Rewarding-Work

BY NATHAN NEWMAN

Promoting Wage Law Enforcement Policies in 2010

The problem of wage law violations and flat-out theft of wages from employees has become one of the most endemic crime waves suffered by Americans.   Workers suffer silently as their already meager wages are reduced.   Honest employers suffer as they lose out to competition willing to violate the law.  And state budgets lose out as employers fail to pay the taxes they would have owed if they followed the law.

Progressive States Network will be working with state leaders around the country to promote policies to improve enforcement of minimum wage, overtime and related wage laws in the states.  This Dispatch will highlight the chronic wage violations in the workplace, model wage law enforcement language for states to promote, messaging to support those campaigns, and specific ways such an approach has the added benefit of undercutting anti-immigrant attacks in the states.

Wage Law Violations are Endemic for the Low-Wage Workforce

This fall, one of the most comprehensive reports on these violations, Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America's Cities, was published jointly by the Center for Urban Economic Development, the National Employment Law Project and the U.C.L.A. Institute for Research on Labor and Employment.  In their survey of 4,387 low-wage workers in Chicago, Los Angeles and New York City, the authors documented how chronic these violations are:

• Among low-wage workers, 26% were paid less than the minimum wage and 76% of those working more than 40 hours were not paid the legally required overtime rate.
• Authorities estimated that full-time low-wage workers lose an average of $2,634 annually due to workplace violations, out of total earnings of $17,616.
• Of workers complaining about the problem (about one in five in the survey), 43 percent experienced one or more forms of employer retaliation, from being fired, suspended or threatened with deportation.  Others said they failed to report the problem for fear of losing their jobs.

This lack of enforcement follows decades of neglect by the federal government.   In 2009, there was only one federal investigator for every 170,000 workers, a radical decrease from one investigator for every 9,000 workers in 1941.  In fact, this year the Government Accountability Office (GAO) conducted a study finding that wage theft has not been properly investigated by the Department of Labor's Wage and Hour division for years.

Promoting Model Wage Law Policies

To address this under-enforcement problem, a number of states have promoted good enforcement policies in recent years.  The following model language primarily combines provisions from Iowa's SF 2416 (approved by its Senate in 2008), Maryland's Workplace Fraud Act of 2009 and California's Labor Code Private Attorneys General Act.  PSN has worked especially closely with the National Employment Law Project over the years in developing and supporting state wage law enforcement language in the states.

Model Language: Model Wage Law Enforcement Act

Key Provisions in the Model Language include:

Create Expansive Definition of "Employer":  A chronic problem in enforcing wage laws is legal structuring of employment relationships through independent contracting or through shell subcontractors.  This allows real control and the decision to violate the law to be made by companies that do not formally employ a person.  The key is to hold any company with authority over a person's work responsible for payment of all wages, and prevent those with such authority from manipulating corporate forms and subcontracting relationships to evade legal responsibility.  The model language creates tight definitions of independent contractor as well to give greater legal protections to more employees currently falsely classified as independent contractors.

Strengthen State Powers to Enforce Wage Laws:

• Tighten Employer Record Keeping and Employee Information:  Proving violations of the law is a challenge for the state and employees when they don't have written records of wages or of changes implemented by their employers, and where the employer fails to keep records that can provide documentation of problems.  Laws should require that employees generally be informed at the time of hiring what their wages will be, of any changes in those wages, and require employers to maintain wage records for three years.
• Increase Civil Violations Collected by State:  States should define a violation as any week when an individual employee is not paid a legally required wage, so that employers will be assessed heavier fines for chronic week-after-week violations of the law. Chronic violators of the law will face increasingly steep civil fines, thereby creating a strong deterrent.
• Strengthen Power of State Investigators:  State officials should be able to investigate employers suspected of illegal activity in the absence of a written complaint by an employee. A number of states have discovered large numbers of employers engaged in illegal activity by undertaking financial analyses that were then followed by investigations identifying failures to pay wages due to employees. By removing the requirement for a written complaint, employers will also have no reason to automatically suspect there was a complaint and try to retaliate against employees.
• Prevent Fly-by-Night Owners from Avoiding Liability for Unpaid Wages:  To ensure that employees can collect their wages, the law should allow workers to directly sue large shareholders who abuse bankruptcy laws to avoid payment.

