Prescott drywaller sees upside after $600K hit
PRESCOTT, Arizona - For someone directed by the Department of Labor to write checks totaling $600,000, Robert Cole Johnson has a pretty upbeat attitude.
Though his Prescott-based drywall company agreed in a settlement that it underpaid workers, Johnson says he voluntarily took part in a process that will "revolutionize" the construction industry.
In a settlement finalized Monday in U.S. District Court in Arizona, Paul Johnson Drywall Inc. agreed to pay $556,000 in overtime wages the Department of Labor said it should have paid sub-contractors.
Robert Cole Johnson, the $50 million company's president and long-time Prescott resident, notes that the overtime settlement did not stem from any worker complaints. It all started, he says, when the DOL asked him to "help them revolutionize the industry."
He says he agreed to an extensive audit, thinking his payroll and hiring practices were flawless. And, though Johnson was directed to pay the DOL $44,000 in penalties, the federal labor regulators praised what Johnson calls a collaboration.
"This resolution will bring a lot of positive change for hundreds of employees working in residential construction," said Janet Herold, the department's regional solicitor. "Paul Johnson Drywall is a leader in this industry in Arizona, and we are pleased that, as a result of our investigation, the company has taken such a public stand against the scourge of misclassification..."
The settlement focused on Arizona Tract, which Johnson Drywall used as a subcontractor. Johnson said that he only learned after the DOL audit that Arizona Tract classified their workers as "member/owners," who would not necessarily receive overtime pay.
Johnson said that even though he paid the Arizona Tract workers $170,000 in overtime in 2013, the DOL ruled the subcontractors were underpaid by $278,000. Paul Johnson Drywall agreed to pay 445 workers a total of $278,000, plus the same amount in damages.
Additionally, Paul Johnson Drywall agreed to no longer use Arizona Tract, hire a third party to monitor compliance to the Fair Labor Standards Act, follow strict payroll practices and use subcontractors for no more than 40 percent of the company's annual labor costs.
Cole Johnson (he normally doesn't use his first name) said this has greatly impacted his business model. "We've added approximately 2,000 employees in the last five months. We were running around 100," he said. He now has 100 employees in Prescott alone, with the others working around Phoenix.
Though the bulk of the company's work is in the Phoenix area, Paul Johnson Drywall has had some big projects around Prescott, including businesses such as the Boulders Gardens Assisted Living, Prescott High School (renovation) and the Hampton Inn, and residential developments including Whispering Canyon and Dorn Homes at Prescott Lakes.
It is common in the construction industry for companies like Johnson Drywall to keep a relatively small core group of full-time employees, then hire subcontractors on a pay-as-you-work basis. The DOL says it is working to make sure workers in construction and other industries are being classified properly, with appropriate pay and benefits.
The DOL press release on the Paul Johnson Drywall settlement may have been a warning for other construction companies. "This case exemplifies our commitment to eradicating unfair competition and pay schemes that result in employees not getting their fair pay for honest, hard work," said the DOL's David Weil, Administrator of the Wage and Hour Division.
"Employers in this industry and others should take notice that we will not tolerate the misclassification of employees as independent contractors, and we will use all legal remedies available to recover unpaid wages for these workers."
In the big picture, the $600,000 in checks Johnson is writing this month won't be a huge sting for the Prescott-based drywaller. "Our sales this year will exceed $52 million," Johnson said. "Our payroll is over $400,000 a week. People say, 'Wow, you have to pay $500,000 - that's huge.' But it's a little less than a week of payroll."
And Johnson said he expects insurance coverage to reimburse most if not all of the settlement payments.
Cole Johnson now expects the DOL to put some of his competitors under the payroll and worker classification microscope. "The great news about the story is we went first and we're done, we've paid our money," he said.
"A lot of our competitors won't be able to sustain this... it's going to be really hard for some of our competitors."
So Johnson feels the $600,000 settlement is only a temporary loss: "We think it's fair to say Paul Johnson Drywall will be a winner on this."
Follow Tom Scanlon on Twitter @tomscanlonpress