[Senate Hearing 110-740]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-740
 
 THE EFFECTS OF THE UNDERGROUND ECONOMY ON SMALL BUSINESSES AND WORKERS 

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP



                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 28, 2008

                               __________

      Printed for the use of the Committee on Small Business and 
                            Entrepreneurship


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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                 JOHN F. KERRY, Massachusetts, Chairman
CARL LEVIN, Michigan                 OLYMPIA J. SNOWE, Maine,
TOM HARKIN, Iowa                     CHRISTOPHER S. BOND, Missouri
JOSEPH I. LIEBERMAN, Connecticut     NORMAN COLEMAN, Minnesota
MARY LANDRIEU, Louisiana             DAVID VITTER, Louisiana
MARIA CANTWELL, Washington           ELIZABETH DOLE, North Carolina
EVAN BAYH, Indiana                   JOHN THUNE, South Dakota
MARK PRYOR, Arkansas                 BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         MICHAEL B. ENZI, Wyoming
JON TESTER, Montana                  JOHNNY ISAKSON, Georgia

                 Naomi Baum, Democratic Staff Director
                Wallace Hsueh, Republican Staff Director


























                            C O N T E N T S

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                                                                   Page

                           Opening Statements

Kerry, The Honorable John F., Chairman, Committee on Small 
  Business and Entrepreneurship, and a United States Senator from 
  Massachusetts..................................................     1
Tierney, The Honorable John F., a United States Representative 
  from Massachusetts.............................................     4

                           Witness Testimony

Morrisey, Scott, owner, Red Line Wall Systems, Inc...............     5
Callahan, Francis X., Jr., president, Massachusetts Building 
  Trades Council, AFL-CIO........................................    13
Erlich, Mark, executive secretary-treasury, New England Regional 
  Council of Carpenters..........................................    21
Noel, George, Director of Labor, Executive Office of Labor and 
  the Workforce, Massachusetts Department of Labor...............    26
Stark, Jennifer, chief, Policy and Government, Office of the 
  Attorney General, Commmonwealth of Massachusetts...............    35

          Alphabetical Listing and Appendix Material Submitted

Callahan, Francis X., Jr.
    Testimony....................................................    13
    Prepared statement...........................................    17
Erlich, Mark
    Testimony....................................................    21
    Prepared statement...........................................    24
Kerry, The Honorable John F.
    Testimony....................................................     1
Kennedy, The Honorable Edward M.
    Prepared statement...........................................    52
Morrisey, Scott
    Testimony....................................................     5
    Prepared statement...........................................     9
Noel, George
    Testimony....................................................    26
    Prepared statement...........................................    29
Stafford, Sara A.
    Prepared statement...........................................    57
Stark, Jennifer
    Testimony....................................................    35
    Prepared statement...........................................    38
Tierney, The Honorable John F.
    Testimony....................................................     4


 THE EFFECTS OF THE UNDERGROUND ECONOMY ON SMALL BUSINESSES AND WORKERS

                              ----------                              


                         MONDAY, APRIL 28, 2008

                      United States Senate,
                    Committee on Small Business and
                                          Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m., at 
Bunker Hill Community College, Chelsea, Massachusetts, the 
Honorable John Kerry (Chairman of the Committee) presiding.
    Present. Senator Kerry and Representative Tierney.

  OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, CHAIRMAN, 
SENATE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP, AND A 
            UNITED STATES SENATOR FROM MASSACHUSETTS

    Chairman Kerry. The hearing of the Small Business Committee 
of the U.S. Senate will formally come into session. I am 
delighted to be here at Bunker Community College, Chelsea, and 
particularly happy to have my friend and colleague from the 
House of Representatives, Congressman Tierney, with us to 
explore what is a very disturbing trend in our economy and an 
issue of great concern to businesses and workers alike. 
Congressman Tierney has been working on this issue already in 
the House and has a piece of legislation which he will talk 
about in-a few moments. But this is an issue which over the 
course of a couple of decades now has seen a fair amount of 
talk and, frankly, not a lot of action.
    By some estimates, America's underground economy is as big 
as $1 trillion--$1 trillion--contributing to over $100 billion 
in lost revenue a year. Think about that, $100 billion in lost 
revenue, folks, is an unbelievable amount of taxes that are 
lost, as well as income lost to individuals. And so our whole 
economy is disrupted as a consequence of behavior that is 
fundamentally illegal.
    At the heart of the issue is the fact that many companies 
are taking short-cuts, sidestepping lawful hiring practices so 
that they can gain a competitive edge. This is an issue that 
impacts both large and small businesses. Employers across the 
United States have found that tax laws and worker protections 
can be avoided if they treat workers as independent 
contractors. Some companies go to great lengths to avoid paying 
employment taxes and providing benefits to workers. Let me give 
you an example.
    Kellogg Brown & Root, Inc.--KBR, as it is referred to--has 
avoided paying payroll taxes by hiring workers through shell 
companies in the Cayman Islands, and that has resulted in the 
losses of hundreds of millions of dollars in payroll taxes. 
Now, when I talk about a shell company in the Cayman Islands, 
do you know what I am talking about? I am talking about a 
building in which there may be 15,000 or so, or 5,000 similar 
companies with little brass plates, maybe a phone number, maybe 
a fax number, and that is it. There are no employees. There is 
no company. There is nobody working there. This is a pure and 
complete shell, a sham, a fraud. And it is there solely for the 
purpose of avoiding the law, of avoiding the responsibility 
that other people in the country live up to.
    Tactics like that are literally inexcusable. All these big 
CEOs and folks who run around in fancy suits and expensive 
cars, live in nice homes, beat themselves on the chest, often 
talk about patriotism and love of country and live off the fat 
of the land; it is really inexcusable when you think about how 
unpatriotic, in fact, that is because it undermines the 
country. It destroys the tax base, not to mention violates the 
law.
    I recently introduced legislation with Congressman Rahm 
Emanuel and others in the House to specifically address the 
question of Kellogg Brown & Root. Today we will hear from our 
witnesses about these issues.
    Tax shelters in the Cayman Islands are not needed to cheat 
workers out of benefits, as we will hear today. Right here in 
Massachusetts, workers are being harmed by employers who want 
to take the easy way out and not pay unemployment insurance, 
which is there for a purpose; workers' compensation, which is 
there for a purpose; and Social Security taxes--all of which 
escape the cost of withholding income taxes, which then gives 
them more cash than the other people who are withholding them.
    Too many workers are being misclassified as independent 
contractors, an arrangement in which the employer is not 
responsible for withholding income or paying unemployment 
taxes. Employers who erroneously misclassify their workers 
stand to save as much 30 percent of their payroll costs. This 
puts a law-abiding employer at a disadvantage.
    The misclassification of workers is not just a financial 
issue. It is a values issue. Employers that wrongly treat their 
employees as independent contractors don't have to provide them 
with many of the worker protections that are considered to be 
fundamental in the country. And for more than a century, 
workers in this country have fought hard for these protections. 
They are the law of the land. And yet they are now taken for 
granted in many parts of the country. Employers should not be 
permitted to individually and arbitrarily take away these 
protections by simply filing a different tax form.
    This morning we are going to hear from Scott Morrisey. 
Scott's company, Red Line Wall Systems, is constantly finding 
itself on the wrong end of procurement decisions because his 
company, which plays by the rules, can't compete with the 
pricing bids submitted by competitors who are getting away with 
these unscrupulous hiring practices.
    We were also going to hear testimony from Sara Stafford, 
the sole owner of Stafford Construction Services, a small 
business with 65 employees, but unfortunately, an urgent family 
matter has prevented Ms. Stafford from being here with us 
today. But she has submitted very important testimony about how 
difficult it is to compete with companies that don't play by 
the rules.
    In her testimony, Ms. Stafford tells how Stafford 
Construction Services recently bid on and lost a $500,000 
contract funded by Federal, State, and local taxes. An 
investigation by the Attorney General's Office revealed that 
the winning company had employed undocumented workers, as well 
as misclassified employees and had failed to pay benefits to 
workers in cash as the company had reported in its paperwork. 
As a result, her competitor was able to bid 15 percent less on 
the contract.
    We also have two incredible advocates for workers in the 
State of Massachusetts here with us today to give us an idea of 
how workers are impacted by this. I want to welcome my friends 
Frank Callahan and Mark Erlich, who are two of the best friends 
Massachusetts' workers have ever had. Thanks to both of you for 
making time to be here.
    And finally, we are going to hear about what actions 
Massachusetts is taking to end this abusive practice. Governor 
Patrick and Attorney General Coakley have done a terrific job 
on this issue, establishing a task force to look more closely 
at what can be done from a policy standpoint and also stepping 
up enforcement efforts for the laws that are already on the 
books.
    Let me just say, enforcement folks, we are struggling with 
the problem of illegal immigration, and we are struggling with 
the problem of people who work off the books. A lot of the 
folks I just talked about also just get paid cash under the 
table. And that has the same impact, undermining everything 
else we are trying to do. Enforcement is the key. For all those 
people concerned about immigration and immigration reform, the 
biggest single missing link in the whole effort is enforcement. 
It is illegal to hire people illegally. And you can't tell me--
and all of you know this as a matter of common sense--that 
there aren't an awful lot of employers all around the country 
who know exactly who they are hiring and how they are paying 
them.
    We need stronger enforcement so that people believe that in 
this country we respect workers, and we are going to pay people 
appropriately and have an economy that works above the table, 
that is accountable and transparent. Everybody benefits when 
this happens. If we weren't paying people illegally in America, 
fewer people would decide to come where they can't get a job. 
They come because they know they can get the job. And in half 
the hotels of many communities--I am not going to name them all 
here today--you can go in the back rooms and kitchens and in 
the various workplaces of those hotels and find undocumented 
people. Everybody knows it--the hotel owners, the mayor, the 
law enforcement officials, and others.
    So it is time for all of us to get serious with how we 
create an economy that works for everybody. As I said, I am 
delighted to be joined by John Tierney, who understands these 
issues as well as anybody. He has introduced legislation in the 
House, the Taxpayer Responsibility, Accountability, and 
Consistency Act, and we are very glad to have him here. I also 
look forward to hearing the testimony of each of our witnesses 
today who can share with us an important perspective on this 
problem.
    So, without further ado, again, I thank Bunker Hill 
Community College for hosting us here today. This institution 
understands how important it is to train people for these jobs, 
and it matters that their students, when they graduate, go out 
and compete in a fair, competitive marketplace.
    Congressman Tierney.

