How subcontracting makes recovering unpaid wages difficult
Story appeared originally in Cincinnati CityBeat on July 15, 2015.
Juan Alvarez was one of 10 undocumented workers from Guatemala recruited by Jorge Padrilla, an undocumented Mexican, to do the framing and drywall work for an addition at the Ohio Theta House fraternity on Joselin Street in Clifton Heights last July.
Although the men were working 12-hour days and on weekends to get the job done, Alvarez — whose name is changed in this story, along with Padrilla’s — says things were good in the beginning. Padrilla paid the workers by check every week, then every 15 days, for the first two months of work.
But then Padrilla began to pay in cash and, by early September, not at all. “He said he couldn’t pay us because he hadn’t been paid. He didn’t say why,” Alvarez recently said through a translator. “He said if we would keep working, he would pay us afterward.”
A week, two weeks, a month went by, Alvarez says, and Padrilla still didn’t pay. But finding out who was responsible for the non-payment — totaling thousands of dollars — was like trying to pull out a dandelion by its roots.
Ohio Theta House had hired regional construction giant Miller-Valentine as the general contractor on the project, which then subcontracted the framing and drywall work through the national retail chain 84 Lumber. In turn, 84 Lumber subcontracted with a firm from Sydney, Ohio called M2 Euro Design and Construction Group LLC, formed by Mike Materna in April 2014. Euro Design subcontracted with Padrilla, who, in turn, recruited the undocumented laborers as independent contractors, without the job protections, overtime pay and tax deductions of a traditional employment relationship.
Large construction companies lower their costs and shield themselves from liability for their workers through a chain of subcontractors. To earn the business of larger contractors, subcontractors must cut their labor costs to the bone. Exploiting immigrant labor helps them do that, says Leila Rodriguez, an assistant professor of anthropology at the University of Cincinnati whose research focus is immigrant labor in the Cincinnati-area market.
“It’s part of this trend of big construction companies externalizing a lot of their costs,” Rodriguez says. The bigger contractors “wash their hands of the issue by saying, ‘This other company gave me these workers, and how was I supposed to know (if they were being cheated)?’ ”
In an interview in May, Padrilla said that lumber companies like 84 Lumber seek him out for work crews. He said he then hires through a network of immigrant family and friends, primarily Mexicans and Guatemalans. But Alvarez said Padrilla also posts ads in Mexican food markets, which is where he learned about the job.
To avoid paying the industry’s high worker compensation premiums and other benefits, the workers are hired as self-employed independent contractors, even though it is questionable whether they fit the legal definition. Among the qualifications under the federal Fair Labor Standards Act, independent contractors must be relatively free of supervision and have the opportunity to make a profit or suffer a loss by investing in their own equipment or by hiring others.
Because employers capitalize on their fear of being deported, undocumented immigrant workers like Juan Alvarez and his father, who he lives with, are frequently victims of wage theft, whether it’s being paid less than minimum wage, shorted hours, forced to work off the clock, not being paid overtime or, in the case of the Theta House project, not paid at all.
From 2005 through 2014, the U.S. Department of Labor collected more than $6.5 million in unpaid wages from Ohio construction companies from workers who were cheated out of minimum wage, overtime pay or the regional prevailing wages required for public projects. Some 5,500 workers were affected, but how many were undocumented immigrants wasn’t recorded by the agency. The $6.5 million collected by labor officials for all workers is likely only a fraction of the actual wage theft in the industry, union officials say.
Terry Burke, president of the Heat and Frost Insulators and Allied Workers Local 8, says most construction workers, documented or undocumented, seldom file wage and hour complaints for fear of being blackballed. “They just don’t do it unless they got mad or got slighted in some kind of way,” he says. “Workers who come forward in our (insulation) industry, especially since it’s so small, are going to have a hard time finding a job.”
Alvarez says he and his father were lucky to have had some savings to get by on before finding their next jobs. Other victims often must borrow money to pay for rent and groceries.
