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Misclassification of Workers Costs Employer in OSHA Inspection

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Misclassification of Workers Costs Employer in OSHA Inspection

When OSHA came to call at a Connecticut construction worksite, it did not end happily for the employer. Seven different violations of the OSH Act were alleged by the agency, and in the recent ruling, Secretary of Labor v. David Dzenutis d/b/a Royal Construction Company (February 2016), Administrative Law Judge Keith Bell upheld every citation and imposed over $20,000 in civil penalties. But the real significant finding was that the company had misclassified as “subcontractors” four individuals whom OSHA claimed were actual employees. The court agreed, and found that OSHA had jurisdiction over the company and that the citations were properly issued because company “employees” had exposure to the violative conditions.
The court found that the company violated the following standards:

  • 29 CFR 1926.59 for not having a written hazard communication program
  • 29 CFR 1926.150 for not having a fire extinguisher
  • 29 CFR 1926.502 for failing to use fall protection
  • 29 CFR 1926.1051 for failing to provide a ladder at a point of access
  • 29 CFR 1926.1053(b)(1) for failing to properly extend a ladder
  • 29 CFR 1926.1053(b)(22) for improperly carrying a load on a ladder
  • 29 CFR 1926.1053(b)(21) (repeat violation) for failing to grasp a ladder with at least one hand

Were these overly picky citations? The judge didn’t think so and affirmed them all as serious and/or repeat. The reason? The company’s primary defense was that it was not an “employer” within the meaning of the OSH Act because the workers on site were “subcontractors.” Under the Act and prevailing case law, only “employers” may be cited for an OSHA violation, but having a single employee satisfies the requirement.
EMPLOYEES OR SUBCONTRACTORS
The OSHA inspector testified that he interviewed each of the four workers and each identified himself as an employee of Royal Construction, said that they were paid hourly and took direction from Mr. Dzenutis. Royal Construction also provided all the materials and equipment needed for the job. None of the workers carried workers’ compensation insurance, nor were they individually licensed contractors.
During the inspection, Mr. Dzenutis told the inspector that two of the men were employees and two others were subcontractors. But at trial, the defense theory was that all four were actually contractors. He testified that they were under their own supervision, had their own tools and made their own hours. But other testimony showed that Royal did provide the materials, tools, trailer, and equipment needed for the project, and it determined when the individuals would work, and for how long. Some had worked for Mr. Dzenutis on previous projects, and the work they performed was part of the regular business of Royal Construction (as opposed to a specialty trade that would normally be subcontracted out).
In finding that the workers met the statutory criteria for being classified as “employees” of Royal Construction, the judge said: “To assess whether an employer/employee relationship exists, the Commission looks to the hiring party’s right to control the manner and means by which the work is accomplished. This is commonly known as the Darden test, after the US Supreme Court decision in Nationwide Mutual Insurance Company v. Darden (1992).
Judge Bell noted that the relevant factors in conducting an inquiry into the employer/employee relationship include: the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.
TOTALITY OF THE EVIDENCE
The totality of the evidence convinced the judge that Royal Construction had employees at the worksite: all four of the men at issue were deemed “employees” under the Darden factors. The judge also noted that, because Mr. Dzenutis did not deny that he himself was working on the project, this alone would have subjected Royal Construction to the OSH Act. But while there was conflicting testimony on the employee status issue, the ALJ held that the inspector’s testimony about how the workers themselves described the relationship was more convincing, and entitled to more weight than the company representative’s statement. In addition to conferring OSHA jurisdiction on the employer, the number of employees is also a criterion used to determine civil penalty amounts.
THE LESSON LEARNED
The lesson learned here for employers is simply that OSHA (and the court) may not agree with you that the workers on your project are “subs” or “independent contractors” automatically, and OSHA is currently very sensitive to the issue of misclassification of workers (especially day laborers in construction and landscaping industries) because often workers who are viewed as non-employees are provided with lesser protections than permanent employees. They may get inadequate training or supervision, and may not be provided with PPE required by OSHA. They are often injured at rates significantly higher than bona fide employees.
While it is not clear whether this occurred in the Royal Construction case, when OSHA finds there has been misclassification of workers, they can do a cross-referral to other federal and state agencies to launch investigations. Consequences can include a Department of Labor payroll audit (to determine if workers who were misclassified are due any overtime under the Fair Labor Standards Act), action by state workers’ compensation and labor departments (for failure to count the employees in making contributions for unemployment insurance, or for denying workers’ compensation coverage), and even the IRS gets into the act by pursuing employers for failing to make their share of employee payroll deductions for social security etc.
The bottom line is that, while it may be tempting to use short-term workers without benefit of putting them on the official payroll, it is against the law to misclassify workers. Use the unfortunate experience in this case as an opportunity to analyze your hiring and payroll practices, and be sure that you never permit any workers to be “second-class citizens” when it comes to safety on your project. ■
About The Author: Adele L. Abrams, Esq., CMSP, is an attorney and safety professional who is president of the Law Office of Adele L. Abrams PC, a ten-attorney firm that represents employees in OSHA and MSHA matters nationwide. The firm also provides occupational safety and health consultation, training, and auditing services. For more information, visit www.safety-law.com.
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Modern Contractor Solutions – March 2016
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