Looted: Prevailing Wage Theft in the Aftermath of Hurricane Sandy

Following every natural disaster, television screens are filled with images of heroic rescuers, victims of devastation, and looters. We feel proud for the woman who risks herself for others. Our sympathy goes to the victim for his loss. But for the looter, we reserve our derision. Hurricane Sandy was no exception.

District Attorneys promised to prosecute looting cases “to the fullest extent of the law” and proclaimed, “zero tolerance for looters.” Though most of the looting cases were subsequently thrown out of court, at least we all had something to rally against for a while.

Then we went back to our lives. We began to rebuild after the storm. And the real looting began.

Yesterday, New York Newsday reporters Keith Herbert and Sarah Creighton published a series of articles concerning employer wage theft in the wake of Hurricane Sandy. Creighton has been on the story since at least November 2012. At that time, she reported that some Long Island, New York municipalities were not requiring contractors on government clean-up projects to pay wages commensurate with local prevailing wages.

She and Herbert followed up with a second article in April 2013, when the District Attorneys of Nassau and Suffolk Counties issued a series of subpoenas to local governments for payroll records and contracts for Sandy clean-up projects to ensure compliance with New York’s prevailing wage laws.

According to the authors’ most recent series of stories, these government investigations have borne fruit. They expose rampant abuses in the industry including prevailing wage fraud, independent contractor fraud, and outright refusal to pay promised wages.

They reveal that hundreds of workers were potentially deprived of hundreds of thousands of dollars in wages and benefits due to violations of state labor laws. Moreover, they reported that several municipalities acknowledged that they failed to comply with their obligations under the law.

The alleged looters, on the other hand, aren’t saying much.

Prevailing Wage Violations

The focus of the Newsday series was compliance with New York’s prevailing wage law in the wake of Hurricane Sandy.

The law requires that contractors with state and local governments on construction projects pay their worker on par with those in the local community. The prevailing wage rates are determined according to a schedule based on union level wages and benefits.  

Prevailing wage laws encourage high quality workmanship by requiring wages high enough to attract competent workers. By taking wages out of the equation, prevailing wage laws organize competition around quality, productivity, and efficiency without encouraging contractors to low-ball bids on government contracts and underpay their employees to compensate for it.

The Newsday series notes that four out-of-state workers are awaiting a hearing before an administrative law judge to determine whether they are entitled to prevailing wages for their work clearing Long Island Rail Road lines for Custom Tree Care, an out of state subcontractor for Long Island-based Looks Great Services, Inc.   Looks Great has a number of municpal contracts which it claims are not subject to prevailing wage laws.  If successful, the New York Department of Labor estimates that the four workers will be entitled to about $60,000.

Nassau County District Attorney, Kathleen Rice found violations of the prevailing wage law in seven cases resulting in $424,000 owed to workers. Rice was quoted as saying, “We won’t tolerate unscrupulous businesses cheating workers on Long Island, whether it’s after a major disaster like Sandy, or during any other time of the year.”

As of late August, the New York Department of Labor had recovered $113,000 in back wages and benefits for workers as a result of their post-Sandy wage verification investigations.

New York Attorney General Eric Schneiderman recently reported that contractor Signal Restoration Services was ordered to pay more than $500,000 in back wages to its employees. In a press release, Schneiderman commented, “Employees who worked long hours to rebuild New York after Hurricane Sandy deserve fair wages and the fullest protection of the labor law.”

Since Hurricane Sandy more than $2.2 million in back wages owed by contractors has been recovered.

The Politics of Prevailing Wage Law

It’s not just employers who need to be monitored, but local governments as well. Some strapped local governments don’t want to pay contracts that include prevailing wages. While adhering to prevailing wage laws during an emergency may costs governments money, it also prevents exploitations of low wage workers in devastated communities.

For some reason, politicians have seized on natural disasters as the perfect opportunities to scale back on worker’s rights by suspending prevailing wage laws in connection with those tragedies. In New Jersey, one legislator proposed a law that would exempt public works projects related to Hurricane Sandy relief from that state’s prevailing wage law. Fortunately, that legislation went nowhere.

In 2005, George W. Bush suspended the enforcement of the David-Beacon Act, the federal prevailing wage law, in areas hit by Hurricane Katrina. However, in the face of bipartisan pressure, Bush backed down and reinstated the law only six weeks later.

Creighton and Herbert note that some municipalities required provisions in their contracts that clean-up workers be paid the prevailing wage according to state law, while others did not. The Islip Deputy Town Attorney, Mike Walsh, reported receiving “pushback” about his insistence on ensuring that clean-up workers are paid a prevailing wage.

Independent Contractor Fraud

In a related article, the authors report on three Custom Tree Care workers who claim to have been misclassified as independent contractors.

Misclassifying employees as independent contractors is one way in which employers often avoid the payment of prevailing wages, overtime and other benefits to their workers. They also avoid the payment of payroll taxes, worker’s compensation insurance and other costs. This gives the wage thieves an unfair advantage over their competitors.

As Thomas Perez, U.S Secretary of Labor put it:     

“Some people call the practice “misclassification.” I call it what it is: workplace fraud. Workplace fraud has three victims: the worker of course; the employers who do the right thing but find themselves undermined by an un-level playing field; and the government, which gets cheated out of unpaid taxes.”

The independent contractor rules in New York can include a large number of factors. However, in 2010, the New York legislature responded to massive misclassification abuses in the construction industry by passing the Construction Industry Fair Play Act, which streamlined the test for workers in the industry. Under the new “ABC” test, a worker in the construction industry is an employee and not an independent contractor unless: A) the worker is free from the employer’s direction and control; B) the work performed is not the usual work done by the employer; and C) the worker has an independently established business.

Outright Wage Theft

The series further notes that, out-of state-laborers were allegedly lured to New York by employers with promises of high paying job. Only after they traveled to New York and began working, did these laborers learn that they would be paid less they were promised and less than they could have earned had they not relocated.

One worker traveled from Topeka, Kansas to New York to work for Custom Tree Care. He claims he was promised $20 per hour. However, when he received his fist paycheck, he was paid only $10.00 per hour and $15.00 for overtime. He complained to his foreman, to no avail. Several other workers told similar stories about their experience working for Custom Tree Care.   

Greg Gathers, CEO of Custom Tree Care declined comment for the Newsday story.