 OPENING STATEMENT OF THE HONORABLE JOHN F. TIERNEY, A UNITED 
            STATES REPRESENTATIVE FROM MASSACHUSETTS

    Representative Tierney. Thank you very much, Senator. Thank 
you for your work on the Small Business Committee especially, 
in the Senate, but all the other work that you do there as 
well. And thanks for having this hearing and allowing me to 
join you, however briefly I will be able to stay. I appreciate 
the opportunity in no small part because we have been dealing 
with this issue in the House as well, and hopefully we will be 
able to work together with the Senate to bring some relief in 
fairly short order on this.
    You have hit all the high points on this, and I think we 
will hear it repeated on down the line from our witnesses here 
who have different iterations of the same story. The fact of 
the matter is that when people misclassify, there are three 
groups of victims.
    One, obviously, is the employer who does the right thing, 
as you mentioned, Senator, the person that goes and hires 
people the right way, makes all the payments, does the 
withholdings. And other people have figured out that they can 
save up to 30 percent if they don't do the withholdings, if 
they hire somebody off the books, and if they cheat. And, 
obviously, that becomes a competitive disadvantage. I know Mr. 
Morrisey is going to tell us about specific examples of that. 
And that has to stop. As a former small businessman myself--a 
real small business person who represented a lot of small 
business people--I know that aggravation, firsthand, that they 
would repeatedly suffer.
    But the second group obviously are the workers themselves. 
If they get hurt on the job and they don't have any 
withholdings on that, no unemployment compensation and no 
workmen's compensation, they are really in terrible shape, as 
we know. It may even affect their Social Security and their 
Medicare benefits on down the line.
    So there is a second group of victims, and then obviously 
the taxpayers. The taxpayers as a broad group are hurt 
seriously by this, and studies show--the Government 
Accountability Office, Congress' investigatory arm, did a study 
that showed that up to $4.7 billion in Federal income taxes 
alone in 1 year can be lost on that. And over a period of 
time--Pricewaterhouse did a study showing the tax receipts for 
the period 1996 to 2004 could have been increased by $34.7 
billion.
    So we talk about wanting to make sure people have the 
education and the job skills and training that they need to 
work in our society to deal with the advances in technology, to 
deal with jobs going overseas. We can find the money for these 
resources. People want to know how you are going to fund 
programs and issues that are there. We are going to find it by 
doing the right thing--by having people act in the appropriate 
way by paying their fair share, getting on board with the rest 
of us who pay our fair share in taxes and withholdings and make 
sure that we put those resources to go work to strengthen the 
core of our country. We have national security issues abroad. 
We have homeland security issues. But part of our security is 
making sure that the very core of this country, whether it is 
our infrastructure or our human capital, are all moving in the 
right direction, that they are trained, they are educated, they 
are capable in this competitive international environment that 
we have.
    So we have in the House, Senator, as you mentioned, 
formulated a bill called the Taxpayer Responsibility, 
Accountability, and Consistency Act. It is H.R. 5804. Frank 
Callahan, I noticed you mentioned it in your testimony, and I 
appreciate that. Richie Neal, my colleague from Springfield, 
and Jim McDermott, another colleagues from the State of 
Washington, spent a lot of time working on that trying to bring 
the various groups of people who had an interest in this 
together so that we could get a lot of the issues ironed out 
ahead of time. It basically amends the Internal Revenue Code so 
that there is a clearer vision of what would be a safe harbor 
that would be fair for everybody and not let people escape and 
use that as a way of avoiding their responsibilities. It moves 
forward in the right direction. There is better enforcement, 
higher penalties, all the things that I think we need to move 
on.
    I want to just repeat what the Senator said about the good 
work that Governor Patrick is doing here in the Commonwealth; 
and George Noel, your group is doing well with the task force, 
and we think that is going to have steady progress. We have to 
see this happen in State after State. We are going to have to 
have a Federal commitment to changing that Internal Revenue 
Code to make it work. We have to make it easier for people to 
proceed on that. It will make a huge difference for all three 
of those groups that I talked about earlier.
    Senator thank you for your work on this and for the 
hearing, and we look forward to working with you. Hopefully we 
can get a bill through that has all the facets on this.
    Chairman Kerry. Congressman, delighted, and again, thanks 
for being here and taking the time to be with us.
    We will go through each of our testimonies now. I will 
start down here with Scott Morrisey, and we will run right 
across the line. Director Noel, thanks so much for being here. 
We really appreciate it. And thank you, Ms. Stark, for 
representing the Attorney General's Office. We are glad to have 
you also.
    So would you lead off, Mr. Morrisey.

STATEMENT OF SCOTT MORRISEY, OWNER, RED LINE WALL SYSTEMS, INC.

    Mr. Morrisey. Yes, thank you very much, Senator Kerry and 
Congressman Tierney, for the opportunity----
    Chairman Kerry. Pull the microphone real close so everybody 
can hear you. There you go.
    Mr. Morrisey. On behalf of myself and my partner, Brian 
Cody, and Charles Doyle and the other 60 employees or so that 
we have at Red Line Wall Systems; companies like ours have been 
having a difficult time, as you have all just read. And so what 
I have said here is that construction has long been an industry 
filled with men considered rough around the edges, unable to 
sit behind a desk or just good with their hands. And 
construction jobs gave these men an occupation that suited 
their disposition and still enabled them the opportunity to 
provide their families a solid, middle-class lifestyle.
    Our company has prided itself on its ability to provide 
jobs with good wages and a generous benefit package. We 
understand that if a man does not have to worry about taking 
care of his family, he will be more productive on the job site. 
Cash-paid and 1099 underinsured subcontractors have always been 
a negative factor in our industry, but over the last 10 years, 
the ranks of these people have been exacerbated by a wave of 
illegal underground labor which is able to expand into and 
withdraw from any given region, depending on the workload. This 
can severely disrupt, or in some cases, destroy a small 
legitimate company that has long held ties to the local 
communities.
    Construction can be a very competitive, labor-intensive 
business. Most jobs work on a 5-percent profit markup, leaving 
no room for error. In our commercial drywall industry, labor 
will typically make up 40 to 50 percent of the total job cost. 
In a highly competitive industry like ours, labor tends to be 
the prime target when paring down costs for those willing to 
break established rules or bend vaguely written guidelines. Our 
company, which supplies health, disability, dental insurance, 
alongside other benefits like holidays and vacations, make 
these expenses a deal breaker when competing against the 
underground economy.
    Using Red Line as an example and the aforementioned 
benefits, you get a feel for what we are up against. We have 
Social Security and Medicare at 8 percent that we have to add 
to our costs; unemployment, 5 percent; workers' compensation, 
11 percent; health insurance, 16 percent; holidays and 
vacations, 8 percent--for a 48-percent markup to our base wages 
to be able to get our bids out the door.
    When we bid against companies who bend or break established 
rules of engagement, who are willing to shortchange their 
workers in any one or all of these overhead categories, it can 
put us at a 20- to 25-percent cost disadvantage. This 
disadvantage is impossible to make up in the total project cost 
line items.
    I would like to now explore some of the other myths and 
facts as we see them based upon our experience as a small 
company with 50 to 60 employees in the construction business.
    Myth number one: Construction is a low-skilled occupation. 
Nothing can be further from the truth. It seems to be the 
perception today that the more a person sweats and gets dirty, 
the less skilled his occupation. As business owners, we 
understand that it takes about 5 years of training and field 
application to become a qualified commercial carpenter. This is 
a significant investment of time and treasure for any business.
    Myth number two: Our company needs underground labor to get 
the job done. Well, the fact really is that this is yet another 
fallacy, many times driven by greed and companies overextending 
their abilities and qualifications. Good management is a lot 
like being a good farmer. Jobs and manpower have to be tended 
to and managed. Good management is hard work, but it is 
necessary for a company to succeed in a competitive 
marketplace. Good management and oversight is being 
supplemented by lower-skilled, higher-volume labor, extending 
the survival of inefficient companies, while simultaneously 
increasing the ranks of the lower-skilled, less productive 
workforce today.
    Myth number three: Underground workers fill a void of a 
stagnant industry that has no need for innovation or continued 
skill development. Well, the fact is, again, underground 
workers stymie innovation and productivity gains. If you 
oversupply an industry with cheap labor, there is no need to 
innovate, as long as a steady supply of cheap, inexpensive 
labor can be assessed whenever you need it.
    In our industry, alone over the last 20 years, new tools, 
products, and equipment have increased labor productivity by up 
to 50 percent in certain applications. Going forward, I can 
envision an industry that uses more high-tech tools, machines, 
and materials making a highly trained and motivated workforce 
more desirable than a lower-skilled, more plentiful labor pool.
    Myth number four, and this is my favorite: As long as 
underground workers pay at least some insurance, we are all 
protected, we are covered. Well, the fact is that underground 
workers tend to be underinsured and undertaxed, which increases 
the burden upon legitimate, fully insured, tax-compliant 
companies. Any accident, or incident caused by an underinsured 
company will eventually be met with an across-the-board premium 
hike. Many of these workers are using personal vehicles with no 
commercial underwriting to transport men and materials. Also, 
in many cases, under-the-table workers are straining our social 
safety nets by double-dipping. Some have no problem working a 
full week for cash while collecting an unemployment check that 
has been funded by taxed labor.
    Some of the worst offenders are criminals, deadbeat dads, 
and illegals who only work for cash so as not to get caught up 
in a paper trail. Some employers understand this and actually 
use it to their advantage to drive down labor costs.
    Even one additional point of reflection: We all feel that 
the underground economy may possibly be responsible for the 
mortgage meltdown we are now experiencing. The ability for some 
builders to exploit easily attainable underground workers 
fueled an already heated housing market to the point of 
overcapacity. Some industry experts estimate that our overbuilt 
inventory will last well into the year 2010. Had hot housing 
markets used naturally occurring internal labor shifts, much 
like we had during the Texas oil boom years, we quite possibly 
would not be in the unfortunate situation we find ourselves 
currently mired in.
    I put together an example of what we are up against in 
dollars and cents, and what we have is our company and 
companies like ours, if we pay a skilled carpenter, a drywall 
carpenter $25 an hour, $200 a day, we pay their insurance and 
benefit package of about 48 percent, as we mentioned earlier, 
$96, we have a direct cost of $296. Gentlemen, I don't care how 
good your men are, but over the course of a year or over a 
project's time, the average production for that man is about 20 
sheets of drywall a day, is what they are going to hang. This 
cost for us would be $14.80 per sheet.
    Other companies that use 1099 non-compliant individuals, 
they might pay their men the same. They might pay them $25 an 
hour, give them $200 a day. But with no benefit package, their 
costs on a daily output of 20 sheets would be $10 per sheet. So 
if I had a project with 5,000 sheets of drywall, my cost would 
be $74,000 and my competitor's cost would be $50,000. That is 
certainly a wide spread. I would ask all of you, if you were 
the general contractor or the developer and owner, who would 
you hire? You are going to save 25 percent. Well, to date, Red 
Line Wall Systems' manner of competing with such cost 
structures is three-fold:
    We find good men with good attitudes who want to go to work 
every day. We provide them with the training, tools, and 
equipment to safely maximize their own skill levels.
    And we take care of our employees and their families the 
way we would like it if we were in their shoes.
    The result--while not always the rule--is an above average 
range of performance. The same men that I told you would 
usually hang 20 sheets a day now hang 26, for an average cost 
of $11.39 per sheet. So that job I mentioned earlier of 5,000 
sheets, we can now become more competitive at $56,900. While 
not the low bidder still, we are close enough for some 
contractors and owners to consider the best project value, not 
the lowest number, which is what we have been doing over the 
last decade. Unfortunately, we don't know if that can continue 
with the present rate of the economy.
    [The prepared statement of Mr. Morrisey follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Kerry. Thank you, Mr. Morrisey. I appreciate it.
    [Applause.]
    Chairman Kerry. We will come back to questions in a moment.
    If I can ask everybody--I forgot to mention this. 
Everybody's testimony will be put in the record as if read in 
full. So if you want to just summarize, take about 5 minutes, 
that helps us, and then we can go from there.
    Mr. Callahan.

