Colorado wage complaints surge amid claims of payroll fraud, abuse of workers

An earlier version of this article incorrectly stated that business groups oppose a measure that would make wage complaints public. In addition, Rep. Jessie Danielson’s home town was incorrectly identified. She is from Wheat Ridge.

John has been working in the U.S. as a drywall hanger in northern Colorado and other states for most of the past 12 years.

The tight construction market here has made it easy for him to get work for $10 or $14 or even $16 an hour. But wages are paid in cash, the hours are long, there are no breaks or overtime, and often pay is short.

For these reasons, John (who asked that his real name not be used to protect himself and his coworkers) is one of a handful of undocumented laborers who have reluctantly come forward, signing affidavits and filing complaints with the Colorado Division of Labor and Employment, detailing the job sites where they’ve worked, the labor brokers who’ve hired them, and instances in which overtime hasn’t been paid.

The problem has become so prevalent that unions representing construction workers have begun a campaign in Colorado and across the West to stop the practice.

In addition, the U.S. Department of Labor has launched a nationwide wage fraud investigation involving 22 states, including Colorado.

In Colorado’s over-heated job market, construction companies are desperate for workers and complaints of wage abuse and other workplace problems have surged 25 percent at the Colorado Department of Labor and Employment.

Though the fraud takes different forms in different states, in Colorado here’s how it often works, according to wage advocates and regulators.

A subcontractor hires a labor broker as an independent contractor, something that is legal here as long as the labor broker registers as a limited liability company (LLC) with the Colorado Secretary of State. This can be done in a matter of minutes online.

Once the labor broker registers as an LLC, it exempts the subcontractor from any liability for the labor broker’s workers, according to the Colorado Department of Labor.

In documents provided to the Daily Camera, the Denver-based Southwest Regional Council of Carpenters union identified 12 subcontractors in the metro area it believes routinely use labor brokers with LLC certificates to recruit undocumented workers and some two dozen independent labor brokers who bring laborers in from Nebraska, Texas, North Dakota, South Dakota, Nevada and Utah and move them from one construction site to another.

Several of the sites identified by the workers and the union are in Boulder County, including a public housing project for senior citizens in Longmont and a $91 million hotel project at the corner of 28th Street and Canyon Boulevard in Boulder.

General contractors and project owners say the rising complaints and labor protests are simply a ploy by unions to punish those contractors and owners who’ve selected non-union subcontractors.

Union leaders agree that the use of labor brokers makes it difficult for union contractors to compete.

But David Kersh, executive director of the Los Angeles-based Carpenters/Contractors Cooperation Committee who is leading the regional fight against wage fraud, said the issue goes beyond union/non-union friction.

“You’re talking about a lot of money in taxes that are not being paid,” Kersh said during a visit to meet with regulators last week in Colorado “These contractors are enabling that — millions and millions of dollars are going underground. At the same time, middle class workers and their families are being hurt.

“It’s ironic,” he said. “All of these construction unions are pro-development. We share an interest with the development community. But this is wrong.”

In an effort to bring public attention to the issue, the unions are distributing fliers around job sites, identifying subcontractors and labor brokers at the sites whom they believe are engaging in wage fraud, based on affidavits from workers and photos of cash payrolls.

According to interviews with two undocumented workers — one of whom worked on the Spring Creek Project last month — and a former construction superintendent whose former company uses labor brokers extensively, the use of undocumented workers and payroll fraud has exploded during this most recent construction boom.

General contractors and their subcontractors, desperate for help and largely off the hook legally for any wage fraud conducted by labor brokers, can easily look the other way, according to regulators.

John spent several weeks working on the Longmont Housing Authority’s Spring Creek project hanging drywall for Westminster’s United Builders Services (UBS). But he ultimately quit, he said, because one of the labor brokers who recruits workers for UBS failed to pay him several hundred dollars in wages, and deducted rent charges from his pay in violation of his original verbal agreement with the broker.

After getting into a fight with the broker, John said he was angry and shaken, and agreed to file an affidavit and complaint with the Colorado Department of Labor and Employment.

“The whole time I worked for UBS or their subcontractors, I never got breaks or was paid for overtime. I don’t think it’s fair that they abuse the people,” he said in his affidavit.

UBS did not respond to repeated requests for comment.

Boulder’s Daneuve Construction is the general contractor overseeing the Longmont Spring Creek project. But Daneuve Vice President David Garabed said he wasn’t aware of any wage issues.

And because it is a public project that requires workers to receive what are known as “prevailing wages,” Garabed said the wage fraud being alleged would be difficult if not impossible to pull off.

“We have to present certified payroll every week,” Garabed said, referring to paperwork that workers sign verifying they’ve been paid the prevailing wage. “I would be very surprised if anything like that were occurring.”

But the former UBS superintendent. who asked not to be identified because he fears retaliation from the labor brokers, told the Daily Camera that labor brokers are trained by subcontractors to fill out the prevailing wage forms themselves, forging workers’ names. The superintendent said he witnessed the training sessions.

