The city of Chicago this month became the second, and biggest, city to pass an ordinance addressing the problem of wage theft.
The Chicago ordinance appears to be an innovative and potentially highly effective initiative to combat a problem that disproportionately affects low wage workers and undocumented immigrants.
The ordinance states any licensee that is in the business of debt collection must comply with federal and state wage and hour laws. It states that failure to comply with these laws can result in the revocation of the company’s business license for at least four years. The ordinance potentially covers most licensees, since most companies engage in debt collection in the ordinary course of business. This includes everything from licensed day care centers to hotels and beauty parlors.
Last fall, the Broward County Commission in Florida passed an ordinance that allows employees who are owed $60 or more for work done in the county to turn to the county for help. Before filing the complaint, however, the employee must write a letter to the employer outlining how much is owed. If the paycheck shows up within 15 days, the complaint wouldn’t be filed.
Wage theft is widely considered to be epidemic in the United States.
Aaccording to a report released last year by the Progressive States Network (PSN ) state laws are grossly inadequate to combat “wage theft” by unscrupulous employers. Some states levy no fines at all for wage theft, according to the report, while most others invoke penalties smaller than a speeding ticket.
There is, of course, an overarching federal law that prohibits wage theft – the Fair Labor Standards Act (FLSA) – but it largely relies upon voluntary compliance.
The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. Covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour and overtime pay at a rate not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek.
The FLSA is technically “enforced” by the Wage and Hour Division of the U.S. Department of Labor (DOL) but, as the PSN report notes, the DOL has only one enforcement agent for every 141,000 workers, down from one per 11,000 workers in 1941.
The PSN estimates that more than 60% of low-wage workers suffer wage violations each week. On average, the PSN reports, low-wage workers lose $51 per week to wage theft, or $2,634 per year. For low-wage workers, that amounts to 15% of their annual income, at average earnings of $17,616 per year.
Misclassification of Employees
Rogue employers often evade complying with wage and hour laws by classifying non-exempt employees as exempt under the FLSA and thus not entitled to overtime.
I once worked for an organizaton that misclassified administrative assistants as exempt, requiring them to work long periods of uncompensated overtime at conferences and events. After years of this, one employee filed an anonymous complaint with the DOL. The organization was forced to pay affected employees who were then on the payroll minimal amounts to supposedly compensate them for their loss. This was an insignificant penalty for the employer, considering the years of abuse that had occurred and the many uncompensated victims who were no longer working at the company.
To qualify for an exemption from the FLSA, an employee must be paid on a salary basis at a rate not less than $455 per week, must perform work directly related to the management or business operation of the employer, and must be responsible for exercising independent judgment or discretion with respect to matters of significance.
Another way that employers circumvent the FLSA is to classify employees as independent contractors. This is not inherently illegal but it can be if the purpose of the independent contractor classification is to deny the employee access to benefits and protections – such as family and medical leave, overtime compensation, minimum wage pay and unemployment compensation.
In 2011, the DOL launched a “Misclassification Initiative” to address the problem with respect to independent contractors. Thus far, the states of Iowa, California, Colorado, Connecticut, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington have signed memorandums of agreement to join the DOL initiative. The agreements will enable the DOL to share information and coordinate enforcement efforts with the participating states.
Misclassification creates economic pressure for law-abiding business owners, who find it difficult to compete with those who are skirting the law. Employee misclassification also generates substantial losses for state Unemployment Insurance and workers’ compensation funds.
Alderman Ameya Pawar spearheaded the Chicago effort to pass the wage theft ordinance is quoted as stating: “I sponsored this ordinance because it’s something that’s deeply personal to me. I’ve worked with refugees in the past and I’ve seen how vulnerable populations have become victims to wage theft.”