Can a Contractor Be Charged With a Crime?

Contractor Liability Explained

The complexity of contractor liability requires a thorough understanding of the fine line between civil and criminal liability. While civil liability tends to encompass negligence and harm suffered by third parties, criminal liability involves culpability and a defendant’s intentions. An innocent mistake is generally not enough for a criminal prosecution.
The most common crimes associated with contractor liability include fraud, negligence, criminal violation of government contracting laws , larceny and obstruction of justice. In this country — as with many areas of law — the meaning of criminal liability is somewhat elastic. What is criminal liability in one jurisdiction may not be considered a crime elsewhere. The goal of this article is not to provide a definitive analysis of the law of criminal liability but to present an overview of those areas of contractor liability that most frequently result in criminal prosecutions.

Criminal Charges Common to Contractors

Fraud is one of the most common criminal charges against contractors, often stemming from allegations of overbilling or falsifying liens. For example, a contractor may be charged with fraud if they routinely inflate their costs in their contracts and then inflate their invoices to match the quoted prices. A classic example of fraud against workers is not paying prevailing wages on a job. Contractors and subcontractors who purposely wage theft through different means can face charges for fraud. Under California Penal Code § 484, anyone who commits fraud in obtaining any property, money, or service can be charged with conspiracy to commit grand theft.
Contractors and subcontractors who take money upfront for work they never intend to perform have committed fraud. Subcontractors who abort projects and never intend to complete the work are committing fraud and justifying a contractor filing charges.
Embezzlement is not typically associated with general contractors, but it can and does occur when an employee is given temporary control of money. For example, if an owner or contractor wrote a subcontractor a check upfront for a contract price, but the subcontractor doesn’t perform the work to the satisfaction of the contractor or owner, but cashes the check. That is the illegal taking of property. It is also considered petty theft because it is worth less than $950.
Safety violations may not seem like a crime. However, willfully or persistently violating safety standards can be a crime. If the violation leads to injury or death, it can lead to felony charges. For example, if a contractor willfully fails to provide safety equipment to employees to protect them from falls and an employee is killed as a result. That would be a crime under California Labor Code § 642, because the violation caused an employee to die.
Misadvertising is a criminal offense under California Business and Professions Code § 17500. This includes advertising work at a rate less than the standard rate charged for that type of work and advertising an unlicensed contractor to perform work that only a licensed contractor can perform.
Fraud, embezzlement, safety violations, and misadvertising are all criminal matters that should always be handled by a criminal defense attorney.

Contractors Facing Criminal Charges

For an idea of how this relatively new law is being interpreted we turn to some real life case studies this month.
On September 13, 2016 two individuals, Nicole and Philip Vang, were charged with employee misclassification and unlicensed contracting among other things. For several months, the Department of Labor’s Wage and Hour Division investigated Region Plumbing and Construction, a Mechanicsburg, Pennsylvania plumbing company. Eventually they uncovered that the company’s owner was misclassifying employees as independent contractors. Regional Plumbing was also accused of withholding employees overtime and not paying employees prevailing wages. The Department claimed that the individuals could receive up to $150,000 in civil money penalties, up to 20 years of imprisonment, and up to 10 years of probation in addition to $8,000 in restitution for wage theft.
An employee at Tender Touch Construction in New York pleaded guilty to failure to secure worker’s compensation insurance in 2017. It was reported that the investigation started when the company’s policy lapsed having been unable to provide proof of work comp after an on-the-job injury. During the investigation, labor department investigators learned that the company did not have work comp on any employees. It was alleged that the owner hired undocumented workers and had them work with no documentation or records. It was also alleged that the company would pay the workers in cash to avoid paying workers compensation. Mr. Castellanos agreed to pay more than $370,000 to New York’s Uninsured Employers Fund and face up to six months in jail.
In Beverly MA in 2017 a gynecologist was charged with larceny and conspiracy to commit larceny. The district attorney alleged the doctor employed certain nurses and paid them in cash, for services not billed to insurance. It was further alleged that this arrangement allowed the doctor to circumvent insurance company billing practices, and that he was more concerned about payment than patient care. His arraignment is set for June 2017.
In April 2017 The Pennsylvania Attorney General’s Office announced that a couple was charged with failing to secure worker’s compensation insurance. Gitomer Construction Company was incorporated in 2011 and provided framing services primarily to residential contractors. However, the company never secured workers’ compensation insurance and did not file employer tax withholding forms with the state. Gitomer Construction was automatically dissolved in 2014 for failing to file tax returns. In 2014 the owner of the Gitomer Construction, Ms. Gitomer, gave a false verbal complaint that the company did not have any hired help. The Attorney General office also alleged that Ms. Gitomer "took steps to conceal her knowledge of the company’s unemployment insurance obligations." The pair is scheduled to appear before a district magistrate at the end of the month.

