature to amend the current law related to workers’ compensation. Filed in the state Senate by Sen. Sara Kyle (D-Memphis) and in the House by Rep. Dwayne Thompson (D-Cordova), the bill would give the administrator of the Bureau of Workers’ Compensation expanded powers, including the ability to issue a stop-work order on noncompliant employers. Penalties and stop-work orders would also apply to successor businesses.
