State senator says LLC status a disadvantage for construction workers

SALT LAKE CITY — A new way of classifying construction workers as part-owners of limited liability corporations appears to be abusive, state Sen. John Valentine, R-Orem, told a legislative interim committee recently.

The "ownership" system takes away protections generally given to employees — such as unemployment insurance, workers' compensation insurance and tax withholding — and places those responsibilities on the shoulders of the worker, often without the worker understanding what has happened, experts testified to the committee. The practice has been going on in Utah for about three months, according to Dennis Chavez, who owns a local drywall company.

The change may be legal but could allow employers and subcontractors to overlook the status of illegal immigrants, said Patricia Owen, associate general counsel for the Business and Labor Interim Committee.

Alan Hennebold, Labor Department deputy commissioner, said one man was hurt on the job after being forced into this kind of ownership and testified in an administrative hearing that he could not read, speak nor understand English and only accepted "ownership" to keep his job.

But Weston Lunsford of CSG Workforce Partners said the LLC model works well. He told the joint committee that owners in his company are required to pay workers' compensation and must be legally allowed to work in the United States. Further, they benefit from company profits and have the option to look for work outside CSG, he said.

Dean Kesler told the panel that he belongs to U&I General, a member-owned company of between 250 and 300 members. There, workers are expected to pay their own insurance and taxes but are "treated like owners," he said.

Later in the meeting, however, Chavez said that his 50-year-old company is close to shutting its doors because of the questionable practice. Member-owned companies aren't paying taxes and can therefore make very low bids on construction projects. Some workers get paid less than minimum wage under the system, he said.

"We have to deal with this issue this session," said Valentine.

The issue surfaced Friday during the Utah AFL-CIO conference held at West Valley's Cultural Celebration Center. There, Sen. Karen Mayne, D-West Valley, told hundreds of union laborers that classifying employees as owners is practiced only in construction now but could spread to other trades.

"They prey on people," she said. "This is slavery. It is awful, but it's growing."

Later, Salt Lake County Council member and labor attorney Joe Hatch said he is aware of the problem but does not think employers' reclassification attempts will succeed in the end. The distinction between employees and employers has been painstakingly decided in the courts, he said.

"This issue is as old as labor," the councilman said. "From a lawyer's point of view, it implies you can come up with a trick to avoid the law."

Employers may be getting away with this for now, but it won't last long, Hatch predicted.

A legislative panel has been formed to investigate the issue, and the Utah Attorney General's Office has appointed a special investigator to look at possible abuses.

e-mail: rpalmer@desnews.com