Homebuilder Engages in Widespread Corruption and Tax Fraud, Carpenters Union Lawsuit Alleges

By Knowingly Misclassifying Workers, D.R. Horton Operates Illegal Hiring Scheme Denying New Jersey Millions in Tax Revenue and Holding Down Workers' Wages

TRENTON, N.J., March 20 /PRNewswire/ -- The nation's largest homebuilder, D.R. Horton, is accused of multiple illegal acts based on its abusive practice of knowingly misclassifying construction workers as independent contractors, according to a landmark class action lawsuit filed in New Jersey Superior Court by the New Jersey Regional Council of Carpenters (NJRCC) (http://www.njcarpenters.org/).

The lawsuit, which alleges violations of both federal and state laws, is the first action brought under New Jersey's new Construction Industry Independent Contractor Act.

Governor Jon Corzine signed the law in July 2007 in an effort to stop employers from trying to escape paying Social Security and other taxes. The law serves as a protection for vulnerable workers who make up the bulk of misclassified workers in the construction field.

Experts estimate that such illegal activity costs New Jersey millions of dollars a year. The state's Department of Labor and Workforce Development audited just 2.2% of employers in 2006 and revealed 25,000 employees were misclassified. Such action resulted in almost half-a-billion dollars in misclassified or unreported wages and $15.9 million in underpayments to the unemployment and disability insurance funds.

Because the lawsuit alleges D.R. Horton engaged in a pattern of racketeering activity, it's also accused of violating New Jersey's Racketeer Influenced and Corrupt Organizations (RICO) acts.

"This is about protecting all of us -- protecting our state and protecting working people. It hurts New Jersey because we all pay more for schools, highways, health and welfare benefits, and other services when lawbreakers find ways to scam the system," says Frank Spencer, Eastern District Vice President, United Brotherhood of Carpenters. "It's especially troubling during a state fiscal crunch. Not only does it take funds away from vitally important state programs, it also depresses the wages of all construction workers."

According to the complaint, a high-ranking D.R. Horton executive said, "[We are] trying to get rid of all the unions on the job site" and that he would "bring his own people in" who were "happy to work" and would work "sunup to sundown." The executive also stated, "We've got plenty of lawyers and money, and we don't give a f--- about your little picket lines and blown-up rats."

"We allege D.R. Horton took advantage of workers because they knew they were vulnerable and scared," adds Thomas Canto, Executive Secretary-Treasurer, NJRCC. "We also will show how D.R. Horton, through its subcontractors, paid workers in cash to undermine their legal responsibility. We have the best-trained work force that is ready, eager and willing to go to work and perform their jobs in a legal and safe way."

The lawsuit alleges D.R. Horton's Plaza Grande residential complex at Garden State Park in Cherry Hill began construction by hiring Brookside Construction Corporation, which used union members. The project, built on a former horse race track, consists of 608 condominiums for adults 55 years of age or older.

After about six months of construction work, a D.R. Horton division president allegedly offered to write a check "to make this [union workers] go away." The union immediately refused the offer and subsequently D.R. Horton fired Brookside and its union members and replaced them with a non-union firm, according to the complaint. Brookside is a co-plaintiff in the complaint. Horton did allow two union members to remain on the job.

The complaint, filed in Middlesex County, states that Horton and its new subcontractor, TOSA Construction, Inc., then knowingly hired undocumented workers and intentionally misclassified them as independent contractors.

Wilfredo Caraballo, the original sponsor of the bill and former Speaker Pro Tempore of the state General Assembly, says, "This is a historic day for New Jersey because workers are standing up and saying 'Enough is enough.' Thousands of honest, reputable business people play by the rules every day in our state. It's time for everyone to play by them. It's time for Horton to put people above profits."

"As the former Commissioner of Labor, this is the most blatant abuse of laws I have seen in a long time. People expect better than to be cheated out of what they deserve for their hard work. We will show that this scheme reaches to the highest levels at D.R. Horton," says Albert Kroll, former N.J. Labor Commissioner and attorney for the plaintiffs.

NJRCC says companies that cheat the system also gain an unfair advantage over legitimate, honest home builders.

By knowingly misclassifying workers D.R. Horton escapes paying the following, according to the lawsuit:

-- Unemployment and workers compensation insurance;
-- Health and welfare benefits;
-- Applicable New Jersey and local taxes;
-- Applicable federal taxes; and
-- Social Security taxes.

Misclassified workers are also less likely to apply for workers compensation if they are injured on the job and extremely unlikely to engage in organizing activities.

D.R. Horton's homebuilding revenues last fiscal year were $11.1 billion. It delivered more than 41,000 new homes during this time period.

The members of the class are current and former hourly employees of D.R. Horton in New Jersey, including Horton's subcontractors' employees as well as members of the New Jersey Regional Council of Carpenters, whose wages have been depressed or who were unable to procure employment at Horton because of Horton and its subcontractors' employment of large numbers of undocumented workers.

New Jersey's misclassification law presumes that construction workers are full-time employees unless proven otherwise and calls for jail time and fines of up to $150,000 for a second-degree criminal violation, as well as civil penalties up to $5,000 per violation. Additionally, contractors that engage in this practice could be ineligible for public contracts.

Across the United States, employers who misclassify their employees decrease payroll costs by 15 to 30%, according to the National Employment Law Project.

NJRCC consists of 17,000 members; it's one of some 35 such regional units that form the United Brotherhood of Carpenters and Joiners of America (UBC). UBC has more than 500,000 members across the U.S. and Canada, in every state and province.

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Source: New Jersey Regional Council of Carpenters

CONTACT: Adam Shapiro for New Jersey Regional Council of Carpenters,
+1-732-417-9229, or +1-202-427-3603, or cell, +1-202-667-0901,
Adam.Shapiro@widmeyer.com