Recent wage theft settlement highlights contractors’ risk

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In Brief

• Minnesota DLI secured $1.28M settlement for 26 construction workers over unpaid wages and overtime violations.
• Joint employer doctrine held general contractor liable despite subcontractor involvement.
• Construction Worker Wage Protection Act expanded liability to contractors and property owners.
• Wage theft enforcement strengthened under Minnesota Wage Theft Prevention Act with penalties and oversight.

A recent settlement involving a group of construction workers has shed new light on what can be a complicated subject in that industry: wage theft.

Earlier this spring, the Minnesota Department of Labor and Industry (DLI) announced a $1.28 million settlement for back wages owed to 26 workers related to alleged wage violations across numerous construction sites. DLI also assessed a $26,000 civil penalty.

DLI entered into consent orders with East Bethel-based Advantage Construction Inc. and Brooklyn Park-based Property Maintenance and Construction Inc. over alleged wage theft involving the latter company, which had done work under Advantage’s subcontract.

According to DLI, workers were denied overtime, underpaid, or sometimes not paid at all, over a period of several years and numerous construction projects. Even though Advantage denied that it had employed any of the people who complained, DLI pursued Advantage under the joint employer doctrine. Advantage will pay the majority of the settlement.

The joint employer doctrine dictates that two entities are deemed the employer of the same worker, and both are subject to the same liability, fines, penalties and sanctions for violations of state and federal labor laws.

The settlement raised the question of how prevalent wage theft is in Minnesota, especially in a business such as construction.

“It’s a tricky question because I think there are lots of ways in which workers might not be paid the way they should be,” said Claire Bruner-Wiltse, partner with Schaefer Halleen in Minneapolis. “It could be from failed overtime, commissions that haven’t been paid out correctly, or misclassification of employees, meaning their taxes are taken out differently.”

“Wages as a general proposition in construction can be more difficult to administer,” said Gregory Peters, managing shareholder with Peters & Kappenman in Edina.

“You have some contractors who are union and some who are non-union,” he continued. “You may have a project labor agreement, prevailing wages and mistaken wages on any given job that may differ from the normal pay rates. You may have workers shifting from job to job during the work day or work week that have different pay rates associated with them.”

According to Beth LaCanne, a shareholder with Bassford Remele in Minneapolis, in Minnesota the joint employer doctrine is not the only basis for liability risk that has to do with another entity’s failure to comply with labor laws.

“Prior to August 1, 2023, general contractors and property owners could generally shield themselves from subcontractor misconduct related to construction projects,” LaCanne wrote on Bassford’s website. “The enactment of the Construction Worker Wage Protection Act (at that time) effectively eliminated that shield, exposing general contractors and property owners of commercial and multifamily housing projects to liability for wage violations committed by subcontractors.”

Minnesota’s laws around wage theft are pointedly in favor of employees, according to both attorneys who represent them and those who represent employers.

In 2019, the Legislature passed the Minnesota Wage Theft Prevention Act to create additional protections for workers, including the addition of criminal penalties for employers that commit wage theft.

This law included additional funding to allow DLI to add staff members necessary to carry out workplace enforcement and to conduct outreach and education for both employers and workers.

“Compensation disputes come up quite a bit,” said Peters, who primarily works with employers. “Minnesota laws over the last few years have become much more employee-friendly.”

Peters added that there also might be different pay rates with different duties an employee may perform.

“As a general rule in construction, there’s greater room for errors, both in terms of employee timekeeping and payroll administration,” he said.

When it comes to improving compliance and mitigating risk around wage disputes, LaCanne recommends preventive steps that upstream contractors and property owners can take, including: vetting bids so they represent the scope of work to be performed; contractually requiring clear documentation of wages, hours and worker classification, as well as audit rights and penalties for violations; and training project managers and site supervisors to spot warning signs such as subcontractors paying workers in cash, not paying overtime despite long hours, or keeping inconsistent payroll records.

“Learn from others’ mistakes,” she wrote.

“It’s pretty simple,” said Peters. “We advise employers to comply with the law, and their commitments to employees. In my experience, with very few exceptions, employers do their best to comply with the law.”

On the employee side, Bruner-Wiltse advises that if they have problems with being paid, they should take advantage of resources offered both by the state and by an attorney.

“One size does not fit all, because there are so many different statutes at play when it comes to the rights of employees,” she said. “It’s important for workers to seek legal advice early.”

At the same time, Bruner-Wiltse said, state agencies such as DLI, county offices or the Attorney General’s office, offer avenues for workers to pursue their rights without an attorney.

“That can be an important resource as well.”