<http://washingtonpost.com/wp-dyn/articles/A16876-2001Feb16.html> Employer, Employee Roles Blurred Subcontracting Case Demonstrates the Potential for Shortchanging Workers
By Sarah Schafer Washington Post Staff Writer Monday, February 19, 2001; Page E01
It was just the kind of job that Zenon Soto was looking for when he came to Washington from Bolivia six years ago. It provided health insurance, required little English and paid up to $16.50 an hour.
For two years, Soto believed he worked for C.R. Calderon Construction Inc. of College Park, hanging drywall in office buildings that would house some of the Washington area's hottest companies.
But in 1999, Soto said, he realized he wasn't being paid fairly for overtime. Later, he said, the company stopped providing health insurance without telling him why. Some time after that, the pay stopped altogether.
When he complained, Soto was told he didn't work for Calderon at all. The company said he and many of his co-workers had been employed by subcontractors hired by Calderon.
Soto, his wife, Tania, and 15 other workers sued Calderon for about $120,000 in overtime, back pay and damages. On Friday, they reached a settlement in which Calderon admitted no wrongdoing but agreed to pay the workers a total of $30,000.
Lawyers and social workers said the case offers a glimpse of how construction firms have been able to exploit legal and illegal immigrants by relying on weak labor-law enforcement and the reluctance of many immigrants to complain.
In interviews and court filings, the workers said Calderon cheated them out of tens of thousands of dollars of overtime and deducted money from their paychecks for health insurance or child-care payments that never were made.
The company argued that many of the workers were employed by subcontractors, not Calderon, according to Philip B. Zipin, a lawyer for the company's owners, Carlos and Ana Pilar Calderon of Olney. Therefore, the subcontractors -- not Calderon -- were responsible for payment and benefits, he said.
One of the key questions in the case -- who is an employer and who is an employee? -- is popping up increasingly in the modern economy, with its loose networks of freelancers, temporary employees, independent contractors and other worker arrangements, experts said.
The distinction matters because U.S. labor laws impose specific financial obligations on employers, such as paying minimum wage, time-and-a-half for overtime, and Social Security and unemployment taxes. An employer can sharply reduce certain payroll expenses and gain more workforce flexibility by using independent contractors or temporary workers rather than full-fledged employees -- but is breaking the law if those workers do not meet certain federal criteria.
In one recent case closely followed by the high-tech industry, a federal judge ruled that Microsoft Corp. inappropriately classified thousands of employees as temporary workers when they should have been treated as full employees. Microsoft settled the employees' lawsuit by paying $96.9 million.
The misuse of independent contractors "is fast becoming a classic scam to avoid minimum wage, overtime and other labor laws," former labor secretary Robert Reich said without commenting on the Calderon case specifically.
Fuzzy employment relationships can be particularly difficult for immigrants, who already are more likely to be denied overtime or other benefits required by law because they often don't understand English or are unsure of their rights, Reich said.
In addition, many immigrant workers are here illegally and fear deportation should they speak out against employers. Often, they come from countries where government corruption is common, and therefore they mistrust the public agencies here that are supposed to ensure that they are treated fairly. And those who accept cash to avoid paying taxes are also less likely to complain because they fear attention from the Internal Revenue Service.
"To a lot of people in the Latin American community, you know, 10 bucks a day is a lot of money. . . . Most fear losing their jobs and getting kicked out of the country. For what? A few dollars more?" said Elizabeth Potts, deputy director of the Coalition for Fair Contracting, an organization funded by labor and management groups to monitor construction projects that receive government funding. "They have families to feed, not only here but back in their country."
The U.S. Supreme Court and the Equal Employment Opportunity Commission have declared that undocumented workers have the same employment rights as legal workers under federal labor law. But many immigrant advocates say it's more likely for a construction site to get a visit from the Immigration and Naturalization Service than from the Department of Labor.
Only about half of the immigrant workers who sued Calderon are working in the United States legally, according to Jim Rosenberg, an attorney for the workers.
For decades, the Washington area construction industry has provided valued jobs for Latino laborers, many of whom are new immigrants. As Washington's economy boomed over the past several years, those workers eagerly stepped up to build offices, houses and apartment buildings.
Subcontracting is common in the construction industry. The Calderons' attorney, Zipin, noted that the company has had many subcontractor relationships over the years and that no other group of workers has complained.
"It is a common tool for keeping costs down. My clients have been doing it increasingly," he said.
