“Bad Apples are Spoiling the Bunch”
We are all familiar with this metaphor. It can be traced all the way back to 1340 English as “A rotten apple quickly infects its neighbor” meaning a rotten person corrupts others. Thanks to some bad apples in the industry who are committing wage theft, the Carpenters union has introduced legislation in the MN House and Senate. The Wage Theft bills were heard in the labor committee two weeks ago and passed moving the bills to the judiciary committees. This legislation, House and Senate, directly affects our industry and your construction businesses.
The legislation is being moved to deter contractors from purporting wage theft. I spoke to a representative of the carpenters yesterday. The contention is that contractors are knowingly using well known abusers of wage theft on projects and turning a blind eye to the actions of these subcontractors in order to save money on their projects. This practice is most egregious in multifamily housing projects in large private developments. Wage theft occurs in a variety of ways. These can be misclassification of employees as independent contractors, cash payments, paying with gift cards, using undocumented workers, not paying overtime, and misrepresenting the wage documentation.
These practices bring project costs down significantly. In turn contractors that operate their businesses legitimately and care about their employees are suffering from this practice of others (bad apples spoiling the bunch). The legitimate subcontractors lose projects to these low bid culprits. This is a huge disadvantage for small businesses and according to supporters of the legislation the only way to hold the industry accountable is to hold the General Contractor (GC) accountable, so they no longer accept this behavior from subcontractors to save money.
The legislation will hold the GC liable for actions of downstream subs that commit wage theft. That liability will be in place for three years after the project. Liability could include not only repaying wages where subcontractors committed theft, but also civil liability to pay the employee for differences in what was not paid to them, legal fees, as well as liquidated damages be paid. Any agreement between an employee and their employer is not a defense. Currently the legislation is not clear on how many levels of subcontractors will be held liable for the actions of the theft committing subcontractor.
As a small business there are some unintended consequences if this legislation passes as written. The legitimate GCs will have no choice but to protect themselves from the risk of liability for the actions of downstream contractors. That protection will most likely be requiring payment bonds on all projects from all subcontractors. For a small business that would cripple them because of a few things. Some would not qualify for payment bonds. Those that do may not have a large enough bond capacity to hold that bond for 3 years after a project and still be able to bond additional projects. Another reality I have been told in conversations with GCs is that they will be hesitant to take on more unknown risk with subcontractors that are new to the industry. Even with goals on a project the risk for them is too great and they won’t take it on. This will add to the many barriers women and minority subcontractors face.
As you can imagine, the bill’s support is divided. The intention of the bill is fully supported – eliminate wage theft by going after the bad apples that turn that blind eye to be profitable on the backs of workers. Employees should be fully compensated for their work in any scenario. That said, small women and minority owned businesses should not be penalized in this industry where the barriers are already hard to break through. Some that are finally gaining traction after years may be pushed out again.
AWC will not be taking a public position on this bill. We continue to have discussions about ways to eliminate the unintended consequences. We want you to be informed to make your own decisions to support or oppose this bill. The labor committee hearings can be viewed here – Senate and House. The bill is moved to the Judiciary Committees in both bodies this week. You can reach out directly to your legislators in support or opposition.