Immigrants are most susceptible to worker misclassification

Week after week, Alfredo Barreda carried a paycheck from his construction job to the bank, where he waited in line for a teller and then stuffed two wads of cash into the front pockets of his pants, he said.

The money in the left pocket went home, to his partner, Denise Alejandre, and their three children. The roll of bills in the right, he said, went back to his boss.

It wasn’t the life he’d imagined as a young man, when he hoped that wiring and plumbing work would lead him to the success his own parents had envisioned years ago when they brought young Alfredo and his siblings across the Mexico-U.S. border.

Barreda, 35, works on federal contracting projects in Southern California. His path to the middle class has been stunted, he said, by the schemes that keep him short of being able to pay his bills. Barreda is one of thousands of immigrants laboring in an industry rife with broken promises and informal agreements.

“There is nothing we can do,” Barreda said. “That’s not right. But it’s the only way we know.”

A nationwide McClatchy investigation found that in Southern states such as North Carolina and Texas, where there’s a lack of unions and a supply of eager immigrants, like Barreda, as many as a third of construction workers have been wrongly classified as independent contractors instead of employees. The problem persists across the nation, though, from California to Washington, D.C., and each year the practice costs taxpayers billions of dollars while state and federal governments are desperate for any additional tax revenue.

But, as McClatchy found, misclassification breeds other schemes as company owners clamor for an advantage over competitors. Companies may dodge prevailing wages required by the Davis-Bacon Act, a 1930s-era law that mandates fair wages on federally backed projects. Workers are sometimes cheated on hours or overtime pay. They may be paid cash under the table, pushed into an underground economy. Some workers interviewed by McClatchy, like Barreda, complained of kickbacks, in which they had to return some of their wages to company bosses.

“Generally, violations do not occur in isolation,” said Julie Su, the California labor commissioner. “You uncover one violation and it’s often a doorway into multiple violations.”

McClatchy’s review of payroll records shows immigrants are most susceptible to misclassification and other exploitation. Using the records as a starting point, McClatchy found and interviewed hundreds of laborers and tradesmen. Many, in addition to being misclassified, told unsettling stories of mistreatment:

– Companies refusing to provide tax forms that allowed workers to file tax returns.

– Bosses forcing workers to pay a fee to use protective gear such as hard hats and steel-toe boots.

– Bosses refusing to settle up on days’ or weeks’ worth of pay.

– A workplace injury without any insurance to take care of it.

“You have certain contractors who find ways to game the system,” said David Kersh, the executive director of the Carpenters/Contractors Cooperation Committee in California, a labor management group. “They’re cheating workers. They’re cheating taxpayers.”

“It makes me feel invisible,” said Camilo Loyola, a Mexican immigrant who moved to North Carolina more than 20 years ago. During two decades in the construction industry, Loyola has been shortchanged on wages and deprived of tax forms, he said. In 2011, he worked on a government-financed project in Raleigh and was improperly treated as an independent contractor. He knew it was wrong, but he needed to keep the money flowing for his family.

Armando Sanchez, a Mexican immigrant who became a U.S. citizen, helped build an affordable housing complex in Jacksonville, N.C., in 2010. He said he was treated as an independent contractor and shortchanged on the hours he worked. “These days, you work for less or you don’t work at all,” he said.

Samuel Mora worked with a crew his father assembled at an affordable housing complex in Fayetteville, N.C. Sometimes, he said, it took weeks or a month for his father to be paid and then to distribute cash to his workers. No one bothered to define what they were, but records show Samuel Mora was treated as an independent contractor. He was resigned to the realities of working in construction in America.

“We say it’s better to do something than nothing,” Mora said.

In San Fernando, Barreda’s pay never reflected what he truly worked, he said. Anything more than $17 to $20 an hour had to be returned. He patted his right pocket, miming the missing money. “All the time I say, ‘This money should be mine.’ . . . It wants to be together.”

