'Wage theft' prevails in post-recession economy

Behind the counter at a convenience store in Princess Anne, Elvira Orellana worked 72 hours a week, making sandwiches, cleaning the kitchen and ordering the ingredients to prepare oxtail, curry chicken and cheese steaks.

Her employer paid her $648 a week — $324 less than she was owed under laws that require that workers earn time and a half for clocking more than 40 hours a week. When she complained, Orellana said, her boss threatened to cut her wages and then fired her.


Orellana's case, which she won in federal court, illustrates a problem that historically has been more pronounced in the wake of recessions. Since the most recent downturn, worker advocates and law enforcement officials say, a growing number of employers have violated wage and labor laws enacted 75 years ago in response to worker mistreatment prevalent during the Depression.

Employers in this floundering economy have increasingly denied workers benefits and mandatory overtime pay, according to worker advocates. Some have doctored time sheets and even failed to pay minimum wage. The practice is widespread in low-wage jobs such as waiting tables or cleaning hotel rooms but has been bleeding into middle-class professions, they say.


And studies show that victims can lose up to 20 percent of their earnings due to what those advocates call "wage theft."

Lawsuits alleging wage and labor law violations have skyrocketed, and state and federal officials have beefed up scrutiny. The U.S. Department of Labor has hired 300 more investigators. Maryland's labor department formed a new unit dedicated to wage law enforcement. And state lawmakers are drafting legislation to provide new protections to cheated workers.

The business community has opposed some legislative measures but contends that it supports strong enforcement of the laws because by underpaying employees scofflaws introduce false competition into the market. Business groups also say recession and its lingering effects left many employers, especially mom-and-pop operations, cutting back while struggling to stay in business.

Tallying the extent of wage law violations is difficult. Many workers are grateful to have work in a tight job market and too scared to speak up, said Catherine Ruckelshaus, legal co-director of the National Employment Law Project.

Speaking up can be "job suicide," Ruckelshaus said. "There are 10 people waiting in line to take your job. Oftentimes, workers grin and bear it."

Orellana, a native of El Salvador, said she didn't speak up for months, wary of someone taking advantage of her as an immigrant. But then she learned about her rights by asking questions of a fellow churchgoer with connections to the Baltimore-based Legal Aid Bureau, which eventually represented her.

"I felt completely desperate," Orellana, 41, said through a translator. She recalled that a friend encouraged her to fight. "She told me not to be quiet, to learn to defend myself, to keep going forward, to not be afraid."

The Salisbury woman won an $18,000 civil judgment for unpaid overtime in U.S. District Court, but the judge found that she had failed to prove a claim of retaliation.


Representatives of her former employer, Cienna Properties LLC, did not respond to requests for comment.

Cracking down

Aggrieved workers can take their cases either to law enforcement or to civil court.

The number of lawsuits alleging employer violations of the Fair Labor Standards Act has more than tripled in the past decade, according to an annual study released by Seyfarth Shaw, a law firm that specializes in labor and employment law. More than 7,000 lawsuits were filed from March 2011 to March 2012, up from 2,035 for the same period in 2002.

Meanwhile, U.S. Labor Department investigators collected more than $280 million in back wages last year, nearly $100million more than investigators recovered four years earlier as the recession was getting under way. More than two dozen federal investigators based in Baltimore, who oversee a multistate region, recovered $8.7million in wages last year, compared with $7.1million in 2008.

"We're here to make sure the people in the states of Maryland, Northern Virginia and the District of Columbia are getting paid, getting paid properly, legally and on time — when it's payday," said Mark Lara, district director for the Baltimore office. "That's an extremely important job in my opinion, and my staff understands that."


Maryland investigators, who have lesser enforcement powers than federal counterparts, recovered nearly $3.7 million in lost wages over the past five years, including a high of more than $884,000 in 2011. The state has also teamed up with the federal government, coordinating efforts and sharing information to take a more active role in uncovering wage and labor law violations.

The U.S. Labor Department has launched an initiative to crack down on businesses that wrongly classify employees as independent contractors to avoid paying overtime and benefits, and has signed an agreement with the Internal Revenue Service to share information to stop worker misclassification.

But Ruckelshaus, of the National Employment Law Project, said more needs to be done. If current laws were better enforced, employers would be forced to hire more workers and the jobless rate would fall, she said.

Workers should not be forced to "shoulder the burden of a weak economy without extra pay," Ruckelshaus wrote in a recent column for her organization's blog that was also featured on the AFL-CIO website.

The home health and hospitality industries as well as construction and retail are "rife with wage-theft violations," Ruckelshaus said. The same industries are harbingers of an economic recovery, so employment law violations can stall the economy's ability to recover, she said.

Misclassifying workers as independent contractors can save employers up to 30percent on payroll costs, said Sally Dworak-Fisher, an attorney with the Public Justice Center who leads its Workplace Justice Project. The practice also costs the government in lost taxes.


Independent contractors are generally exempt from wage and labor laws. Employers who rely on such contractors can save on the cost of paying workers' compensation and contributing to unemployment insurance in addition to avoiding paying overtime and benefits.

"That's one prevalent form of modern day wage theft — just call everybody an LLC," Dworak-Fisher said.

