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Cracking Down on Wage Law Violations

One thing you can say-- the current debate on immigration is at last focusing attention on the pervasive violations of our labor laws in sweatshops and other parts of the low-wage economy. But instead of getting national legislation to shut down sweatshops around the country, we are getting policies to punish some of the victims -- while leaving the underground economy that breeds undocumented immigration largely in place.

The facts of illegal violations of our wage laws have been clear for years:

  • The U.S. Department of Labor found in 2000 that 60% of US nursing homes routinely violated overtime, minimum wage, or child labor laws.
  • Another 2004 study from DOL data found that 54% of contractors in the Los Angeles garment industry violated the minimum wage law.
  • And last year, a survey of hundreds of New York City restaurants found that more than half were violating overtime or minimum wage laws.

  • Read those sentences again. A MAJORITY of businesses in these industries and other low-wage sectors routinely disregard our wage laws. If we are going to hear about "respect for the law," ending this pervasive illegal conduct by employers should be the focus. And while some sweatshop workers are undocumented, the majority are not; so even if you eliminated every undocumented worker from the economy, the sweatshops would remain.

    Conversely, eliminate the sweatshops and most of the incentive for employers to recruit undocumented workers disappears, a point we have made, but also one that the Bush administration endorsed in their recent budget document, which argued, "[L]abor standards enforcement efforts...will help to reduce the economic incentive for such illegal employment practices and will, in turn, help reduce illegal immigration." The problem is that while this rhetoric is nice, the reality is that the federal government has let the minimum wage rate decline to an abysmally low level at $5.15 per hour, provides few enforcement dollars, and applies minor punishments to offenders even if they get caught.

    States have begun raising the minimum wage rate across the country, but the next step is for states to pass comprehensive enforcement measures to make sure workers actually get paid. As this Stateside Dispatch will detail, a number of states and local governments have created new innovative approaches to enforcing wage standards. Unfortunately, no state puts all the pieces together for a comprehensive enforcement package, which is what is needed to make serious inroads against the pervasive violations of wage laws in our states.

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    Increasing the Punishment for Violations

    In practice, the punishment for violating the minimum wage law and getting caught is usually at worst just paying what is owed or maybe a small fine on top of that. Compared to the profits from underpaying the rest of their employees, such tiny fines in the few instances where a business get caught is just a cost of doing business.

    So what have states and local governments done to increase punishments?

  • Increase Financial Penalties: A number of states have increased penalties for violations of the law, with New York State establishing one of the toughest penalties � up to a $20,000 fine for repeat wage law violators. New York, Massachusetts and a number of other jurisdictions also require that employers caught violating the law must pay any legal fees of employees plus three dollars for every dollar they illegally failed to pay them�a much stronger incentive for those employees to bring suit against their employers.
  • Deny Licenses and Public Funds to Repeat Violators: Right now a range of minor criminal offenses by its owners or managers can deny a business an operating license or a public contract, yet repeat violators of wage laws continue to receive operating licenses and public contracts from most jurisdictions. However, responsible contracting laws in a few states and cities now deny public contracts to wage law violators (see Los Angeles for one example), while San Francisco authorizes city agencies to revoke permits or licenses for businesses that violate its recently enacted city minimum wage law.
  • Apply Criminal Sanctions to Wage Law Violators: Theft should be considered theft�and a number of jurisdictions are increasingly applying "theft of wages" statutes to force employers to obey wage laws�or face arrest and jail. In 2002, the police department in Austin began threatening employers with arrest if they did not properly pay their employees. Other jurisdictions, including Denver, Phoenix and Santa Cruz have followed. Many states already have "theft of wages" statutes on the books, so that all that is needed is to enforce these provisions. See this report on how to use such statutes or add them to your criminal code.

