Construction Worker Misclassification as Independent Contractors

Wage law violations cost laborers millions of dollars each year

According to some estimates, between 10 and 20 percent of American employers misclassify at least one worker as an independent contractor. Misclassification has massive negative consequences for workers, as independent contractors lose critical legal protections and typically have lower after-tax pay. Some of the most frequently misclassified employees are construction workers – studies have shown that anywhere from one in six to one in three employees in the construction industry may be misclassified.

If you work in the construction industry and your employer treats you as an independent contractor rather than an employee, there is a high likelihood that your employer is violating the law. Our attorneys have extensive experience dealing with misclassification claims. Here’s what construction workers need to know about their legal rights.

Why misclassification is so harmful to workers

Employers misclassify employees as independent contractors for several reasons, but most come down to money. The goal of misclassification is to lower labor costs, and those savings come at the employee’s expense. Independent contractors:

• Must pay the full financial cost of Social Security and Medicare taxes, whereas the employer pays half for employees.
• Lose minimum wage and overtime protections.
• Lose access to state and federal unemployment insurance.
• Lose access to workers’ compensation coverage if they are injured on the job.

In addition, independent contractors are not protected by state and federal anti-discrimination laws, such as the Equal Pay Act (EPA), the Age Discrimination in Employment Act (ADEA), and Title VII of the Civil Rights Act. They also lack the protections of the National Labor Relations Act (NLRA), which enables workers to collectively bargain for better pay and working conditions.

For truly independent contractors, these costs may be a worthwhile tradeoff for the greater flexibility and autonomy that comes from being a contractor. However, for misclassified employees, there is often very little choice or flexibility in practice. The construction industry is particularly notorious for hiring “independent contractors” who are not actually independent in any meaningful sense.

The factors driving misclassification in the construction industry

Any employer has at least some profit motive to misclassify workers to keep labor costs down. However, misclassification is widespread in the construction industry for two main reasons.

First, construction projects are typically awarded by bid, so construction companies that can make more competitive bids end up with more work. Companies that keep labor costs down via misclassification can often outbid companies that operate lawfully – creating a perverse incentive for misclassification and other violations of wage and hour laws.

Second, industries with a high prevalence of work injuries – such as construction – often also have high rates of misclassification. Because independent contractors typically do not qualify for workers’ compensation, employers that can classify a higher percentage of their workers as independent contractors end up paying less for workers’ compensation insurance. In fields where work injuries are common, the savings are substantial.

The construction industry also employs many workers who have low levels of education or speak English as a second language, which may affect their ability to know their rights. The bad incentives at play in the construction industry create a vicious cycle, as companies that follow the wage and hour laws are either squeezed out of business or pressured to cut corners on other costs to remain competitive.

The only way to address this problem is to hold construction companies accountable for misclassifying workers, which requires proving misclassification.

How to prove a construction worker is misclassified as an independent contractor

There is no single litmus test that proves whether a given worker is an employee or an independent contractor. Different state and federal laws use slightly different tests to determine the difference, which means it’s at least theoretically possible to be legally considered an “employee” for some purposes and a “contractor” for others. This is one reason it’s important to have an experienced attorney who can analyze the applicable laws and explain how they apply to your individual situation.

However, all these tests focus on some common factors, including the degree of control the employer has in the working relationship. For wage and hour purposes, Ohio courts typically use an “economic reality” test that consists of six factors:

• The degree of control that the employer has over the worker.
• The worker’s opportunity for profit or loss.
• The worker’s level of investment in the business.
• The amount of skill required to do the worker’s job.
• The permanence of the relationship between the employer and the worker.
• The extent to which the work is an integral part of the employer’s business.

Again, there is no litmus test – none of these factors determine your status as an employee or contractor on their own. Rather, the court’s job is to weigh these factors and determine whether the overall “economic reality” of the working relationship is closer to an independent contractor relationship or an employer-employee relationship.

Some questions to ask yourself if you think you may be misclassified include:

• Do you set your own hours? Are you free to work on your own schedule as long as the work gets done?
• Do you have the opportunity to make more or less money depending on the quality of your work?
• Are you free to work for multiple employers?
• Do you work independently, with minimal training, supervision, and evaluation?

If you answered “no” to most or all of those questions, there is a very strong chance you should be classified as an employee, not a contractor. And in this regard, you aren’t alone: most construction workers should be classified as employees.

What to do if you think you may be misclassified

The first thing you should do if you suspect you are misclassified as an independent contractor is to call an attorney. The sooner you talk to an experienced wage and hour lawyer, the sooner we can get to the bottom of what happened and start guiding you forward. We can help you understand what evidence you need to gather and what steps to take to protect your legal rights.

Depending on the situation, as a misclassified worker, you may be entitled to unpaid overtime, unpaid wages, and compensation for various other financial losses that resulted from your misclassification. And if you are misclassified, you probably aren’t the only one. We may be able to pursue a class action on behalf of you and your coworkers who are in similar situations.

Again, the sooner you get legal advice, the better. Misclassification can be tricky to prove, and construction companies have many tactics at their disposal to exploit loopholes in the law and cut their labor costs at workers’ expense. With an experienced wage and hour attorney from Nilges Draher LLC on your side, you can level the playing field and pursue the wages and benefits you have rightfully earned. Give us a call or contact us online today for a free case evaluation. We can help.