Help Employees Enforce their Rights:

• Increase Damages collected by Employees:  Given the relatively low wages involved in many wage disputes, many employers treat the (rare) payment of damages as a cost of doing business -- a cost that is easily offset by the savings from paying sub-legal wages to employees too intimidated to come forward to demand fair wages.  For this reason, increasing damages for employees who do win in court is critical to creating an effective deterrent to illegal behavior.  To create tough deterrence, some states already require that employers caught violating the law pay double damages on top of the wages not paid, plus any legal fees incurred to collect those withheld wages.
• Prevent Retaliation Against Employees:  Beyond protecting confidentiality of complaintants where possible, states should provide for significant fines and financial damages for employers who retaliate against workers, either those who directly complained about lost wages, educated other employees about their rights, or testified on their behalf.
• Create Private Right of Action for Workers Misclassified as Independent Contractors to Enforce Their Rights:  States should explicitly give workers illegally misclassified as independent contractors the right to bring court actions and collect increased damages when such abuses occur.
• Allow Private Attorneys General to Act:  Provisions modeled on California's Labor Code Private Attorneys General Act can allow present and former employees to collect not only damages for unpaid wages, but also enforce state civil penalties, raising funds for state budgets while paying aggrieved employees twenty-five percent of the civil penalties collected.

Messaging on Wage Law Enforcement

Wage law enforcement is both needed policy and a strong political message that state leaders are upholding the law and wage standards.

Wage law violations are endemic in the low-wage workforce:  Along with documentation in the  Broken Laws, Unprotected Workers report, earlier surveys have also found pervasive violation of workers rights:

• 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 using DOL data found that 54% of contractors in the Los Angeles garment industry violated the minimum wage law.
• And in 2005, a survey of hundreds of New York City restaurants found that more than half were violating overtime or minimum wage laws.

Wage Law Enforcement Levels the Playing Field for Honest Employers:  Companies violating wage laws gain an unfair competitive advantage over employers who follow the law.   Strengthening enforcement will benefit employers who obey the law and pay their workers fairly.  Business for a Fair Minimum Wage note that higher wage standards can even boost local economies as workers spend increased wages locally.

Wage Law Enforcement is a Values Issue:  Organizations like Let Justice Roll and Interfaith Worker Justice stress that paying workers a fair wage is supported by religious and community leaders across the country.

Wage Enforcement Can Be a Revenue Raiser for Strapped State Budgets:   State governments lose billions of dollars in revenue each year by failing to enforce state wage laws.  A California Joint Enforcement Strike Force on the Underground Economy was created over a decade ago and a 2005 state labor department report found that in one year, various agencies investigating labor and pay reporting violations collected over $100 million in citations and assessments.  A February 2007 report by Cornell University researchers estimated that 704,000 of the seven million private-sector workers in New York state were misclassified as independent contractors, costing the state $175 million in unemployment insurance taxes each year. 

The bottom line is that by enforcing existing wage laws states can raise hundreds of millions of dollars in revenue, as they also raise wage standards for all workers.

How Wage Law Enforcement Counters Anti-Immigrant Attacks

For state leaders confronting attempts to scapegoat immigrant workers, increasing penalties for wage law violators across the board has been a way to undercut such rhetorical attacks.  Eliminating sweatshops generally removes most of the incentive for employers to recruit undocumented workers in the first place, making it more likely that undocumented immigrants will be hired only where legitimate labor shortages exist. Since going after employers who violate wage laws politically unites all workers, immigrant and native alike, cracking down on those employers will actually strengthen the progressive political base.

By promoting these wage enforcement laws, advocates and progressive state leaders are highlighting that only a minority of those working under illegal work conditions are undocumented immigrants. Instead, it is our nation's systematic lack of wage law enforcement has contributed to the dysfunction of our immigration system.  In fact, the denial of employment rights to such immigrants has further undermined wage law enforcement, thereby feeding more low-wage immigration.

