As Democrats make raising the minimum wage a centerpiece of their 2018 campaigns, and Republicans call for states to handle the issue, both are missing an important problem: Wage laws are poorly enforced, with workers often unable to recover back pay even after the government rules in their favor.
That’s the conclusion of a nine-month investigation by POLITICO, which found that workers are so lightly protected that six states have no investigators to handle minimum-wage violations, while 26 additional states have fewer than 10 investigators. Given the widespread nature of wage theft and the dearth of resources to combat it, most cases go unreported. Thus, an estimated $15 billion in desperately needed income for workers with lowest wages goes instead into the pockets of shady bosses.
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But even those workers who are able to brave the system and win — to get states to order their bosses to pay them what they’re owed — confront a further barrier: Fully 41 percent of the wages that employers are ordered to pay back to their workers aren’t recovered, according to a POLITICO survey of 15 states.
That’s partly because, in addition to lacking resources, states lack the tools to go after the landscaping firms, restaurants, cleaning companies and other employers that shed one corporate skin for another, changing names while essentially continuing the same businesses — often to evade orders to pay back their workers.
This failure to enforce both the minimum hourly wage — $7.25 under federal law — and rules requiring higher pay for overtime distorts the economy, giving advantages to employers who break the law. It allows long-term patterns of abuse to take root in certain service industries, especially restaurants, landscaping and cleaning. Advocates for lowest-wage workers describe families facing eviction and experiencing hunger for lack of money that’s owed them. And, nationally, the failure to enforce wage laws exacerbates a level of income inequality that, by many measures, is higher than it’s been for the past century.
“Low-income workers are already in this fragile balance,” said Victor Narro of the UCLA Labor Center. “One paycheck of not being able to get the wages they’re owed can cause them to lose everything.”
Interviews with scores of state officials, legal-services advocates and labor specialists indicate that the failure to enforce minimum wages touches every corner of the country, but is especially acute in the six states that have no investigators probing wage violations at all.
All six states that have no minimum-wage investigators are in the South, and in a seventh, Florida, former Gov. Jeb Bush eliminated the state Department of Labor over a period of years in the early 2000s. In theory, its responsibilities were distributed among other state agencies, but in practice Florida failed to undertake a single enforcement action for more than four years. Georgia, Louisiana, Alabama, South Carolina, Tennessee and Mississippi all have labor agencies, but workers can’t file minimum wage or overtime claims with them; they must instead appeal to the U.S. Department of Labor, which takes cases only selectively, based in part on the number of employees involved and the extent of the wrongdoing.
“In Louisiana, it would have a substantial impact on the lives of working families to be able to call someone and say, ‘My employer hasn’t paid me in three weeks — what do I do?’ and to have someone who can go in and help you with that,’’ said Andrea Agee, staff attorney at the Workplace Justice Project in New Orleans.
The federal Department of Labor, Agee said, isn’t the answer for individual workers, because it only takes cases selectively, and because it, too, lacks resources and is slowed by bureaucracy. “If you’re someone in need of a check, reporting a wage claim to the DOL is not going to get you your rent in time,” she said.
The federal Department of Labor has 894 investigators — vastly more than any state agency. By historic measures, though, its investigative workforce isn’t particularly large. In 1948, when the United States had 23 million workers, the division had 1,000 investigators. Today, the U.S. has seven times as many workers, but slightly fewer federal wage-and-hour investigators than it had 70 years ago.
A Labor Department spokesman said, “The current number of wage-and-hour investigators is well within the average of the past several decades. Note that in fiscal year 2017, [the department] recovered $270 million in back wages — the second-highest amount ever recovered.”
Politicians who support higher-wage laws are often passionate about the need for higher pay, making the minimum wage one of the most hard-fought issues of recent years. But they give strikingly little attention to the enforcement of those laws, where they could push to add investigators and institute new laws to make it harder for employers to evade enforcement by changing their corporate identities.
Asked to comment on POLITICO’s findings, Ohio Sen. Sherrod Brown, who helps lead a group of 22 Senate Democrats who support a plan to gradually increase the federal minimum to $15 per hour, and who has pushed his own bill to provide up to $50 million in grants to employers, nonprofits, unions and others who can assist in the enforcement of wage and hour laws, expressed concern but quickly pivoted to the larger issue of raising the minimum wage.
