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Secretary of Labor Thomas E. Perez
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News Release

WHD News Release: [05/19/2014]
Contact Name: Josť A. Carnevali
Phone Number: (415) 625-2631
Email:
Carnevali.Jose@dol.gov
Release Number: 14-0827-SAN

Paul Johnson Drywall Inc. agrees to pay $600,000 in back wages, damages and
penalties following US Labor Department investigation

Employees misclassified as independent contractors

PHOENIX — As a result of a Wage and Hour investigation, Paul Johnson Drywall Inc. severed its relationship with Arizona Tract LLC., a construction labor contractor. Beginning April 2013, Paul Johnson Drywall entered into a contract with Arizona Tract for the provision of drywall labor. Arizona Tract classified former Paul Johnson Drywall workers as "member/owners" instead of employees, which stripped them of basic worker protections afforded to employees.

Today, the U.S. Department of Labor filed a consent judgment in the U.S. District Court for the District of Arizona by which Prescott-based Paul Johnson Drywall Inc., and its owner Robert Cole Johnson, agreed to take concrete steps to ensure that misclassification of its workforce does not occur again and to pay $556,000 in overtime back wages and liquidated damages to at least 445 current and former employees. The employer also agreed to pay $44,000 in civil monetary penalties.

"This case exemplifies our commitment to eradicating unfair competition and pay schemes that result in employees not getting their fair pay for honest, hard work," said Administrator of the Wage and Hour Division Dr. David Weil. "Employers in this industry and others should take notice that we will not tolerate the misclassification of employees as independent contractors, and we will use all legal remedies available to recover unpaid wages for these workers."

The judgment resolves an investigation by the department's Wage and Hour Division in Phoenix that began to look into construction contractors Arizona Tract solicited. Investigators found that the drywall contractor violated the Fair Labor Standards Act's overtime and record-keeping provisions.

"This resolution will bring a lot of positive change for hundreds of employees working in residential construction," said Janet Herold, the department's regional solicitor in San Francisco. "Paul Johnson Drywall is a leader in this industry in Arizona, and we are pleased that, as a result of our investigation, the company has taken such a public stand against the scourge of misclassification, which deprives vulnerable workers of their wages and the full rights and benefits of employee status and deprives taxpayers of the payroll taxes. Everyone but the misclassifying employer loses, and loses greatly, when misclassification occurs."

As part of the resolution in this case, Paul Johnson Drywall agreed that all workers will be properly classified as employees and paid FLSA's required wages. The investigation also established that the employer, prior to being solicited by Arizona Tract, failed to pay employees paid on a piece-rate basis – the proper overtime at time and one-half their regular rates of pay for all hours worked beyond 40 in a single workweek. In addition, investigators found that Paul Johnson Drywall failed to keep complete and accurate records, which is also required under the FLSA.

In addition to the payment of $600,000 in back wages, damages and penalties, Paul Johnson Drywall has agreed to take specific proactive steps to ensure that its workers are properly classified and paid as employees and to improve compliance in the construction industry. Paul Johnson Drywall will hire a third-party monitor to ensure compliance by the company and require any drywall subcontractors to conduct regular training of supervisors and employees regarding the requirements under the FLSA. Furthermore, if Paul Johnson Drywall hires a subcontractor, the consent judgment requires the company to ensure that the subcontractor is properly licensed and insured, and that the subcontractor complies with the FLSA.

"With increasing frequency, we are entering into agreements, like this one, with employers found in violation," said Ruben Rosalez, regional administrator for the Wage and Hour Division's west region. "In addition to paying back wages, damages, and penalties, ongoing efforts like those called for with Paul Johnson Drywall keep compliance prominently on the employer's radar. These agreements greatly enhance our efforts to maintain compliance and to protect workers' wages long after an investigation."

Paul Johnson Drywall also agreed to implement an educational campaign to promote awareness of the importance of compliance with the FLSA in the Arizona residential construction industry. In the months ahead, Paul Johnson Drywall will make presentations to local home builder associations addressing the importance of properly classifying and paying workers in the drywall industry as employees and identify the costs workers, taxpayers and law-abiding employers, due to the resulting unfair competition, endure from the unlawful misclassification of employees as independent contractors.

Under the FLSA, employers must distinguish employees from bona fide independent contractors. The inquiry to determine a worker's status as employee or independent contractor is whether the worker, as a matter of economic reality, is dependent on the employer or in business for himself. For more information, visit http://www.dol.gov/whd/regs/compliance/whdfs13.htm.

The FLSA requires that covered employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers also must maintain accurate time and payroll records. The FLSA provides that employers who violate the law are liable to employees for their back wages and an equal amount in liquidated damages. Liquidated damages are paid directly to the affected employees.

For more information about the FLSA, call the Wage and Hour Division's Phoenix District Office at 602-514-7100 or call the division's toll-free helpline at 866-4US-WAGE (487-9243). Information is also available at http://www.dol.gov/whd/.