The Crisis of Wage Theft

Billions of dollars in wages are being illegally stolen from millions of workers each and every year, writes Kim Bobo, in this excerpt from her new book Wage Theft in America (The New Press)

By Kim Bobo

November 24, 2008

A few years ago, I heard about a garment factory near my house where workers weren't making the minimum wage, or so I was told. I couldn't believe that such a place operated four blocks from where I live. I didn't even know it existed.

I'd heard about this place because some workers had visited the Chicago Interfaith Workers Center and told their stories. In addition, I'd heard that this place was a sole subcontractor for a leading national company. I wanted to know what was going on.

With the help of Interfaith Worker Justice colleagues, we organized a fact-finding delegation of religious leaders to investigate what was going on. One cold Chicago morning, twenty-five of us dropped in at the factory. The place was located in a largely residential neighborhood in a small turn-of-the-century industrial building that faces the Metra train stop. There was no sign outside identifying the facility. The front door was unlocked, so we marched on up to the second floor.

Sure enough, when we opened the second door at the top of the stairs, we stepped into a small entryway, which then had a door opening to a large high-ceiling room full of Latina immigrant women huddled over sewing machines. Despite twenty-five folks, including some in clerical collars, dropping in unexpectedly, no one looked up from their machines. (I can't believe it was because they were accustomed to regular visitors.)

Despite the cold outside, the workroom was quite warm. We all imagined how hot the room would be in August. Such Chicago buildings have impressive boilers, but no air conditioning.

We scoured the place looking for the manager. Once the manager got over the shock of seeing us in her place, she quickly tried to shoo us back into the lobby area. I must confess, we were not the most cooperative crowd. It took us a while to get back to the lobby.

Once back and contained, we began peppering her with questions.

"What do you pay these workers?"

"I pay them the minimum wage, $5.15 per hour."

"But this is Illinois; the minimum wage is $6.15, not $5.15."

Slapping her forehead, "Why didn't they tell me!"

"Do you provide any health insurance for the workers?"

"Well, I asked them if they wanted health insurance, but none of them did. They all get it through their husbands. Oh, and these workers are like my family. We celebrate birthdays and babies."

Meanwhile, one of our colleagues went to use the bathroom. A worker jumped up to give her a few sections of toilet paper.

So we asked the manager, "What's the deal on the toilet paper?"

"Oh, I used to provide it, but the workers would steal it, so now they prefer to bring their own." Right.

But this manager was not the only culprit here. The workers claimed this garment sweatshop was sewing exclusively for Cintas, the nation's largest industrial laundry. Cintas is not a mom and pop shop that doesn't know any better. It is a leading national company. The Cintas website describes itself as follows:

Cintas is a publicly held company traded over the Nasdaq Global Select Market under the symbol CTAS, and is a Nasdaq-100 company and component of the Standard & Poor's 500 Index. Cintas designs, manufactures and implements corporate identity uniform programs, and provides entrance mats, restroom cleaning and supplies, promotional products, first aid and safety products, fire protection services and document management services for approximately 800,000 businesses.

Cintas operates more than 400 facilities in the U.S. and Canada, including 11 manufacturing plants and seven distribution centers that employ more than 34,000 people.

Cintas has grown for 38 consecutive years, with fiscal 2007 sales of $3.71 billion, an increase of 8.9 percent from 2006. Net income of $334.5 million increased 3.4 percent from $323.4 million last year, and earnings per diluted share increased 8.9 percent from $1.92 last year to $2.09 this year. Cintas was founded by Richard T. Farmer, Chairman of the Board. Scott Farmer was appointed Chief Executive Officer in 2003 and Bob Kohlhepp serves as Vice Chairman.

Several months after our call at the factory, Interfaith Worker Justice (IWJ) published a report called "Airing Dirty Laundry" based on the delegations and other interviews; as a result, Cintas threatened to sue IWJ and all its affiliates. When I called to talk with the attorney representing the company, he told me Farmer and Kohlhepp were willing to meet with some religious leaders. At the meeting, we came with stories we had gathered from workers around the country. Farmer and Kohlhepp were prepared with their power points, their directors of contracting and diversity and health and safety, and so on. Our spokespeople included a guy who had taught Kohlhepp's children in confirmation classes, a Methodist bishop, a Baptist pastor, a nun, and a few others. We brought no real expertise, just a concern for workers.

The Cintas officials assured us they had excellent subcontracting guidelines in place. We assured them that the subcontracting guidelines weren't working.

On a personal level, Farmer and Kohlhepp and their staff were all very nice and pleasant. They give generously to their churches and the community. I'm sure they are great with their own families. I'm sure they are very nice people. Oh . . . and did I mention that Farmer is one of the richest men in the state of Ohio?

Still, Cintas is a part of the crisis of wage theft in the nation.

