Wage Theft and Worker Exploitation

How unscrupulous employers steal from poor workers

by Fred Kammer, S.J.

You shall not oppress a hired servant who is poor and needy, whether he is one of your brethren or one of the sojourners who are in your land within your towns; you shall give him his hire on the day he earns it, before the sun goes down (for he is poor, and sets his heart on it); lest he cry against you to the LORD, and it be sin in you. Deuteronomy 24:14-15

Wage Theft and Exploitation

Kim Bobo, founder and executive director of Interfaith Worker Justice, was one of the keynote speakers at JSRI’s conference this month—People on the Move and the Common  Good. Her newest book is entitled Wage Theft in America. November 19 was the National Day of Action to Stop Wage Theft, sponsored by Interfaith Worker Justice.

Wage theft occurs when workers are underpaid or not paid. It is illegal. Millions of workers suffer from wage theft each year. It is a form of theft and also exploitation by those in power of those with much less power—usually the poor, women, undocumented workers, and especially those in apparel and textile manufacturing, personal and repair services, and in private households. Child care workers are particularly vulnerable to wage theft. Wage theft also creates an uneven field between honest and dishonest employers, and it robs government of tax revenue, thus harming all of us.

There are a number of forms of wage theft, including:

• Not paying minimum wage.
• Not paying time-and-a-half for overtime work.
• Forcing employees to work “off the clock.”
• Not giving workers their final paycheck.
• Not letting injured employees file worker’s compensation claims
• Misclassifying employees as “independent contractors” to avoid paying minimum wage, overtime, and Social Security benefits.
• Not paying employees at all!

Such activities may seem unusual or even incredible in this country, but a recent study that interviewed 4,300 workers in New York City, Los Angeles, and Chicago indicated that two-thirds of low-wage workers are denied full pay, each losing over $2,600 annually. This study, released September 2, 2009, calculated for the first time how prevalent are employment and labor law violations:

• Minimum wage: 1 in 4 workers (26%) was paid below the minimum wage in a given work week;
• Overtime pay: 76% of those who worked overtime were not paid the required time and a half;
• Meal breaks: More than two‐thirds (69%) did not get meal breaks they were entitled to;
• Off‐the‐clock work: 70% did not get any pay at all for work performed outside their regular shift;
• Tipped pay: Nearly 1/3 (30%) of tipped workers were not paid the tipped worker minimum wage;
• Pay documentation: 57% of workers did not receive mandatory pay stubs;
• Employer retaliation: 43% experienced illegal retaliation following complaints;
• Workers’ compensation: Only 6% of injured workers received coverage for medical expenses; and
• Exempt workers: 89% of “in‐home” child care workers earned less than the minimum wage.¹

The surveys of our largest cities were conducted throughout 2008 in eight languages by researchers at the National Employment Law Project, the University of California at Los Angeles, the University of Illinois in Chicago, Cornell University, and Rutgers University. Extrapolating from the number of workers in these cities in low-wage and related employment, the authors estimate that low-wage workers in these three cities lose more than $56.4 million per week as a result of employment and labor law violations.

Lax Enforcement and None

The federal government, states, and localities are supposed to protect workers from illegal activities on the part of employers. Do they?  The primary government enforcement body is the U.S. Department of Labor (DOL) and its Wage and Hour Division (WHD). In a 2005 study by the Brennan Center for Justice at NYU School of Law, researchers reported a dramatic stagnation or decline in enforcement resources and activities by DOL between 1975 and 2004. Specifically the study indicated:

• The number of Wage and Hour investigators declined by 14%.
• The number of compliance actions completed declined by 36%. This is a rough indicator of the number of establishments investigated each year, and includes a range of actions taken by the U.S. Department of Labor – from full investigations into a workplace (often covering all workers) that result in a judgment against the employer, to individual complaints where the department settles with the employer, to investigations that uncover no violations.
• The total amount of back wages assessed by the Department of Labor grew by 7%, after adjusting for inflation. “Back wages” are the wages that the employer owes the worker – for example, as a result of paying less than the legally-required minimum wage.
• The number of workers due to receive back wages declined by 24%.