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    Expanding Funding for Enforcement

    However, even the best laws are ineffective if no enforcement dollars back them up. States need to both expand their own budgets for enforcement and encourage other groups to step up to help low-wage employees bring actions against wage law violators. Steps should include:

  • Expand State Enforcement Budgets: Especially if states increase fines for wage violations, an initial increase in budgets for employment divisions could easily pay for itself through fines collected from lawbreakers. And if we took seriously the fact that literally billions of dollars are stolen from workers each year, our criminal justice budgets should be allocating far more resources to "theft of wages" actions against sweatshop owners.
  • Unleash Local Governments: Local governments can play a key role in raising and enforcing wage laws, but many state laws are unclear on whether cities and counties can take more aggressive action against wage law violators; for example, Santa Fe had to pursue a drawn-out court case to affirm its legal powers to raise its local minimum wage and toughen enforcement. States should clarify that local governments have full freedom to apply additional sanctions beyond state law against wage law violators.
  • Fund Wage Actions by Legal Services: Many legal services agencies work with exactly the populations suffering these wage violations, yet often lack the funding to assist them. And federally-funded legal services attorneys are limited by Congressional restrictions in representing certain immigrants, filing class action lawsuits, supporting union organizing rights, or collecting attorneys fees from losing defendant companies. So state funding is crucial in supporting legal services organizations that can effectively help their clients. And again�initially increasing funding for state legal services would lead to a virtuous cycle of additional enforcement dollars as legal services groups collect attorneys fees and move on to help additional clients.
  • Enact Private Attorneys General Statutes: Unions and other workers advocates can be encouraged to help bring actions against wage law violators through laws modeled on California's Labor Code Private Attorneys General Act, which allows present and former employees to collect not only damages for unpaid wages but also twenty-five percent of the civil penalties that are normally paid to the state as well. This law encourages private organizations to devote resources to enforcing state labor laws � and has the additional bonus of increasing revenue for the state when those private lawsuits are successful, again adding additional funds for enforcement.

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    Encouraging Employees to Bring Complaints

    While government or other groups occasionally discover labor law violations, most enforcement of the law is dependent on workers themselves coming forward. Given that this worker population often lacks education on their rights and is afraid to speak out for fear of retaliation, states need to strengthen laws that encourage these employees to come out of the shadows and report wage law abuses. Reforms should:

  • Promote Employee Education on Rights: Many states require employers to prominently post employee rights under the law, but it is also important that they be posted in multiple languages. Fines should be stiffened for failure to post these notices. Additionally, a number of states give outside labor advocates access to non-work areas of employer property to educate employees on their rights. Massachusetts, California and a few other states give farmworker advocates access to agricultural fields; state including California, Colorado and New Jersey require mall owners to give union organizers, as well as others, access to sidewalks, parking lots and interior public spaces. And the City of Hartford enacted a law giving the general public access to outside areas of certain large retailers. States should enact broader access laws to assure that labor advocates can access employer property to educate all workers on their rights, since such worker-to-worker education is the most effective means to encouraging workers to come forward.
  • Encourage Anonymous Complaints: Since workers are often afraid to file complaints in their own name, laws should allow for anonymous complaints by employees, which in turn should trigger investigations of all wage records of an employer in order to shield the original complainant from identification. An example is the San Francisco minimum wage law which allows groups that do not formally represent underpaid employees at a business to file complaints over minimum wage violations and instructs the city to keep the identity of any affected employee confidential to the maximum extent possible.
  • Prevent Retaliation and Protect Employee Free Speech: For workers who do file formal complaints or lawsuits against their employers, or just discuss problems with their fellow employees, the law should vigorously protect their free speech and severely punish employers who retaliate against them. State whistleblower laws can also be strengthened to protect employees when they report illegal wage violation. Some of the strongest language is contained in California's whistleblower law and some other state statutes which protect any employee with a "good faith belief" that their employer is violating the law. The financial penalties for retaliation against employees need to be so severe that employers are effectively deterred from trying to fire employees who exercise their rights.
  • Protect Immigrants' Ability to Hold Employers Accountable: The hard reality is that employers like hiring undocumented immigrants because they have fewer rights under the law, especially against retaliation. To end this incentive for employers to hire undocumented workers, California and New York have clarified that all workers, regardless of immigration status, have full protection against retaliation, since, in the words of New York's high court, lessening the labor rights of undocumented workers makes "it more financially attractive to hire undocumented aliens [and] would actually increase employment levels of undocumented aliens, not decrease it.�

