Senate Bill 2207, An Act to Prevent Wage Theft and Promote Employer Accountability

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1 The Honorable Karen E. Spilka Chair, Senate Committee on Ways & Means State House, Room 212 Boston, MA June 17, 2016 RE: Senate Bill 2207, An Act to Prevent Wage Theft and Promote Employer Accountability Dear Chairwoman Spilka: We write to you today as a coalition of associations representing a broad range of industries throughout Massachusetts. Together, our coalition includes Associated Builders and Contractors of Massachusetts (ABC), Associated General Contractors of Massachusetts (AGC), Associated Industries of Massachusetts (AIM), Associated Subcontractors of Massachusetts (ASM), Building Trades Employers Association (BTEA), Construction Industries of Massachusetts (CIM), National Association of Industrial and Office Properties (NAIOP), National Federation of Independent Businesses, Plumbing Heating Cooling Contractors of Massachusetts (PHCC/MA), Retailers Association of Massachusetts (RAM) and Utility Contractors Association of New England (UCANE). On behalf of all our members, we wish to raise concerns and offer our perspective on the so-called Wage Theft legislation that has been referred to your committee as Senate A revised version of House Bills 1748 and Senate 966, Senate 2207 seeks to address issues of misclassification of employees and violations of wage and unemployment insurance laws across all industries. Based on testimony offered at the public hearing on the original bills in September 2015, it also targets the use of subcontracting, especially in industries such as the hospitality and restaurant industries where, unlike many of our industries, it is not established as a standard and legitimate means of doing business. In these other industries, according to testimony, subcontracting has sometimes been used by employers to avoid compliance with wage and insurance laws as part of an underground economy scheme. Our associations and the members we represent support policies that set high standards of quality and accountability throughout our industries, which are among the most highly regulated in the State. While it is in the best interest of both employers and employees to expose transgressors and create a level playing field, the bill s sweeping approach and ambiguous terms would create a host of unintended consequences and adverse impacts for industries across the Commonwealth. In an attempt to be broadly applicable, the legislation uses terms that are rife with ambiguities and leaves many questions unanswered. Below are some of the core issues and questions that we have identified and need to be addressed. They are by no means all inclusive:

2 Lead Company Liability We are concerned with the extreme and flawed proposals contained within Senate Bill 2207 to establish a new concept in the law of a lead company coupled with vicarious liability. Under this concept, everyone from project owners on down is joint and severally liable for the violation(s) of any company in the tiers below if they simply have a nexus to that other company. It is vicarious liability at its most extreme, placing unfair burdens on contractors throughout the industry and unnecessarily penalizing responsible businesses. The following are some of our specific concerns: Lead Company Definition: Who exactly is the Lead Company that is subject to joint and several liability for a wage violation by a lower tier company? Is it the project owner at the top of the chain? Is it the general contractor? Can it also be a subcontractor who hires sub-subcontractors? Is it just one of them or all of them simultaneously? Public Construction Lead Company: If the lead company in private construction can be the Owner, can the lead company in public construction be the Commonwealth? Can municipal owners be lead companies? Or can only business entities be lead companies, as suggested in the definition of lead companies? If the latter, this would create an inequity where the top tier lead company in private construction would be the owner, while the top tier in public construction would be the general contractor or construction manager. Nexus Definition: What specifically does it mean to have a nexus with the lead company s business activities? Is there a minimum threshold of activity between two companies that creates a nexus? Does it refer to providing core services or rather any services? Could a company be held responsible for wage violations by their IT vendor or cleaning service, for example? Extent of Liability: Do the lead companies automatically share liability whenever there is a wage violation or only when the primary violator cannot be identified - because it s unclear who the primary employer of a worker might be? Can an aggrieved worker go after every company in the chain for treble damages? Is there any limit on the look back period for liability? Or on the dollar amount? Could a lead company be liable for unpaid wages going back a year or more? Coupled with these uncertainties is the fear that expanded liability will dramatically slow the flow of funds and payments to many businesses as every "lead company" will likely hold up payments to "contractors" until receiving written proof from workers that they had been paid a herculean challenge and paperwork nightmare. The slowdown would be accentuated in the construction industry because of the multiple tiers of subcontractors that are common to the industry. Stop Work Order Broad Impact: The bill states that the Attorney General or Director of the Department of Unemployment Assistance can issue a stop work order, but only against the 2