Attorneys on both sides of the Calderon case agree that the workers all had been employed by Calderon at one point. But some of the workers later formed teams and started getting paid in cash by a team leader who collected one large check from Calderon and then divided the money.
Soto's group adopted the name Santos Drywall -- named for the leader of the group. In a deposition, Soto admitted that he joined one of these groups to avoid paying taxes but that he still considered himself a Calderon employee.
At the heart of the lawsuit is the workers' contention, detailed in depositions, that members of the work group continued to act as Calderon employees. They said they worked exclusively on Calderon jobs, received work orders from a Calderon supervisor and often worked apart from one another on separate Calderon projects. They used Calderon equipment and materials and continued to submit weekly time sheets to the company.
But Carlos Calderon said in an interview that these teams were subcontractors and that they used their own equipment and made their own schedules, although he did provide the drywall materials.
He said that the workers came to him and asked him to help them start their own business, and that he complied, remembering how many people had helped him. Calderon, 36, came to the United States in 1985. He started in the construction business by doing small jobs, working seven days a week demolishing walls, he said. Eventually, he got enough work to build a company.
Calderon also said that using subcontractors helped him cut down on management time and expense, allowing the workers to earn more cash. "If Saturday [the workers] don't show up, or Sunday, or Monday, it's [the subcontractor's] problem," he said.
The workers purchased workers'-compensation insurance through their groups and were not covered by Calderon, a fact that Calderon said helps prove his argument.
Zipin also said that when they stopped working for Calderon, several workers signed a form stating that the company did not owe them any money, including overtime pay. Now, he said, the workers are disavowing those statements.
One worker said in a deposition that he was forced to sign such a document under threat of not receiving his pay. He also said the document was in English, which he cannot read.
Calderon said someone from his company read the forms in Spanish to workers who could not understand English. But, he added, "all these guys, they understand perfect English. . . . Now they pretend they did not."
The workers claim that the company misled them, convincing them to form these groups in order to avoid paying taxes. In interviews and court documents, the workers said that they did not understand or agree that they were forming separate companies.
Zipin said the workers formed subcontracting groups on their own so they could make more money. "And the simple fact is they did," he said. "This is not a case of exploited employees."
Zenon and Tania Soto,who live in Arlington, both worked for Calderon and said that in early 1999 they complained about not getting overtime pay. The Calderons suggested that if they wanted to make more money, they could join a team of workers and get paid through that team's leader -- without having to pay taxes -- which they agreed to do, Zenon Soto said in a deposition in the case. Calderon denied that.
But later, they stopped getting paid altogether when Calderon stopped giving checks to the team leader, Soto said in the deposition.
"Everything was terrible. I never expected that to happen to me," Zenon Soto, now 38, said in an interview.
The Sotos said they continued to work at Calderon for about five weeks without pay. The few relatives they had in this country also worked for Calderon and were having similar pay problems, they said.
And yet, Zenon Soto hesitated to leave the company. He felt loyal to the owners, whom he had known for years and who were also immigrants, from Costa Rica, he said.
"I believed in him," Soto said of Carlos Calderon.
TaniaSoto,28, who felt no such loyalty, fought bitterly with her husband during this time, she said, arguing that it was time to move on. Although they now live in a cozy house, with family photos and pictures of a peaceful Jesus hanging on the walls, they were barely able to pay the $812 rent on an apartment in those days. Eventually, they said, they ran out of savings and did not have enough money to buy milk for their two children.
Finally, Zenon Soto contacted the United Brotherhood of Carpenters and Joiners of America Regional Council, of which he is now a member, for help, and stopped doing work for Calderon.
The carpenters union has helped the former Calderon employees with their case. The union asked the Coalition for Fair Contracting to investigate.
Zipin said he believes that the union urged workers to file the suit because union members were angry that they were unsuccessful in their attempts to organize Calderon workers in 1999.
"They made my life miserable," Calderon said of the unions.
Zipin said Calderon has employed at least 20 "subcontracting" groups over the years. Many of the workers in those groups have become successful in business because of the skills they mastered while working in these independent groups, he said.
The Calderons "provided the opportunity for many, many people to get started in this country," Zipin said.
Although Reich said he is not familiar with this case, he said it could be similar to many other cases that are highlighting the need to update and clarify the rules governing employer-employee relationships: "Many of the legal protections [for workers] were designed at a time when employers and employees were easily identifiable."
Staff researchers Richard Drezen and Dan Keating contributed to this report.
© 2001 The Washington Post Company