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Caroline Fan on August 27, 2009 - 10:46am
Delaware’s legislature passed the Workplace Fraud Act (HB 230), an employee misclassification bill that increases penalties for construction employers who knowingly misclassify employees as contractors in order to evade state and federal taxes and wage and hour laws, saving as much as 30% on the margins. Delaware joins Maryland and New Mexico this year in enacting strong wage laws to protect working families, and becomes one of over nine states that allow workers to collect triple damages for wage law violations. States are on the forefront of addressing this pervasive problem, which was found in a 2004 study out of Harvard University to plague an estimated 24% of construction work sites in Massachusetts alone.
Under the law, which Gov. Markell signed at the end of July, construction companies must keep records of employees for 3 years, face increased fines for violations. Department of Labor investigators can question employers and other employees, enter and inspect places of business and examine and copy books, registers, payrolls, and other records in order to determine if workplace fraud has occurred. Inspectors can also request sworn written statements from employers and interview witnesses under oath. Additionally, the law allows state agencies to coordinate efforts in finding.
The increased fines that employers are subject to include stop work orders, a $20,000 penalty for each misclassified employee, and an administrative penalty of up to $500 per day for every day that they fail to comply. If the employer has a contract with a public body, that agency may withhold payment to the offending employer in an amount sufficient to pay back wages, benefits, taxes, or other necessary contributions to the affected workers. All of this adds up to a substantial deterrent to construction employers who may otherwise decide to break the laws and pay the fines as part of "the cost of doing business." The bill also prevents employers from retaliating against workers and allows workers to sue for treble damages including attorneys fees.
Wage enforcement and stopping workplace fraud are two budget-friendly means that legislatures can take to protect workers' rights and put all employers on an equal playing field.
NELP - Independent Contractor Misclassification and Subcontracting
Progressive States Network - New Mexico Enacts Wage Law Enforcement, Joins National Trend
Progressive States Network - Protecting Workers Rights by Stopping Misclassification as Independent Contractors in Maryland