“Wages are far too low to begin with, so when money is stolen right out of workers’ paychecks, we have to have effective tools in place to get that money back,” Brown said in a statement. “But wage theft is just one part of the problem that hard work simply doesn’t pay off the way it should. And that’s true for all workers — whether they punch a time clock, swipe a badge, make a salary or earns tips — they’re working too hard for too little.”
That’s little comfort for the workers who fight their way through government bureaucracies and hearings to get their back pay — only to discover that there’s no way for the government to collect.
“How would you feel if I robbed you of [thousands of] dollars?” asked Alfonso de la Paz, a construction worker who, according to the state of Illinois, was stiffed on about $3,000 in back pay by a contractor who failed to respond to two notices from the state Department of Labor. “That’s what he owes me.”
Battles over the minimum wage are fought along ideological lines, with liberals insisting that higher minimums prevent exploitation and support families who otherwise might need government assistance. Conservatives argue that the labor market should dictate wages, and that states, with their widely varying costs of living, are better positioned than the federal government is to set minimums. The 2016 Republican platform proposed that minimum-wage issues should be handled at the state level, and President Donald Trump, who suggested on the campaign trail that the federal minimum “has to go up,” has largely avoided the issue.
The issue shows every sign of going to the voters this November. Many Democrats are already stressing the importance of a $15-per-hour “living wage” as a way to energize lower-income voters. Meanwhile, many states have moved to raise their own hourly minimums far above the federal level — with Washington, D.C., requiring $12.50, Washington State demanding $11.50 and California clocking in at $11. Many other states exceed the federal minimum. In addition, federal law continues to require that hourly workers receive time-and-a-half for work beyond 40 hours per week.
But advocates for low-income workers across the country say employers routinely violate these laws, with little fear of getting caught. And even in states with comparatively robust labor departments, enforcement is lax.
“Wage theft is the rule, not the exception, for low-wage workers,” said Michael Hollander, a staff attorney at Community Legal Services of Philadelphia, using a term that covers all forms of cheating on wages, including violating minimum-wage laws and overtime rules. Pennsylvania has 31 investigators probing wage and hours violations.
Richard Blum, a staff attorney at the Legal Aid Society in New York, which has 114 wage-theft investigators, suggested that employers make a strategic decision to violate wage laws to gain a competitive advantage: “It is competitively smart to cheat and steal from your workers because the odds of getting caught are low and the odds of having to pay are low.”
In addition to the six states with no investigators and Florida, which had no enforcement for at least four years, POLITICO’s review found that other states, including Arkansas, Ohio and Hawaii have reduced the number of investigators in recent years. Of the states that have investigators for minimum wage, 26 have fewer than 10, according to surveys conducted between September and February. South Dakota has one, for example, and Indiana has one fulltime and one working part time. Meanwhile, two states — Kansas and Iowa — put a monetary ceiling on wage-theft cases they’ll pursue: As a matter of policy, these states decline to pursue enforcement actions if the amount involved is too high. In Kansas, the ceiling is $10,000; in Iowa, $5,000.
“These agencies are so underfunded,” said Tia Koonse, legal and policy research manager at the UCLA Labor Center, “that we rely on the honor system for employers to pay the minimum wage.”
Workers who are shortchanged on minimum wage or overtime pay have three options: They can hire a private attorney; they can file a complaint with the state labor agency, if it enforces wage claims; or they can file a complaint with the federal Labor Department’s Wage and Hour division.
The federal government does a better job than most states in recovering wages: Money changes hands after wage-theft judgments about 90 percent of the time. But that success rate is less impressive when one considers that the Labor Department cherry-picks the cases it takes on, with an eye for those that promise big payouts, and can’t enforce payment of state hourly minimum that exceeds the federal rate of $7.25. The federal Labor Department also has more power than many state agencies to impose and collect penalties, reducing employers’ incentives to fight back.