Unless a general contractor walked out onto the job site, verified each worker’s identity and asked how much he or she was being paid, there would be no way to verify whether the workers were receiving the prevailing wage.

The cheapest guys in town

The superintendent quit working for UBS because of his concerns about the use of labor brokers. wage fraud and the difficulty subcontractors operating legally have competing against the low-cost labor brokers, he said.

A drywall hanger on a legal payroll makes roughly $28 an hour. Those working off-the-books are typically paid less than half of that.

Now working on his own, the superintendent said the use of cash pay makes it extremely difficult for companies that are paying for workers compensation and unemployment insurance, as well as safety equipment, as required by law, to compete.

“By the time we add in all of our costs and bid the job, we cannot win, thanks to these guys,” he said. “Every time one of these labor brokers bids a job, we end up being way over.”

“This is not a new problem,” he said. “But everybody avoids talking about it because, one way or another, these (undocumented workers) are cheap. Unfortunately, they are the cheapest guys in town. And everyone benefits.”

Gustavo Maldonado is a wage advocate with the carpenters’ union.

In the past year, Maldonado has delivered to various regulators numerous affidavits from workers, photos documenting cash payments, and long lists of elusive labor brokers who work with little more than a cell phone and a $40 business registration from the Colorado Secretary of State.

Maldonado said he has contacted the Colorado Department of Labor and Employment, the U.S. Department of Labor, the Department of Homeland Security and numerous Colorado lawmakers.

But he said he has seen no action, to date.

Cher Havind, a spokeswoman for the Colorado Department of Labor, said the agency cannot discuss specific labor complaints it is investigating. But the agency did conduct 2,365 audits last year across its workers compensation, unemployment and wage and hour divisions, with 40 percent of those, or 946 resulting in enforcement actions.

“Construction right now is like a cancer,” Maldonado said. “This cash pay is growing and growing. GCs (general contractors) know exactly what’s going on. But it’s as if nobody cares.”

Michael Gifford, executive director of the Colorado chapter of the Associated General Contractors, said he wasn’t aware of any abuse of undocumented workers or concerns about the use of cash pay. But he said a similar wave of protests in 2010 resulted in a state investigation and a report that found no evidence of the practice.

Deluged with complaints

At the Colorado Department of Labor and Employment, wage complaints are up 25 percent in the past year, driven in part by a new law making it easier for low-wage workers to get help from the state, by the overall labor shortage, and by workers such as John, who are coming forward out of frustration and fear.

Julie Yakes is manager for self-insurance and coverage enforcement for the Workers Compensation Division at Colorado’s labor department. She said tracking labor brokers and subcontractors who engage in wage fraud is difficult in Colorado because there is no effective regulation of the construction industry.

Little legal oversight, transparency

When workers are paid in cash illegally, three types of laws essentially are broken: Those requiring that workers compensation insurance premiums are paid, those requiring that unemployment insurance premiums are paid, and those requiring that breaks be given and overtime be paid.

But general contractors have no responsibility if a worker recruited by an independent labor broker isn’t paid properly or isn’t covered by insurance, according to Yakes. General contractors are liable only if a subcontractor with a direct contract with the general contractor failed to cover its own employees.

In addition, the state labor department is prohibited from making public any records of worker complaints against companies, providing little transparency about the state of the labor market and providing little incentive for so-called bad actors to stop the wage fraud.

Colorado Rep. Jessie Danielson, D-Wheat Ridge, has sponsored a bill this session that would make those wage complaints public once they’ve been resolved.

“The way the law is interpreted now, no one can access this information, even under the Colorado Open Records Act,” Danielsen said. “Most businesses are decent companies that treat their hard-working staffs well. But I am very concerned. I am seeing an increase in these cases across the state. What we need is more transparency so that we can deter this kind of behavior. Those companies that do proudly pay their workers are up against bad actors who make more money and cheat their own work forces. That is not good for business.”

Protests continue

In Boulder, a labor protest at the hotel site has been underway for three months now, fueled by union concerns that UBS, the same drywall contractor identified by John and others, has been selected for the project.

Millender-White, the general contractor overseeing the hotel development, did not respond to requests for comment for this article.

But earlier this year, Millender’s Adam Mack said his company has used UBS on numerous projects without incident. He said the labor protests were simply the result of a union seeking to roil the waters because his company has selected a non-union subcontractor.

While the protests continue, Boulder-based attorney Brandt Milstein said he and other labor attorneys are being overwhelmed with complaints about wage fraud among low-wage workers.

“My experience is that immigrant workers are fairly consistently exploited,” Milstein said. “It’s nothing new in Colorado. But the rates of wage theft among low-wage workers we’re seeing now is alarming.”

Source: Boulder County Business – Jerd Smith, Business Editor
Photo: Kira Horvath, Staff Photographer – Boulder County Business