NJ Targets Rampant Misclassification of Drywall Workers

In its second strategic enforcement initiative, focusing on the drywall industry, the New Jersey Department of Labor and Workforce Development (NJDOL) reached a first-of-its-kind enhanced compliance agreement with Donald Drywall, L.L.C. of Lakewood after investigators found the subcontractor had committed numerous wage and hour, earned sick leave, and employee misclassification violations.

The misclassification of drywall workers also significantly impacts workers' compensation benefits. Workers who are misclassified as independent contractors may not be eligible for workers' compensation benefits if they are injured on the job. This is because workers' compensation benefits are generally only available to employees.

The misclassification of drywall workers is a serious problem with several negative consequences. Employers who misclassify drywall workers should be aware that they are subject to enforcement actions by the NJDOL. Workers who believe they have been misclassified as independent contractors should contact the NJDOL to file a complaint.

In addition to the lawsuits and enforcement actions brought against employers who have misclassified drywall workers, the NJDOL has also educated employers about the proper classification of workers. The NJDOL has published several materials on the topic, and it offers employers training on properly classifying their workers.

The misclassification of drywall workers can have some negative consequences. Workers misclassified as independent contractors may not be entitled to certain labor protections, such as minimum wage, overtime pay, and workers' compensation benefits. They may also be more vulnerable to exploitation by their employers.

There are many reasons why drywall workers are often misclassified as independent contractors. One reason is that drywall work is often done temporarily, and employers may believe they can avoid certain legal obligations by classifying workers as independent contractors. Another reason is that drywall work is often done in the construction industry, which has a history of labor law violations.

“In an employment classification case, the New Jersey Supreme Court held that drywall workers of a limited liability corporation [LLC] were to be classified as employees. The court reasoned that the drywall workers of the LLC realistically do not have the right to elect the option to refuse work as future opportunities diminish if they exercise that option. Additionally, documents relied upon by the LLC, including business registration information and certificates of insurance, for insufficient to prove the independence of the workers.

Even though the workers provided their tools and arranged transportation to their work sites, the LLC provided the raw materials necessary to complete each drywall installation. East Bay Drywall, LLC v. Department of Labor and Workforce Development, 251 N.J. 477, 278 A.3d 783 (2022)." Gelman, Jon L, Workers’ Compensation Law, 38 NJPRAC 702 (Thomson-Reuters 2023.

The Wage and Hour Division found 48 misclassified employees working for Donald Drywall on a construction project in Hudson County. In addition to misclassifying employees, the investigation found that the subcontractor failed to pay employees minimum wage, failed to pay all wages owed, and failed to pay wages at least every two weeks. Some employees were being paid in cash and off the books, depriving them of safety-net employee benefits such as workers’ compensation, overtime, and more.

“The first round of investigations revealed that misclassification of drywall workers is rampant,” said Labor Commissioner Robert Asaro-Angelo. “Our investigators are dedicated to rooting out worker exploitation; I’m proud of their collaboration with employers and employee advocates to effect lasting change in industries with high non-compliance rates, such as drywall installation.”

Strategic enforcement is a proactive method spearheaded by NJDOL’s Wage and Hour Division that focuses on industries with a history of non-compliance with existing labor laws and those whose employees are less likely to file complaints with the Department. This approach augments the Department's existing complaint-driven enforcement actions.

A stop work order issued due to the violations halted construction for a week. During a subsequent hearing, the drywall installer agreed to a stringent enhanced compliance agreement. The agreement entails a three-year debarment from working on public construction contracts, the submission of payroll records for all its employees, and the implementation of compliance measures, including ensuring all its workers are correctly classified as employees, are paid on the books, and reported to State employment benefits and tax agencies. Additionally, the company will list each employee’s earned sick leave hours on their paystub to inform them of their right to paid sick time and how much they have accrued and used.

Donald Drywall was assessed to pay back wages, damages, penalties, and fees totaling $167,060.60.

March Associates Construction Inc. of Wayne is the general contractor and could be liable if a subcontractor fails to pay its assessment. The work site, located at Riverbend District Block D, 1100 South Fifth St., Harrison, is being developed by Advance Realty Investors, doing business as Block D Partners Urban Renewal I, L.L.C.

The Wage and Hour Division continues to make unannounced visits in various regions of the State, investigating drywall contractors performing work on high-profile, multi-unit residential construction projects. The Division plans to continue its work to change the culture within the construction industry that has led to frequent misclassification of workers.

Investigators have identified a pattern in which subcontractors performing drywall work often pay their workers off the books in violation of New Jersey law, and these cases often result in additional violations of state minimum wage and overtime, unemployment and temporary disability benefits, worker’s compensation, and tax laws. Importantly, misclassified workers are not at fault if their employer misclassifies them, and they are protected against retaliation if they report misclassification to NJDOL or cooperate in an investigation.

Employers who pay their workers off the books profit illegally at the expense of workers and communities, with an unfair competitive advantage over employers who comply with the law. Construction businesses place themselves at risk of significant sanctions if workers on project sites are not treated as employees in compliance with state law.

In addition, the Department works closely with worker advocacy groups to provide education and training so workers understand their rights as employees.

The first strategic enforcement initiative undertaken by the NJDOL’s Wage and Hour Division focused on the retail laundromat industry.

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Jon L. Gelman of Wayne, NJ, is the author of NJ Workers’ Compensation Law (Thomson-Reuters) and co-author of the national treatise Modern Workers’ Compensation Law (Thomson-Reuters). For over five decades, the Law Offices of Jon L Gelman 1.973.696.7900 jon@gelmans.com have represented injured workers and their families who have suffered occupational accidents and illnesses.

Blog: Workers ' Compensation

LinkedIn: JonGelman

LinkedIn Group: Injured Workers Law & Advocacy Group

Author: "Workers' Compensation Law" West-Thomson-Reuters

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