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Labor & Economy

Wage Theft Confidential: The Worst Scofflaw Industries

Bill Raden

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In March, seven class action lawsuits filed in California, Michigan and New York suggested that for the country’s 30 million-strong low-wage workforce, getting one’s paycheck ripped off by some of the largest and wealthiest employers in America is too often business as usual.

Contending that the McDonald’s restaurant chain had been “systematically stealing” from its workers, the suits detailed company-wide practices of managers regularly ordering employees to work off the clock, shaving hours from their time cards and not paying overtime. Three of the California suits also claimed that McDonald’s and its franchise owners illegally altered pay records and denied employees meal periods and rest breaks. Other plaintiffs alleged McDonald’s used a sophisticated computer program that monitored real-time sales volume: When sales dropped below a certain level during any given hour, attorneys said, some managers would routinely order workers from the incoming shift to not punch in for an hour or two until there were more customers.

Also in This Series:
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A Truck Driver’s Story

Do Laws Work?
Finding Solutions

The lawsuits threw a spotlight on practices that workers in the fast-food industry have complained about for years. However, the restaurant business is only one of several that have earned notoriety for committing wage theft. In her annual legislative report on the effectiveness of the state labor department’s Bureau of Field Enforcement, Labor Commissioner Julie A. Su reported earlier this year that the amount of wages illegally withheld from California workers for fiscal year 2012─2013 “significantly increased” from the previous year, from $28.2 million to $48.6 million.

When ranked by number of citations and assessed penalties, the report offers a crude snapshot of the state’s top seven wage-thieving industries — a rogue’s gallery of California’s commercial deadbeats:

1. Restaurant            (718 citations)           $4,735,061 (wages owed workers)

2. Construction        (595 citations)          $346,206

3. Auto Repair          (421 citations)          $249,129

4. Garment                (227 citations)           $4,572,262

5. Carwash                 (181 citations)           $1,986,264

6. Agriculture          (111 citations)            $768,773

7. Retail                      (93 citations)              $1,076,888

Subtotal                                                                $29,984,860

Public Works                                                      $18,690,813

Total wage theft                                                $48,675,673

Perhaps not surprisingly, these industries have high concentrations of America’s most vulnerable employees. According to a landmark, 2009 report on wage theft in Los Angeles, Chicago and New York by the National Employment Law Project, in virtually any industry where one finds a low-income workforce, some form of wage theft is commonplace. The study found that more than two-thirds of low-wage workers reported some type of pay-related law violation. Of those, recent immigrants in low-paying jobs with little English were twice as likely to be victims as their U.S.-born counterparts; women and immigrants tended to be harder-hit than men or native workers; and the hardest hit — by an alarming margin — were undocumented women. The state Labor Commissioner’s investigations bear this out. Here are but a few examples:

  • Typical of the carwash industry was a criminal complaint for conspiracy and grand theft filed by Santa Monica’s City Attorney against Wilshire West Car Wash LLC and its parent company, Maxxam Enterprises III, LLC. And in Los Angeles, an investigation into carwashes resulted in the Los Angeles County District Attorney filing counts of theft of labor, premium fraud, tax fraud and $125,000 in wage theft of four workers. In the Santa Monica case, owners and managers were accused of fabricating time- and meal-break records, and of forcing employees to pay for cable television (though they were forbidden to watch TV on the job) and for towel-laundering costs.
  • Showing that wage theft in the restaurant industry isn’t confined to fast-food outlets, in San Diego County, Rhythm City Grill owners John Fletcher Johnson and Annette Lucille Thomas were charged with felony counts of workers’ compensation fraud and forgery, following a state investigation. Johnson later provided the state with forged documents stating that the restaurant’s employees had worker’s compensation insurance. And in a case filed by the San Diego District Attorney’s office, another investigation uncovered $57,000 in wage theft, payroll tax and workers-compensation violations at a San Diego restaurant.
  • Charges filed against security firms show that industry to be a similar wage-theft scofflaw. A state investigation of a Fresno security guard firm turned up $45,000 in wages stolen 22 employees and resulted in a criminal felony complaint filed by the Fresno District Attorney’s office.

Su credits part of the rise in official wage-theft prosecutions to a greater awareness of violations. Two years ago, her office sharpened the teeth of the department’s enforcement division by launching an elite squad of armed government gumshoes called the Criminal Investigation Unit (CIU). The ex-cops and new police academy grads were tasked with bringing to justice the state’s most brazen wage thieves. In 2012-13, CIU’s newly minted muscle recovered $25,570,357, or about half of the $48,675,673 stolen by employers. And while those efforts sound impressive, they represent only a drop in the bucket of the total complaints actually filed.

In California, it has been estimated that wage theft may cost the state as much as $7 billion a year in lost tax revenues and from the reduced economic activity of low-wage victims. The true magnitude of the problem, however, is anyone’s guess.

“The trouble with wage theft is that it’s hard to measure,” Peter Melton, a spokesperson with California’s Department of Industrial Relations, told Capital & Main.

The department’s enforcement division can only document the relatively small number of cases that come before it as complaints. But the most vulnerable workers are reluctant to come forward for reasons ranging from their immigration status, the fear of possible retaliation by their employer or because they are working off the books in the first place. The worst offenders, on the other hand, are likely to be off the regulatory radar altogether, operating in the so-called underground economy. That leaves a significant segment of the labor market in the dark.

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