Labor scam needs state, federal action

State and federal leaders are saying all the right things about stopping the half-billion dollar annual robbery dishonest businesses have gotten away with in North Carolina because of lax government oversight and enforcement. But seeing will be believing.

As several business owners noted last week, North Carolina has had years to fix the problem. Instead, the state constantly ignored the issue despite complaints.

The complaints were about companies that knowingly and improperly treat workers as independent contractors to gain a competitive advantage. This newspaper, The (Raleigh) News & Observer and others wrote a series last week detailing the extent of such misclassification in the construction industry in this state and nationally. Companies shaved 20 percent or more from their labor costs by treating workers as contractors. They gained an advantage because they don’t have to pay unemployment or payroll taxes and do not withhold taxes from workers’ paychecks. Also, many do not provide workers’ compensation coverage.

The state and federal government were estimated to lose $467 million annually in taxes in North Carolina because of this scheme. That’s roughly the size of the budget shortfall N.C. legislators initially faced this year. As retired Charlotte concrete contractor Steve McLendon points out: “If they’d just collect the money that’s owed, they wouldn’t have trouble paying the teachers what they need.”

Last week, Gov. Pat McCrory pledged to endorse and push through legislation to penalize the scofflaws. N.C. Attorney General Roy Cooper, expected to run for governor in 2016, also weighed in and vowed to provide lawyers to help revenue and housing officials figure out what can be done.

But as our reporters noted, N.C. officials had a chance to fix this in 2012 when the N&O first revealed the practice. Then-Gov. Bev Perdue convened a task force, which offered solutions to McCrory last year. McCrory then asked his own Industrial Commission chief, Andrew Heath, for proposals. Heath focused on legislation drafted but never adopted into law. The proposals called for fines for misclassification and strategies to combat workers’ compensation fraud. None got anywhere.

N.C. Rep. Rick Glazier, who has twice sponsored legislation calling for stiff penalties, notes another problem: “the willful blindness and woeful inadequacy of the N.C. Department of Labor (and its) almost unwillingness to do any serious investigative work into employer misconduct.” Labor Commissioner Cherie Berry has a long history of lax oversight of workplace rules and safety issues, and lenient application of penalties for violations. That must change.

The federal government is as culpable. President Obama’s chief monitor of stimulus money admits that he and others at the top levels of Obama's administration did nothing for years to stop the practice. The Department of Housing and Urban Development, the IRS, the Department of Labor and Congress have all been similarly passive. In Sunday’s Observer, state Housing Finance Agency officials said they never received requested guidance from the federal government on how to handle payroll reports showing companies misclassified their workers.

Both Democrats and Republicans in Congress now express outrage over the situation. They’re right to be mad. But election-year outrage is easy to summon. It’s not enough. The public needs to see action.

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