STATEMENT OF FRANCIS X. CALLAHAN, JR., PRESIDENT, MASSACHUSETTS 
                BUILDING TRADES COUNCIL, AFL-CIO

    Mr. Callahan. Thank you, Senator. Thank you, Congressman 
Tierney. For the record, my name is Frank Callahan. I am the 
president of the Massachusetts Building Trades Council. The 
Massachusetts Building Trades Council is comprised of 74 local 
unions and district councils which represent 75,000 
construction workers across the Commonwealth who work for 
approximately 3,000 subcontractors and general contractors. Our 
members work for these contractors, and they earn good pay. 
They get good benefits, comprehensive health insurance, 
comprehensive retirement, defined benefit pension benefits, and 
they pay their taxes, and they play by the rules. That is why I 
would like to start by thanking you, Senator, for hosting this 
hearing to address this very serious issue.
    The Mass. Building Trades Council fully supports the 
Committee's efforts to address this issue of the underground 
economy and the vast array of problems associated with it. Four 
years ago, we played an active role in securing changes in 
Massachusetts in the State statutes back in 2004. Currently, 
the Massachusetts definition of what an employee is versus what 
an independent contractor is,is widely regarded as the best in 
the Nation. It is the tightest out there. And when you go to 
different labor conferences and conferences of labor lawyers, 
that is the model that everybody wants to use.
    Since that time, we have worked closely with Governor Deval 
Patrick's office, the Executive Office of Labor and Workforce 
Development. I see my good friend George Noel is here; Suzanne 
Bump's office has been great, and the Attorney General's 
Office, Martha Coakley's office, the Fair Labor and Business 
Practices has just been outstanding. They have been very 
aggressive. They have been very serious about enforcing the 
law, and we have already started to see some results.
    These efforts were formalized even further back in March. 
We were privileged at our convention to have Governor Patrick 
sign the executive order which formalized the relationship that 
had already been ongoing between all the different agencies of 
State government--the Attorney General's Office, Division of 
Industrial Accidents, Division of Unemployment Assistance, the 
Department of Labor. So they are talking to each other and not 
just doing piecemeal efforts on their own behalf. But typically 
what we find is we have a contractor who is not paying the 
proper wages; chances are they are not paying workers' comp or 
unemployment. If they are not paying workers' comp or 
unemployment, chances are they are not paying their taxes. It 
is usually the bad actors out that we are really after, and we 
feel with this combined effort, we can make some great strides.
    One of the main reasons we have been involved in this is 
not just the direct impacts that were addressed by Mr. Morrisey 
earlier, and by other panelists that I know it will be in their 
testimony. But this strikes at the very core--you alluded to it 
earlier, Senator--of the social contract between workers and 
their employers. This has developed over the last hundred 
years, largely due to the efforts of labor unions. Many of the 
people in this room are still involved in those struggles with 
workers' compensation, with unemployment insurance, with the 
uncompensated care pool--basically the social safety net. There 
is a social contract that if you go to work every day, you put 
on your boots; you put in 8 hours of work; you get 8 hours of 
pay; and you get treated decently.
    As was mentioned by Mr. Morrisey--and I won't repeat a lot 
of the things he said--our industry is highly competitive in 
the construction industry. I have seen $40-million projects 
where the difference in the low bid and the second bid is 
$40,000. That is a pretty tight margin. A lot of the 
contractors are using the same software, but if you have those 
types of advantages that Mr. Morrisey alluded to, the people 
that are willing to cheat are going to be the ones who are 
going to be able to compete most effectively. And that is not 
what we want in our industry.
    So the impact that Mr. Morrisey outlined is true. That is a 
very serious impact on our contractors. But the impact on our 
members is enormous because when those contractors that don't 
play by the rules get those projects, our members lose 
paychecks. Our members lose the ability to contribute to their 
pensions, to their health insurance. Some of them because of 
the way our Health and Welfare programs are set up may lose 
eligibility for their health insurance. Our apprentices lose 
the on-the-job hours that are required to complete their 
apprentice training programs. We have the best training 
programs in the industry, but they take anywhere from 3 to 5 
years to complete. It is in-the-classroom training and it is 
on-the-job training for hands-on experience. If they don't get 
their man-hours they need to do that training, they will not 
progress and achieve journeyman status.
    And as serious as the impact on our members is, the impact 
on misclassified workers is even worse. As I mentioned, it 
strikes at the very core of the social contract between 
employers and employees that has evolved over the last hundred 
years. Those workers are denied decent wages. They are 
ineligible for unemployment insurance benefits. Oftentimes, 
they are denied workers' compensation benefits. They don't 
accrue Social Security credit. And they almost always lack 
health insurance.
    They are also responsible for paying employer and employee 
side FICA and FUTA taxes, roughly 15 percent of their gross 
wages, while people are properly classified as employees pay 
only 7.65 percent.
    And, most importantly, on the social contract issue that 
you addressed, Senator, they lost the protections of a host of 
labor laws, including the minimum wage protections, overtime 
pay, workplace safety, discrimination, sexual harassment, the 
Family and Medical Leave Act, and even the right to join a 
union, because you have to be an employee first before you can 
petition the National Labor Relations Board for a union 
election.
    Although the construction industry experiences a higher 
incidence of this abuse, this problem is not limited to 
construction. The impact on misclassified workers is obvious, 
but employees, employers, and taxpayers who play by the rules 
also pay a very high price all across our economy for those 
employees who seek to avoid their legal responsibilities.
    Just a few quick bullet points for the impact on 
Massachusetts. Most of these come from a 2004 study performed 
by Harvard University and the University of Massachusetts, 
which was sponsored by the Center to Protect Workers' Rights.
    The Massachusetts General Fund loses an estimated $152 
million in unpaid income taxes. The Unemployment Insurance 
Trust Fund loses $35 million in revenues. There is $91 million 
in unpaid workers' compensation premiums over a 2-year period, 
forcing the rest of us to cover injured workers in the Workers' 
Compensation Trust Fund. That fund covers workers who might not 
normally be covered. In fiscal year 2004, approximately 
$4,331,000 was paid to uninsured claimants. That is an 
assessment that ends up getting levied on the rest of us and 
the responsible employers.
    Laid-off or injured workers lacking unemployment or 
workers' compensation benefits are forced to turn to public 
services, including the uncompensated care pool, now renamed 
the Health Safety Net Fund. And those workers show up at 
emergency rooms, further draining the Health Safety Net Fund 
because they don't have their regular insurance to go see their 
primary care doc, and those costs, as we all know, are much 
higher when you show up at the emergency room.
    The impact on the national level includes three quick 
bullet points:
    The Federal Treasury loses an estimated $4.7 billion in 
unpaid taxes annually. The General Accounting Office estimates 
that 10.3 million workers, or 7.4 percent of the total 
workforce, were misclassified in the year 2005. And the IRS in 
its most recent analysis found that 15 percent of employers 
misclassified employees as independent contractors.
    While much progress has been made and we are expecting more 
progress in Massachusetts, there is still much work to be done 
at the Federal level. We urge the Committee and the Congress to 
adopt changes that will end or at least curb these abuses of 
the underground economy. The Massachusetts Building Trades 
Council supports the passage of House Resolution 5804, the 
Taxpayer Responsibility, Accountability, and Consistency Act, 
which Congressman Tierney addressed earlier and is one of the 
lead sponsors.
    I won't go through all the main points since they were 
already addressed by the Congressman. But we need to tighten up 
that definition, and we need to get enforcement. That is what 
it is all about. We can't have these games. Currently, the 
Social Security Administration has a 20-point test to determine 
who is an employee and who is an independent contractor. Many 
of those points are legitimate, but a lot of them are, 
unfortunately, used as an effort, as I like to say, ``feather 
bedding for the Bar Association'' to get around the law as 
opposed to finding out how to comply with the law.
    We would like to see those definitions tightened up. 
Massachusetts has essentially compressed the 20-part test into 
a 3-part test, which is very rigorous and we think does the 
job. And it has been followed up with responsible enforcement 
by the Attorney General's Office and by the Department of 
Labor. They are not going after all the groups that you will 
hear about. When this law was passed in 2004, we heard about 
bike messengers, hairdressers, people delivering water, kids 
cutting grass. It is really just a sham that is put out there 
by folks on the other side. Those aren't the people that we are 
going after. These are legitimate businesses--I am sorry, 
illegitimate businesses that have a substantial number of 
employees, and they are doing this for the reasons Mr. Morrisey 
outlined: just to simply avoid their responsibilities.
    Many in the business community will argue that this puts 
them in a trap, that they are really just trying to play by the 
rules, and the rules are too confusing, and if they break the 
law inadvertently, that they will be subject to serious 
penalties. This is simply not true. This is a calculated effort 
to avoid taxes, to avoid unemployment, to avoid workers' 
compensation, to avoid paying proper wages, and to avoid all 
the responsibilities that go along with being an employer, and 
those rights and responsibilities that transfer to that 
individual employee. It is an illegal action. It is tax fraud. 
It is workers' comp fraud. It is employment fraud. And it is a 
fraud on the American people and a fraud on the American 
workforce. It fosters a race to the bottom, and the winners in 
that race, unfortunately, are those who are willing to most 
aggressively violate the law. The losers are the rest of us--
the taxpayers, the workers, and the honest employers.
    I applaud your efforts in this to bring some light onto 
this issue at the Federal level. We are willing to work with 
the Committee and with the Congress in whatever efforts are 
necessary to make this happen, and I thank you for the 
opportunity to testify here today.
    [The prepared statement of Mr. Callahan follows:]

