This is the first of two posts on wage theft and how it hurts workers, families, and communities. For the next post on wage theft and forced arbitration, check this space on Wednesday, July 20.
Wage theft is a massive crisis for workers, but federal, state, and local agencies have failed to address the problem. Wage theft occurs in many forms: Paying wages lower than the minimum wage, not paying overtime wages, coercing employees to work "off the clock" before or after shifts, prohibiting workers from taking legally mandated breaks, confiscating tips, and more.
A 2021 report from the Economic Policy Institute found that workers are deprived of an estimated $15 billion per year through minimum wage violations alone, but state and federal enforcement only recovered $1.7 billion in unlawfully withheld wages between 2017 and 2020 — only 2.8 percent of the estimated $60 billion stolen over that four-year period. The true magnitude of wage theft is almost unknowable because most wage and overtime violations go unreported.
Workers of color, immigrants, and women in low-wage sectors are especially likely to be victims of wage theft. An investigation by the New York Attorney General, for example, found that two home health care companies had cheated 12,000 aides out of nearly $19 million. In New York, 60 percent of home health aides are immigrants, 90 percent are women, and 18 percent live below the poverty line.
To adequately punish and deter unlawful wage and overtime practices, state attorneys general and district attorneys must rigorously investigate and prosecute wage theft as a criminal offense.
The Current System Is Failing Workers
The federal investigation and penalty regime is abysmal at incentivizing employers to comply with the Federal Labor Standards Act (FLSA), which creates federal requirements on the minimum wage and overtime pay. Unfortunately, the penalty scheme outlined in the law has done little to deter wage theft and other illegal activity.
First, the probability that an employer will be investigated by the U.S. Department of Labor (DOL) is only 0.5 percent. When unlawful practices are detected, DOL may impose a civil fine of up to $2,203 for willful or repeated violations of the FLSA's wage and overtime provisions, a slap on the wrist for large employers. In comparison, Australia's Protecting Vulnerable Workers Act of 2017 includes penalties of up to $630,000 per violation for companies and $126,000 for individuals.
Additionally, violations largely go unpenalized. A 2020 report from the Peterson Institute for International Economics explained that of nearly 150,000 wage and overtime cases between 2005 and 2020, only 9 percent were repeat violations, and only 2 percent of the first-time violations were considered willful. That means the vast majority of violations do not result in any monetary penalties because DOL only has authority to impose fines on those who repeatedly or willfully violate the FLSA. In cases that do involve willful and/or repeat violations, DOL did not require employers to pay any penalty 41 percent of the time.
The FLSA does have a section establishing criminal penalties for repeat violators — a maximum fine of $10,000 and up to six months imprisonment — but the Peterson Institute report found only 10 criminal convictions between 2005 and 2016.
Given the failure of state and federal agencies to detect and penalize wage theft, employees may also try to recover stolen wages through private actions. Private class and collective actions, however, are equally as ineffectual at securing unpaid wages for victims. Forced arbitration and class action waivers in employment contracts often create insurmountable barriers to justice. A miniscule fraction of workers subject to forced arbitration will ever file a complaint and pursue it to resolve wage and hour violations. Stay tuned to this space for more on this problem soon.
States Taking the Lead
A handful of states have begun treating wage theft as a crime rather than a civil violation. In these states, criminal convictions for wage theft come with hefty fines, asset seizure, prohibitions on competing for government contracts, arrests, and potentially jail time.
In December 2017, the New York State Attorney General and several district attorneys from New York City announced the Wage Theft Initiative, a collaborative effort to combat wage theft and other economic crimes, such as fraud and worker exploitation. Minnesota's attorney general's office established a Wage Theft Unit in 2019, and the state's legislature passed a law that specifies criminal charges with jail time and fines of up to $100,000. In Washington, D.C., wage theft is a misdemeanor that carries a sentence of up to 90 days in prison, in addition to a maximum $10,000 fine for each affected employee.
These efforts to address wage theft increase the likelihood that violations of applicable wage and overtime laws are detected and investigated, escalate the costs of the violations, and deter bad behavior. For example, the prevalence of minimum wage underpayment is significantly lower in states with greater penalties.
Boosting state and local enforcement also shifts the burden off workers to file complaints or initiate collective actions against their employers. Litigation and arbitration are expensive and time-consuming processes, and low-wage workers often cannot use them to recover their stolen wages.
Wage theft is a crime against workers that deprives individuals and families of their livelihoods. State attorneys general and district attorneys must deploy their resources to investigate, prosecute, and punish wage theft.
To find detailed information on incidents of wage theft and other crimes against workers, visit CPR's first- and only-of-its-kind Crimes Against Workers Database. To learn more about the adverse impact of forced arbitration on low-income workers and workers of color, read CPR's February 2022 report on the subject.