The authors noted that this stagnation or decline in enforcement resources occurred while they estimated that “The number of workers covered by wage and hour laws grew by 55 percent, and the number of covered establishments grew by 112 percent.²  The authors also added that there were strong anecdotal reports from across the country—not just in these three large cities—of increasing complaints about wage theft and other workplace violations.

In July 2008, the General Accounting Office (GAO) testified to Congress on 15 case studies where WHD failed to investigate complaints. In March, 2009, GAO reported on its follow-up undercover study of WHD requested by the House Committee on Education and Labor. In that report GAO reported “sluggish response times, a poor complaint intake process, and failed conciliation attempts, among other problems.” GAO also identified 20 cases affecting at least 1,160 real employees whose employers were inadequately investigated. GAO concluded that its assessment:

…found an ineffective system that discourages wage theft complaints. With respect to conciliations, GAO found that WHD does not fully investigagte these types of complaints or compel employers to pay. In addition, a WHD policy instructed many offices not to record unsuccessful conciliations in its database, making WHD appear better at resolving conciliations than it actually is. WHD’s investigations were frequently delayed by months or years…³

Following various hearings, testimony by Kim Bobo and others, and the GAO investigations, Congressman George Miller (D-IL) introduced The Wage Theft Prevention Act (HR3303), in July 2009. The proposed law would amend the Fair Labor Standards Act so that the Department of Labor (DOL) can offer stronger protections for workers. The bill will do away with a statute of limitations that limited the DOL to two years to resolve a wage complaint.

The Example of Austin, Texas

A prime example of the “New South,” Austin is the second fastest-growing urban area in the U.S., with extensive new construction in homes, commercial buildings, and infrastructure. The June 2009 Building Austin, Building Injustice report by the Workers Defense Project reflected findings of a year-long study that included surveys with 312 construction workers, seventeen in-depth worker interviews, twenty in-depth interviews with industry leaders, and analysis of existing government data. Among the findings of the report were these:

• Poverty level wages. Forty-five percent of surveyed construction workers earned poverty level wages. In addition, nearly half of construction workers reported not having enough financial resources to support their families.
• Failure to be paid. One in five workers reported being denied payment for their construction work in Austin. Fifty percent of construction workers reported not being paid overtime, and for many this resulted in the inability to pay for food and housing.
• Few employment benefits. The large majority of construction workers lacked health insurance (76%), pensions (81%), sick days (87%) or vacation days (77%).
• Denied legal protections. Employers frequently misclassified workers as independent contractors instead of employees, thus stripping them of their rights to overtime pay, workers’ compensation coverage, benefits, and shifting the burden of payroll taxes to the worker. Survey results showed that 38 percent of construction workers were misclassified as independent contractors.⁴

Wage theft in the Gulf South is not limited to Austin. In New Orleans and in Miami, workers currently are advocating for ordinances to strengthen wage enforcement and protect workers.

Wage Theft among Post-Disaster Workers

A particularly egregious form of wage theft occurs in the confusing, intense rebuilding that occurs in areas trying to recover from disasters. In post-Katrina New Orleans and on the Gulf Coast, widespread abuses by employers were documented by the Southern Poverty Law Center and Interfaith Worker Justice. Four months after Hurricane Ike hit the Houston area, the Houston Interfaith Worker Justice Center reported specific forms and cases of wage theft and worker abuses in Abuse after the Storm: A Report on Hurricane Ike Recovery and Worker Exploitation [December, 2008]. As might be expected, migrating workers are drawn to such areas by employment prospects and are actively recruited by contractors and sub-contractors, too many of whom are unscrupulous and exploitative.

1. Broken Laws, Unprotected Workers—Violations of Employment and Labor Laws in America’s Cities, Annette Bernhardt et al., [2009] (accessed November 19, 2009).

2. Trends in Wage and Hour Enforcement by the U.S. Department of Labor, 1975-2005, Annette Bernhardt and Siobhán McGrath, Economic Policy Brief, No. 3, September 2005, (accessed November 19, 2009).