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State probe finds worker misclassification in construction of new General Assembly Building

State probe finds worker misclassification in construction of new General Assembly Building

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A state investigation has found that dozens of workers have been misclassified as independent contractors by firms working on construction of a new General Assembly Building in Richmond, raising concerns about lost wages and benefits for employees, as well as unpaid state taxes.

Megan Healy, chief workforce adviser to Gov. Ralph Northam, said Friday that a five-month investigation by the Virginia Employment Commission is not complete, but has documented misclassification of dozens of people at the high-profile construction project at the corner of East Broad and North Ninth streets.

“We take it very seriously,” said Healy, who would become the state’s first secretary of labor under legislation the General Assembly adopted this year.

She said the employment commission conducted the investigated over 10 days from October through February.

The VEC confirmed the investigation, but spokesperson Joyce Fogg said, “I can’t comment on it because it’s still ongoing.”

The commission also has not conveyed its findings to the Virginia Department of General Services, which manages the project for the state as part of a $300 million overhaul of properties surrounding Capitol Square. “Nothing has been presented to us that we can react to,” spokesperson Dena Potter said Friday.

Two laborers filed a federal lawsuit in December against a drywall subcontractor and two labor brokers for allegedly misclassifying workers on the General Assembly Building project as independent contractors instead of employees.

The suit said the companies had illegally deprived the workers of overtime pay and benefits, including workers’ compensation and unemployment insurance.

Potter said the federal lawsuit was “the first time [the Department of General Services] was made aware of specific allegations of worker misclassification at a DGS-managed construction project.”

“Upon reviewing the lawsuit, DGS notified the Office of the Inspector General, Virginia State Police and the Auditor of Public Accounts,” she said. The department notified the agencies on Dec. 2, the day after the suit was filed, she said.

An official at Capital Interior Contractors Inc., the subcontractor named in the suit, said the company has denied the allegations in federal court and asked the judge to dismiss it.

“Based upon our review, it appears the plaintiffs’ main contention now centers around not being paid properly by third tier subcontractors,” Chief Financial Officer Michael Closter said in an email. “Capital Interior believes that it acted properly in its contracting and payment practices. We look forward to defending our position in this matter.”

Currently, 65 workers are parties to the suit, according to officials at labor unions seeking to enforce federal and state laws against job misclassification and wage theft on public projects.

“We applaud anyone who is investigating projects like this in Virginia,” said Frank Mahoney, spokesman for the Eastern Atlantic States Regional Council of Carpenters. “It’s been quite a turnaround in the commonwealth.”

Del. Betsy Carr, D-Richmond, who has led efforts to address the concerns in the General Assembly, said the preliminary VEC findings reinforce concerns alleged by workers in a spate of class-action suits over construction projects managed by the state and higher education institutions, including Virginia Commonwealth University.

“From what we’ve been hearing, it’s certainly no surprise,” said Carr, who chairs the House General Laws subcommittee on procurement. “It verifies everything we’ve been hearing from workers.”

Carr was the author of a provision of the budget the General Assembly approved on Saturday that creates a work group that Healy will lead to consider, among other things, “procurement, wage theft, worker misclassification, and prevailing wage laws.”

The work group will consider potential legislation next year “that can address prevention and enforcement of the state’s labor laws on capital construction projects.”

The work group also must assess the costs of any changes in those laws and consider potential incentives for “positive business behavior by general contractors,” as well as possible requirements for subcontractors to receive approval before outsourcing work on state contracts and the state to verify employee payrolls for independent contractors on state jobs.

Del. Schuyler VanValkenburg, D-Henrico, introduced a bill to require subcontractors to report payments to employees and independent contractors on state projects.

“These are some of the things government can do to take more of a lead on these issues and put its money and processes where its mouth is,” VanValkenburg said.

The Appropriations Committee let the proposal die because of the pending study, Carr said. “The bill kind of backed up against what we were doing.”

Healy said the administration is seeking to build on legislative changes the General Assembly enacted last year to expand worker protections, which also affect state tax revenues, including contributions to the Virginia Unemployment Insurance Trust Fund and workers’ compensation benefits.

“Misclassification has always been a tax issue,” she said.

The new work group will include representatives of labor organizations and general contractors that handle state business, public colleges and universities, and state agencies involved in procurement or enforcement of worker protections and tax requirements.

Attorney General Mark Herring announced this week that his office would form a worker protection unit that he said will focus initially on “worker misclassification, wage theft, and payroll fraud” as forms of worker exploitation.

“It’s a great time for workers’ rights in Virginia,” said Mahoney at the carpenters union. “It seems like things are going in the right direction.”

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