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    Chairman Kerry. Well, we thank you for coming.
     Mark Erlich of the Carpenters.

 STATEMENT OF MARK ERLICH, EXECUTIVE SECRETARY-TREASURER, NEW 
                  ENGLAND REGIONAL COUNCIL OF 
                           CARPENTERS

    Mr. Erlich. Thank you. My name is Mark Erlich, and I am the 
head of the 24,000-member New England Regional Council of 
Carpenters. We are partners with over 1,400 union contractors, 
most of them small businesses.
    Senator Kerry, Congressman Tierney, we thank you for being 
willing to shine a light today on our Nation's growing 
underground economy and its consequences for workers and 
legitimate businesses.
    During the recession of the early 1990s, some construction 
employers at that point began to label their employees as 
``independent contractors,'' thereby avoiding legally obligated 
tax payments and costly workers' compensation premiums in order 
to cut costs and gain a competitive advantage. We have seen 
over time that during recessions, as folks are looking for an 
advantage, they will look for new and creative ways of doing 
business.
    Construction is a straightforward business of labor and 
materials. Since materials are generally the same for all 
bidders, companies can only undercut one another with higher 
productivity or lower labor costs. But if a company can cheat 
the State and the Federal Government, as well as insurance 
companies--and get away with it--they have successfully gamed 
the system.
    By the late 1990s, the economic boom increased demand for 
workers in the Massachusetts building industry, and our region 
witnessed an influx of immigrant workers, many of whom were 
undocumented.
    The employers who had been willing to cheat through 
misclassification now realized that they could take advantage 
of this new workforce. They simply began to forget the niceties 
of misclassification and just pay in cash, off the books and 
under the table. In many parts of our industry, particularly 
the private non-union construction sector, this approach has 
become standard practice.
    How bad is the problem? Well, it is impossible to measure 
precisely because so much of this economic activity is 
unreported. One study claimed that the shadow or underground 
economy in the United States grew by 28 percent between 1990 
and 2003. And a 2005 Bear Stearns report that has been referred 
to suggested that the overall underground economy was nearly $3 
trillion a year, nearly 9 percent of our GNP.
    What is the impact? You have obviously heard testimony from 
contractors who will explain that they cannot compete on such 
an unlevel playing field. Last fall, a local drywall contractor 
in this area informed his workers that he was putting them back 
on the books after years of misclassifying them as independent 
contractors as a result of enforcement activities by the 
Government and the Attorney General. As a result, he cut their 
wages by 30 percent--a figure that I believe constitutes a 
``fraud index.''
    The impact on State and Federal revenues is even more 
severe. The current estimate of the tax gap is $290 billion, 
and an IRS spokesman says that 30 percent of this is 
attributable to misclassification. As mentioned, the GAO 
suggests misclassification reduces Federal income tax revenues 
by up to $4.7 billion.
    But these staggering numbers only reflect payments by 
employers who are still filing some sort of paperwork. What we 
forget is that losses from those who keep a workforce 
completely off the books cannot even begin to be measured. So 
all of these numbers are really low-ball estimates. At a time 
of Federal and State budgets deficits, we are cutting crucial 
public services while these dollars go uncollected.
    But what I would like to speak about today is the human 
side of this public policy crisis. Companies that cheat on 
taxes and workers' compensation premiums are more likely to cut 
corners and expose their workers to unnecessary risks and 
dangers. A New York study reported a 40-percent increase in 
construction fatalities in 2006 compared to the previous 5 
years, an incredible spike that the authors attributed to 
practices in the underground economy.
    Oscar Pintado is an example. Last year this 27-year-old 
died on a 450-unit residential project in Woburn. The builder, 
Avalon Bay Communities, a giant Virginia-based development 
firm, had been cited by OSHA for failure to meet fall 
protection standards on other projects. Pintado fell 45 feet 
down an elevator shaft as he stepped on and broke a piece of 
substandard particle board.
    Pintado worked for National Carpentry Contractors, a large 
framing contractor working for Avalon Bay that claims it has no 
employees--just 150 independent contractors. National Carpentry 
told OSHA inspectors that Pintado worked for an entity that 
actually did not exist and whose alleged owner conveniently 
disappeared and has not been located since the fatality. 
Pintado was, of course, paid in cash and, therefore his family 
was not eligible for any benefits or compensation.
    Until this situation is corrected, taxpayers and legitimate 
companies will continue to pay an enormous price for wanton 
law-breaking. But there are also the thousands and perhaps even 
millions of Oscar Pintados working on construction sites in 
this country. Most are citizens, some are here illegally, but 
all of them are invisible victims of this Nation's shadow 
economy.
    Those of us who live and work in Massachusetts are 
fortunate that we have a Governor and an Attorney General who 
understand this issue and have made heightened enforcement of 
the Commonwealth's laws a priority. Their sense of urgency has 
to be translated to the Federal Government and its enforcement 
agencies.
    Therefore, we recommend, as Frank said, a clearer and 
stronger definition in Federal law of what constitutes a 
legitimate independent contractor and what is an employee--as 
defined by what is known as the ``ABC'' test that Frank 
referred to. In this situation, both employers and employees 
are entitled to concise rules of the road.
    We also support the repeal of Section 530 of the Tax Code, 
the ``safe harbor'' rule as outlined in the House Taxpayer 
Responsibility, Accountability, and Consistency Act of 2008 
that Congressman Tierney has sponsored, which we appreciate, 
and support Senate 2044, the Independent Contractor Proper 
Classification Act of 2007.
    And, finally, we believe that there should be a creation of 
a Federal task force of all the impacted agencies--similar to 
what is happening in Massachusetts, New York, New Jersey, and 
other States around the country--to root out the underground 
economy. It should not be a question of lack of resources. New 
dollars spent on enforcement will produce exponentially more 
money in recaptured revenues.
    Our industry and our Nation need urgent action. We thank 
you again for taking this action today.
    [The prepared statement of Erlich follows:]

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    Chairman Kerry. Thank you so much, Mr. Erlich. Appreciate 
it.
    [Applause.]
    Chairman Kerry. Director George Noel, we are delighted to 
have you here representing the Department of Labor for the 
State, and we recognize your good work in this field. Thank 
you.

