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Texas CEO on Misclassification Epidemic: “It is difficult to be in business with strong convictions.”

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As we wrote last week, the Texas House of Representatives will be holding a committee hearing to explore what more can be done to curb the illegal misclassification of employees as independent contractors.  Gov. Rick Perry signed a limited crackdown of the practice into law last year, but many business leaders and politicians want stricter penalties still for what has been called a “cancer” in the construction industry.

One such business leader is the President and CEO of BRI Roofing, Mike Beeter. In an open letter to the Texas legislature, Beeter provides specific examples to support the claim that misclassification needs to be dealt with promptly and firmly in order to ensure safety and fair wages for employees while leveling the playing field for businesses.  

A buck-passing “chain of command” argument is often used to hide misclassification activities. Beeter takes this approach to task and argues that when the lowest bid is accepted for a project the risks are more costly than the rewards:

… let’s say that the primary roofing contractor had a payment and performance bond to the construction manager on the public project. The bonding company steps in after the broker contractor goes into default as a result of the overwhelming issues. The bonding company quickly gets a handle on the issues as a result of pressure from the construction manager and the bonding company categorically denies the claim as a result of the primary roofing contractor breaching several aspects of the contractual relationship with the construction manager. It is all squarely on the primary roofing contractor who has still not been found.

The construction manager now has no choice but to call in a second primary roofing contractor in order to just keep the project going. He will have to seek damages against the original primary roofing contractor later down the road as he cannot continue to have the project delayed under the circumstances. The construction manager has to come out of pocket six figures over and above what he already contracted for to get the project back on schedule and completed. The construction manager would then have to spend another six figures to go after the primary roofing contractor who has still not resurfaced.

So, let’s add up the winners and losers as a result of the bid day decision by the Owner or Construction Manager to use this primary roofing contractor who they knew nothing about other than he has a great price on bid day.

• In the end, the Construction Manager loses a minimum of six figures in having to complete the work of the primary roofing contractor.
• In the end, the primary roofing contractor has either disappeared for good or filed for bankruptcy protection as a result of his/her actions.
• Most disturbing, the worker who got hurt or died has no re-course for himself or his survivors.
• Even more disturbing, the tax payers of the county hospital end up footing the medical bill as a result of the injury or death.
• But, that sure was a good price on bid day!

Beeter argues that the misclassification epidemic is caused by several botched policies ranging from a lack of immigration reform to a lack of campaign finance reform. With regard to the former, Beeter sites E-Verify as a tool to legitimize and protect workers:

I have been in business for myself the last 10 years. Since 2012, our company has been an E-Verify participating company. Unfortunately and as a result of our own convictions, we are losing work every day where the buyers could care less about “who” is doing the work or if they are in compliance by having legitimate workers compensation insurance. It is way too easy for roofing contractors and other non-licensed trade contractors to be in business in Texas. It is difficult to be in business with strong convictions.

Read Beeter’s entire letter here.


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