S3 E10: Decoding Wage Theft for HR Professionals
Podcast June 14, 2023
Transcript:
Pete Wright:
Welcome to Human Solutions, simplifying HR for people who love HR, from AIM HR Solutions on True Story FM. I’m Pete Wright. And this week we unravel the complex web of wage theft, and its implications for HR professionals. Sam Larson and Tom Jones are back with me this week, and together we explore a variety of legal cases related to wage theft, shedding light on the importance of understanding the underlying issues and the legislation that aims to protect employees and ensure accurate payment of wages. Welcome Jen, Sam and Tom, it’s so good to be talking with you again this week. I wonder if we can start with an introduction to wage theft. For those who don’t understand the underlying issues, what is wage theft and why are we talking about it today? Sam, you’re not here as often as Tom. Let’s let you kick us off.
Sam Larson:
Sure. In the simplest terms, wage theft is when an employer does not tender proper compensation to their employees. That can be in the form of traditional, I make $15 an hour and you paid me $14 an hour, or as complicated to down to not owing people certain vacation days, not owing things like meal breaks, and even more complicated things like failing to make certain contributions to health plans and retirement plans. Tom, what am I missing there?
Tom Jones:
The thing you see a lot is in the final paycheck, illegally withholding the final paycheck because of some alleged misdeed the employee may have done, such as damaging company equipment or something like that, which is illegal typically, or doing an offset on the final paycheck and saying, “Ah, well you owed this money for that, or we think you borrowed some company tool or asset, so therefore you fail to return it, so we’re going to charge you for that by taking from your final paycheck.” Which is generally, as Sam alluded to, illegal, you’re supposed to be paid at least for every hour you worked that final week. And if there’s an outstanding balance, that’s a separate legal matter.
Pete Wright:
This is actually really interesting to me, I’m sorry to interrupt you Sam, but I think I have maybe a leading question. First of all, I just hadn’t considered that wage theft involves all compensation for all employee activity, not just dollars for time. But also, I’m curious whose job it is to maintain and pay out against those records. Because when I look at the complex organism of human systems that we have created here, there are a lot of people involved in compensating a single employee. Who’s doing this?
Tom Jones:
Typically it’s the responsibility of HR, or it could be an operations manager according to the Fair Labor Standards Act and typically state law, to record accurately time for every hour somebody works. If somebody’s a non-exempt employee, they get paid by the hour, and there’s supposed to be a record to show how many hours a day that person worked, how many hours a week that person worked, are they entitled therefore to overtime, or not? And it’s really the employer’s and typically HR’s responsibility to track that time. And maybe there’s a payroll person separate from within the HR world who must pay out all that money.
Pete Wright:
That’s where I was going with it, that it was some payroll person who’s charged with all that stuff, Sam?
Sam Larson:
And I think to Pete and Sam’s point, there’s a lot of things that can go wrong. There’s a large chain of people involved in doing this, and there’s a lot of weak links in that chain where these mistakes can happen. Waste theft is not necessarily an employer going into your paycheck and just stealing from their employees, or driving away at the end of the workday and not cutting anyone a check. That does happen, it’s extremely rare. But the real damages we see often come in the form of mistakes, especially in Massachusetts, where you see it does not matter, the wage statute does not care about your intent or does not care that you made a mistake or not. It’s a strict liability state as are many others.
Pete Wright:
Okay, so we are talking about this for a reason. What is that reason today?
Sam Larson:
The reason we’re talking about today is there’s legislation filed in Massachusetts, and it’s filed in several other states. It’s not just a Massachusetts issue. It’s a bill, it’s to combat wage theft. Something AIM is worried about and we want to make sure we don’t support stealing from their employees, and most AIM employers do not cheat at all on waste theft. But what this bill does…
Pete Wright:
I’m glad that’s on the record, Sam. I’m glad we got it. We said it out loud.
Sam Larson:
I say it, every time we’re in the legislature, I’m not worried about.
Pete Wright:
No mustaches that are worth twirling here. We are not in favor of wage theft.