 STATEMENT OF GEORGE NOEL, DIRECTOR OF LABOR, EXECUTIVE OFFICE 
 OF LABOR AND THE WORKFORCE, MASSACHUSETTS DEPARTMENT OF LABOR

    Mr. Noel. Thank you, Senator and Congressman. Good morning. 
My name is George Noel. I am the Director of the Massachusetts 
Department of Labor. I wish to begin my remarks by expressing 
my appreciation for the Senator's and the Congressman's quest 
for fairness. I have not forgotten your leadership in my former 
life supporting the defense authorization Build American 
amendments. But today I am here to talk about the underground 
economy, its effect on small business and workers.
    I want to first talk about defining the underground 
economy, then discuss who I believe is harmed by it, and some 
of our efforts that the Governor has asked us to undertake.
    The underground economy is a plague that has infected not 
only the financial system of the Commonwealth of Massachusetts, 
but that of the United States as a whole. It consists of 
individuals and businesses that willfully avoid labor, 
licensing, and tax laws. These individuals and businesses 
misclassify employees as independent contractors or deal in 
cash or other ``off the books'' schemes to conceal their 
activities and their true tax liability from licensing, 
regulatory, and tax agencies.
    While the precise scale of these extra-legal and illegal 
activities is by definition difficult to calculate, we can 
reasonably and conservatively estimate the impact on the 
Massachusetts economy running into many millions of dollars. We 
heard Mr. Callahan talk about the Harvard study, and I am not 
going to rehash some of those statistics. But the broader 
economic toll, which takes into account lower wages and the 
knock-on effects of unfair competition on employers, may well 
be impossible to calculate.
    The Fiscal Policy Institute, in a study on New York's 
construction industry, estimated last year that nearly one-
third of New York City's residential construction workforce is 
``off the books'' and working in the underground economy. With 
New York City's 8 million residents to the Commonwealth's 6.5 
million, we think these numbers are a reasonable reflection of 
the scale of the problem here.
    In essence, the underground economy is an illegal gray 
market which lowers living standards, undercuts wages and 
workplace protections, undermines fair competition for 
businesses, pitting residents against one another in a race to 
the bottom.
    Who is affected by the underground economy?
    Operating in the underground economy is not a victimless 
crime, as some would lead us to believe. Workers, legitimate 
business owners, consumers, government, and society in general 
shoulder the burden shirked by employers who operate in the 
shadows of the underground economy.
    Workers, usually the most vulnerable, are exploited by 
irresponsible employers who engage in employment fraud. These 
workers are usually on the lower wage scale and are often 
undocumented workers.
    Another set of workers who are adversely affected by the 
underground economy are workers who work for employers who play 
by the rules. These workers suffer from depressed wages and 
benefits or end up in the unemployment line, all because their 
employers commit the cardinal sin of playing by the rules. Some 
workers have no other choice but to slip into the underground 
economy themselves. The same Bear Stearns report that Mr. 
Erlich just referenced also says that ``four to six million 
jobs have shifted to the underground economy, as small 
businesses take advantage of undocumented workers.'' It is safe 
to assume that tens of thousands of Massachusetts jobs have 
suffered the same fate by that migration. One only has to look 
at some of the Home Depot parking lots or Foss Park in 
Somerville to find evidence of these ``street corner hiring 
halls'' that have spouted around the Commonwealth and the 
United States.
    The Commonwealth of Massachusetts and the United States 
lose tax revenue due to unreported wages. The Internal Revenue 
has developed the idea of the tax gap as a way of measuring 
taxpayer compliance with Federal tax laws. The General 
Accounting Office found that the Federal tax gap in the tax 
year of 2001 ranged anywhere from $312 billion to $353 billion.
    Consumers are also affected. They are exposed to 
unregulated and potentially unsafe goods and services through 
the underground economy. Legitimate employers like Mr. Morrisey 
face an unfair advantage from employers operating in the 
underground economy themselves over legitimate employers and 
their workers. These employers pay their workers' compensation 
premiums. They pay their unemployment taxes. They pay into 
Social Security. They pay their payroll taxes.
    What is the task force that you have heard a little bit 
about today?
    In his efforts for broad economic growth, Governor Patrick 
is committed to creating good jobs at good wages, proper 
protections for employees and employers, and assurances of 
fairness. That is why he signed the executive order that Mr. 
Callahan referred to on March 12th.
    The Governor asked me to chair this task force, which 
unites various State agencies with the goal of surfacing the 
underground economy.
    The task force is a large-scale, collaborative effort 
between State and constitutional offices. The Joint Task Force 
brings together the Attorney General's Office of Fair Labor and 
Business with a variety of State agencies. We also worked 
closely with other partners such as the Office of Refugees and 
Immigration and the Insurance Fraud Task Force to achieve our 
goals.
    It is important to note, just like Mr. Callahan noted 
earlier, that we have been working together in an informal 
fashion. What this does is codify it. And our partners over at 
the Attorney General's Office have been very helpful to us.
    The task force's stated goal is to surface the underground 
economy in Massachusetts by pooling resources and sharing 
information, enforcing licensing, labor, and tax laws. We have 
found that working together is the most effective way to 
surface the underground economy. We have looked for best 
practices in California and New York to help us lay the 
foundation for our own task force.
    Our task force has six goals: eliminate unfair business 
competition; protect workers by ensuring that they receive all 
the benefits and protections they are due under the law; 
protect consumers by ensuring that businesses are properly 
licensed and adhere to consumer protection regulations; reduce 
the burden on law-abiding citizens and businesses by ensuring 
compliance with the Commonwealth's licensing, regulatory, and 
tax laws; reclaim rightful revenue for the Commonwealth through 
increased compliance with State tax laws; and continuously 
evaluate and improve our own effectiveness by developing new 
procedures, promulgating new regulations, and proposing new 
legislation.
    The task force is managed by a director who coordinates the 
activities of the task force from the Department of Industrial 
Accidents. He is here with us today--Mr. Michael Bradley.
    His job is to coordinate the efforts, primarily by 
educating business owners, employees, and the public about 
relevant requirements and conducting targeted investigations 
and enforcement actions against violators.
    The underground economy is most prevalent and target task 
force resources accordingly, assess investigative and 
enforcement methods, and develop and recommend strategies to 
improve these methods.
    We are organized into six sub teams. I am not going to go 
through all of them. They each have their job. But one thing I 
do want to talk about is some of the communications that we 
have done.
    We have developed a tip line that has been developed with a 
general message that can be heard in English and Spanish. That 
phone number is 1-877-96-Labor-2267. Additionally, we have 
developed a Web site that has a lot of information on how to 
report these irresponsible, illegal employers.
    Governor Patrick has charged Secretary of Labor and 
Workforce Development Suzanne Bump with creating an advisory 
panel to engage employer, labor, and community groups to 
solicit feedback and input as part of the information-sharing 
process.
    Once again, I wish to close by expressing my gratitude to 
the Committee for taking the time to explore this important 
issue. And I believe that we all must work together if we are 
to be successful in achieving what I believe is our shared 
aspiration of driving this scourge from the Commonwealth of 
Massachusetts and our great country.
    Thank you.
    [The prepared statement of Mr. Noel follows:]

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    Chairman Kerry. Mr. Noel, thank you. Very helpful and very 
important.
    [Applause.]
    Chairman Kerry. Thank you.
    Finally, Jennifer Stark, Assistant Attorney General, we 
appreciate your being here, and you are testifying on behalf of 
Ms. Goldstein.
    Ms. Stark. I am. Thank you.
    Chairman Kerry. Thank you.

