Florida task force tracks down ‘cheat to compete’ contractors
Nov 13, 2012
The following article was published in the South Florida Sun Sentinel on November 13, 2012:
It’s a business model that is lucrative, flagrant and popular — but illegal.
A special Broward County-state task force has been ferreting out “cheat to compete” construction firms that set up shell companies to evade workers’ compensation insurance premiums. It’s so pervasive in South Florida that the task force already has tracked down $200 million in off-the-books wages.
Now the one-of-a-kind investigation is expanding to Palm Beach County, and state officials hope it eventually will go statewide, said Maj. Geoffrey R. Branch, bureau chief of the workers’ compensation fraud unit of the Florida Division of Insurance Fraud.
“It’s been unusually successful,” he said.
So far, the joint task force, which started with officers from the state’s workers’ compensation fraud unit and the Broward Sheriff’s Office, have charged 21 suspects and seized $2 million in cash, said Anna A. Alexopoulos, press secretary for the Florida Chief Financial Officer Jeff Atwater. More arrests are expected, she said.
“Five of those [charged] remain fugitives,” Alexopoulos said.
The task force also has shut down 18 shell companies that were set up to pay cash to workers and thus avoid taxes and workers’ compensation insurance, she added.
Broward Sheriff Al Lamberti said his staff had to get involved after tradespeople complained that the cheats were keeping them from making a living.
“It’s definitely become more widespread” since the housing bust depressed the construction industry, Lamberti said.
“One of our biggest supporters is the honest businesses in Florida who simply want to bid on a project,” Branch said.
Pete Diaz, a general contractor who works in both Broward and Miami-Dade counties, said his business is struggling because some firms submit cut-rate deals — bids so cheap that they can’t be paying minimum wage, let alone workers’ compensation premiums.
“People like me who have workers’ comp can never be competitive,” Diaz said.
In Lantana, Mina Jazzo, office manager for her brother’s Robert R. McGill Air Conditioning, said his company has the same problem. Some competitors don’t even pull required permits, let alone pay benefits to their workers, she said.
Meanwhile, her brother’s company offers medical insurance, retirement savings and other benefits to air-conditioning technicians.
“But it’s hard to do when others are bidding under cost,” she said.
Indeed, the cheating is keeping South Florida’s economy from rebounding from the Great Recession as it depresses workers’ wages and benefits and eats into the profit of honest firms, said Cynthia Hernandez, a researcher at Florida International University’s Research Institute on Social and Economic Policy.
“It creates an unfair advantage” over the law-abiding companies that are paying taxes and legal wages to workers, she said. It “raises the question of whether South Florida’s economy can be healthy and grow while tolerating an unjust business model,” Hernandez added.
But the task force, Lamberti said, is helping by scaring off some firms from trying to cheat.
“It levels the playing field,” he said.
Still, some off-the-book laborers remain at the mercy of employers if they are injured at a job site, because they can’t get workers’ comp benefits, said Jeanette Smith, director of South Florida Interfaith Worker Justice.
Some bosses offer to pay medical bills to injured workers but then renege, Smith said. Many of the cheating companies don’t observe safety regulations, overtime rules and minimum-wage laws, she said. Some don’t even pay all that is owed to their workers, Smith added.
Her nonprofit routinely gets calls from workers in Broward, Palm Beach and Miami-Dade counties, complaining of injuries or unpaid wages.
“It’s such a widespread problem,” Smith said. “People don’t know where to go.”