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    Holding Employers Accountable for "Fly-by-Night" Operations

    Special measures are needed to target employers who evade labor laws by shifting employees into small fly-by-night subcontractors or using other means to escape formal legal responsibility. Often employees are cheated of wages but find they don't have a legal employer or that their actual legal employer has declared bankruptcy to avoid liability, even as the main company that benefited from their exploitation is immune from lawsuit. To deal with this problem, states need to:

  • Make Businesses Liable for Wage Violations by Subcontractors: New York and California have both enacted laws making garment contractors liable for wage and hour violations by their subcontractors. This approach should be extended to all industries with pervasive wage violations where subcontractors are used. Employers should also be required to disclose all subcontractors that they use and to certify that they have made good faith efforts to ensure that their subcontractors comply with applicable workplace standards laws.
  • Hold Main Shareholders of Private Companies Liable: To prevent manipulation of corporate and bankruptcy laws, the main shareholders of any closely-held private corporations should be personally liable for the wage claims of employees under the law. The best model is New York's Corporation Law, which holds a private company's ten largest shareholders personally liable for wage claims by employees, preventing shady businessmen from dissolving companies and reforming them under a different name to escape liability.
  • Tighten Definitions of "Independent Contractors": Companies often try to escape legal liability by illegally defining their employees as independent contractors. It should be a criminal offense to misclassify a worker for the purpose of denying him or her employment-based benefits. Misclassified workers should also be authorized to recover punitive damages and any wages or benefits lost as a result of willful misclassification. New York has already made violations of wage and hour laws a misdemeanor, and a second violation within six years a felony and other states have tightened independent contractor rules in a variety of ways to protect employee rights.
  • Discourage Temporary and Day Labor Work: Encouraging employers to hire day labor through hiring halls and better regulating day labor service agencies is the key to discouraging day labor abuses. More broadly, legislation should require that temporary workers get the prevailing wage and similar benefits to permanent employees in their industries to ensure that they are employed for their intended purpose � meeting short-term staffing needs � and not as a means of limiting their legal rights and wages. Since 2002, Washington State has required equal benefits for permanent temps working for state government agencies and a proposed federal Employee Benefits Protection Act is a useful model for state legislation.

  • Conclusion

    None of these measures by themselves will shut down the sweatshops across the country, but a broad package of these reforms would begin the process of putting unscrupulous employers out of business and ending the wage theft from so many of the working poor in our society.

    More Resources

    Cracking Down on Wage Law Violations

    National Employment Law Project (NELP)- variety of projects dedicated to wage law enforcement
    List of Organizations involved in wage law enforcement
    AFL-CIO Stop Sweatshops
    San Francisco Minimum Wage Law: Good model law for enforcement mechanisms

    Increasing the Punishment for Violations

    Los Angeles Responsible Contractor Ordinance
    Using Criminal Theft of Service Laws To Enforce Workers' Right to be Paid (NELP)

    Expanding Funding for Enforcement

    Brennan Center: Access to Justice Project
    California's Labor Code Private Attorneys General Act

    Encouraging Employees to Bring Complaints

    California Farm Worker Solicitation by Non-Employee Organizers regulations
    CA SB 1818: Law protecting labor rights regardless of immigration status
    National Whistleblower Center
    Government Accountability Project: Whistleblower Support Network

    Holding Employers Accountable for "Fly-by-Night" Operations

    Drafting Day Labor Legislation: A Guide for Organizers and Advocates (NELP)
    Combating Independent Contractor Misclassification in the States (NELP)
    North American Alliance for Fair Employment (NAFFE)


    Eye on the Rig