Dive Brief:

• Manhattan District Attorney Cyrus R. Vance Jr. and investigators from other New York state agencies have announced the indictment of unlicensed labor broker Salvador Almonte Jr. on multiple fraud charges stemming from a scheme that resulted in the underpayment of approximately $1 million of workers' compensation insurance premiums to the New York State Insurance Fund (NYSIF). Prosecutors also charged his insurance agent, Steven Asvazadourian, who supposedly assisted Almonte with committing the fraud.
• The DA's office said that not only did Almonte, through several companies owned by him, under-report the number of employees on his payroll in applications to the NYSIF and other insurance companies but also misclassified the type of work they did in order to keep his workers' comp premiums low. In one instance, Almonte claimed that the workers he sent to perform dangerous work on high-rises were cleaners, so that he could pay a lower premium rate.
• Authorities also allege that more than 12 of Almonte's workers have been injured during the last four years, one fatally, and that he refused to acknowledge to New York State Workers’ Compensation Board investigators that he was their employer, which delayed the payment of disability pay to two workers who sustained serious injuries. 

Dive Insight:

Labor brokers, whose job it is to provide workers, rather than bidding on whole projects, have earned a sketchy reputation in some quarters because some don't pay their employees a decent wage, deny them benefits like health insurance and don't provide them with the same protections employees usually receive — workers' comp and unemployment coverage and contributions to Social Security, as well as safe and reasonable working conditions and hours.

In the extreme, the workers are treated no better than slaves. This past July, a federal judge in California sentenced contractor Job Torres Hernandez to eight years and seven months in prison for harboring undocumented workers in the San Francisco Bay Area and forcing some to work on construction projects. Torres kept some locked in a warehouse at night with no sanitary facilities and threatened some with physical violence and deportation if they stopped working or complained about their conditions. 

Often, in order to get around labor laws, those contractors misclassify their employees as independent contractors. In fact, the labor brokers themselves are often labeled as independent contractors, all of which has led some states, like California, to try to tighten up their definitions of independent contractors with new legislation. What sometimes gets overlooked, however, is that there are far more legitimate companies and individuals that operate as independent contractors, a staple of the construction industry.

“Contractors who violate the law should be held accountable," said Brian Sampson, president of the Associated Builders and Contractors Empire State Chapter in New York, but added that cases like Almonte's minimize the role that independent contractors play in our industry. "They are a valuable, niche resource in the marketplace," he said.

Obtaining workers' comp coverage under these fraudulent circumstances make construction companies or labor brokers seem legitimate at first glance because they can provide general contractors or other clients with a certificate of insurance showing, on its face, that they have the required insurance. However, there are ways, said attorney Phillip Russell with Ogletree, Deakins, Nash, Smoak & Stewart in Tampa, Florida, to determine if these companies are on the level.

Unfortunately, he said, some construction companies turn a blind eye to the situation and don't perform minimum due diligence when they hire lower-tier contractors because they don't know any better or because they are in a hurry to get workers on their projects. Also, Russell said, just like any other industry, some contractors just don't follow the rules. 

"I have seen that happen," Russell said, "and it just never goes well," especially for contractors based in states like Florida, where operating without workers' comp coverage is a criminal offense. 

It could also be considered bad business judgment since employees that are covered by workers' comp insurance are limited as to what they can collect financially if they are hurt. "That gives you some certainty as to what your costs may be," he said. Without coverage, there is no real monetary limit as to what a non-employee is able to pursue in court, potentially even those who are able to successfully fake an injury.

So, what questions should contractors ask when hiring a labor broker? At a minimum, find out where they get their employees, Russell said, collect business references and ask to see the declaration page from their workers' compensation policy, which will show estimated payrolls, the number of workers they cover and their work classifications. 

"These are easy questions," he said, "that any legitimate employer will be able to answer without difficulty."​