Even with those advantages, the federal Labor Department ends up returning, on average, $16 million annually to the Treasury Department because it’s unable to locate the workers who are owed the back pay. Typically that’s because the claim has taken so long to work its way through the system that the employee has moved and is unreachable. Low-wage workers tend to be more transient than higher-paid workers, and some are undocumented, which makes them reluctant to keep the government fully abreast of their moves.
That leaves state Labor Departments as the prime source of on-the-ground enforcement, but as watchdog agencies tasked with enforcing wage laws, their relationships with local businesses are often adversarial, and business groups often lobby state legislatures to cut their funding. The appetite to fund labor-related investigations shrank further during the past decade as the pro-business GOP acquired control of more state capitals.
In Virginia, where Republicans have controlled both houses in recent years, the Legislature didn’t fund its payment-of-wage program for an entire year starting in July 2012. Government officials working in that division were reassigned, and workers in Virginia had no state office through which to recover stolen wages. One year later, when the Legislature restored funding, the division had to be re-created, and the state had to hire new people.
“State labor agencies in the South that enforce wage laws are few and far between,” observes Meredith Stewart, a senior staff attorney at the Southern Poverty Law Center.
Arkansas is one of the few that does. As recently as 2014, it had 10 investigators dedicated to wage-theft complaints. But today, it has five, one of whom has had to take on administrative work. Meanwhile, a single attorney is left to handle the agency’s wage litigation; to analyze proposed legislation affecting her division; to review her division’s regulations; and to provide legal advice to enforcement staff, the attorney told POLITICO in an email.
Lindsay Moore is Arkansas’ labor standards manager and he oversees enforcement of wage and hour laws. Cuts to his division, he said, lengthened wait times for employees who file claims to as long as one year. Sometimes, Moore will advise complainants that they’d be better off hiring a private attorney or taking their cases to the federal Labor Department.
“We simply don’t have the manpower to work on this in an expedient fashion,” said Moore. Often, he said, by the time the labor standards division is ready to take up a case, the worker is “very frustrated with us” and tells Moore to forget about it.
Even states outside the South often lack the personnel necessary to process and enforce claims in a timely manner, though staffing levels vary widely. Idaho (with a population of 1.7 million) has five wage and hour investigators, of whom only one is tasked with making sure that companies actually pay whatever back wages the state says they owe. Missouri (6.1 million) has three. Wisconsin (5.8 million) is more protective of workers, with nine wage-and-hour investigators, all of whom collect back pay.
“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,” said Sally Dworak-Fisher, attorney at the Public Justice Center in Maryland, which has 11 investigators handling wage claims.
Labor agencies in large, worker-friendly states often boast in news releases about millions recovered in wage-theft enforcement actions. But these same agencies turn reticent when asked what percentage of those wages were successfully extracted from violators and handed over to the wronged workers. That’s because a high percentage of those wages never make it to the state, let alone workers.
POLITICO’s survey of 15 states with comparable data found that 41 percent of the money assessed against employers who violate wage laws was never recovered. POLITICO compared the total wages assessed to total wages recovered for the 15 states between 2007 and 2017. State figures included many forms of wage theft and enforcement actions depending on what the state reported, including minimum wage, overtime and unpaid wages and benefits. Not all of the states surveyed reported data for each year.
Collection rates varied widely from state to state. Montana recovered $7.9 million of $33.3 million in back pay assessed between 2007 and 2016, just 24 percent. Texas did better, recovering 54 percent of $70.5 million between 2010 and 2016. Indiana recovered $2.3 million of $3.1 million assessed between 2010 and October 2017. Missouri recovered $1.5 million of $2 million in back pay assessed since 2007.
Studies in states whose data wasn’t part of POLITICO’s survey suggest that they, too, had widely varying rates of recovery of wage-theft cases, though even the best rates still left more than a third of all money unrecovered.
New York recouped about 64 percent of back pay assessed, according to data collected for a 2015 report by the Urban Justice Center, the Legal Aid Society, and the National Center for Law and Economic Justice. Massachusetts recovered in full on 56.3 percent of citations for wage violations between January 2015 and August 2017.
