FLSA Construction Basics: Build a Solid Foundation with Proper Classification

New England Company & Affiliate Pay $2.6 Million in Back Wages

Over the past few years we have discussed the importance of proper classification of workers and the ever-increasing number of DOL audits and wage and hour lawsuits that are stemming from improper classification of the workforce. Yesterday, the Department of Labor announced that it reached a consent judgment with Force Corp. and its contractor AB Construction Group Inc. in which the companies will pay 478 workers $2.6 million in back wages, penalties, and damages as a result of the misclassification of employees as independent contractors. The consent judgment includes payment of approximately $2.4 million in wages and liquidated damages as well as $262,900 in civil penalties. The approximately $2.4 million is the DOL’s largest FLSA wage recovery in Massachusetts since 2009.

In this situation, AB Construction provided labor on sites and a separate entity, Force Corp., controlled payroll activities. The DOL reported in a statement that of the 478 workers, nearly all of them were misclassified as independent contractors and a group of the individuals were still owed wages from a time in which they had previously been characterized as an employee.

Under the federal standard, the DOL (and courts) will look at a number of factors to determine whether an individual is properly characterized as an independent contractor including:

• Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
• Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how the individual is paid, whether expenses are reimbursed, who provides tools/supplies)
• Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Additionally, it is important to review state-specific requirements in determining whether classification is proper. Maine’s standard is available here,  and Massachusetts’ standard is available here. For further information on other state’s standards or for further information on proper classification of employees, contact a member of Verrill Dana’s Labor & Employment Practice Group.