Who's Hurt When Wage Laws Aren't Enforced? Everyone

The push for fair wages continues on. Local minimum wage movements and larger national coalitions like the Fight for $15 show no sign of slowing down, especially with the 2018 midterms — and the possibility of Congress raising the federal minimum wage for the first time in 10 years — looming.

An estimated $15 billion a year is siphoned from workers through wage theft practices.

Though discussions about fair wages and wage stagnation are important, many advocates have overlooked an obstacle to income equality far more pernicious than the average politician or pundit. Namely, the poor enforcement of minimum wage laws.

Consider this: If the U.S. Department of Labor and state labor agencies are unable to ensure all workers are paid at least the federal minimum $7.25 an hour for their efforts, how can we trust that workers will see $15, $12, or even a $10 an hour federal wage floor?

The truth is, many workers are being cheated out of the current federal minimum wage due to lax enforcement of labor laws, according to a recent nine-month investigation by POLITICO. An estimated $15 billion a year is siphoned from workers through wage theft practices. And the vast majority of these stolen wages are never returned to the workers who rightfully deserve them, and instead benefit unscrupulous business owners who evade wage law enforcement.

What, exactly, is wage theft? And how much damage can the practice do to workers — and to our country as a whole — if allowed to continue unchecked?

Wage Theft in a Nutshell

Wage theft is, quite simply, the practice of employers illegally withholding money or benefits that their workers have rightfully earned.

One of the things that makes fighting wage theft so difficult is that the practice takes so many different forms, according to Christina J. Thomas, a Morgan & Morgan wage and hour attorney who has litigated hundreds of cases involving wage theft, overtime violations, employee benefits disputes, and more.

“People who are earning close to the minimum wage — as well as women, people of color, and particularly women of color — are the biggest victims when it comes to wage theft,” says Thomas.

“One of the ways wage theft occurs is a straightforward violation. That’s when an employer doesn’t pay an employee for the work he or she performs, like if a worker doesn’t get paid overtime premiums when working over 40 hours a week,” explains Thomas. “Or a server who has their tips taken away from them, resulting in them making under the minimum wage.”

She adds, “Another way wage theft occurs is the misclassification of workers. That can take the form of employers misclassifying blue collar workers as white collar workers, which deprives them of certain benefits such as overtime. Employers can also misclassify workers as independent contractors, and by doing so, they think they don’t have to pay out benefits like overtime premiums or minimum wage to them.”

The misclassification of independent contractors in particular has come under fire in recent years by advocates who believe these workers are being exploited. Case in point: A 2018 report by MIT found that Uber and Lyft drivers make a median profit of only $3.37 per hour, and 30 percent of drivers are actually losing money after taking car expenses into accounts.

Although wage theft is astonishingly common in all industries and income levels, it disproportionately hurts people at the lower end of the earning capacity who live paycheck to paycheck in order to pay their bills, rent, and groceries.

“People who are earning close to the minimum wage — as well as women, people of color, and particularly women of color — are the biggest victims when it comes to wage theft,” says Thomas.

Most importantly, wage theft adds up. There is a misconceived notion of wage theft as a few pennies skimmed off each paycheck, but for businesses routinely engaging in wage theft, cheating workers amounts to major profits.

“I get clients all the time who say ‘Is it really worth it to bring a claim? It’s only a couple of dollars,’ says Thomas. “Here’s what I tell my clients: Let’s say we have a company that has 10,000 employees making the federal minimum wage. They are misclassifying 7,000 of those employees, classifying them as white collar when they’re actually blue collar workers and should be entitled to an overtime premium for all hours worked over 40.”

“If a person earns $500 per week for a 50 hour work week, and is classified as 'exempt' from overtime, then that person is losing a minimum of $5.00 per hour in overtime premiums each week. That's $50 per week, or $2,500 per year, in lost wages for that one worker.”

She adds, “Multiply that by 7,000 workers for the three-year statute of limitations period under the FLSA. The company is now siphoning $52,500,000 in wages that should be going to its workforce. And I’ve seen corporations do this on a much larger scale.”

Are you a victim of wage theft? Have you been wrongly denied overtime pay or minimum wage by your employer? Our attorneys can help you file a lawsuit to recover compensation for your unpaid wages. Fill out our free, no-risk case evaluation form today.

Federal and State Labor Agencies: Understaffed, Underfunded, and Sometimes Non-Existent

Clearly, wage theft is one of the most commonly perpetrated crimes against workers in our country, so you would think a good deal of capital would be put towards restricting it.

However, one of the reasons that wage theft is so rampant and pervasive in our country is the sheer lack of resources dedicated to enforcing minimum wage laws, let alone recovering back wages.