STATEMENT OF JENNIFER STARK, ASSISTANT ATTORNEY GENERAL, POLICY 
            AND GOVERNMENT RELATIONS DIVISION CHIEF

    Ms. Stark. Good morning, Senator Kerry and Congressman 
Tierney. For the record, my name is Jennifer Stark. I am the 
chief of the Policy and Government Division of the Attorney 
General's Office, and I am delivering this testimony on behalf 
of the Policy and Government Division. And I am delivering the 
testimony on behalf of Joanne Goldstein, who is the chief of 
our Fair Labor Division. And on behalf of her and Attorney 
General Martha Coakley, I would like to thank you for allowing 
us to have the opportunity to comment on this very important 
issue.
    The Fair Labor Division of the Office of the Attorney 
General is statutorily mandated to enforce the wage and hour 
laws of the Commonwealth. This includes minimum wage, overtime, 
prevailing wage, vacation, commission, and child labor laws, 
just to name several of them. We handle over 3,000 complaints 
annually, and a vast majority of these can be considered within 
the underground economy designation.
    The underground economy encompasses a wide variety of 
offenses that we enforce, which includes an employer who pays 
employees in cash, often below minimum wage; employees who work 
hours significantly above 40, but don't get paid the 
statutorily required time and a half for all of the hours 
worked. Often, employees get a cash payment that covers only 
some of the time worked or may get only straight time for 
overtime hours worked. It is not uncommon for unscrupulous 
employers to pay overtime from a separate account to shield the 
overtime payments from scrutiny and taxes.
    There are employers who give employees--often minimum wage 
workers--checks that bounce, week after week, or 
intermittently. A lot of these employees are reluctant to seek 
other employment without getting their back wages; but when 
they stay in these jobs, it also leaves them vulnerable to 
additional weeks without a paycheck.
    Even in the public construction arena, the underground 
economy issues flourish. Employers fail to pay prevailing wage, 
take credit for deductions for health or pension plans, but 
never remit the premiums to the plans, or pay less than the 
full rate or fail to register apprentices.
    Some employers hire undocumented workers despite our 
Federal requirements that they confirm immigration status and 
then exploit the status of the workers by not paying them, or 
paying them less than the law requires, or requiring illegal 
offsets for transportation, tools, and other costs, knowing 
that these employees are unlikely to report due to their 
status.
    In one particularly egregious case, an employer never paid 
any employee at all. Instead, he hired a crew of undocumented 
workers, worked them for several weeks, let them go and kept 
cycling through new crews of undocumented workers every few 
weeks, never paying any of them at all.
    One of the most pervasive practices within the underground 
economy is the misclassification of employees, as you have 
heard from the other witnesses on this panel. And although this 
is commonly referred to as classifying individuals as 
independent contractors, not as employees, as they should be 
classified, this is somewhat of a misnomer because often these 
people are not just misclassified, they are not classified at 
all. They are not true independent contractors, running their 
own businesses, having independence and autonomy, being paid by 
check and then reporting income with the proper documentation. 
Instead, they receive a set sum of money, usually in cash, 
often below the proper rates of pay with no pay stub or other 
record.
    And this issue has an impact on employees and small 
businesses, as you have heard from Mr. Morrisey today. The 
impact on employees is unmistakable. Employees deprived of 
their just wages, or any wages, simply cannot live. They cannot 
pay rent, utilities, buy food for their families, provide 
health care, transportation, or any of the other basic 
necessities for their lives and their families. Often, they are 
unskilled, perhaps undocumented, frequently uncomfortable 
reporting violations. We should not tolerate, in Massachusetts 
or anywhere in the United States, the exploitation of workers. 
Not only are workers harmed economically, they are demoralized 
by being treated so poorly. It is hard enough, especially in 
this economy, to live paycheck to paycheck, but when the checks 
don't come in, oftentimes lives for these people become 
impossible.
    The Attorney General recognizes that small businesses face 
challenges different than, and probably greater than, larger 
businesses. They find it hard to sustain viability. Clearly, 
expenses and taxes and the challenges of running a small 
business make success more elusive. Some find it tempting to 
skimp on employee obligations. Interestingly, we hear from many 
legitimate small businesses that they are thrilled that the 
Attorney General is vigorously enforcing the wage and hour 
laws. They concur with the Attorney General's assumptions that 
enforcement of the law will level the playing field within the 
small business community and allow them to become more 
successful, as they will no longer be undercut by businesses 
that are not playing by the rules. And you have heard some of 
those examples today.
    We have been advised that for the first time in many years, 
small businesses are filing complaints against their own 
competitors who are not playing by the rules because they know 
that the Attorney General's Office is vigorously enforcing 
these cases.
    In a number of industries, such as car washes, flooring and 
drywall, all of which are rife with underground economy 
problems, the Attorney General's actions have led to a change 
in the culture of the industries, and businesses are being more 
receptive to playing by the rules. One noteworthy example of 
our success is a small company that employs between 10 and 50 
and complies with wage and hour laws. The company has 
historically bid 30 to 40 percent higher than many of its 
competitors who don't play by the rules. And now that we have 
demonstrated our commitment to enforcing actions in the 
construction industry, the company in question reports that his 
competitors are bidding in the same range as he is, and they 
are in greater compliance with the law, so that he is right in 
the mix of the bid range with his competitors at this point. 
This is certainly a success story in this area.
    So looking at the effect of the underground economy on 
small business, it is clear to the Attorney General that 
continued, meaningful enforcement of wage and hour laws will 
have a positive and sustained impact on legitimate small 
businesses.
    The Attorney General has also made enforcement of wage and 
hour laws, as I have said, a priority in her office, and she 
has devoted resources and personnel to the issue in about the 
year and a half that she has been in office. Some of the 
highlights of her first year in office include: Consistent, 
visible, and vigorous enforcement of the wage statutes, with a 
focus on those businesses and employees who are part of the 
underground economy; we have processed complaints more quickly 
and efficiently; we have issued citations with orders of 
restitution to the workers and fines that are commensurate with 
the violations.
    We have also obtained criminal complaints against those 
businesses whose wage and hour violations meet the criteria for 
criminal enforcement. We advise businesses that failure to 
comply with our procedures no longer results in a minor fine, 
but that these businesses are now subject to significant, 
legitimate fines and orders of restitution.
    There is also an open-door policy in our office for 
businesses, unions, workers, and advocacy groups who want to 
discuss issues with us and resolve complaints. And we have also 
done outreach to all stakeholders, and we have revised all of 
our written materials for distribution.
    We have increased our language capacity so that we can 
reach more employees, especially those that are in the 
underground economy for whom English is their second language. 
We have also made presentations and had information sessions to 
industry groups, unions, law firms, legal and other 
professional associations.
    We are in the process of revising our Independent 
Contractor/Misclassification Advisory that is going to be 
issued very soon, and it hopefully is going to give 
stakeholders a better understanding of the enforcement 
guidelines. We are participating in the Governor's Underground 
Economy Task Force, and we have also assigned two new victim/
witness advocates to the Fair Labor Division. That division has 
never had victim/witness advocates before, and they will be 
able to assist employees who are victims of wage violations. 
And we are hoping that this will also foster trust so that the 
word will get out and these workers will report more often.
    Thank you for your efforts to address this problem, and we 
look forward to working with you toward this effort.
    [The prepared statement of Ms. Stark follows:]

