Unscrupulous Employers Skim $26.2 Million

Ruth Milkman is not in PR. But if she had been, she'd probably move the following statistic from the 53rd page of her month-old UCLA study to the front, where it might have had a fighting chance of being read, and then reported, by local media (it wasn't): Every week, employers in Los Angeles County pilfer $26.2 million from the measly paychecks of the poorest 17 percent of workers.

"That's what we're saying, and we're very confident in it," says Milkman, a UCLA sociologist and co-author of Wage Theft and Workplace Violations in Los Angeles.

Published in January, it is a comprehensive, 69-page study of 1,800 low-wage workers, ranging from bank tellers to security guards. Its conclusions, if correct, may act as a wake-up call for political and business leaders over employers' widespread practice of denying L.A.'s worst-off employees basic on-the-job legal rights: the $8 hourly minimum wage, time-and-a-half for overtime, rest and meal breaks and so on.

"We're talking about compliance with minimum standards. You have employers here intentionally violating the laws because they know there's no enforcement," says study co-author Victor Narro. "Employers make a calculation: They choose not to pay what they should because they get away with it."

Unscrupulous employers in Los Angeles are getting away with it far more frequently than they do in New York or Chicago — two peer cities where the authors studied the situations of 2,000 similar employees. Compared with New York and Chicago, low-wage workers here are far more likely not to be paid for work they've done. The cost is high — a 12.5 percent transfer from workers' paychecks to their employer's bottom line, representing $2,000 a year for somebody earning just $16,536.

Instead of relying on workers' knowledge of labor laws to determine if workers were being ripped off, the survey's authors collected hard data. Rather than being asked if they were paid the minimum wage, the 1,800 employees surveyed provided day-to-day data from one week of work. This method, the study's authors say, means their results are highly reliable.

The study concluded that:

• California's minimum wage is $8 per hour, yet 30 percent of low-wage workers here receive less. Most of those surveyed earned less than $7.

• Overtime violations here are widespread and costly. More than 75 percent of the employees surveyed weren't paid the mandated time-and-a-half.

• Nearly three-quarters of Angelenos who work before or after their regular shift don't get paid for the extra time worked.

• Employers cannot legally dip into workers' tip jars, but this happened to 19 percent of the surveyed workers earning tips.

• Almost half of employees who complained about work-site conditions or tried to form a union reported experiencing retaliation.

• Of workers injured on the job, only 4.3 percent reported filing claims for worker's compensation over the last three years.

Workers' legal status, race and sex had a clear impact on whether they were paid the legal rate, and no single demographic was treated as unfairly as female illegal immigrants.

More than half of the illegal-immigrant women involved in the study — 54 percent — were paid less than the minimum wage. That's about twice the percentage of male illegal immigrants being shortchanged. Some 15 percent of U.S.-born employees are not being paid the legal minimum wage, the data show. Nearly 40 percent of illegal workers are not getting minimum wage.

The employees shortchanged most often were restaurant, garment and car-wash workers, as well as janitors, home health-care workers and security guards. In fact, 60 percent of garment workers get less than the minimum wage, and a staggering 92.5 percent aren't paid proper overtime.

When the study's authors mapped the pay violations, practically every employment enclave proved to be breaking the law. Work sites with violations dotted the Southern California landscape, including wealthier areas like Santa Monica, Beverly Hills and Pasadena.

But the greatest concentration of shortchanged workers was in South Los Angeles, in the central business district downtown, where garment factories are concentrated.

"What you're discussing is illegal and should not be happening here," says Gary Toebben, president and CEO of the L.A. Area Chamber of Commerce, in response to the data. "This is not the way most businesses do business in Los Angeles. In my understanding, this survey studied about 16 percent [of the L.A. labor market]. I would not want people inferring that this is normal here."

Federal and state laws impose civil penalties for the gouging of employees. But a few U.S. cities, including Austin and Denver, have started criminalizing the practice — a step the study's authors recommend. Last year, the district attorney in Fresno County — one of California's poorest areas — began prosecuting employers who deliberately gouge their employees.

Is Los Angeles next? Perhaps.

In March, the L.A. City Council's Jobs and Business Development Committee is considering a draft ordinance that would criminalize wage theft, says Saeed Ali, chief of staff for Councilman Richard Alarcon. (In October, the City Council asked the city attorney to craft a proposed law for the committee's consideration.)

Does this sound good to L.A.'s Chamber of Commerce?

"Uh," Toebben remarks, pausing on the phone to L.A. Weekly, clearly uncomfortable. "I'm not a lawyer. I'll pass on that."

Toebben says he would support a worker-education campaign, and suggests that a state law could require the printing of basic employee rights on the backs of pay stubs.

That could help, considering how few employees seem to know the laws, but there's one snag: In Los Angeles, 60 percent of the lowest-wage workers don't receive a pay stub or any other document showing their earnings and deductions — another blatant violation of the law.

Sociologist Milkman doesn't have pie-in-the-sky ambitions but she thinks federal and state regulators can do better. "There's no way we can get all that money back," says Milkman. She instead hopes for enlightened action from the federal government, recommending, "The way of doing it is [by] being 'strategic' in enforcement."

The U.S. Department of Labor's Wage and Hour Division is the main weapon against unscrupulous employers. But two eye-opening audits of that division have raised serious questions about its ability to step up to the plate.

Greg Kutz, the lead auditor for the U.S. Government Accountability Office, speaking before a congressional panel last March, said his audit showed that "15 cases I described last year were, in fact, the tip of the iceberg." He told a House committee: "The 'complaint intake' process is fundamentally flawed."

Kutz's report studied the Wage and Hour Division between July 2008 and March 2009. He found severe mismanagement within the division. Workers were discouraged by bosses from reporting complaints, but if they did, their complaints often went unrecorded by the division.

His audit investigators posed as workers and contacted the Wage and Hour Division to complain about wage and hour violations by their employers. Of the 10 complaints made by undercover auditors, only one was investigated correctly, according to Kutz's report.

Three of the staged complaints originated in California and none of those was "resolved" — or even recorded.

In one case, an undercover investigator told the Wage and Hour Division that children were operating heavy machinery at a Modesto meatpacking plant — a shocking situation if it were true. According to Kutz's report, that complaint vanished: Four months later, no investigation had been launched, and the complaint could not be found in the division's database.

George Friday Jr., who since 1997 has overseen the Western chapter of the federal Wage and Hour Division, which includes California, seems unimpressed by Kutz's audit. "I take that report for what it was," Friday tells L.A. Weekly. "Nationwide, we do thousands of reports. What you saw represents 1 percent. Maybe 1 percent."

Friday blames large budget cuts beginning in 2001 for hurting his division's effectiveness. The Obama administration has begun reversing that trend, increasing the number of investigators in the Western region from 140 to 180. More than 45 employee-wage investigators now work in the greater L.A. area, and Obama is seeking another $75 million for the Wage and Hour Division.

"The Secretary [of Labor, Hilda Solis] has indicated there's a new sheriff in town," says Solis spokeswoman Deanne Armaden, who adds that the Department of Labor is planning to run an ad campaign to alert low-wage workers to their rights.

But for now, the department's plan is vague at best, with no known start date.


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