Barreda signed an affidavit as part of a complaint filed with the U.S. Department of Labor stating his boss forced his brothers and him to return portions of checks. If they didn’t agree to return the money, they wouldn’t work, he said. His older brother, Abel Barreda, who described himself as foreman, signed a separate affidavit explaining that he collected the money from his brothers and other workers to give to his boss or use to buy tools. While they started off working illegally, Barreda and his two brothers have since become legal U.S. permanent residents.

Often, laborers affected by the schemes are, like the Barredas, foreign-born. Immigrants have swarmed to the United States over the past two decades seeking refuge and opportunity. Many found work in construction trades, riding building booms that swept across parts of the country. Slowly, they supplanted the American workers who made a life pouring concrete and shingling roofs.

By 2012, Hispanic workers accounted for nearly 20 percent of construction workers nationally, up from just 9.2 percent in 1990.

This is particularly true in California, where 40 percent of workers in the construction industry are immigrants, the highest rate in the country, according to the National Association of Home Builders’ use of census data from 2011.

Among the misclassified workers listed on records McClatchy analyzed, the majority had Hispanic surnames.

The practice of misclassification dates back decades, but its prominence grew after the 1986 amnesty law signed by President Ronald Reagan. The law granted legal status to thousands of people living here without papers, but it also made it harder for companies “to knowingly hire” immigrants who are in the U.S. illegally.

With the federal government cracking down, more employers have turned to misclassification as a way to keep an illegal labor force. Employers aren’t required to verify the immigration status of independent contractors.

“Employers realized one way to avoid this is not to be called an employee,” said Muzaffar Chishti, the director of the Migration Policy Institute’s office at the New York University School of Law. “The sanctions apply only if you directly employ someone.”

Tripping on a steppingstone

When Barreda got a carpentry job working on military bases, he thought things were beginning to change for his family and him.

Jobs included refinishing the historic hardwood floors for a general’s house at Fort MacArthur and painting a conference room at Los Angeles Air Force Base, where President Barack Obama’s picture seemed to watch over him. He was warned not to let Obama touch the floor.

For the first few years, Barreda said, he was paid primarily under the table, in cash. He worked for a company called California Creations, owned by Daniel Wishard. It was Wishard, according to the brothers’ affidavits, who later adopted various payment methods to avoid paying prevailing wages, overtime and taxes. Wishard forced them to return portions of their checks and paid for them to take out business licenses so that he could call them independent contractors, they said.

Wishard didn’t respond to repeated calls or a certified letter asking for his comment. His Los Angeles-based attorney, Brian Koegle, said he couldn’t comment on the case because it was an active U.S. Department of Labor investigation. But he said he didn’t believe there was any truth to the allegations lodged by a “disgruntled employee.” If the Labor Department asked about allegations of kickbacks, he said, they were easily explained. He said no money from any employee of California Creations came back to the company or Wishard himself.

“It’s not a kickback in the way you’re thinking about it,” Koegle said. “When overpayments are made, they get handled in a certain way.”

He acknowledged that the brothers sometimes worked as California Creations employees and other times as independent contractors, but he said it was all in accordance with the law. When asked about the brothers’ allegations that they were classified as independent contractors to avoid paying proper wages, Koegle said the brothers worked as subcontractors on a contract basis. The brothers even signed an agreement stipulating they were independent contractors, he said.

“They were subcontractors who bid on a project who were selected by bid to do the work on a contract basis,” he said.

But according to the Barreda brothers, they were never really independent.

Though Wishard supposedly subcontracted jobs to Barreda Lawn Care, the business Abel Barreda started, the work wasn’t lawn care. It was plumbing and electrical work on military houses and offices. The brothers said they were told when to show up on the job and in what order to do their work. On a recent plumbing job at a San Pedro military neighborhood, they even wore California Creations shirts.

“I’m doing what Dan tells me to do,” said Abel Barreda.

Wishard has done a lot of work for the federal government through his company, receiving more than $4 million in government contracts, most of which were with the Department of Defense, according to federal spending databases.

Alfredo Barreda saw the work as a steppingstone to running his own construction company one day, a path to a secure future and a viable stake in the American dream. He hoped he’d be able to buy a house in a safer neighborhood of San Fernando where he didn’t have to worry about his kids getting caught up in gang violence.