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    Chairman Kerry. Well, thank you all very, very much.
    [Applause.]
    Chairman Kerry. The testimony is very, very helpful.
    Congressman Tierney has to catch a plane to Washington to 
make the city safe for my arrival.
    [Laughter.]
    Representative Tierney. Thank you very much, Senator. I 
want to thank all the witnesses again for this, and I will look 
forward to reading the question-and-answer sessions as well. 
Thank you.
    Chairman Kerry. Thanks for being with us very, very much.
    [Applause.]
    Chairman Kerry. So now let's flesh the record out a little 
bit more, and I appreciate the Congressman being here and his 
leadership in the House. Obviously, this is an enormous issue. 
I want to try to get at it a little bit in real terms here. 
Each of your testimonies have been very candid and very 
helpful, and I think it paints a broad picture to hear from 
representatives of working folks who have a set of rules by 
which they operate and who have helped to improve the workplace 
in America; an entrepreneur who is trying to make it work; and 
one in absentia, and I put some of her testimony in here. But 
she has a very similar story to tell, as Mr. Morrisey's, about 
how the construction industry is impacted by this.
    I think it is important to emphasize that it is not just 
the construction industry, and we; will talk about that a 
little bit more in a minute.
    Ms. Stark, thank you very much. You know, none of this has 
a chance of being fixed unless the enforcement is rigorous, and 
we obviously appreciate what the Attorney General is doing to 
help make that happen. But let's try to simplify some of this 
and see if we can consolidate it.
    First of all, the breadth of this, we have talked 
specifically about construction, but give us a better sense, if 
you will, or sort out the different examples that you are aware 
of in the different places where this is having an impact in 
the State of Massachusetts or in the country. Do you want to 
share--Director Noel, do you want to lead off on that?
    Mr. Noel. Sure. In fact, you and Mr. Callahan mentioned one 
case in your editorial today, in the Boston Herald, that talked 
about a young woman who is a janitor, worked at a nursing home, 
and was treated as a franchisee. And, you know, the company 
that she worked for, I think, made claims of $90 million of 
sales each year, claims only to have 300 or so employees, and 
they operate worldwide, but yet they have 8,500 franchisees. 
You know, they are really employees. Let's not kid ourselves. 
But they seem to exploit the most vulnerable workers.
    Chairman Kerry. Well, how do they classify somebody as a 
franchisee?
    Mr. Noel. What they did was they actually told them that 
they were a business unto themselves. They gave them direction, 
gave them uniforms, procedures how to clear, but yet they 
basically sold this woman the business for $10,500 and made her 
buy all the supplies from them, was under their direction, and 
only paid her a certain amount of money and had her work an 
enormous amount of hours that she had to actually----
    Chairman Kerry. And did the company set the hours of work?
    Mr. Noel. They told her originally that she only was going 
to be working 20 to 25 hours. However, you know, the work that 
she did far exceeded--the work they assigned her far exceeded 
that, so much so that she had to hire somebody else and pay 
them, you know, as if she was her own business. In the end, it 
was a losing proposition. She ended up--she couldn't make any 
money out of it.
    Chairman Kerry. Did she believe she was her own business?
    Mr. Noel. I think at first she did, you know, but it really 
didn't turn out--and, in fact, that is what brought the case 
forward, that when she finally couldn't go on any further, she 
filed for unemployment, and that is what generated the case 
that you have talked about.
    Chairman Kerry. Can any of you tell us from your experience 
how many people know that they are actually misclassified? Or 
how many people know how they have been classified, that they 
have been classified as an independent contractor and then find 
out later when there is a problem that that, in fact, is their 
status? Are you aware?
    Mr. Callahan. I could give you a personal example. My 
mother-in-law is working as a home health care aide. She was 
working roughly 20 to 25 hours a week. She went through an 
agency, and she was told she was an independent contractor. 
None of the withholdings were done for her, for her taxes. 
There was no workers' comp paid, no unemployment paid. And she 
knew she didn't really have a choice. She went to work. She got 
her pay. She was told when to be there, what she had to do. She 
was under their direction and control. And then when tax time 
came, she was responsible for all those--the employer's side of 
those taxes. She had to pay the FUTA, the FICA, all the other 
employment taxes. I know this because I had to write the check 
to cover her taxes come tax time because the IRS was coming 
after her.
    Chairman Kerry. Did she think originally she was a full-
fledged employee?
    Mr. Callahan. For the purposes of the law, I think she 
thought she was an employee, but she knew she didn't have a 
choice. That is part of the problem here. People work there; 
they are working under the table for cash. They know what the 
deal is.
    Chairman Kerry. But they can't get the job otherwise.
    Mr. Callahan. They can't get that job otherwise, and that 
is really what it comes down to.
    Chairman Kerry. What about in terms of enforcement, Ms. 
Stark. What is the biggest restraint on our ability to be able 
to enforce adequately?
    Ms. Stark. Well, I don't know if there are restraints at 
this point. I mean, we have been spending the past year 
analyzing all of these complaints that have come into the 
office and actually doing the enforcement. The wage and hour 
laws we are happy with, and we are using them wisely and 
properly. It is just a matter of having that commitment to 
actually do the enforcement.
    Chairman Kerry. Well, there has to be some restraint, 
because if you have all of these companies that are doing this, 
either there aren't enough people, or there isn't enough 
insight, or there isn't enough effort, or something is 
happening. Companies ought to be living in total awareness that 
if they do it, they are probably going to get caught, and it is 
going to be costly.
    Ms. Stark. Yes. I think maybe one of the restraints is 
there are folks out there that aren't reporting it to the 
Attorney General's Office, so we can't enforce something that 
we don't know----
    Chairman Kerry. The reason they don't report it, Ms. Stark, 
in my judgment, is that they don't fear it is a deterrent. It 
is the absence of deterrence.
    Ms. Stark. Right.
    Chairman Kerry. They don't worry about it because the 
chances of getting caught aren't great. Am I wrong? If you have 
$312- to $353-billion worth of taxes that are not being 
collected, what would happen if we took $3 million--$10 million 
of that per State--I mean, what is that? That is $150 million, 
maybe, out of $312 billion, and said go do this, enforce this, 
wouldn't that make a difference? Suppose you had a larger 
division in your office.
    Ms. Stark. Yes, it would make a difference. But I think, 
you know, we are seeing changes already over just 1 year of 
having this focus. Of course, it would make a difference.
    Chairman Kerry. Mr. Morrisey.
    Mr. Morrisey. Senator, I can speak very frankly about that. 
We have seen almost immediate changes over the last 6 months 
where individuals that were coming down seeing the grass being 
greener in Massachusetts, specifically even some New Hampshire 
contractors. Now they are not so quick to come over the State 
line because the grass isn't so greener, because they have all 
been called in to the Attorney General's Office. From what I 
understand, the conversations are all very nice, but they have 
been given notice that the procedures cannot continue and must 
be changed. These individuals are not quick now to bring their 
workforce down here, which by and large, are those underground 
workforces.
    So now they are staying back there, and it is opening up a 
new field for others now that I was having trouble trying to 
compete against. Now the competition is becoming more fair.
    Chairman Kerry. How prevalent is the disadvantage to you in 
terms of the competition? Give me a percentage.
    Mr. Morrisey. Well, I will tell you that it used to be 
years ago I could get 50 percent of the jobs I quote. Now I am 
probably 25 percent, and it has been that way, you know, for 
the last 7 or 8 years. So it is tough.
    Chairman Kerry. And do you see who the people are who get 
the jobs you quoted?
    Mr. Morrisey. Yes, and you have one of those things in your 
mind. If, you know, Company ABC is good competition, hey, they 
got us on one, they beat us fair and square. But when you hear 
about these others, you know, it really--it gets you pretty 
upset.
    Chairman Kerry. But you know how they are competing.
    Mr. Morrisey. Yes, we do.
    Chairman Kerry. In other words, you are very aware--you can 
see who won, and depending on who won, you know whether they 
competed on a fair basis or on an unfair basis.
    Mr. Morrisey. Right. And what you had for a long time is 
you had that gray area. Even legitimate companies would 
overextend themselves. Maybe the project was mismanaged by an 
owner or a developer, and so now they had too many going at 
once. Their 50 or 25 or 30 payroll employees couldn't keep up, 
so now they could go to this other resource and maybe even hire 
a legitimate guy, but knowing in the back of their minds--the 
old ``Don't ask, don't tell''--knowing that they were bringing 
in these other workers. To be able to get this job done and 
meet the schedules, they just said, well, I will deal with the 
consequences if I have to when they continue on.
    Chairman Kerry. And what is the greatest deterrent in your 
mind to their doing that or being willing to do that?
    Mr. Morrisey. The greatest deterrent is knowing now that 
there is an accountability. With all due respect to everyone 
here, there really didn't seem to be an accountability. We 
always heard about, quote-unquote, people being fined or having 
difficulties. You saw that in the insurance industry. If you 
didn't have workers' compensation, there was a fine or a 
penalty. But now, when we hear that the offices of the Attorney 
General are taking things much more seriously and they are 
looking into all of this, people now are waking up to the fact 
that, you know, there is going to be a reaction for their 
actions.
    Chairman Kerry. Now, give me a good, hard list of the 
readily identifiable, tangible consequences, and then maybe 
some of the unintended consequences--or collateral 
consequences. Shall we call it that? Direct consequences.
    Mr. Noel. Well, I can speak to one just while we are on the 
subject of workers' comp. One of the departments I oversee is 
Industrial Accidents. One of the offices of investigation 
ensures that employers have workers' comp premiums. Just this 
past month alone, they issued 177 stop-work orders, which was 
unheard of. And it is due to a commitment that we have 
instilled in that office. And it is about commitment to 
enforcing the laws. Like our partners over at the Attorney 
General's Office, we have agencies--the Division of 
Occupational Safety oversees asbestos and lead abatement, and 
they have the power to issue stop-work orders.
    One of the things that we are looking for now through the 
legislature is civil fines that we find would probably be a 
greater deterrent, because our only other resource would be to 
make it a criminal matter and overburden our already 
overburdened Attorney General's Office. But it is about 
commitment. It is about enforcement.
    Chairman Kerry. But what I am trying to get at is in terms 
of unemployment compensation--or workers' compensation--you 
have the potential of employee injury and they are not covered.
    Mr. Noel. It is also--they may be covered, but there is a 
workers' comp--the trust fund would then pick up the payments.
    Chairman Kerry. So citizens wind up paying more for other 
things than they should.
    Mr. Noel. The legitimate businesses pay into that, and they 
would be----
    Chairman Kerry. That is number two. What else? Health care. 
People don't have a health care benefit.
    Mr. Noel. Right.
    Chairman Kerry. People get injured, no compensation.
    Mr. Noel. You have unemployment.
    Chairman Kerry. Shoddy work. Work may be less safe.
    Mr. Morrisey. Doesn't get done on time. You have to have 
someone come out then to finish it up because they tried to go 
with the low-ball guy. He can't keep up. It doesn't----
    Chairman Kerry. It may wind up costing more.
    Mr. Morrisey. I can give you a case-by-case scenario where 
we profit because the guy that they chose didn't fulfill his 
obligation.
    Chairman Kerry. And you wind up doing it.
    Mr. Morrisey. So we come in at the end and finishing, 
anyway. Chairman Kerry. What else?
    Mr. Morrisey. Increased fatalities.
    Chairman Kerry. Increased fatalities.
    Mr. Callahan. A chilling effect on bidding. Mr. Morrisey 
