The New Jersey Regional Council of Carpenters filed a class-action lawsuit on March 19 against D.R. Horton, the housing industry's largest builder, and one of Horton's contractors, alleging that they misclassified nonunion construction workers as independent contractors to escape paying taxes on the workers' income.
This is the first suit of its kind in New Jersey, whose governor, Jon Corzine, last July signed into law the Construction Industry Independent Contractor Act, whose goal is to stop employers from skirting taxes by classifying workers as other than employees of their companies. "New Jersey's misclassification law might be the strongest in the country," says Albert Kroll, the former New Jersey Commission of Labor, who is the carpenters' attorney in their suit against Horton. A recent state audit of 2.2 percent of businesses in New Jersey found that an estimated 25,000 are misclassified annually, leading to $500 million in misclassified wages and nearly $16 million in underpayment of unemployment and disability insurance funds.
Jessica Hansen, a spokesperson for D.R Horton at its headquarters in Fort Worth, Texas, told BUILDER that her company's policy is not to comment on pending litigation. She did not know when Horton intends to respond to the suit, which was filed in Superior Court in Middlesex County.
A co-plaintiff in this suit is Brookside Construction, which Horton hired in 2006 to work on one of the builder's higher-profile projects: the conversion of a former horse-racing track in Cherry Hill, N.J., into Plaza Grande, an age-restricted community with 608 condominiums. The suit - which the Philadelphia Daily News reports is based on information provided by nine confidential witnesses - alleges that six months into construction, Horton fired Brookside and its 30 unionized carpenters who were making up to $33 per hour in wages and benefits, and replaced them with nonunion workers (who also happened to be undocumented, the suit claims). An unspecified number of these were hired by N. Paone Construction, a contractor based in Hatfield, N.J., through Paone's Tosa Construction remodeling/framing division. (Kroll confirmed that Paone is named in this suit, even though a person answering the phone at Paone's headquarters told BUILDER that the company hadn't been notified to that effect.)
The replacement workers were hired and paid off the books between $8 and $14 per hour and were "misclassified," according to the suit, as independent contractors. By doing so, the suit alleges that Horton and Paone avoided paying state and federal income taxes, social security taxes, unemployment and worker's compensation insurance, and health and welfare benefits.
The Newark Star-Ledger reports that New Jersey's current Labor Commissioner, David Socolow, last year told federal lawmakers that audits of 871 construction companies in the state found 3,000 misclassified workers and recovered $2.1 million in contributions owed to state unemployment insurance accounts. When asked why this suit singles out D.R. Horton when other builders in New Jersey were also using nonunion and undocumented workers, Frank Spencer, a vice president for the United Brotherhood of Carpenters' Eastern District, explains "Horton presented itself, by its actions, to be named." Kroll elaborates that by firing Brookside, a union shop, Horton exposed itself to becoming a target of this kind of litigation.
The companies are also being accused of violating the state's Racketeer Influence and Corrupt Organizations Act, better known as RICO, which prosecutors have come to use increasingly to go after enterprise fraud. The lawsuit, which was filed on behalf of current and former hourly employees of D.R. Horton as well as the union's 17,000-plus members, is seeking triple the amount of back wages and fees that unionized labor lost as a result of Horton's alleged actions and an injunction forcing the builder to stop those practices.
"I certainly hope that this sends a message that misclassification is the law of the land and is a criminal statute," says Spencer. "The taxpayers of New Jersey should not be subsidizing Horton's bottom line, or any company's for that matter."