Dworak-Fisher said businesses are also using staffing agencies and labor brokers to "lease" workers as independent contractors. The idea is that employers hire those workers for sustained periods without giving them a commitment by providing benefits and job security. It's a typical practice on construction sites and in hotels, she said.

"Workers will come to us and say, 'I was just rented.' It's pretty disturbing," Dworak-Fisher said. "We also see where employers will say, 'I can't afford to raise prices for my customers or my clients, so you need to just make this work.'"

Misclassifying workers

Muriel Peters, 54, of Gaithersburg worked 119 hours every two weeks as a certified nursing assistant, bathing, feeding and cleaning up after an elderly woman in her home. She alleged that her employer, Esther Guy, owner of Early Healthcare Giver, misclassified her as an independent contractor rather than a full-time employee.


In a lawsuit, Peters alleged that Guy regularly failed to pay her on time and avoided paying her overtime because of the misclassification, costing her more than $1,400 a month. She also alleged that Guy inflated her earnings reported to the IRS to account for other off-the-books salaries, which caused her daughter to become ineligible for financial aid.

The Court of Special Appeals found that Peters was not exempt from earning overtime pay but did not rule on the tax allegation. A lower court is expected to determine this spring whether Peters is entitled to recover lost earnings, and if so, how much.

Guy denied the allegations in court filings. In the most recent filing, Kevin M. Tabe withdrew as her attorney and said Guy is "no longer in business." Guy did not respond to requests for comment.

Peters, who is represented by the Public Justice Center, said she feels as if many of the hours she worked were in vain. She has considered taking out a second mortgage to help pay her bills.

"Sometimes I don't sleep," Peters said.

Alexandra Rosenblatt, an attorney for the Public Justice Center, said rampant worker misclassification led to the General Assembly's passage of the Workplace Fraud Act in 2009, which established the enforcement unit at the Maryland Department of Labor, Licensing and Regulation. But the new unit was limited to looking into landscaping and construction companies.


Rosenblatt said advocates plan to lobby in Annapolis to expand the Workplace Fraud Act to include industries such as home health care workers. The group is also backing legislation to create a wage lien law that would freeze the sale of an employer's property in bankruptcy proceedings to enable workers to collect back pay.

Often, employers who commit violations hide assets or file for bankruptcy to avoid paying for work performed, Rosenblatt said. Or they will close the company and reopen under a new name, she said.

Fiona Ong, who co-chairs the employment issues committee for the Maryland Chamber of Commerce, said companies that violate wage laws put law-abiding businesses at a competitive disadvantage while making it harder for themselves to retain workers. She also said that some businesses inadvertently violate the law while trying to manage financial pressures in the recovering economy.

This economy "requires employers to do more with less, and I think they recognize that's happening; it's a real struggle for everyone," said Ong, an employment law attorney with Baltimore-based Shawe Rosenthal LLC. "Every employer I deal with wants to have a workforce that is stable and efficient but one that is loyal to the employer. You're not going to have that if you demand too much from your employee without compensating them for it."

Ong cautioned against the passage of more laws to deal with violators. Putting more requirements on businesses, especially smaller ones, could "force them into an untenable financial situation," she said.

'We didn't willfully cheat'


Donald Sloat, 59, of Frederick said he spent 22 years at Hill Enterprises Inc., working his way up from carpenter to project engineer for the cabinetmaker, but quit after his boss stopped paying him in 2010. The Gaithersburg company, which eventually declared bankruptcy, often asked him to wait to cash paychecks or issued checks late, he said.

He said the company owes him $17,000 in unpaid wages and vacation time, but he doesn't expect to recoup the money.

The company filed for bankruptcy within days of Sloat's filing a complaint with state authorities. While he was listed as a creditor in bankruptcy filings, along with other employees, the company exhausted its remaining assets paying other creditors, according to an attorney for Hill Enterprises.

Philip J. McNutt, a Washington attorney who represented the couple who owned Hill Enterprises, said A. James and Rayola Hill suffered personal financial ruin trying to keep their business open.

Rayola Hill said that she and her husband ran their custom cabinet business for 45 years and that losing the company was painful. Hill said their company worked as subcontractor and ran out of money when contractors failed to pay them. In turn, she said, their company could not pay its workers. The cash-flow problem was worsened because their products were custom-made and could not be easily sold to other clients.

"We lost everything," Hill said. "We didn't willfully cheat anybody. We did everything we could. We pumped every dollar into it that we shouldn't have. We didn't look out for ourselves even when the attorney told us to."


McNutt warned that a wage-lien law could backfire. If more senior creditors do not get repaid because assets are awarded to former employees first, banks could tighten lending and small businesses might be forced to hire fewer workers, he said.

Sloat said he plans to lobby in Annapolis for added worker protections.

With his paycheck coming inconsistently — or not at all — for about six months, Sloat said, he resorted to selling his comic book collection from the 1960s and his wife's teddy bear from John F. Kennedy's presidential campaign. When that wasn't enough, Sloat asked his elderly parents for help. He's unable to help pay college tuition for his 22-year-old daughter, who is working as a waitress.

"I feel stupid for staying as long as I did, thinking they would live up to their promises," said Sloat, who has found full-time work but at a lower salary.