Sam Larson:
Right. We’re very much so not. And in fact, AIM has long lobbied for extra money and extra resources to the Attorney General’s office to enforce wage theft, because our members are at a disadvantage when they’re competing for bids against people that do cheat, people that do rip off their employees. In the current scheme, there are strict penalties and there are strict enforcement. What this bill does is push the envelope a little further than anything we’re comfortable at AIM. and I think we’ll sweep in a lot of employers that make mistakes, and a lot of employees contractors make mistakes. Basically what this bill does is it extends what’s called vicarious liability ,up and down the contracting chain. Remember in Massachusetts, you have strict liability, doesn’t matter if it was your mistake or not, and you have trouble damages. For every dollar you made a mistake on, or every dollar that’s missing from an employee, you owe three of those dollars back, plus interest plus attorney’s fees. That’s currently on the books. What this bill does is it takes all those penalties, and all those intent rules, and implies that to everywhere up and down the contracting chain. If you’re a university and you contract out your cleaning services, and they make one of these wage theft issues, you’re on the hook for it for triple damages regardless if they made a mistake or you made a mistake.
Pete Wright:
Wow. How do we get there? That seems like a legal weapon of mass destruction. Tom, what gets us to that point?
Tom Jones:
Well, years ago Sam, I think what around 2009 or 10? The legislature adopted this triple damages rule, as a mandatory penalty. And so in some cases where there’s a bad employer, I think everyone would agree that that’s a reasonable remedy. But it takes some effort to get there. But what Sam’s highlighting is the fact that this has now become the normal penalty so that if there’s any infraction, automatically you’re hit with this hammer of triple damages. And so that’s part of what the problem is. The legislature adopted the standard without doing any qualifications as to where it’s appropriate, and maybe there was a good faith mistake and there should be an exception carved into the law. Nothing like that exists. And so it’s going to be an arbitrary penalty. It’s going to be broadened continuously, and there’s been a tremendous effort within the bar to develop, cultivate a group of attorneys who in this field. And so there’s a whole bunch of employees who believe they’ve been wronged, so there’s a cases that get brought against employer rightly or wrongly, that force this situation to come to a head, and force more and more employers to have to think defensively about what this situation is. And I think unnecessarily so, because they’ve been practicing good practices for years, and maybe someone made a simple mistake, and next thing you know they’re whacked with this potentially huge penalty.
Pete Wright:
The fact that there are reasonable damages for bad faith employers is fine. That point not withstanding, how we got to the place where we are applying that standard up and down the contracting chain is the area of immediate concern that I have. Were there particular cases that pushed this into the legislation?
Sam Larson:
Yeah, it’s basically you’re using a sledgehammer when you need a scalpel. There is a very narrow subset of cases, particularly in the construction industry, where someone is a bad actor, and their contractor knowingly hires them knowing they’re a bad actor. Let’s say you need drywall [inaudible 00:08:33], you need drywall done, and there’s five bids, and they’re all for $50,000, and the last one comes in at 25,000. There’s no possible way a subcontractor could do it that cheap without cutting some corners. And so what this bill seeks to address is a prevailing contracting problem, in which fly by night employers will engage in pretty substandard labor practices including wage theft and probably a few others as well. And then those companies, whenever they get caught doing something, will dissolve.
It would be Tom and Larson Construction, and I get caught doing wage theft, we dissolve, we disappear, and then three months later we’re back as Larson and Tom Construction. It’s very simple to reincorporate and play this whack-a-mole game with employers. And it’s a problem and there are ways to address it. What this bill does, or at least suggests to do, is that is now everybody’s problem. Regardless of your industry, regardless of how you contract things out, regardless of how you basically set up your entire business practice, everybody else’s problem is now your problem because there’s a belief that you should know exactly what all of your employers are, all of your contractors are doing.
Tom Jones:
The other dilemma we see a lot even outside the construction industry, is that not everyone was willing to report their wages in a timely fashion, employees. They’ll report them late, which means the employer may report them late, or inaccurate and miss some overtime, or miss some other payment, and as a result they’re in violation of the law because they didn’t pay the proper wage within the proper timeframe. No intent was there, there was no malicious effort on anyone’s part. But because either employees delayed reporting their time, or there was mismanagement or miscommunication, companies are now in violation of the law, and they can theoretically get hit with a penalty, a lawsuit and the trouble damages penalty.
