Domino’s Pizza is one of several restaurant chains alleged to have misclassified workers as managers to avoid paying overtime, according to a report from the National Bureau of Economic Research. (Photo by Kevork Djansezian/Getty Images)
About five years ago, most of Minneapolis’ Subway, Little Caesars and McDonald’s franchise restaurants did not comply with city wage standards. Now workers at each of the locations that violated the law receive the required minimum wage and time off when they’re sick.
This is all thanks to a co-enforcement program, where the city’s labor enforcement agency works with community organizations to ensure workers are aware of their rights and have the tools to advocate for themselves. Last year, it reached more than 12,000 workers and provided training on worker rights for more than 400 people. Since the program began in 2018, it has recovered more than $3 million in unpaid wages.
“Pretty consistently, since we started, we have received a disproportionate number of complaints or reports of violation from restaurant workers,” said Brian Walsh, director of labor standards and contract compliance at the Minneapolis Department of Civil Rights, pointing out that the restaurant industry historically has had the majority of its workers at, or barely above, the minimum wage. “… It’s kind of the front lines where some of these municipal labor standards are the rubber hitting the road if you will.”
Wage theft, which can include not paying workers minimum wage, misclassifying workers as independent contractors or as management to avoid paying overtime and taking tips meant for employees, is a $50 billion problem for U.S. workers. It is committed by large corporations, small businesses and even state governments, and it disproportionately affects low income workers, including women and workers of color.
Funds from the American Rescue Plan Act, the federal government’s response to the economic and health ramifications of the COVID-19 pandemic, allowed more states and cities to experiment with using community groups to connect with workers as Minneapolis did, according to a report from the Economic Policy Institute and the Center for Labor and a Just Economy at Harvard Law School. When labor enforcement agencies, which the average worker may not be aware of, work more closely with community organizations that connect with those workers, workers get better results, experts say.
Now that most of the ARPA funds have been appropriated, some policy advocates are pushing for states to continue this work, by making employers, rather than the public, shoulder the burden for the cost of enforcement and for the U.S. Department of Labor to support it through grants, among other funding options.
“If there are workers in a worksite who the employer knows … know their rights and that they’re ready to stand up for themselves, it makes the employer less likely to try to do things intentionally to steal wages so that then becomes like prevention,” said Veronica Mendez Moore, co-director of Centro de Trabajadores Unidos en Lucha (CTUL), a worker-led organization in Minneapolis focusing on racial, gender, and economic justice. “We’ve seen that in multiple instances where once workers stand up about one thing, the employer sort of shies away from the other.”
Walsh regularly meets with Mendez Moore’s group as well as New Justice Project MN, a Black-led organizing center focusing on economic issues, and ROC Minnesota, a labor advocacy nonprofit to discuss new developments, such as the wage theft trends they see emerging.
He said a closer relationship with these groups has helped strengthen enforcement.
“[There are] roughly 300,000 employees across the entire city and then three investigators,” he said. “That’s a really hard, almost impossible task, to be all places, all the time.”
Walsh said the total amount of ARPA funding allocated for the program is $750,000.
ARPA funds to the rescue
“The American Rescue Plan [Act] funds provided some more opportunities for that experimentation,” said Rachel Deutsch, campaign director at the California Coalition for Worker Power and one of the co-authors of the EPI/Harvard report. “There’s now this question of ‘Are we going to just abandon that infrastructure because we’re acting like COVID has ended or are we going to build on it to create mechanisms that really are needed whether or not we’re in an emergency response moment in order to inform low-wage workers of their rights and inform employers of their obligations?’ ”
The report highlighted efforts in several cities and states.
In 2021, Maine started a program with $1 million in ARPA funds for job training, help accessing unemployment benefits, and worker outreach with the support of community organizations, the AFL-CIO, and a legal aid group, according to the EPI report. In Seattle, the city’s Office of Labor Standards staff have monthly and quarterly meetings with community-based organizations. Chicago, Philadelphia, and San Francisco also have close partnerships with community organizations as do San Diego and Santa Clara counties in California.
In Iowa, the cities of Coralville, North Liberty, and Iowa City and Johnson County allocated $322,000 in ARPA funds over five years to the Center for Worker Justice in Eastern Iowa, which investigates wage theft cases and helps put community pressure on employers to pay their employees, and has assisted workers in recovering lost wages.
The help is needed because Iowa Workforce Development doesn’t have enough staff. Jesse Dougherty, the agency’s marketing and communications officer, told States Newsroom in an email that the Workforce Development Division has four positions to investigate unpaid wages. Two of those positions were vacant for part of the past year, Dougherty said. Overall about 15 to 20 people work on wage or misclassification issues on a regular basis.
Mazahir Salih, who until recently was the executive director at the Center for Worker Justice of Eastern Iowa, told States Newsroom that workers don’t always know how to file a complaint or that there is a labor enforcement entity they could file it with. They come to CWJ through word of mouth, she said. On this particular day, she was coordinating with organizers of a protest aimed at recovering the wages for a former worker at a local Mexican restaurant. He’d learned his employer couldn’t cover his paychecks only after he’d tried to deposit them at his bank.
Sometimes CWJ can work things out with the employer on the phone but if they can’t, then the group sends a letter, and from there it can ramp up community pressure, including protests and a delegation of elected officials.
“If it’s really miscommunication, we can figure it out on that phone call,” Salih said. “But some of them, either they don’t want to talk to us over the phone or they don’t want to give us any information.”
Deutsch said she would like to see more states in the South and Southwest adopt these approaches to enforce labor protections and prevent labor violations. She said that historically, these programs have started in cities with their own wage standards. One barrier could be preemption laws that have been used by state governments to prevent cities from increasing worker pay and protections beyond the state minimum wage. Many of the minimum wage preemption laws are concentrated in southern states.
Community-based organizations also need the proper financial support to dedicate time and resources to working with labor enforcement agencies. Funding issues could be resolved by dedicating revenue streams to labor standards enforcement and making employers pay for the costs through the penalties they pay for violating labor law, according to the report. Deutsch said that if philanthropic funding supports a pilot program and that program is successful, it can also make the case for more public funding of these partnerships. She added that she’s hopeful the Department of Labor will also use its granting power to support these models.
“As a society, we really systematically underfund the agencies that are supposed to enforce our workplace laws,” Deutsch said. “You’ll hear about recent anxieties about shoplifting or whatever and wage theft has always dwarfed retail burglaries and all of those things. It is a crisis and we just don’t fund it as such.”
The scope of the problem
The Fair Labor Standards Act requires workers be paid at least the federal minimum wage and overtime for any hours worked over 40 hours, but it’s a law that is often flouted. Last year, the Wage and Hour Division of the Department of Labor recovered back wages for workers in 13,122 labor violation cases in high-violation and low-wage industries. The industries that saw the largest number of workers affected were food service, construction and retail.
Low-wage workers in the 10 most populous states in the U.S. said they were paid less than the minimum wage, which means they lost $8 billion a year, according to a 2017 study. While a National Employment Law Project in 2019 found that $9.27 billion was stolen from workers who earned less than $13 an hour.
More recently, a January report from the National Bureau of Economic Research found that companies routinely deny workers overtime pay by labeling them managers even though the majority of the work they do is not managerial. Among the companies they singled out were restaurant chains Bojangles, Sonic, Arby’s, and Domino’s as well as businesses such as H&R Block, Spirit Halloween and 84Lumber. The report prompted Democratic U.S. Sens. Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts to send a letter to companies identified in the report asking them to answer questions regarding their overtime practices, as reported by the Washington Post.
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