SALT LAKE CITY — For the last three years, there has been an ongoing effort by Utah lawmakers to keep some business from labeling their workers as owners.

Some have long argued that it's a way to skirt paying taxes and defraud workers by paying them lower wages, and now the feds are getting involved.

"Everybody's losing, including the employee that's not smart enough to know but is desperate enough to want a job," said Alan Johnson, president of IMS Masonry.

Three years ago, KSL introduced readers to these businesses and others who were concerned this business model would destroy them.

The businesses were losing millions in bids because other companies began soliciting business to sign up, and then they would take their employees and turn them into owners.

According to one company's pitch, these owners "still work on the jobs that you assign and take instruction and direction from you."

The only difference, however, was the business no longer had to cover payroll taxes, workers' compensation or unemployment. Overall, the cuts added up to about 18 to 26 percent savings.

Jesus Delgado was one of those so-called owners. KSL reviewed three months of Delgado's pay stubs, and nowhere do they show how many hours he worked, the rate he was paid or taxes deducted.

In the last three years, the Utah has been wrangling with the labor companies over these issues. The Department of Labor stepped in when one company — CSG, now Universal Contracting — was hired to provide labor for a project at Hill Air Force Base.

Last month a federal lawsuit was filed against Universal Contracting, along with other companies.

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KSL 5 News investigates potential worker misclassification in construction industry

Thousands of Utah construction workers are employed in dozens of large projects not as traditional laborers, but as "owners" under a workforce re-classification process that critics say could allow employers to avoid paying benefits, payroll taxes and workers compensation insurance.

Mayne passed two bills to stop companies like Universal Contracting from operating without paying taxes on labor, unemployment and workers comp. She said other businesses should take note of the Labor Department's lawsuit.

"I think when the tax commission got involved and we showed them the evidence, that caught the eye of the federal government," she said.

Dennis Chavez, owner of Chavez Drywall, said the lawsuit has been a long time coming. He was one of the first business owners to argue Universal Contracting's labor practices were what he called "immoral."

"They're probably running a $30 million labor industry, of which very little is being accounted for," Chavez said.

For Chavez, it's not just about doing the right thing for employees. It's about the safety and soundness of the buildings these mislabeled crews are constructing.

"Buildings are being built by ghosts," he said. "Nobody knows for sure who they are. That's what we are concerned with, because there is a safety concern associated with that. If you're not qualified and not capable, how do we track you down and know what you put in this building?"

The Department of Labor's lawsuit alleges that those who work for these labor companies are employees and not owners. The lawsuit seeks unpaid overtime and other damages on behalf of more than 800 laborers.

The department has also filed an injunction to stop the companies from operating.

As for the companies, they deny the allegations and say the people in question are legitimate owners of the company, not employees.

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