The $500,000 “Mistake”

A couple of weeks ago my partner Jeff Cohen taught an employer a very expensive lesson.  A $500,000 lesson.  That is the price Groton Construction Company, a small midcoast construction firm, is going to have to pay Skip White in civil damages as a result of likely misclassifying White as an independent contractor rather than as an employee.

I attended part of the first day of trial in the Lincoln County Superior Court.  White had fallen 15 feet from a step ladder onto some granite ledge while working on a waterfront residence in East Boothbay.  The pictures of the accident were horrific.  Even nearly a week later, White’s face looked like he had gone 15 rounds with Muhammed Ali. 

Not knowing anything about the case, it took me a while to figure out what was going on.  White had worked for Groton every day for four years.  By all accounts, Groton was an excellent place to work, providing steady employment, competitive wages, and teaching White the intricacies of becoming a master craftsman. 

White clearly believed he was Groton’s employee, and almost certainly was.  Groton had controlled the terms and conditions of his employment, dictating where White worked, when he started and finished, etc.  Groton paid White by the hour, and Groton furnished all the major pieces of construction equipment.  So, naturally, as soon as White was injured, he filed a workers’ compensation claim.  But, to White’s amazement, Groton denied the compensation claim, taking the position that White was an “independent contractor” rather than Groton’s employee.  Why?  So Groton would not have to pay workers’ compensation and unemployment insurance or contribute to Social Security and Medicare in White’s behalf.  Not to mention the savings on overtime. 

As a result, when White fell, he was not covered by workers’ compensation insurance. So instead White filed a lawsuit against Groton, claiming that Groton had failed to furnish him a safe place to work.  Had Groton purchased workers compensation, the insurer would have paid White’s medical bills and White would have received about $600 a week while he was out of work.  Instead, because Groton misclassified White, and because of the jury’s verdict $500,000 (plus interest) in White’s civil case against Groton, Groton itself wound up being liable for all of White’s hospital and doctor’s bills, and all of his past lost wages, PLUS Groton is paying White far more in future damages than White ever would have received in workers’ comp benefits over his lifetime.

This business of treating employees as independent contractors is pernicious.  Several months ago I made a FOIA request to the Maine State Department of Labor to obtain a listing of Maine businesses who had been fined for failing to purchase workers’ compensation insurance.  The list ran for pages and pages, and the fines generally were quite small, undoubtedly less than what the companies would have paid had they purchased workers’ compensation insurance.  While certainly many of the businesses on the list simply had failed to purchase insurance altogether, some like Groton undoubtedly had classified employees as independent contractors. When I asked about this, the Maine DOL told me they did not keep such statistics.

And these are only the employers that got caught with their pants down!  The lack of workers’ comp insurance had come to the attention of the DOL generally when a worker filed a claim for unemployment benefits.  How many more Maine employers go naked without insurance is surely far greater.

I don’t mean to single out Maine employers; they’re no worse and probably much better than their counterparts around the county.  But you see, the misclassification of employees as independent contractors is a national epidemic.  In 2010, a federal study estimated 3.4 million employees were misclassified, and that 30% of all companies do so.  As a result, the US Department of Labor has begun an initiative to correct this problem, which robs the Treasury of billions of dollars.  The very same week as the Groton trial, the DOL announced it had recovered over $1 million in fines from a Midwestern concern that had misclassified 77 workers. 

How do we fix this problem?  A good start is to vigorously enforce the wage and hour laws on the books.  A second way is to target employers in industries where employees commonly are being misclassified as independent contractors.  And perhaps a few more $500,000 verdicts might send a message to the business community that failing to comply with the law can be a costly “mistake.”

If you believe your rights have been violated, contact us.

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