In California, by contrast, only 17 percent of workers who won wage-theft judgments between 2008 and 2011 received their money, according to a 2013 study by the UCLA Labor Center and the nonprofit National Employment Law Project. Paola LaVerde, a spokesperson for the California Department of Industrial Relations told POLITICO in an email that the state enacted new “enforcement tools” in 2016, but “there has not been sufficient time to evaluate the impact of those tools.”
But by its mere willingness to evaluate its success or failure, California is ahead of many states that don’t bother to keep track of how much they recover compared to how much they assess. Of the states that had investigators, 15 had comparable statistics for assessment and recovery, four compiled their data in different forms, and 24 could not say what their rate of recovery was. Florida, which did not perform any enforcement action from late 2011 through early 2016, according to records obtained by the publication In These Times and reviewed by POLITICO, did not respond to requests for updated information. And neither Jeb Bush, who as governor eliminated the state Labor Department, nor his spokesperson answered emailed requests for comment.
The recovery percentages from all states pale in comparison to the federal Labor Department’s claim that 90 percent of its judgments against employers end with the worker collecting back pay. But some questions have been raised about whether the federal Labor Department’s collection rate is really as high as it claims. In 2009, the Government Accountability Office said that the Bush administration’s Wage and Hour division “instructed many offices not to record unsuccessful conciliations, making [the division seem] better at resolving conciliations than it actually is.” GAO staffers posed as employees struggling to collect back pay and found some wage-and-hour inspectors recorded that they received it when they didn’t.
When the Labor Department determines that an employer owes an employee back pay, the agency can require that the employer pay the employee directly, or it can collect the money from the employer and pay the worker itself. A 2015 report from the Office of the Inspector General found that when President Barack Obama’s Wage and Hour Division followed this second route, it “did not make reasonable efforts to locate employees” in about 71 percent of cases, according to a random sample.
David Weil, who headed the Wage and Hour department under Obama, said that rebuke has to be viewed in context: Fully 76 percent of back wages are paid directly to workers by their employers, he said, and the amount returned to Treasury represents only 5 percent of the total owed. Weil conceded, however, that Wage and Hour must follow up more aggressively on its wage-and-hour judgments and that it needs to find better ways to locate employees to whom back pay is owed.
In January 2015, he said, the Labor Department created an online application in which workers can enter their names and those of their employers to find out if they’re owed back pay.
Even when states and the federal government are able to collect on back pay, the total represents only a fraction of the billions lost each year to wage theft. The Economic Policy Institute, a left-leaning think tank, estimated that annual wage thefts top $15 billion; they extrapolated that figure from a study of the 10 most populous states, accounting for more than half the country’s population. The vast majority of those dollars are never returned to workers, because employers have many tactics to avoid enforcement, including simply closing up shop.
Many of the service-industry companies that violate wage-and-hour laws have little in the way of brand identity or fixed costs. Their owners can therefore dissolve the business with comparative ease, transferring all assets to a new business entity that operates under a different name. Once the transfer is complete, there’s usually little a state labor agency can do to punish the owner, because on paper the offending company no longer exists.
The problem can be exacerbated by the long delays in processing claims. Twelve years ago, the New York state Labor Department ruled that a limousine company called Altour Service owed 25 drivers more than $250,000 in back pay.
Altour Service allegedly charged all its customers a 20 percent gratuity fee and then didn’t share that money with its drivers. In 2005, the New York Labor Department ordered the firm to give the drivers nearly $260,000 in back pay. Altour Service appealed that decision to the state Industrial Board of Appeals, which in 2012 upheld the state Labor Department’s decision. Altour then appealed again, this time to the New York state Supreme Court appellate division. In 2015, a full 10 years after the initial ruling, the court once again upheld the state Labor Department’s decision.
Even after the appellate division upheld the drivers’ claim, several told POLITICO that no money changed hands. That was because the company, Altour Service, no longer existed. Even as it continued filing briefs in its court cases, Altour Service dissolved as a company in April 2014.
Altour Service shared an address with a much larger firm, the 1,500-employee Altour International, but that firm has no legal responsibility for its debts, according to Altour Service’s attorney.
Like Altour Service, Altour International was run by a businessman named Alexandre Chemla, who remains its president. Altour Service’s 2014 certificate of dissolution listed Chemla as chief executive officer and listed 1270 Avenue of the Americas, 15th floor, as the dissolved company’s address. Altour International resides at the same address, same floor.
