Minnesotans lose millions through rampant wage theft

This story is a condensed version of a seven-part series. Readers can find the entire series at Workday Minnesota

MINNEAPOLIS (PAI and Workday Minnesota) — Working people have millions of dollars stolen from them every day. If it were done at gunpoint, the thefts would make headlines. But because the losses occur at work-and are not regarded as criminal-few people know what is happening to them.

An investigation by Workday Minnesota found wage theft in Minnesota is larger and more widespread than most people realize – and the problem is growing.

Over the past several months, we interviewed scores of workers, community activists, union representatives, public officials and more. We pored over five years of data on wage theft cases from the state Department of Labor and Industry. We searched the academic literature and examined numerous studies.

Our investigation was spurred in part by ideas raised by some state and local officials to improve enforcement of current laws against wage theft. Despite these discussions, few people are aware of wage theft or understand its impact.

“It’s very widespread, but it’s not very well-understood,” notes Aaron Sojourner, a labor economist and assistant professor in the University of Minnesota’s Carlson School of Management. “A lot of people don’t even know that it’s happening to them, because it’s done in a sneaky way or it’s done in a way that they don’t recognize it as a violation.”

Minnesota is not alone. The federal Labor Department has in past years reported rampant wage theft in construction, clothing factories, farms and among household workers nationwide. Wage theft also repeatedly occurs in warehouses run by subcontractors of big retailers, especially those staffed by temporary or so-called permatemp workers.

The classic case of wage theft is when a worker simply is not paid for the work that he or she has performed. Sometimes it occurs when a business goes bankrupt or a worker leaves and is not given a final paycheck. Wage theft is much broader than that, however.

“Wage theft takes a lot of forms,” said Alan Benson, another University of Minnesota assistant professor. “Wage theft can take the form of keeping inaccurate records. It can take the form of not paying for time that was worked, not paying for break time. It could be that you’re misclassified as a salaried worker when you should be paid hourly and that means you should be eligible for overtime pay but you don’t make overtime pay.”

Workers paid below the minimum wage are victims of wage theft. In Minnesota, hospitality industry workers who have tips counted toward their wages are being cheated.

On public construction projects, workers can be the victims of wage theft if they do not receive the government-required prevailing wage.

Advocates and researchers say the problem is larger than the categories that currently exist under state and federal law. Is being required to stand in line without pay before clocking into work a wage theft violation? Are the many workers not covered by overtime laws being cheated? When is someone an independent contractor-and when is their employer assigning them that designation in order to avoid wage and hour laws or payroll taxes?

Who is having their wages stolen?

Wage theft crosses all boundaries of income, race and gender, but the incidence of violations is higher among low-wage workers and people of color. It’s also more prevalent in certain industries: In Minnesota, residential construction, home health care and agriculture are all areas where some employers have made wage theft part of the way they do business.

A 2008 survey of 4,387 low-wage workers in Chicago, Los Angeles and New York found that more than two-thirds of workers experienced at least one pay-related violation in their previous workweek. Each was losing, on average, $2,634 out of their $17,616 annual pay.

In 2014, the Economic Policy Institute generalized the 2008 data, estimating that wage theft costs U.S. workers more than $50 billion a year. That’s more than three times the $14 billion lost annually to robberies, burglaries, larcenies and motor vehicle thefts, EPI noted.

A Twin Cities worker center, Centro de Trabajadores Unidos en Lucha/Center of Workers United in Struggle (CTUL), recently published preliminary findings of a survey of 173 low-wage workers. “Half (49 percent) of the workers in the WRD survey reported that they had faced wage theft in their workplace here in the Twin Cities,” CTUL reported. Sixty-six percent of respondents from the janitorial industry experienced wage theft, the report added.

In late February, members of CTUL won a $425,000 settlement after suing a cleaning contractor for wage theft.

Community groups see the effect on people of color. Mike Griffin, field director at Neighborhoods Organizing for Change, said wage theft is one reason Minnesota’s economy is split along racial lines.

“People who have a salary or high wages, the ability to spend time with their family when they get sick…a set schedule-those people tend to be white,” he said. “People with a low salary or a low hourly [wage], people who don’t have sick time, people who have a random schedule where they don’t know how much money they’re making-those people tend to be black.”

While wage theft is definitely a low-wage worker problem, it is spreading among people in many kinds of jobs. “We’ve had complaints from lawyers,” said Ken Peterson, Commissioner of the Minnesota Department of Labor and Industry. “We’ve had complaints from medical personnel who say they have not received their proper pay either.”

Investigators rely on complaints from the public and don’t have the time or resources to seek out wage theft violations, Peterson said. “Theoretically, we could be hearing about every one of them or we could be hearing about less than one percent of them. We just don’t know.”

How is the law enforced?

The most commonly reported cases in Minnesota involve the classic example of someone not receiving a final paycheck when leaving a job, according to the state Department of Labor and Industry. In fiscal year 2015, DLI handled 1,229 of these “wage claims,” which amounted to about $553,000 for 623 workers, says Deputy Commissioner Jessica Looman.

“About 50 percent of the time, we are successful in getting those workers their money back quickly,” she said. “The rest of the time, we refer those workers to small claims court.”

Most other cases the labor standards unit handles are categorized as “wage complaints.” These scenarios include when employers fail to pay the prevailing wage, the minimum wage or overtime, when employers make illegal deductions from employees’ paychecks (i.e. charging for uniforms or job-related equipment) or when employers do not pay their employees for their work within 31 days. In fiscal 2015, the department handled 435 such wage complaints, recovering $309,000 for 356 workers.