Pete Wright:
You mentioned earlier that this is broader than just a Massachusetts issue. How jurisdictional is this? Is it something just throughout the Northeast? Is it something that other states are dealing with too?
Sam Larson:
New York City is the only other place in the United States of America that has adopted this on the books. And that’s limited to just the construction industry. But there’s bills filed to extend this massive liability change. And most states in the Northeast, just about all of our neighboring states have bills attempting to do that. And our contemporaries in other states are as equally as worried about it as we are.
Tom Jones:
I think the other place you see it is in the immigrant community, where people who came in or were working in the undocumented community or at the municipal level, especially in states near the border, are being trafficked, as it were, into jobs where they’re not being paid their full wage. A state may not take a position on it, but a city or a county may take a position against wage theft, to try and prevent that exploitation of those workers. But it’s certainly broadened to well beyond what Sam’s talking about and the general economy.
Pete Wright:
What is it important for us to know as HR professionals about wage loss, so that we can better understand and have a position on the issue of wage theft and this legislation coming down to us?
Tom Jones:
Know your record keeping rules, essential, and FLSA has specific record keeping rules, but other states may have certain rules as well, extra quirks about compliance that you’ve got to know, timetables for reporting. Or for example, California has a rule about overtime after eight hours per day, that’s different than the standard 40 hours per week. It’s know what your local laws are and make sure that you comply with them.
Sam Larson:
Well, if this bill passes, start auditing everyone you hire to do anything. I would say that, it goes way beyond keeping your own house in order. You have to start keeping the house of others in order as well. But for now, I would just follow Tom’s advice.
Pete Wright:
Do you have an anticipated burden that we’re telling members, that if this legislation passes, you speak of audit everybody who does everything. What do we have to look forward to as employers? This seems like it might be a burden to operations to a apply this standard.
Sam Larson:
I would say a burden is an understatement. I would say not only is it a burden to operate without fear of liability, you’re going to get sued at some point, especially if you’re a larger employer. Generally it’s general standard practice to go after the biggest pocket in any of these lawsuits, and because you all the way up and the way down the chain, people are going to the deepest pocket. And they’re going to be establishing companies, and they’re going to be large employers.
Tom Jones:
Some of these cases will probably end up piercing the corporate veil, what they call corporate the veil that some corporations are set up as a way to protect the CEOs, but if you can demonstrate some lack of knowledge or poor bad faith, then that corporate veil could potentially get pierced in some case. And the corporate officers could themselves be exposed to liability.
Sam Larson:
I think a critical disconnect here, is that there’s a belief that somehow contracting out labor services is somehow nefarious. When in actuality, many companies, many employers simply just don’t want to do it or don’t want to specialize in it themselves. I’ll go back to the university example and a cleaning service, does whatever major research university, do they want to keep up best practices with how to wax floors, and pay someone in house to know all the environmental standards on how to shine their floors or keep everything clean? No they don’t. They want to have somebody else do that for them, which is why they contract it out. It’s not a way around wage laws or unions or anything, it’s just a simple matter of efficiency. And I think that’s often lost in the discussion around wage theft.
Pete Wright:
What’s your assessment of likelihood of this legislation passing?
Sam Larson:
That’s a great question. If I do my job well, it’s not going to happen. But if we get unlucky, and there’s significant pressure, particularly from the unions, particularly from the public sector unions, they have a lot of money and a lot of influence, it may pass. They’ve threatened to put it on the ballot, and if it does, I think that’s a very scary proposition if it comes out of the legislature and makes it to the ballot. But as long as it remains in the legislature, I think we probably have a 60/40 chance of winning there.
Pete Wright:
The question for me and Tom is, what’s the over under on Sam doing his job well?
Tom Jones:
Exactly. No, it’s a huge challenge because there’s a whole bar out there, a whole group of attorneys who are very keen on doing this, because it’s become a huge practice area. As other areas may have dried up over the years because of regulatory changes, or reforms in the law, you think of something like workers’ compensation or something like that, that are not as lucrative as they once were. These cases are of course highly lucrative. Trouble damages plus attorney’s fees is not a bad, you find 10 employees who you believe were wronged, each case is worth two, $3,000 plus attorney’s fees associated with it. That’s a lot of money.
