Misclassified Architects Lead to Fraud & Negligent Charges

By: Werner Sabo

Many licensed professionals can get in trouble if they don’t properly bill for their time, with one potential minefield involving misclassification of workers. In Orentreich v. John B. Murray Architect, LLC (2020 N.Y. Misc. LEXIS 5645 (Sept. 8, 2020), the owner alleged that the architectural firm was involved in a scheme to defraud the owner out of some $1 million.

One person was allegedly billed as a “senior architect” at $250/hr, while a second person was billed at $200/hr as an “architect.” According to the complaint, neither were licensed architects. The complaint alleged violations of the Racketeer Influenced and Corrupt Organizations Act (18 USC §1962(c)), fraud, breach of contract, accounting malpractice and negligent supervision.

It is important to note that this opinion is an interim one based on certain requests for discovery and did not discuss whether these allegations were true or not. What is noteworthy is that this type of billing issue is probably more common than one would imagine and affects not only architects, but also engineers and other licensed professions.

If a firm bills out one of its employees as an architect when that person is not licensed as an architect, the client has most likely been overbilled. It is a common practice when negotiating a contract to list categories of personnel (e.g., “Principal,” “Senior Architect,” “Designer,” “Engineer” and so forth) along with an hourly rate for each category. This provides flexibility for the firm so that different people can be assigned to the project without changing the contract every time someone comes or goes. However, this practice makes it incumbent on the firm to assure that every person is properly categorized for billing purposes. The firm needs to verify that each license is current; it is not unheard of for an individual to forge credentials to give to the firm. If an architect’s license lapses for whatever reason and that license cannot be immediately reinstated, then that person should be reclassified in future billings.

While this case has not had a final decision rendered, one can see that the stakes for the firm are very high. Not only might the firm have to refund most or all of the fees paid by the client, there could also be additional monetary penalties, such as punitive damages, if fraud is established. Insurance likely will not cover the attorneys’ fees or other costs involved in such a case. In addition, the firm’s reputation may suffer. Finally, the licensing board that provides the license to the firm may want to investigate, leading to potential penalties and prior clients coming out of the woodwork to see if they have also been improperly billed.

Practice Tip: Firms must assure that every person listed in the contract is properly categorized. The firm should verify that each license is current, preferably directly with the licensing board. Verification should be done at the outset of the project and annually thereafter. If an architect’s license lapses for whatever reason and that license cannot be immediately reinstated, then that person should be reclassified in future billings.