Federal prosecutors agreed to dismiss fraud and embezzlement charges against two owners of a construction company — though their company was convicted and ordered to pay $500,000 in restitution — in a first-of-its-kind case that could serve as a guiding tool for how prosecutors investigate union contractors who seek to evade paying union-scale wages.
Prosecutors had alleged that Christopher and Kimberly Thompson committed fraud and embezzled more than $2 million from the Massachusetts Laborers Benefit Funds when they operated a nonunion asbestos-removal company using the same resources and workers from another company they owned, which did the same work but was obligated to pay union-scale wages and benefits. In doing so, prosecutors alleged, AQE Inc. avoided paying more than $2 million to the benefit fund when workers performed union work.
The case was dismissed Tuesday against the Thompsons and their nonunion company, Air Quality Experts. In an earlier hearing, US District Chief Judge Patti B. Saris questioned whether they had committed a crime, saying the case belonged before the National Labor Relations Board. On the eve of trial in early February, prosecutors agreed to settle the case, what both sides saw as a victory.
AQE Inc., the union company, which is now defunct, will pay restitution of $500,000 to the Laborers BenefitFunds for separate charges that it failed to pay workers union wages for work that was governed by the union contract, such as when they worked in a warehouse. The disposition also settles a civil lawsuit the Benefit Funds had filed against the company.
Benjamin Wish, of Todd & Weld, an attorney for Christopher Thompson, welcomed the settlement. “As the court stated, this is a very confusing and gray area of the law, such that it should be a matter for negotiations between unions and employers, not for a criminal case,’’ Wish said.
A representative from the Laborers Benefits Fund did not return a call seeking comment.
The case involves what are called “double-breasted shops,’’ in which a company with a union contract creates an alter-ego and uses its resources to complete nonunion projects, paying workers at nonunion rates.
In earlier hearings, Saris had told the lawyers that managers are allowed to operate two companies — union and nonunion — and hire employees as long as no fraud occurs.
“It’s a highly unusual case with very difficult and murky law,’’ Saris said. “If there are gray areas, it should be the matter of collective bargaining and not something fought out through a federal criminal case.’’
At the same hearing, Assistant US Attorney Fred Wyshak, head of the public corruption unit, argued that “double-breasted shops’’ by their nature can be illegal.
“It’s the government’s position that under certain circumstances they are, and that if a company engages in certain conduct while operating a double-breasted shop, they are subject to prosecution,’’ he said.
The case could serve as a blueprint as prosecutors probe union activity and the construction industry, including investigations into extortion by union members.
Mark Erlich, who recently retired as head of the New England Regional Council of Carpentersbut still follows the construction industry, said construction companies often create an alter-ego to evade paying union dues. He has sued companies for dues payments.
Erlich is not involved in the AQE case and would not comment on the allegations. But he praised prosecutors for investigating whether unions would be cheated, saying double-breasted shops are a growing concern for unions.
“That’s historically been a strategy for union avoidance because the nonunion side grows and the union side shrinks. That’s happened in multiple parts of the industry, across the country,’’ he said.
Milton J. Valencia can be reached at milton.valencia@globe.com.