The majority of states in the U.S. have fewer than 10 investigators per state agency. Only two states — California and New York — have 100 or more investigators. Worse yet, seven states have no state labor agencies whatsoever, according to POLITICO’s investigation. This leaves workers in states like Tennessee, Alabama, South Carolina, Georgia, and Florida with even extremely limited options for pursuing stolen wages.

Although workers can always take their claim to the federal DOL, that agency also suffers from a lack of resources, and the number of investigators in its workforce has only shrunk since 1948, while the U.S. population has exploded in comparison. As a result, the DOL is selective about which cases it takes on, and generally picks the cases against large companies with potential for big payouts, according to POLITICO.

Even workers who live in states with robust state labor agencies may not recover the money owed to them, because by the time the claim is processed, the offending employer has found a way to evade enforcement.

What Can Be Done to Improve Future Wage Law Enforcement?

It may seem like the solution is obvious: give labor agencies more funding. But it’s not as simple as that, says Thomas.

“State [labor] agencies are underfunded and overworked, like every state government agency,” she said. “But even if we were to pump trillions of dollars into that enforcement mechanism tomorrow, I still don’t think that it would go below the tip of the iceberg on wage theft.”

Approximately 41 percent of the wages that employers are ordered to pay back to their workers aren’t recovered, according to POLITICO’s survey of 15 states.

The issue is systemic, and takes more than just increasing our current standard of enforcement to stop it.

A lack of labor agency resources is only one piece of the puzzle when it comes to wage law enforcement. Even in the cases where workers prevail against their employer after filing a claim with a labor agency, they may not see a penny of the back pay owed to them. That’s because agencies don’t have the authority to force an employer to pay back wages. They can only suggest it, unless the agency decides to bring a government lawsuit, which is rare.

In addition, businesses in certain service industries are savvy to wage theft enforcement attempts, and know how to avoid consequences when caught in the act. Some use shell companies, and others close down shop and reopen under another name. Even if businesses are eventually forced to cough up the money they owe to their employees, unless a lawsuit is filed the business is only required to pay back wages to the employee without any penalties.

This effectively incentivizes businesses to continue cheating employees, because the consequences are so mild when they are actually caught.

It’s unsurprising then that approximately 41 percent of the wages that employers are ordered to pay back to their workers aren’t recovered, according to POLITICO’s survey of 15 states. And that sends a bad message to both workers and employers.

“When workers cannot collect, it sends the message that such claims are not worth pursuing, that scofflaw employers can profit illegally with impunity, and that the deck is stacked in favor of the relatively rich and powerful,” Public Justice Center attorney Sally Dworak-Fisher said in a POLITICO interview.

Fortunately, a number of innovative solutions have been proposed by labor advocates in an attempt to eliminate the business incentive to commit wage theft. These include increased penalties, as well as teaching workers how to spot wage theft and empowering them to report it.

Increasing Liquidated Damages in Lawsuits

Workers have a third option beyond labor agencies when their wages are stolen: a private attorney. In many cases, a lawyer can make a big difference by not only recovering a worker’s back pay successfully, but by also holding the employer accountable for their actions through additional damages awarded in a lawsuit.

Liquidated damages, or “double trouble damages,” are a punishment for employers who pay wages late in litigation. If a company underpays its workers by $100,000, an attorney could recover an additional $100,000 for the workers affected through liquidated damages.

“Under the Fair Labor Standards Act, liquidated damages are available only to the prevailing party in a lawsuit. If you go to the agency, and the agency finds a violation, then the agency can negotiate with the employer to recover your back wages for you,” says Thomas. “They generally don’t cover liquidated damages. If you don’t file a lawsuit, then in most cases, liquidated damages are off the table.”

Liquidated damages, or “double trouble damages,” are a punishment for employers who pay wages late in litigation.

“So attorneys can get back wages and liquidated damages, and that’s just federal laws,” she added. “There are state laws that, in some cases, allow for additional damages and other punishments against employers who repeatedly commit wage theft.”

Some states want to make liquidated damages an even stronger deterrent for businesses tempted to cheat their workers’ wages. In Massachusetts, for example, violations of wage-and-hour laws are subject to mandatory treble liquidated damages (triple the damages) if the plaintiff prevails in the case, and the defendant must pay the plaintiff’s attorneys fees as well.

Removing Forced Arbitration Clauses

Forced arbitration has been singled out as a hurdle to workers’ rights in a number of instances, including the sexual harassment cases in the wake of the #MeToo movement. Arbitration is more widespread than you might think.

Low-wage workers — particularly those working in the “gig economy” — are disproportionately affected by forced-arbitration clauses.

Almost every employment contract has, buried within it, a forced arbitration clause. Many employees are unaware of what they’re signing, but they’re essentially giving up their right to pursue legal action against their employer in court. Instead, they must resolve the dispute in a private hearing.

