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Construction labor fraud is screwing everyone

Following up on last week’s post on construction industry’s workers’ comp premium fraud problem, I realized that it’s way more than that.

We’re talking about insurers put at huge risk due to liability for work comp fraud.

Taxpayers footing the bill for medical care when laborers without insurance get hurt AND paying higher taxes because laborers get paid in cash.

Laborers getting screwed out of a reasonable paycheck by labor brokers who force them to take lower pay in untraceable cash.

Honest contractors unable to compete with others who bid based on fraudulent labor practices.

Citizens not getting jobs because labor brokers know they can get undocumented workers to do the same job for a lot less, with zero risk of complaint from those workers.

I interviewed Matt Capece, of the United Brotherhood of Carpenters and Joiners of America, who’s been all over this issue.  Matt has been talking with insurers, agents, brokers, employers, law enforcement, and the the Feds about this for some time.  While progress is being made, it’s quite clear that this is a huge problem in several key states.

MCM – How do you know this is a problem?

MC – In FLorida, Georgia, Colorado, Oklahoma, Tennessee the vast majority of the industry is affected. When we go onto job sites in Florida, on 8-9 out of 10 sites we hear from carpenters that they are getting paid cash. [emphasis added] Malls, store fit-outs, office renovations, government buildings are all affected.

It’s a big problem in TX, but less so than those other states.In TX there is a base of contractors who are resisting lawless practices

.MCM – What will help slow this down or stop it?

MC – Fraud in the industry is growing. The problem is so large that legislation hasn’t shut it down but has given law enforcement more firepower when a case is found. One of the things that needs to happen is a step up in criminal prosecutions going up the contract chain, and not just stopping at the labor broker. When upper tier contractors start seeing accountability then you’ll see some roll back.

MCM – Are there legislative solutions?

MC – When we talk to legislators about this problem, they don’t know it is that big and are shocked it is that big, then we have to face the other vested interests who want to fight against improving the law or adequately funding law enforcement because they believe it is somehow hurting or over-regulating small businesses.

Good employers, including small businesses, are losing market share and revenue and need protection. Different states have different level of commitment to attacking this. There are very few national construction associations interested in controlling or addressing this issue.

MCM – What’s holding law enforcement back?

MC – When you have law enforcement agencies that aren’t properly funded, when laws are made difficult for them to enforce, when enforcement agents are laid off, when organized labor is weakened, then there are fewer referees on playing field. Bad guys can commit payroll fraud, get away with it, and take over markets.

MCM – What are the top three things that will most help control payroll fraud?

  1. Insurance industry practices need to change from tracking COI’s to underwriting and auditing practices to root our corrupt construction businesses.
  2. Contractors that use labor brokers are putting insurers at increased risk so their premiums should be higher.
  3. The insurance industry needs to join with stakeholders on investigating corrupt contractors and giving federal and state law enforcement agencies adequate tools and resources.
    [emphasis added]

So there you have it.

Corrupt construction firms, aided by crooked agents and brokers, are stealing from taxpayers, insurers, state funds, and workers.  

What does this mean for you?

This is an issue where labor and management can and should work together much more closely. 

4 thoughts on “Construction labor fraud is screwing everyone”

    1. Hi Frank – thanks for the question.

      I didn’t say there is an “appreciable number” nor did I infer that. I would suggest that the corruption detailed by Capece and reported in the real media indicates the problem is real. COIs are key to the scam, and those are, according to investigators, obtained from agents and brokers.

      Alas, like any other industry (consulting even!), there are almost always more than enough bad actors.

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Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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