But Barreda is two months behind on the rent for a cockroach-infested house with windows held together by duct tape.

“The whole house is falling apart,” said his partner, Alejandre. “How we live, it’s kind of embarrassing.”

“If we could afford it, we wouldn’t be here,” Barreda said.

Matt Capece, a lawyer who works with the United Brotherhood of Carpenters and Joiners of America, said that immigrants, vulnerable and afraid, had enabled bosses who were willing to cut corners to get ahead.

The certified payroll documents that contractors are required to file every week for public works projects often don’t show any wrongdoing, at least to the untrained eye.

Cheating contractors are smart, said labor compliance officers and contractor trade organizations. They avoid detection by misidentifying employee trades in order to pay lower rates and by shaving off hours to avoid paying workers their full week’s earnings. Some go as far as accompanying employees to the bank to retrieve money from cashed checks.

“In California, the underground economy has always been there, but the cheaters have become more sophisticated,” said Bruce Wick, the risk management director for the California Professional Association of Specialty Contractors, a nonprofit agency representing specialty trade contractors and suppliers. “Other states are where we were in 2003.”

“People can be fairly fraudulent and think, ‘I will never be caught,’ whereas people in California think, ‘I better put on a veneer of legitimacy and (have them) dig to find where I’m cheating,’ ” Wick said.

‘The 1099 was always a verbal thing’

In 2009, said Alfredo Barreda, the tactics in his workplace changed. His boss, Wishard, told his two brothers and him they’d be brought onto a payroll, Barreda said. He said the new arrangement involved returning some of his pay so that Wishard could avoid paying required prevailing wages.

“He’d give us a check where they were supposed to pay us 40 (dollars) an hour, but me, I was getting paid 20 an hour,” Barreda said. The rest was cashed and returned to Wishard, he said.

Wishard helped Abel Barreda, who’s now 42, create his own company, Barreda Lawn Care. Abel Barreda said it was just another way to trick government regulators.

In his affidavit, Abel Barreda said Wishard picked out the name for his company. He said Wishard would pay them different ways, including a company check, cash and a personal check. He figured cash was a way for Wishard to avoid paying the Internal Revenue Service, according to the affidavit. He said they’d work over 50 hours but they never received overtime pay or the proper prevailing wages, according to his affidavit.

“The 1099 was always a verbal thing,” said Eduardo Barreda, 28, referring to the tax form for independent contractors. “He made it seem like he was doing us a favor and it was going to benefit us. . . . So we just rode with it.”

Much of the time – including most of the past year – California Creations treated them as independent contractors, Eduardo Barreda said, even though Wishard dictated their start time and the details of their job and even provided California Creations uniforms.

“He takes advantage of us in different ways,” Alfredo Barreda said.

The family shared hundreds of documents with McClatchy, including payroll stubs, work ledgers, reports and letters.

Sitting on his back patio one day in late spring, Eduardo Barreda scanned old pay stubs.

“Here it shows I made $55 an hour,” he said, flipping through papers. “I never got paid that much before. I wish I had.”

The brothers say Wishard kept thousands of dollars of their pay over the years, forcing Alfredo Barreda to seek Medicaid coverage and collect food stamps.

A new report on California by the Economic Roundtable for the United Brotherhood of Carpenters estimates that some 39,800 construction workers in the state were wrongly classified as independent contractors in 2011, a number that continues to grow.

This spring, Alfredo Barreda and his brothers signed the affidavits for the Carpenters/Contractors Cooperation Committee in California. In late July, the group sent the affidavits to the Department of Labor, asking it to investigate Wishard and California Creations.

On Aug. 25, a Department of Labor investigator interviewed Alfredo and Eduardo Barreda about how they were paid. The men drove to the DOL office from work, still dressed in their California Creations uniforms.

Alfredo Barreda is ready to move on, perhaps to a job in another state. There, he looks forward to walking into a bank carrying an honest paycheck, where he’ll put all his cash in a single pants pocket, bound for home.

BoNhia Lee of The Fresno Bee contributed to this article from Fresno, Calif.