“Altour Service and Altour International were separate corporate entities involved in different lines of business,” Justin Sher, an attorney for the now-liquidated Altour Service, told POLITICO in an email. “Altour Service was not a subsidiary of Altour International. Altour International has no obligations with respect to Altour Service’s debts.”
Asked about whether Altour International would speak on its own behalf, Sher responded in an email, “I am in touch with the company, and it has no further comment.” Altour International did not respond to a request for comment from Chemla.
Altour Service’s former limousine drivers, though, think those who backed Altour Service, and profited from it, should still be held accountable for its debts.
“They dragged it out for years,” one of the drivers, Edgar Lewis, told POLITICO. “The finding was that we were right and they were wrong. But then Altour and its management — they refused.” Another driver, Fredy Monzon, said he hadn’t received any back pay, either. “To me, this is news,” he said. “Jesus Christ … I didn’t realize how much I was awarded.”
A third driver, lead plaintiff Raymond Hulen, declined to speak to POLITICO directly. But through a friend, Kenneth Brown, he confirmed that he not received any money, either, as of last December. “All the money you spent [to go to court] is way more than it would cost you to reimburse your employees and give them their money back,” Brown said, referring to Altour Service.
When POLITICO asked Sher, the Altour Service attorney, whether any of the 25 drivers received their back pay, Sher emailed that Altour Service was “party to an agreement that contains confidentiality restrictions and will not comment further about the details of any payments.”
In general, larger companies avoid the risk of violating wage-and-hour laws by keeping low-wage workers off the payroll. Unlike small businesses, big ones can’t easily be dissolved, and they’re much more sensitive to bad publicity. They also make fatter targets for wage-theft investigations because they have deeper pockets.
Big companies typically steer clear of low-wage workers through what Weil, who administered the Labor Department’s Wage and Hour division under Obama, called “the fissured workplace” in an influential 2014 book of that name.
Weil cited three ways in which a large company typically avoids responsibility for low-wage workers. It can contract hourly work out to another, smaller company — for example, by hiring a janitorial service rather than employing janitors directly. Or the big company can consign hourly work to franchisees; more than 80 percent of McDonald’s restaurants are owned not by McDonald’s but by McDonald’s franchises, who do the hiring and firing. Or the big company can classify certain workers as independent contractors (i.e., “gig” workers), as Federal Express’ ground service has done with its drivers.
Whenever “there’s attenuated supply chains and so much subcontracting, it’s much harder to track down the contractor,” Janice Fine, a professor at Rutgers University, explained.
“Fissuring” the workplace has allowed big companies to focus on their core competencies, enhancing productivity. But it’s also increased the likelihood that wage-and-hour laws will be violated. Low-wage employers win contracts by bidding low; franchisees, by signing franchise contracts that, especially with big brands, can be financially burdensome; and independent contractors, by working for whatever the buyer is willing to pay. (Independent contractors, who theoretically work on their own, are not covered by minimum-wage laws.) All three downstream arrangements squeeze profit margins, creating, for contractors and franchisees, a potential incentive to cut corners on labor laws.
A large company needn’t worry it will be held liable for any wage theft committed by a contractor or franchisee unless it can be demonstrated that the large company’s arms-length relationship with the contractor or franchisee’s low-wage workers is a fiction. That’s difficult to prove.
The Obama administration made it somewhat easier by broadening the legal criteria for classifying a company a so-called joint employer. But the Trump administration reversed that policy in December in a ruling from its majority-Republican National Labor Relations Board.
In September, Trump nominated Cheryl Stanton to lead the Labor Department’s Wage and Hour division. Since 2013, Stanton has been executive director of the Department of Employment and Workforce in South Carolina, one of the states that dedicates not a single government employee to investigate minimum wage and overtime violations.
Stanton was herself sued in March 2016 for failing to pay a housekeeper named Laurie Titus, the nonprofit Center for Investigative Reporting reported in July. “I have emailed, mailed and certified mailed trying to get payment,” Titus said in her complaint, which requested $360 for four cleanings in September and October 2015, plus $80 to cover court costs and $125 in late fees. Last year, Stanton resolved her dispute with Titus, who told the court that Stanton had “paid in full.”