“Usually, the way they deal with it is to just suck it up and find another job,” says Rodriguez, the UC researcher. “The turnover in these industries is ridiculous. I know some workers who have spent just a couple days at a construction site. I’ve never known anybody who has spent more than two years with a single company.”
Estimates of undocumented immigrants in the Cincinnati area vary, according to Brennan Grayson of the Cincinnati Interfaith Workers Center, a nonprofit group devoted to workplace justice issues. “When taken together,” he says, “they generally run about 30,000.”
With the aid of Cincinnati Interfaith, four of the undocumented workers on the Ohio Theta House project were able to get back their unpaid wages, totaling $8,000, by filing a mechanic’s lien against the property. Alvarez, who filed his lien late, is still waiting for the $2,300 he says is owed him.
Padrilla says 84 Lumber paid the workers’ claim to release the lien on the property, although he then repaid 84 Lumber. Corporate officials at 84 Lumber declined to comment on the case.
When labor brokers encounter financial troubles of their own, Rodriguez says, they often pass the burden on to their undocumented workers. “A lot of times there is no contract with their workers,” he says. “There’s no paperwork, just a verbal agreement. (The undocumented workers) often don’t know there are legal resources available to them. But even if they do, there is no evidence the broker agreed to pay them that much.”
Why was a month’s worth of wages withheld from the Ohio Theta House workers? Padrilla wouldn’t say, but he denied there were any problems on the project. But Materna, who subcontracted with Padrilla, says he knew there were differences between the owners of Theta House and the contractors on the quality of the workmanship, but that he didn’t know the details.
Ohio Theta House officials did not return phone calls, but Brian Butz, a University of Cincinnati student and vice president of finance for the fraternity, says the roof was leaking on the addition before the project was finished.
Ohio Theta House was awarded generous incentives from the city of Cincinnati for the project, including a 12-year LEED tax exemption in the amount of $527,830 on the increased value of the property. Because the project was to create four permanent, part-time jobs, Ohio Theta House also received a $5,000 exemption from the earnings tax over a 12-year period.
Padrilla says he is now incorporated by the state of Ohio and that he pays his workers by check. “I got my payroll set up and I got my taxes paid,” he says. Records at the Ohio Secretary of State office show that Padrilla didn’t incorporate until Dec. 22, 2014, after the four undocumented workers had filed their legal claims for non-payment.
Public funding is no guarantee that immigrant workers will be protected on construction projects. Three immigrant laborers doing the insulation work for a subcontractor on Miami University’s Maplestreet Station Residence and Dining Hall in 2013 were shortchanged nearly $68,000 in unpaid overtime in 2013.
The Heat and Frost Insulators and Allied Workers Local 8 took up the legal cause for the three men and won the back pay in an out-of-court settlement. Great American Insurance, which held the bond on the project, paid the claim on behalf of the subcontractor, Pride Insulation, and its manager and part-owner Dennis Madriz, says Burke of the insulators union. Madriz did not return a phone message for comment.
Under state and federal labor laws, workers engaged in publicly funded construction projects must be paid at least the prevailing wages and benefits for the region.
“Because the fringes have gone up so much in recent years, that’s where contractors are stealing from. It’s widespread in the industry,” Burke says.
What’s needed, he says, is the political will to adequately staff state and federal enforcement agencies so they can find violators without waiting for complainants to step forward.
“We’re fighting politics,” he said. “That’s why they’re so understaffed.”
Ohio’s Bureau of Wage and Hour Administration, which enforces wage laws on public projects as well as minimum wage requirements and pay to minors, has just six investigators and one supervisor to cover the entire state.
“Their staff is so small as to be almost irrelevant,” says Zach Schiller, research director of Policy Matters Ohio, a nonprofit government watchdog.
Enforcing wage and hour laws is seen as “anti-business” among Ohio employers, chambers of commerce and its Republican-dominated government, Schiller says.
“We can certainly demand that that change, but I’m not very hopeful given the current political reality.”