3 violator in the place of business where the violation took place. How does that work on a construction site where the work of different trades often coincides or is tightly sequenced? A stop work order will affect many other trades whose work is dependent on the violator s work and could effectively shut down the entire project. The thought of a high rise building being shut down for an alleged wage violation by some fourth tier subcontractor would have a chilling effect on investors looking to build or expand in Massachusetts. Due Process: There is a complete lack of due process under the Stop Work Order. A stop work order can be triggered by anyone filing a complaint, with or without merit, and can be issued by the Attorney General, DUA Director or their designees, at their sole discretion with no opportunity for the violator to defend against the claim. Such lack of due process is a serious concern given the potential for shutting down an entire construction project. Payment of Workers: Who exactly is responsible for payment of workers affected by a stop work order? The violator? Does he also pay the workers of other companies affected or is the lead company (or companies) now responsible through vicarious liability? Or is every entity responsible for paying its own workers during a shut down? Additional Issues Person Definition: Although the bill broadly defines person to include individuals and all forms of legal entities, it then goes on to use terms such as individual, entity, corporation, partnership and sole proprietorship. The latter terms are not necessary given the broad definition of person and only add to the confusion. Labor Contractor Definition: The definition of labor contractor is unclear. As written, it could broadly mean a traditional general contractor or a subcontractor or both. Which is it? Labor Subcontractor Definition: Likewise the definition of labor subcontractor is unclear. Is it just a subcontractor one tier down from a labor contractor or could it also be a sub-subcontractor two or three tiers down? Employer Definition: There is a definition of employer which includes public employer but then no use of the word employer anywhere in the text. So the definition is meaningless and it raises the question: Does the bill apply to public employers or not? Treble damages: Who is responsible for the payment of treble damages in the event of a successful civil action on behalf of the employees? Is it the violator alone who is responsible (as it should be), or is the lead company responsible as well? It does not seem reasonable for a lead company to have to pay the lost wages and benefits then suffer punitive triple damages as well when they did nothing wrong. No state in the country has enacted wage theft reform as drastic as is proposed in this legislation and our comments only touch the surface of the impact. California and New York, two of the 3

4 most progressive labor states in the country, recently addressed wage theft by requiring employers to present employees with clear notice of their rate of pay, how they are paid, and other rights under the law. This legislation, however, does not include any such provisions and instead seeks to shift liability and unnecessarily penalize responsible businesses rather than addressing the core issue of employees understanding their rights if they are cheated. The Attorney General currently has a significant number of tools to address wage violations, including the relatively new False Claims Act which has already proven effective. The A.G. has the authority to file a civil action for a violation of section 148 of chapter 149 (G.L. c ). Also, an employee on a successful claim for violation of 148, 148A, 148B, 150C, 152A, or 159C of chapter 149 is entitled to recover treble damages and attorneys fees. Our organizations have a history of commitment to ensuring a level playing field for both employers and employees because it creates healthier, more productive industries. However, we believe Senate 2207 is a flawed proposal that would up-end the existing and well-functioning industries we represent and contribute to an anti-business sentiment in the commonwealth, while failing to provide the targeted wage violation measures necessary to resolve the problem. For these reasons, our organizations are united inrespectfully submitting our opposition to Senate 2207 and urging better enforcement of the numerous existing and strong, but perhaps underutilized, laws to punish culpable businesses and prevent violations. At the same time, we stand ready to assist in developing a more reasoned and reasonable approach to addressing ongoing wage theft issues in the Commonwealth, and welcome the opportunity to meet to discuss the possibilities in greater detail. Thank you for your consideration. Signed on the following page by representatives of the organizations in our coalition. Please contact any of us for further information. 4

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