The Labor Department declined to comment on Stanton’s dispute with Titus, and declined a request for comment by Stanton, who is awaiting confirmation.
A source familiar with Stanton’s dispute with Titus told POLITICO that “this was a contractual dispute with a company, not a wage dispute with an individual … it involved what days services had been performed and what had been paid.”
The simplest way to prevent employers from simply closing up shop and avoiding wage-theft judgments would be for both the federal government and state governments to give their labor departments and individuals the authority to file liens, or property claims, even before a state agency or court determines whether the claim has merit, according to workers’ advocates. That way, a company’s assets would be secured even if the owner tries to close up shop.
Liens are not a new concept. They date back to 1791, when Thomas Jefferson and James Madison requested that the Maryland state Legislature create a so-called mechanics’ lien to speed up construction of Washington, D.C. Today, every state has a mechanics’ lien allowing a construction worker to, in effect, seize some portion of the property he’s helped build if his contractor fails to pay him. In addition, there are about 600 state lien laws that apply to other professions, from jewelers to veterinarians.
Many state governments have given their labor departments the authority to place a lien on an employer’s property only after they determine that a worker is owed money. Because a final judgment can take many months, worker advocates say such laws give employers too much time to fold their companies, transfer their assets, or reincorporate under a different name. Prejudgment liens, they argue, would discourage employers from using these tactics.
“I don’t think it’s going to get us to 100 percent, but a generalized wage lien is going to get us a lot closer,” said Hollander, of Community Legal Services of Philadelphia. “It gives you the ability to put a hold on the employer’s property from the beginning of the case so there’s not the opportunity for the employer to divest.”
Wisconsin and Maryland have broad prejudgment liens. Similar bills have been introduced in New York, Connecticut, Washington State, Oregon and California.
Wisconsin’s law that allows for prejudgment liens was enacted 1976. Under the law, the state’s Department of Workforce Development or a worker claiming wage theft may file a notice of lien in county court before a judgment is reached on the merits of the case. As a result, fully 95 percent of claims filed with the Wisconsin Department of Workforce Development were “settled, dismissed or paid in full” between 2007 and 2012,” according to an analysis by UCLA and the National Employment Law Project, a left-leaning nonprofit.
On the other hand, Maryland’s prejudgment lien law, passed in 2013, has yet to make much difference because its Department of Labor has never used it. One problem, worker advocates in Maryland say, is that many scofflaw employers don’t have any assets to seize.
Businesses have fiercely opposed prejudgment lien laws. When California considered prejudgment liens in 2013, a broad coalition of business groups led by the California Chamber of Commerce wrote state legislators that such liens would “cripple California businesses” by allowing liens “on an employer’s real property or any property where an employee ‘bestowed labor’ for an alleged, yet unproven, wage claim.” They further argued that the bill would hurt commercial and real estate investments by prioritizing wage theft liens over other liens.
Some alternatives to prejudgment lien laws have been considered. In Texas, Rep. Mary González, a Democrat representing El Paso, introduced a bill in 2016 that would create a database of employers who have failed to pay their workers the wages that they are owed legally. In New York, after The New York Times ran a series on wage theft in New York City nail salons, Gov. Andrew Cuomo issued an executive action that required nail-salon owners to purchase wage bonds to guarantee that workers awarded stolen wages actually receive their money. Under the executive action, if a nail salon owner decided to fold, the surety bond company would pay the workers.
Tools like prejudgment liens and wage bonds might help workers recover their wages, but, advocates insist, they won’t be effective without a stronger commitment from states. For states to do a better job enforcing wage and overtime laws, they must first demonstrate that they care enough to devote the manpower necessary. Until they do that, advocates say, the nation’s wage-and-hour laws will be followed only when employers feel like doing so.
Said Rep. Bobby Scott (D-Va.), ranking member of the House Education and the Workforce Committee: “If there is not strong enforcement of wage theft, then any efforts to raise the minimum wage, strengthen overtime, or protect workers’ tips are ineffectual.”