Low-wage workers — particularly those working in the “gig economy” — are disproportionately affected by forced-arbitration clauses, and companies like Handy and Uber have come under fire for their alleged abuse of arbitration clauses against independent contractors, according to a report by City Lab.

While businesses praise mandatory arbitration as a quicker, more efficient, and less costly alternative to trying a case before a judge or jury, arbitration is stacked against the employee in many ways. For one, arbitration decisions are typically immune to appeal. The standards are high. If the results of the arbitration are unfair, employees usually don't get a second chance or the opportunity to take their case to trial.

Additionally, the arbitrators, who are privately-paid judges, are generally picked by and paid for by the employer, and rules that allow workers to collect and present evidence in court don’t always apply in arbitration proceedings, according to the Employee Rights Advocacy Institute For Law & Policy.

Worse yet, arbitration agreements are conducted in private, and decisions made in arbitration aren’t reviewable by courts or the public. The arbitration process is ultimately designed to protect the reputation of the company and keep other workers — as well as potential investors — in the dark about the company’s wrongdoings, whether that involves workplace sexual harassment or wage violations.

All of this makes it even harder for employees to recover their stolen wages and have their fair day in court. In order for enforcement to be truly effective, summary judgement — a process that allows a party to request a ruling on a case before trial — should be dispensed, and the case should be allowed to go to trial, according to Thomas.

She adds, “If the defendant doesn’t want to try the case, or if the plaintiff doesn’t feel comfortable trying the case, then just settle.”

Unfortunately, arbitration clauses could become even more iron clad under the current administration. The U.S. Supreme Court’s impending interpretation of the Federal Arbitration Act could be applied to employment contracts in a manner that hurts employees trying to challenge wage disputes in court, according to The Atlantic.

Educating & Empowering Workers

Investigations like POLITICO’s do tremendous work illustrating how much wage theft harms Americans, particularly low-income workers, but workers’ rights education needs to go further, and start earlier, says Thomas.

“In the same way the #MeToo movement has changed the way we talk about workplace harassment, we need to be able to talk about wage theft,” says Thomas.

“The report is a good thing, and I think we need to continue to publish data like this as part of our push to educate people about workers’ rights,” said Thomas. “I don’t think we’re doing a good enough job of teaching workers — and also young people — about their rights in the workplace.”

“Almost everybody knows that they have the right to a safe work environment. A lot of people know about OSHA, because when businesses don’t follow OSHA rules, people die or get seriously hurt,” she continues. “It’s a traumatic event, and a lot of people talk about it. But wages are different. There’s no discussion about wage theft, and there’s inadequate education about workers’ rights.”

She adds, “I think we need lawyers going into high schools to tell students what some of these rights are.”

And, above all else, worker empowerment is key, especially at a time when people feel trapped and without any economic mobility. Even workers who know their rights are being violated may not feel emboldened to pursue a claim out of fear of losing their job or other forms of retaliation.

“Right now, I think people are completely isolated and afraid, and that just benefits the unscrupulous corporations. In the same way the #MeToo movement has changed the way we talk about workplace harassment, we need to be able to talk about wage theft,” says Thomas. “No one likes to talk about money, because no one wants to say how much or how little they earn. It’s embarrassing for them. They’re afraid to talk about it.”

“But people need to realize that workers do have power. Most employees feel like they don’t, but they do. And that power is greater if they’re together,” continues Thomas. “That may mean unionization, or that may mean just having a town hall meeting. It may mean staging a protest. It may even mean petitioning local government for an ordinance that requires vacation pay, like in Orlando.”

She adds, “When people get together, they can protect each other.”

Wage Theft Doesn’t Just Hurt Its Victims: It Hurts All of Us

Many believe that wage theft is an issue that only harms its victims, but that simply isn’t true: it hurts America as a whole.

“The immediate effect of wage theft is that person — that human who is doing the work — is monetarily suffering a detriment. They’re not getting what the law says they’re supposed to receive, the minimum standard,” says Thomas.

But it goes far beyond that. Smaller businesses who play by the rules and pay out fair benefits, overtime premiums, and wages have a harder time competing with those businesses that cut corners. And communities suffer as well.

"There’s a trickle down effect in communities where wage theft runs rampant that affects the local economy, property values, and schools."

“The secondary effect of wage theft is that we’re losing vast amounts of tax revenue. There’s a trickle down effect in communities where wage theft runs rampant that affects the local economy, property values, and schools,” continues Thomas. “When you have an economic depression within an area, it affects every aspect of the value of that area.”

She adds, “If folks are not able to pay their bills or their mortgage because they’re not receiving adequate wages, there’s going to be higher incidences of foreclosure. And that also lowers the property values for people who are able to pay their mortgage.”

The longer we ignore the consequences of wage theft, the more all hardworking people in our country lose a piece of the pie, one stolen penny at a time, regardless of how high the minimum wage is set.