The U.S. Labor Department’s Wage and Hour Division investigates similar complaints nationwide. But it can only investigate complaints that apply to federal law. Depending on a worker’s complaint, he or she may be more protected under federal laws or state wage laws.

Workers cannot always navigate these complex sets of laws and enforcement agencies, notes Madeline Lohman, senior researcher for The Advocates for Human Rights, a Minneapolis-based nonprofit.

“Workers are confronting this really fragmented system, on their own, basically, and having to make phone call after phone call to try to get in touch with someone who might be able to know what is going on,” she said.

The problem is compounded by a lack of resources. The Minnesota Department of Labor and Industry has six investigators assigned to the wage and hour division. Two others deal with misclassification of construction workers. In the late 1980s, it had eight or nine inspectors. Meanwhile, Minnesota has added 1 million workers since then.

Nationally, the federal Wage and Hour Division has 1,376 workers, including investigators and support staff, in the fiscal year ending Sept. 30, President Barack Obama’s budget shows. That’s up nine from the year before. Obama wants to add another 318 nationwide in the coming fiscal year, and increase Wage and Hour spending by $43 million, to $277 million.

Those federal Labor Department probers must monitor the wages, hours-and employer violations – of 135 million working Americans. “The number of cops on the beat is very small relative to the scale of the problem,” said Sojourner.

Penalties are small or nonexistent. If employers violate wage and hour laws, they must pay back workers what they are owed. Sometimes they are fined when an employee can prove the employer intentionally violated the law. In a handful of state cases there has been criminal prosecution.

Who’s helping workers?

Worker centers and unions are stepping to the forefront in helping workers combat wage theft:

In Minnesota, worker centers raise awareness of wage theft, organize workers to address the problem and, in some cases, sue to recover stolen wages. They also take workers’ wage theft cases to state and local prosecutors.

In eight years, CTUL helped workers recover more than $1.8 million in lost wages. In addition to working through enforcement agencies, CTUL used the courts. Last spring, it helped 11 workers file a class action lawsuit against Capital Building Services Group, a company subcontracted by Macy’s and Herberger’s to clean stores.

The workers said the contractor did not pay them for all of the hours they spent cleaning stores and failed to provide them with pay stubs. On Feb. 16, CTUL announced a settlement for these workers in the amount of $425,000 in back wages and damages.

And the National Day Laborers Organizing Network, an AFL-CIO affiliate, armed with grants – including $25,000 from the Painters – has just launched an app for workers’ smart phones which lets them document wage theft, including taking photos of the cars of employers who short their paychecks.

Over the last five years, numerous Minnesota farms have been investigated for wage theft, much of it involving failure to pay overtime. But advocates believe the problem is much worse than the records indicate. In Minnesota alone, the following recent cases of rampant wage theft include:

Crystal Care, one of the state’s largest home health care agencies, owed 800 workers a total of $1.4 million. The state stepped into the case. “For 45 days, we worked without pay. And about a week later, they filed for bankruptcy,” says Crystal Care worker Robin Pikala. “By the time they paid the lawyers, the bank that they owed, there was nothing left for us.”

Department of Labor and Industry records for the past five years show scores of complaints and enforcement actions against companies in the home health care and personal care industry, adding up to tens of thousands of dollars each.

To protect themselves from future wage theft, the Crystal Care workers, like thousands of other Minnesota home care workers, unionized with the Service Employees.

“Now that we have a contract in place, the union is able to ensure people are paid appropriately each pay period,” filing a grievance if necessary, said Jamie Gulley, president of SEIU Healthcare Minnesota. “It would be very difficult for a situation like Crystal Care to occur again for workers that are covered by the union because we would know immediately if somebody didn’t get paid and we would be able to intervene and ensure the state was able to step in at an early moment,” Gulley added.

Wage theft is rampant in construction, especially residential construction, says Burt Johnson, general counsel for the North Central States Regional Council of the Carpenters.

 “Many workers are not an employee of anyone and are paid either cash or by some type of direct check. In multi-family construction, it’s possibly over 50 percent of the market that ends up being paid that way,” he explained.

“Typically, about 40-50 percent of the cost of a construction project is labor. If you add that all up, it’s hard to say exactly what the impact of payroll fraud would be on the construction industry, on the economy of the state of Minnesota, but it’s no doubt in the tens of millions of dollars, likely over $100 million.”

A significant problem in the industry is misclassification of workers as independent contractors. A 2007 Legislative Auditor’s report found at least 15 percent of construction employers have misclassified workers as independent contractors, with the percentages higher in some aspects of the industry, such as roofing and drywall work.

Since state figures show gross wages in Minnesota construction totaled $5.2 billion in 2012, before the industry fully recovered from the Great Recession, misclassification alone costs workers hundreds of millions of dollars. And that’s not counting cases where contractors don’t pay workers at all, as laborers recounted to Workday Minnesota.

Building trades unions, sometimes in concert with worker centers, are educating people about their rights. And the Carpenters are actively organizing workers who have been victims of wage theft, Johnson noted. The current system benefits no one but the people at the very top, he said.

“When workers are given a choice between being an employee, being covered by workers’ compensation, having overtime pay, getting benefits, they opt for that. They opt to be employees,” Johnson said. “They opt to be covered by the law.”

Photo: Steve Share/Workday Minnesota


Barb Kucera
Barb Kucera

Barb Kucera was editor of Workday Minnesota. She served for 6 years as director of the Labor Education Service, which publishes Workday. Kucera has degrees in journalism and industrial relations and a background in communications, including as editor of The Union Advocate. She is an associate member of the Minnesota Newspaper and Communications Guild/CWA Local 37002.