Legal Protections for Homeowners

The legal protections available to homeowners vary based on the terms of their contract and the extent of their rights under their state’s laws. Most contracts require the contractor to provide a warranty for certain aspects of the work, and even those that do not require a warranty establish an implied warranty as a matter of law. For example, Florida law states that all construction contracts contain an implied warranty that a contractor will construct the home in a good and workmanlike manner, in accordance with all accepted building codes, and using materials of a good and workmanlike kind.
If a contractor breaches an express or implied warranty, a homeowner can sue for breach of contract asking for repairs to the defect, a replacement, and, if the defect is significant enough, money damages .
If the breach amounts to fraud, the homeowner may also sue for fraud. Florida law outlines the elements of fraud as follows: (1) a false statement concerning a material fact that is reasonably believed to be true, (2) reliance by another party to his detriment, and (3) a clear and definite intent by the party making the representation to induce the other to act, to refrain from acting, or to be induced so that he may, in fact, suffer injury or loss.
In most cases, fraud or misrepresentation in the context of a construction contract will result either in a breach of the express or implied warranties or may also be actionable for fraud. Claims for violations of the Home Construction Trade Practices Act provide another remedy for a homeowner.

Avoiding Criminal Charges as a Contractor

Regardless of the legal issues that may exist, sometimes it is best for businesses and contractors to handle their challenges without any civil or criminal legal implications. For example, a contractor who has been accused of abandoning a job might be faced with a criminal charge of desertion of duties. A contractor who has been accused of defrauding consumers may find themselves in the local civil court or in criminal court for their behavior as well. Both a civil and criminal charge will impact business as usual. The goal of any business should be to avoid civil or criminal charges entirely. These are a few best practices that may help prevent criminal charges from being filed against a contractor.
A company or contractor can keep their books in order for accounting and tax purposes. It may seem like a lot of overhead to keep good books, but it is essential that you pay taxes on time and in the correct amount. The IRS can audit your business at any time and can impose high penalties for any omissions that they see as deviation from the law. IRA Tax fraud, Tax Evasion and extensive problems with your books can lead to felony tax evasion charges that can mean up to five years in jail for contractors.
Contractors should be checking to ensure that they are not subjecting their employees to wage theft. Any business that has employees must be paying overtime, back pay and other mandatory items spelled out in the Fair Labor Standards Act. Otherwise, they risk provoking a lawsuit or even a criminal investigation for wage theft. The Fair Labor Standards Act imposes strict rules regarding how employees are to be paid. Employers who have misclassified workers or failed to pay overtime are subject to class action lawsuits and investigation by the Department of Labor.

When to Get Help as a Contractor

Hiring the help of an experienced criminal attorney is essential for the contractor who suspects that they may be confronted with criminal charges. In order to ensure the contractor received representation from someone who’s more than qualified to handle their specific needs, they should explain their situation in as much detail as possible. When doing so, they also need to give information relating to any communications they’ve received from authorities and how long ago these communications were received.
Upon obtaining the contractor as a client, their attorney will be able to properly investigate the possibility of any legal charges. If found, these legal charges can often be challenged or negotiated against. This is exactly what the contractor should hope for, for without legal representation during this time, they could unknowingly put themselves at significant risk .
With the help of a criminal attorney, a contractor will have advice on how to respond to requests by law enforcement, what to expect from ongoing legal proceedings, as well as how to work with a legal counsel. Of course, part of the contractor’s duties is to comply with local laws as well as punishments decided by the court, but the guidance provided by their attorney can help them mitigate these penalties where possible.
Considering the complexity of even the most simple contractor case, going to court is not recommended without assistance from a well-practiced criminal defense attorney. When hired early on, an attorney is able to actively prepare the contractor for trial while they still have time to gather evidence and witnesses.