Pete Wright:
Before we get to the point where we’re wrapping up a little bit here, I see you also want to talk a little bit about the proposal to increase the minimum wage. How does this relate to our ongoing conversation about wage theft?
Sam Larson:
Sure, the higher the wages, the higher the damages, the higher the risk for employers. It all adds up very, like Tom said, it all adds up very quickly. And the higher you’re pushing up low wage workers, the higher you’re pushing up medium wage workers, the higher you’re pushing up high wage workers, that’s all going to have a compounding effect on each other. And those are just going to be more damages at the end of the day.
Pete Wright:
Tom, do you have thoughts on the minimum wage bit?
Tom Jones:
Not so much on the minimum wage, but one other thing on the other law is that it’s very black and white. One day out of compliance, you’re wrong. For example, if Sam works for me and I failed to pay him on the proper payday, pay him a day late for whatever reason, it’s a holiday or something like that. I’m out of compliance. The law is black and white that he can now sue me for triple damages. The law is very unforgiving in terms of simple mistakes. It might be without malicious intent, but then as Sam just alluded to, the more you raise the threshold, the more the consequences are going to be for an employer.
Sam Larson:
Tom, I’d like to talk a bit about that final day ruling, and how strict the recent Supreme Court ruling has been in Massachusetts, if you will a little bit. There’s a case called [inaudible 00:17:19] City of Methuen, and basically the ruling was that if you’re a day late on a dismissed employee, this is someone fired for cause. If you’re a day late on cashing out any of their benefits, it’s automatic trouble damages regardless of if it’s the fault of your payroll company, regardless of it’s the fault of anybody else. And you owe them all that money right up front on the day you let them go. Now think about someone you’re firing for cause. Often it’s not a pleasant exchange. Often it’s not someone who’s happy to go out the door, and it’s usually not someone who’s going to work with you while you get your act together to let them out the door. And sometimes, more often than not, it’s something that happened quickly, and something an employer has to respond to. It’s rarely something you plan.
Tom Jones:
Absolutely true. You’re not ready for it. Companies scramble, and they don’t have a payroll check handy, they don’t have a payroll check department handy. If they have an outside payroll service, they’re going to be calling them up, it’s after three o’clock and they say, “Well, we’ll get you a check tomorrow. Well a check tomorrow puts you out of compliance with the law. S
Pete Wright:
What were the terms of this particular case?
Sam Larson:
You can’t make this stuff up. The plaintiff in this case was the city employee from the city of Methuen, who got caught stealing from her own public sector union, and then had the temerity to turn around and sue the city for firing her, for giving her vacation days two weeks late. And she won. She took it all the way to the state Supreme Court, won.
Pete Wright:
Wow.
Sam Larson:
And the court said black and white law, the city violated the law, didn’t pay it. I think they paid three weeks late. They did pay late, there’s no question about that.
Pete Wright:
Well, that actually brings up I guess this specific point, which is black and white law means it is completely separate. The company’s infraction is completely separate from her infraction as an employee.
Sam Larson:
Absolutely.
Pete Wright:
And were there any other repercussions for her for actually stealing from, besides being fired? I assume there were some other-
Tom Jones:
Was she convicted of larceny?
Sam Larson:
I’m not sure. I only followed the civil case. I never caught up on the criminal side.
Pete Wright:
Criminal side.
Tom Jones:
[inaudible 00:19:29] criminal conviction, but I don’t recall there being any prison time.
Pete Wright:
That is a fascinating thing. I think, again, from the HR perspective to be aware of, that these things are separate and unequal and are processed as such, that’s incredible.
Tom Jones:
Most states would want to welcome people to make sure they got paid on time. No one wants to see workers get their wages denied or delayed. That’s one thing, but that’s different than putting this hammer in place to say that employers are going to be punished for failing to do so a day late, or some simple, an administrative error.
Sam Larson:
And I’d like if it’s okay to just talk about what we’re doing on government affairs at AIM about this specific case in a way to try and address this problem.