Wage Enforcement Campaigns Have Undermined Anti-Immigrant Attacks:  Many advocates of "fighting illegal immigration" claim to be doing so in the name of helping low-income workers, yet almost none will address the pervasive theft of low-income worker wages that results from employer wage law violations. In fact, when real crackdowns on the low-wage economy are proposed, many of the supposed defenders of native workers suddenly become opponents of dealing with the problem. In recent legislative sessions, a number of states that initially debated purely anti-immigrant measures recognized that failure to enforce state wage laws is the crux of the economic problems facing workers and outraging voters.

• In Connecticut in 2007, a bill was introduced that would have made it a criminal offense to hire undocumented workers, but instead it was modified into a state law that goes after all employers who commit workers' compensation premium fraud in order to cheat workers out of benefits.
• When the Iowa Senate approved SF 2416, a bill to toughen enforcement against employers who violate Iowa wage laws, it stalled movement in that chamber of an anti-immigrant bill approved in that state's House and halted anti-immigrant legislation for 2008.
• When the Kansas House in 2008 voted to gut an anti-immigrant bill by adding provisions to severely punish employers violating wage laws and exploiting undocumented immigrants, it led to deadlock on a purely anti-immigrant bill in the state Senate that lacked those wage enforcement provisions.

Why E-Verify is a Bad Alternative:  Wage law enforcement is a far better alternative to imposing onerous "e-verify" documentation requirements on employers.  The U.S. Chamber of Commerce concluded that the net societal and business costs of implementing E-verify just for federal government contractors alone would be $10 billion a year, to say nothing of all employers.  Corporations that have tried to implement E-Verify have found it to be extremely faulty and the process uneven and counter-intuitive, which is why 99% of businesses have declined to participate. 

And E-verify would not prevent employers from hiring undocumented immigrants. A study by the Congressional Budget Office found that mandatory implementation of E-verify would lead more companies to bypass the unwieldy system and enter the underground economy. This would result in a cost of more than $17.3 billion over ten years of unpaid Social Security taxes.

So fully enforcing existing wage laws is a far better approach to eliminating the underground economy, raising wage standards for all workers in our economy, and improving the economic competitiveness of companies that obey the law.

Building Wage Law Enforcement Campaigns

There are a few key resources and organizations supporting wage enforcement campaigns, including:

• National Employment Law Project (NELP) - Enforcement of Workplace Standards
• Interfaith Worker Justice - Thou Shalt Not Steal - A Toolkit on Wage Theft
• See also Domestic Workers United, National Day Labor Organizing Network, and Restaurant Opportunities Centers United for industry specific groups pursuing wage theft campaigns around the country.

For dealing with the misclassification of independent contractors, see NELP's 2009 Independent Contractor Round-Up

On the Benefits to State Budgets from Wage Law Enforcement:

• Cornell University Institute for Labor Relations - The Cost of Worker Misclassification in New York State
• California - 2006 Fraud Deterrence and Detection Activities report

Using wage law enforcement to address anti-immigrant policy proposals, see:

• Progressive States Network - Wage Law Enforcement as Immigration Policy
• Iowa Sen. Joe Bolkcom - "Don't create scapegoats: Enforce wage laws for all," Des Moines Register, April 2, 2008.
• NELP - State and Local Anti-Immigrant Legislation
• Drum Major Institute, Principles for an Immigration Policy to Strengthen and Expand the American Middle Class

Research Reports on wage law violations:

• Center for Urban Economic Development, the National Employment Law Project and the U.C.L.A. Institute for Research on Labor and Employment - Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America's Cities
• Brennan Center, Unregulated Work in the Global City
• Jennifer Brand, Adding Labor to the Docket: The Role of State Attorneys General in the Enforcement of Labor Laws

Conclusion

With low-wage workers facing multiple challenges in the current economy, wage law enforcement is a critical tool in preventing illegal work conditions from further undermining their living standards.  By creating a level playing, wage law enforcement creates a fairer workplace for both workers and honest employers.   And by undercutting the underground economy, it can raise revenue for state budgets severely under strain.

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