mentioned the drop in the number of projects that he has been 
successful in winning. What he didn't mention was the number of 
contractors that tell us that they simply didn't bid the job.
    Chairman Kerry. They won't even bid.
    Mr. Callahan. They walked in and they saw XYZ Construction. 
Chairman Kerry. I have heard that.
    Mr. Callahan. And they said, ``I can't even compete; I am 
not going to spend $30,000 in 2 weeks to put together an 
estimate for a project I know I simply cannot win.''
    Chairman Kerry. Any other consequences?
    Mr. Morrisey. If you look at the long-term effects, 
Senator, you have these aging individuals that are 1099s. In my 
industry, you had it for years. Guys would go out. They would 
get the nice house, the nice truck. They would raise their 
children. But now all of a sudden they are at the age of 45 or 
so----
    Chairman Kerry. And their income is going down.
    Mr. Morrisey. They have nothing. They are beyond their 
piecework prime years. They can't produce what they used to. 
And so now they are coming to folks like us to try to get them 
jobs. In some cases, we are able to put them on. But now you 
have that they have not saved for that rainy day. They don't 
have anything to back them up toward their retirement. So you 
are having this back-end issue. We put them on, and now they 
have got bad knees or the bad shoulder. Now you have a medical 
issue that has to be addressed because they couldn't do it when 
they were younger.
    Chairman Kerry. How effectively is the Governor's task 
force working right now with the AG's Office in that 
collaboration? Is that working well?
    Mr. Noel. Actually, we have been working together since 
both administrations came into office. This more or less 
codifies it. We have, I believe, about 16 or 17 joint 
investigations, not just with the Attorney General's Office, 
but between the other government agencies. We have yet to 
perform a full sweep. You know, we are just starting to get 
underway, and there is a lot of stuff that we have to do before 
we get to the full sweeps. But there is a good partnership 
there.
    Chairman Kerry. What do you think is the most important 
step that can or should be taken at the Federal level to 
augment what is happening in a few of the States?
    Mr. Noel. I think Mr. Callahan touched upon it as far as 
tighten up the definition of an employee.
    Chairman Kerry. The classification.
    Mr. Noel. Classification. One of the----
    Chairman Kerry. Of independent contractor.
    Mr. Noel. One of the obstacles that we face working 
together is--it is actually twofold: One is information that we 
can legally share with one another, and that is something that 
we are going to have to tighten up either through legislation 
or regulation. The other thing is different agencies have 
different definitions of what an employee is. You know, you 
have the Department of Revenue, which relies upon the 20-point 
test that the IRS has. And then, you know, some of us rely upon 
the 3-point test as defined under Massachusetts law.
    Mr. Erlich. Senator, if I may, one thing about this problem 
is it actually is a problem that can be fixed, as opposed to so 
many problems that folks in Congress are constantly banging 
their heads against the wall. The actions of the Attorney 
General and the announcement of the Governor's task force, as 
Mr. Morrisey has said, has already--the word is on the street, 
and, I mean, it is early and it is premature, but just the fact 
that there seems to be a heightened focus has meant that 
companies are starting to say, ``Should I continue; am I now 
taking a risk by continuing to do business this way?'' And some 
are beginning to change the way they do business. It is 
really--and that is at a very early stage.
    Chairman Kerry. That is the whole purpose of law 
enforcement deterrence?
    Mr. Erlich. Exactly.
    Chairman Kerry. You get the word out there that you are 
serious about something, people take note of it.
    Mr. Erlich. It is a business calculation.
    Chairman Kerry. Absolutely.
    Ms. Stark. And just to mention, there are two cases that we 
brought. One is still ongoing so I can't talk about it in too 
much detail, but one is--there is an action against FedEx, 
which you know, when you have a higher profile case going on, 
the word does get out a lot quicker; it is an independent 
contractor misclassification case. And we also have the issue 
with Wendy's where a Wendy's franchise had closed, and a ton of 
workers were just not paid. The Wendy's closed in western 
Massachusetts, and our office worked with the owner of Wendy's 
Corporate, and all of those workers were paid. And I think when 
people see those higher profile cases--the FedEx case--it also 
helps with deterrence.
    Chairman Kerry. What about the argument that is made--and, 
Frank, you know this, Mr. Callahan, and Mr. Erlich, about the 
pushback we get on the prevailing wage argument, that people 
say we can't compete; we are not able to make this work because 
of the overall cost of the project is going to be too great, so 
we are not going to be able to do that, or we are not going to 
be able to make that improvement to the building. There is 
always that pushback.
    What is your comment about that?
    Mr. Erlich. Just quickly, that is a discussion that 
actually is going on with folks in the housing community, 
especially in the affordable housing community, because they 
are strapped for money, and they see every rise in the cost of 
labor being one less affordable unit that is being built. And 
when we point out to them that--this isn't even about 
prevailing wage. This is simply about playing by the rules.
    From my perspective, one of the reasons why we are seeing a 
lot of groups come together around this, including groups that 
have historically been opposed around labor issues, is that I 
think it is almost impossible--this is like apple pie and 
motherhood. This is just playing by the rules. This is not a 
question of prevailing wage. It is really not a question of 
other--it is simply cheating or not cheating. And I think it is 
very difficult for anybody to make a logical and concise 
argument that there is any reason not to make everybody play by 
the same set of rules, which is why I think that there is a 
reasonable chance of success here.
    Chairman Kerry. Yes, Mr. Morrisey.
    Mr. Morrisey. To the point of prevailing wage, Senator, 
depending on which set you are working with, whether it be HUD 
or whatnot, it is not that big a step anymore. If you are 
paying all of your things that you need to pay, the step is not 
as great as some people will make you think it is. It is really 
not.
    Chairman Kerry. And it is made up in the productivity, as 
Mr. Morrisey alluded to earlier. You are not getting some kid 
who is home from college for the summer, wearing a pair of 
sneakers and a baseball hat, pretending to be a carpenter so he 
or she can go back to school in September. You have people that 
have completed an apprentice program that takes anywhere from 3 
to 5 years, where their skills and their productivity and 
quality of their work more than makes up for any differential 
in the wage scale.
    Chairman Kerry. Has this had an impact on the numbers of 
workers you hire?
    Mr. Morrisey. Well, interestingly enough, we talked about 
that on the way in today, my partner and I. We could hire 
numbers of more individuals. We have applications coming in, 
you know, probably 12 or 16 every week. But you know, unless we 
get the jobs, you can't put them on.
    In the short term, the past couple of years, we have been 
maxed out. We couldn't put anyone else on because we couldn't 
get enough work to sustain them all. We kind of had capped out 
a little bit. Although we have grown every year, we kind of 
capped out a little bit. So we would like to, but we are hoping 
this will make the other opportunity change.
    Chairman Kerry. Is there any aspect, in terms of 
enforcement, that we have not been able to discuss thus far? Is 
there anything that is not on the table as to how we approach 
this problem? I just want to make sure there is nothing left 
unsaid. My sense is we have got a pretty good understanding of 
it.
    The classification issue, is there some simplified way you 
would make that classification in your judgment so that we just 
don't have these crazy arguments?
    Mr. Erlich. There is what is called the ABC test. That is 
what Frank referred to.
    Chairman Kerry. You think that is the simplest way to 
approach it?
    Mr. Erlich. It is simple, it is clear, the least confused, 
yes.
    Chairman Kerry. Right, OK. Do you think that--and what 
about the illegal immigration component of it, is that somehow 
compounding the issue? Would the issue exist even if we didn't 
have that? It would?
    Mr. Erlich. It would exist, but I think not to the same 
degree.
    Chairman Kerry. Not to the same degree.
    Mr. Erlich. And, you know, I think the State agencies that 
we are dealing with are taking the right approach, which is 
that is a Federal issue, it seems to be not being forthrightly 
addressed these days, but whoever is working out----
    Chairman Kerry. If it were more directly addressed these 
days----
    Mr. Erlich. Clearly the problem would disappear. If 
everybody had to be treated legally as a--you know, then 
everything----
    Chairman Kerry. You think that would signal the----
    Mr. Erlich. Absolutely. But the State has taken the 
position that everybody needs to function under the State laws, 
in any case, and that is good enough for us.
    Chairman Kerry. All right. Well, this is very helpful, and 
I am going to make sure that this record gets appropriately 
distributed to our colleagues on the Committee, and we are 
going to try and press forward and see what we can do, both on 
the definition as well as the enforcement side. I am convinced, 
and I have been convinced for some time--this is sort of a part 
of our discussion now about tax reform. We need to do the tax 
reform and the tax piece would help it, but it is not going to 
cure it. The enforcement is perhaps the most critical thing of 
all, and we need to empower you. I am going to talk to the 
Attorney General about how we might augment those efforts, 
because I think that would be as significant as anything in 
making a profound impact.
    You have already commented on the impact that is being had 
by virtue of what is going on. So I think if it gets more 
visibility, if more people are aware of it, and if the hammer 
comes down more rapidly on more people, boom, you are going to 
start to solve this problem significantly.
    I tell you, every citizen in this room and everyone who is 
not here--every citizen--is negatively impacted by this. And 
every citizen would be better off if we were able to be out 
there collecting the taxes that are uncollected, the billions 
upon billions of dollars of taxes. I was driving today on some 
roads. I don't know how many of you--I mean, our roads in this 
State are in shocking disrepair. And that is true nationally, 
not to mention bridges and tunnels and buildings and all kinds 
of things that need repair. We could be putting people to work.
    But part of it is everybody is saying, ``Well, how are we 
going to pay for it?'' Well, one of the reasons we are 
struggling with that is that people are avoiding their fair 
share of paying that burden. So we need to do it.
    I appreciate everybody's----
    Mr. Noel. Excuse me, Senator, if I could just add one 
comment. You talked about the Attorney General's Office. Also 
some of the Governor's agencies, also there is enforcement 
involved there. There are enforcement components. Some of those 
are federally funded. One I can think of is the Division of 
Occupational Safety. So if there is any help there that you 
could provide, it would be in that regard.
    Chairman Kerry. I see a number of folks in this audience 
who I know are union either leaders or members, and I greatly 
appreciate their being here today to help focus on this issue. 
I greatly appreciate their leadership and efforts in this 
regard.
    I want to just mention Steve Tewksbury, who is in the back 
here--he was, anyway. Where is he? There he is. He just came 
back in here. I just want to call attention, he is a union 
carpenter, the only guy I know who has had a town named after 
him here in the city.
    [Laughter.]
    Chairman Kerry. But he is deployed to Iraq, I guess four 
times already.
    How many times have you been to Iraq? You have been how 
many?
    He has been twice, but he is going in June again, folks, 
and I just want everybody here to acknowledge him and say thank 
you for his service.
    [Applause.]
    Chairman Kerry. Thank you.
    So I thank you. I think that is a great note, people are 
willing to serve their country and willing to go abroad to do 
it. We have got to serve our country right here at home and do 
a better job of making things happen.
    So thank you all for contributing to this record, and I can 
promise you we will try to take some actions on this down in 
Washington.
    We stand adjourned. I appreciate it.
    [Applause.]
    [Whereupon, at 11:28 a.m., the Committee was adjourned.]




















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