The Chicago Interfaith Workers Center helped Cintas's subcontractor's workers file complaints for the lost wages, for the sub-minimum wages they received, with the Illinois Department of Labor. Eventually, the workers recovered $209,867.82 in back wages and penalties.

Cintas, as the ultimate employer of these workers, had essentially stolen over $100,000 from poverty wage workers with no benefits by allowing them to receive less than the minimum wage, the lowest amount that workers can legally be paid. This is what I mean by wage theft.

And Cintas and its subcontractor are not alone. Not by a long shot.

Billions of dollars in wages are being illegally stolen from millions of workers each and every year. The employers range from small neighborhood businesses to some of the nation's largest employers--Wal-Mart, Tyson, McDonald's, Target, Pulte Homes, federal, state, and local governments and many more.

Wage theft occurs when workers are not paid all their wages, workers are denied overtime when they should be paid it, or workers aren't paid at all for work they've performed. Wage theft is when an employer violates the law and deprives a worker of legally mandated wages.

Wage theft is widespread and pervasive across all types of companies. Various surveys have found that:

”¢ 60 percent of nursing homes stole workers' wages.
”¢ 89 percent of nonmonitored garment factories in Los Angeles and 67 percent of nonmonitored garment factories in New York City stole workers' wages.
”¢ 25 percent of tomato producers, 35 percent of lettuce producers, 51 percent of cucumber producers, 58 percent of onion producers, and 62 percent of garlic producers hiring farm workers stole workers' wages.
”¢ 78 percent of restaurants in New Orleans stole workers' wages.
”¢ Almost half of day laborers, who tend to focus on construction work, have had their wages stolen.
”¢ 100 percent of poultry plants steal workers' wages.

Although wage theft is the most pernicious when employers steal money from workers earning low wages, wage theft affects many middle-income workers too, including construction workers, nurses, dieticians, writers, bookkeepers, and many more. Wage theft affects young workers, mid-career workers, and older workers. Although some of the worst wage theft occurs when immigrant workers aren't paid minimum wage or aren't paid at all, the largest dollar amounts are stolen from native-born white and black workers in unpaid overtime.

Millions of workers are having their wages stolen. Two, possibly as many as 3, million workers aren't being paid the minimum wage. More than 3 million workers are misclassified by their employers as independent contractors when they are really employees, which means their employers aren't paying their share of payroll taxes and many workers are being illegally denied overtime pay. Untold millions more aren't being paid overtime because their employers claim they are exempt from the overtime laws, when they really aren't. Several million more aren't being paid for their breaks or have illegal deductions made from paychecks. The scope of these abuses is staggering.

The Economic Policy Foundation, a business-funded think tank, estimated that companies annually steal $19 billion in unpaid overtime. Labor lawyer colleagues suggest the number is far higher.

Cases of unethical employers stealing wages have reached epidemic proportions. As a nation we are facing a crisis of wage theft.

Private Lawsuits Explode

There is perhaps no better evidence of the breadth of the crisis than the explosion of private lawsuits seeking to recover unpaid wages. The Fair Labor Standards Act, which covers minimum wage and overtime issues, provides workers the "private right to sue," which means they can take their cases to private attorneys. They are doing so in record numbers.

Current business magazine headlines, including a frontpage Business Week cover story and management-side law firms' articles tell the story:

"Wage Wars: Workers--From Truck Drivers to Stockbrokers--Are Winning Huge Overtime Lawsuits"

Wage and Hour Violations: An Employer's Single Greatest Uninsured Risk

Time Bomb Waiting to Explode: Wage and Hour Claims over Exempt Employees

Wage and Hour Audits: Wage and Hour Laws Are Violated More Often than any Other Employment Law

According to the Administrative Office of the U.S. Courts, there were 7310 Fair Labor Standards Act (FLSA) lawsuits filed in 2007, compared to only 1633 in 1997. In ten years, the FLSA suits have more than quadrupled. In just one year, from 2006 to 2007, the number of FLSA cases filed increased by 73 percent. These figures account for only the federal lawsuits and do not include wage cases filed under state wage laws. Most of those lawsuits were filed for groups of workers, which means that these cases are recovering wages for several hundred thousand workers. The number of workers recovering wages would be much higher if workers didn't have to "opt-in" to the suits. "Lawyers on both sides estimate that over the last few years companies have collectively paid out more than $1 billion annually to resolve these claims."

Most of the big wage and hour lawsuits deal with overtime pay. The Fair Labor Standards Act has been clear since 1938 that all workers, except those exempt from the law, are eligible for overtime pay (1.5 times the FLSA "regular rate") for hours worked over 40. The real issue is who is exempt and who isn't. Thousands of workers and their attorneys claim they are "nonexempt" workers and thus due overtime pay. But many of the employers claim the workers are exempt and thus not due overtime. The crux of the matter is the classification of workers -- whether they are really exempt or nonexempt. In an effort to clarify and streamline the overtime provisions, the Department of Labor issued new overtime regulations in 2004. Unfortunately, the regulations are still complicated, and employers continue to break the laws. Whether out of ignorance or willfulness, employers who illegally deny workers overtime are stealing wages.

