At a press conference Tuesday, Hennepin County Attorney Mike Freeman announced that husband-and-wife team Leroy and Joyce Mehr had been charged with three felony offenses in connection with their now closed construction business, Merit Drywall.

They are facing two counts of insurance fraud and one count of theft by swindle in a scheme they used to avoid paying for workers’ compensation insurance required to protect injured workers.

“This kind of scheme, unfortunately, we see far too often,” Freeman told the media. “That is, people who are employees for which a corporation is required to purchase workers compensation coverage to the insurance companies are instead mischaracterizing and fraudulently suggested they work as independent contractors.”

Joining Freeman at the Press Conference were representative from the Minnesota Building and Construction Trades Council and the Carpenters union, who aided the investigation. Last year the Building Trades launched an initiative to combat wage theft, exploitation, and labor trafficking. 

“Wage theft, insurance fraud and worker classification fraud have no place in Minnesota. It is critical that the legal system hold those who are accused of these crimes against construction workers accountable,” said Jessica Looman, Executive Director of the Minnesota Building and Construction Trades Council, “We want to thank the Hennepin County Attorneys office, the Minnesota Department of Commerce Fraud Bureau, and the Building Trades Unions in our state for protecting workers and our industry.” 

Burt Johnson, General Counsel for the North Central States Regional Council of Carpenters, which assisted with the investigation, said “criminally low” construction bids are frequent and concerning. 

“For the developers and general contractors, they receive bids from all kinds of contractors, contractors that are violating the law … and contractors that are abiding by the law and paying their workers on the books,” Johnson said. “For them, if you look at the bid and you see that the low bidder is hundreds of thousands of dollars cheaper, you should be asking more questions.”

According to the criminal complaint, the two defendants, Leroy and Joyce Mehr misclassified workers as independent contractors to avoid paying more than $300,000 in workers compensation insurance premiums. An investigation by the Minnesota Commerce Fraud Bureau revealed that the defendants set up shell companies for the employees, and misrepresented the employment relationship to their insurance company.

The criminal complaint stated

“During the period of April 1, 2016, through April 1, 2017, the defendants engaged in an ongoing elaborate swindle to misclassify employees as independent subcontractors which evaded many legal obligations they would otherwise have towards those employees. At the time the defendants submitted their application for workers’ compensation on February 5, 2016, and at the time of Federated Insurance’s audit on June 1, 2017, the defendant materially misrepresented the employment relationship to the insurance company. The defendants’ actions resulted in them avoiding approximately $309,207.61 in insurance

Premiums.”

On February 5, 2016, the couple submitted a worker’s compensation application to their insurance provider, Federated Insurance. Four months later, Federated Insurance audited Merit Drywall to review their workers’ compensation policy. Joyce Mehr provided Federated with records that falsely claimed that their business had 11 employees, while dozens of workers were independent subcontractors, the complaint continues.

The Commerce Fraud Bureau started investigating Merit Drywall and used two confidential informants. The first informant noted that he did not need to provide identification or personal information prior to starting work with Merit Drywall and was always paid in cash. The second informant reported that Joyce Mehr set him up with a company email address and created a business for him by registering a company name with the Minnesota Secretary of State, the complaint says.

According to the Secretary of State, the Commerce Fraud Bureau found three companies that Joyce Mehr had paid for online in her name, including the second informant’s. On August 1, 2017, the Commerce Fraud Bureau executed a search warrant at Merit Drywall’s headquarters. Agents were unable to find contracts between Merit Drywall and many of the purported independent contractors. What was found were invoices from employees who Merit Drywall classified as independent contractors, the complaint continues.

Analysis of Merit Drywall’s payroll showed that subcontractors were not independent contractors as many of those were actually full-time employees paid hourly or on a piece-work basis. A regional underwriter for Federated Insurance determined that Merit Drywall’s premium should be $310,000 more.

“The case against the former owners of Merit Drywall shows the strength of the construction community when we stand together and demand action when workers complain of wage theft and worker misclassification,” said Dan McConnell, Business Manager of the Minneapolis Building and Construction Trades Council. “Our members have lost their patience with those developers and general contractors who have profited from schemes like the one alleged here. Together, the Building Trades Unions will do everything we can to continue to assist in ensuring that those who are complicit in the exploitation of workers are held accountable.” 

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