Study: Employees Face Huge Difficulties Collecting Unpaid Wages From Employers
Wednesday, July 24, 2013
Late in June 2013, the National Employment Law Project (NELP) released the results of a study about wage theft in America. The NELP press release stated key findings from the study:
"Over 83 percent of workers in California are unable to hold employers accountable and recover their unpaid wages after receiving a legal judgment in their favor... The study... exposes the challenges that workers face in collecting wages owed from their employers—even after state authorities rule in the workers’ favor and order employers to pay... The first of its kind, the study finds that the majority 60 percent of businesses found liable for unpaid wages ultimately suspend, forfeit, cancel or dissolve their businesses, making it more difficult for employees to collect the wages they are owed."
The study, "Hollow Victories: The Crisis in Collecting Unpaid Wages for California’s Workers" (Adobe PDF; 422K bytes) was produced by the National Employment Law Project (NELP) and the UCLA Center for Labor Research and Education. The researchers performed a detailed, comprehensive analysis of records from 2008 to 2011 released by the California Division of Labor Standards Enforcement (DLSE). The researchers also interviewed 50 workers in California who had attempted to collect unpaid wages through legal methods. The NELP is a non-partisan, not-for-profit organization that conducts research and advocates on issues affecting low-wage and unemployed workers.
Wage theft is:
"... paying workers less than the minimum wage or agreed-upon wage, requiring employees to work “off the clock”without pay, failing to pay overtime, stealing tips, illegally deducting fees from wages owed, or simply not paying a worker at all. Pay violations are shockingly high in low-wage industries... retail, restaurant and grocery stores; domestic work and homecare; manufacturing, construction, and janitorial services; car washes, and beauty and nail salons..."
Interviews with employees revealed even more ways employers practice wage theft:
"... employers paid them with invalid checks with insufficient funds; other employers simply stopped issuing workers their paychecks at all because the company had run out of money. Other employers would fail to pay their workers, and when pressed, would break promises to pay at a later date. Still other employers forced workers to record fewer hours than actually worked on their timesheets, or failed to pay for overtime. More often than not, workers reported that patterns of wage theft occurred over a lengthy period of time, lasting months or even years."
The wage theft affects everyone, not just employees:
"... the state loses valuable revenue in payroll taxes... In a sense, taxpayers are subsidizing unscrupulous and law-breaking behavior by these employers. Wage theft hurts communities and other businesses that abide by the law. Unpaid wages also means that fewer dollars circulate to local businesses, stunting economic recovery, depressing employment by small businesses, limiting local sales tax collections, and diminishing opportunities for local economic development. Even other businesses are hurt; when responsible employers must compete with unscrupulous employers..."
Besides wage theft, employees experienced several hardships. After reporting wage theft to authorities, many employees experienced retaliation by employers:
"... Several workers reported that their employers lowered wages, fired them, or threatened to call the police or immigration enforcement after learning that workers had filed a wage claim or lawsuit. These reports echo prior data on retaliation against low-wage workers: the same national study found that 43 percent of workers who made a complaint or attempted to form a union experienced one or more forms of retaliation."
"The lengthy duration of the wage claim and collections process, including the DLSE process and private lawsuits, caused severe economic distress on workers and their families... Several workers reported going without food or medicine and difficulty in paying bills and rent as a result of unpaid and uncollected wages."
Detailed findings from the report about unpaid wage collections by employees:
"... workers recovered only 42 percent, or $165 million of approximately $390 million in total wages verified as owed by the DLSE. This figure includes amounts agreed to in settlement and after judgment.
Only 17 percent of California workers who prevailed in their wage claims before the DLSE and received a judgment were able to recover any payment at all between 2008 and 2011.
Although the DLSE issued awards for unpaid wages of more than $282 million between 2008 and 2011, workers were able to collect a mere $42 million—roughly 15 percent—of those awards from their employers. Our research also finds that workers who try to enforce DLSE judgments for unpaid wages often find that their employers have disappeared, hidden assets, or shut down operations and reorganized as a new entity.
Employers who did not pay their workers, refused to settle, were found by DLSE to owe wages, and then became subject to a court judgment were more likely than not to have suspended, forfeited, cancelled, or dissolved business status within a year of the wage claim.
In 60 percent of cases where judgments were issued against business entities by the DLSE, employers who were found to owe their workers for unpaid wages were also found to be “non-active” business entities by the California Franchise Tax Board or the California Secretary of State. “Non-active” businesses include those that have forfeited, cancelled, or dissolved status. In 24 percent of all cases, employers were found to be non-active before the DLSE was able to issue its finding."
The researcher look at several tools available to employees, such as a post-judgement lien, a mechanic's lien, collection agencies, and collection by the DLSE. The researchers concluded:
"A stacked deck: current collections tools are inadequate for victims of wage theft"
Why employees have huge difficulties collecting unpaid wages with the current set of collections tools:
- The collections process for available tools is complicated and expensive
- Some businesses have few assets and/or no property to collect from
- Some businesses have hidden their assets or closed to re-organize under a different name
The researchers also compared findings about California to findings:
"... released by the Wisconsin Labor Standards Bureau, Wisconsin Department of Workforce Development, and Wisconsin Department of Justice... We examine Wisconsin data, as the state has the oldest and one of the most extensive wage lien programs in the country."
Some comparisons between California and Wisconsin:
"In Wisconsin, which does not have an administrative hearing process for wage claims, 80 percent of suits to enforce the wage lien result in some payment of unpaid wages for the worker. In cases where wage liens are used to recover unpaid wages for a worker, workers recover 25 percent of the amount found to be owed, more than 1.5 times more than in California."
Some states have laws allowing employees to attach wage-liens against an employer's property, but many don't or the laws are limited to certain industries:
"Many states have wage lien laws in some form, providing good experience and success with this mechanism, including Georgia, Idaho, Maryland, New Hampshire, Texas, and Wisconsin. Alaska, Pennsylvania, Washington, and Florida allow wage liens for specific industries, and Tennessee and Indiana allow wage liens for corporate or partnership employers."
The researchers concluded:
"The good news is that other states have enacted policy solutions that encourage prompt settlement and promote efficiency in their wage collections process. For example, states like Wisconsin that have enacted laws that authorize the worker to impose a lien on the employer’s property in cases involving unpaid wage have higher rates of collection for wage theft... California and other states around the country can provide more effective legal tools, such as wage liens... to increase efficiency in the enforcement of judgments for unpaid wages."
What does all of this mean? Several things:
- Employees experiencing wage theft must know the laws in your state
- Employees have a better chance to collect unpaid wages in states that allow workers to attach a lien on the employer's property
- Some ethics-challenged executives won't hesitate to not pay employees all of the wages they've worked for and earned. Others will conveniently look the other way and not challenge the wrong-doing they see.
- Many ethics-challenged executives use what I call a cut-and-run strategy to avoid paying debts: close the business and re-organize under a different company name
- Despite state laws, these ethics-challenged executives are not being held accountable
- If ethics-challenged executives already use a cut-and-run strategy in California, then executives in other states are probably practicing the same wage-theft habits
- Ethics-challenged executives will probably practice the same wage-theft behavior on skilled, higher-paid employees, not just unskilled, low wage earners
- Ethics-challenged executives will likely practice the same wage-theft behavior on individuals working as independent contractors or freelancers
What's your opinion about wage theft? Is it getting better or worse? What about the laws in your state?
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