Pete Wright:
Absolutely, Sam.
Sam Larson:
We filed a very simple bill. We’re not asking for the world here. All it is, is it says if you’ve laid someone off, they come to you saying they’re missing something, they’re missing their vacation days, they’re missing a piece of their executive compensation, they’re missing a little bit of a bonus that they thought they were owed. I, the employer, I just got 15 days to make it right. And that’s all we’re asking for. It’s a good faith mistake. It’s a simple error, and all you’re asking is for two weeks to make it right and pay the employee everything they’ve asked for. And during that two week time, this trouble damages pauses, this attorney’s fees pauses. And so all we’re doing is asking for an opportunity to return the proper money to the employee in a timely manner.
Pete Wright:
That doesn’t do anything about, we come back to the bad actors. The few companies that actually are trying to rip their employees off in some way, shape or form. There are already resources for that.
Sam Larson:
Totally. The attorney general’s office has a whole division devoted to fighting that. This is just you’re a classing AIM member, you’re a mid-sized manufacturer, you have a nice person who runs your payroll department. They’re not necessarily the savviest person. They make a mistake on somebody’s way out the door. That person who’s fired comes back to them, asks for whatever it is, my three vacation days, my two sick days. And you get two weeks to pay them back.
Pete Wright:
That makes total sense. And it gets back to that question, what are we doing? How did this become potential legislation when it feels like we have rules to account for actual wage theft elsewhere? It is a little bit mind-blowing, but I feel like you guys have made a good case for where the panic lies for those who are nervous about it. Where can we send people to learn more about this? Sam, we’ll start with you. You’re doing the active work. Where can people learn more about your work in moving this legislation along?
Sam Larson:
You can go to the AIM website where there’s a summary of it. You can email me for further details, and I’m happy to correspond with you, slarson@aimnet. Org. That’s slarson@aimnet.org. Please just reach out to me and I’ll tell you all about it.
Pete Wright:
Tom, do we have resources at AIM HR that we need to be sending people?
Tom Jones:
Well, certainly for AIM members, you could call the hotline in Massachusetts, the 1-800-470-6277 number. For anyone interested as well, you could contact me, you could do tjones@aimnet.org, and I’d consult with Sam and say, “Well, we got an email on this. What do you think?” Because it could be members who operate both in Massachusetts and another jurisdiction learning about this, and want to know more about what’s going on. It could be someone in Massachusetts who was unaware of this. But we’re happy to talk to anyone about issues like this to make sure that A, there’s education and awareness, but also that they’re aware of the consequences of a potential law like this.
Sam Larson:
And I think this is where AIM really shows its value, and between the government affairs division and the HR division. Tom comes to us with a problem that came from a member, we come up with a bill to try and solve it, file it at the legislature. And I think that’s what we really bring to the table.
Pete Wright:
Sam, do you have a sense on when, from where we are right now when we should expect next action on this bill?
Sam Larson:
We’ll have a hearing in a few weeks and we’ll see how it goes from there. We have two great sponsors in the House and the Senate who really get this issue, both of who are attorneys, and passionate and understand how much of a burden this is, and we’re really going to fight for it. We’ll take it from there.
Pete Wright:
Awesome. Awesome. Well, we should come back and report again when we hear some more about this particular wage theft legislation. Thank you everybody for downloading and listening to the show. If you swipe up in your show notes, I’ve got some links to some more resources there from US Department of Labor, Wage and Hour Laws for the state of Massachusetts. We’ve got some resources@aimhrsolutions.com. Just swipe up again. You’ll see all of those links. They will hopefully serve your ability to educate yourselves. Thank you so much everybody for downloading and listening to this show. This episode marks the very end of season three of Human Solutions. We are so grateful for you all for continuing to support the show, download and listen to the show. For the summer, we’re taking a little bit of time off. We’re going to be rolling a few of our favorite episodes from the catalog in here for the next, oh, I’d say couple months. We will be getting back into the saddle and recording our next season. That’s season four, for release in the fall. On behalf of Tom Jones and Sam Larson, I’m Pete Wright, and we’ll see you next season right here on Human Solutions, simplifying HR for people who love HR.