Workers Centers and Wage Theft

Wage theft is acutely felt at the nation's workers centers where workers whose wages have been stolen seek help. Jeffrey Steele is one such worker who sought help in New Orleans.

Steele, an African American from Atlanta, wanted to be part of history in rebuilding New Orleans after Hurricane Katrina. Responding to a flyer advertising "Free Room and Board, Free Food, Pay $10/hour," he signed up with Workforce Development Corp, Inc., run by Carroll Harrison Braddy, and boarded a van to New Orleans in mid-October 2005. As it turned out, Braddy reneged on his flyers' promises. Steele's first few days were particularly miserable: he received no food, he had to sleep in the van, and he was made to work long hours. A few weeks after arriving in New Orleans, he was finally fitted for an aspirator, a critical piece of health and safety equipment for all those involved in the cleanup and exposed to dangerous contaminants.

When Steele's first paycheck was due, he calculated he was owed $1400, not even assuming any overtime pay (1.5 times the regular rate over 40 hours per week). But Braddy only paid him $230. By mid-November, Steele left Braddy's employment and went to work for another cleanup firm called JNE where he was promised $18 per hour. After four weeks of very long hours (almost 100 hours per week), Steele estimated he was owed about $7000. He was initially paid $300 and then got another $1000.

In January 2006, he started working for a third employer, with whom he stayed for nine months. This third employer paid him as an "exempt" salaried employee, even though he was probably legally eligible for overtime coverage (more on this issue later), which means he probably had wages stolen with this employee too.

At the last New Orleans' job he worked, Steele injured his hand, which then required surgery. He received no workers' compensation for his injury, nor did his employer provide any medical insurance. In all, Steele had four employers in New Orleans -- and all of them stole wages or workers' compensation from him. In testimony before the Domestic Policy Subcommittee of the Oversight and Government Reform Committee on June 26, 2007 in New Orleans, Steele said,

I went to New Orleans to help and to be part of history. I did the dirty, hard work that was needed. Yet, I was exploited by contractor after contractor who crammed us into filthy living spaces, provided next to nothing to eat, offered practically no safety precautions or equipment and paid workers late and so much less than even promised. If this is how this country allows employers to get away with treating hard working citizens while companies make a profit -- then shame on us. I've worked hard all my life and I pay taxes. I'm a United States citizen. I've been working since I was 9 years old. I've never been to jail and I've never asked the government for nothing. If another catastrophe happens in this country, I hope you never let any one else treat workers and the people they are trying to help like they did in New Orleans.

Although wage theft was particularly bad in New Orleans immediately after Katrina, workers centers throughout the nation help thousands of workers annually who have had their wages stolen.

Many of the examples of wage theft are immigrant examples. This makes sense because the examples come from many of the IWJ workers centers that work with immigrants. Although the centers work with all workers in low-wage jobs, it is undocumented immigrants -- who are most fearful of approaching government agencies -- who flood the workers centers seeking help. Nonetheless, most of the workers whose wages are stolen are U.S. citizens. Perhaps the worst exploitation occurs among immigrants, but the crisis of wage theft would exist even if there were no immigrant workers in the society.

Wage theft affects all American workers by lowering the nation's workplace standards, but especially those in middle- and low-income jobs. Stealing wages hurts workers and their families. Workers who aren't paid their wages still have to pay their rent or their child care. Workers who are required to work long hours without overtime compensation are deprived of the opportunity to get another job or spend time with their families. Workers who are cheated of wages can't save for their kids' college or save for a home. For some earning the lowest wages, not getting paid means their families go hungry or become homeless. As a society, when we allow employers to steal wages from some workers, it drives down wages and standards for all workers.

Wage theft places ethical employers at a competitive disadvantage, thus undermining ethical businesses. Those businesses that pay workers legally and fairly and pay all their taxes as required are undercut by businesses that steal from workers and don't pay taxes and insurances as required. In addition, wage theft steals from public coffers and denies communities of the economic stimulus generated when workers spend their wages.

[Excerpted from Wage Theft in America: Why Millions of Working Americans Are Not Getting Paid--And What We Can Do About It by Kim Bobo (The New Press, December). To order a copy of Wage Theft in America, go here [1]. To learn more about the problem of wage theft, visit www.wagetheft.org [2].]

Kim Bobo, founder and executive director of Interfaith Worker Justice [3] and a columnist for Religion Dispatches, is the author of Wage Theft in America: Why Millions of Working Americans Are Not Getting Paid—And What We Can Do About It (The New Press) and co-author of Organizing for Social Change, the best-selling organizing manual in the country.