When Your Boss Steals Your Wages: The Invisible Epidemic That’s Sweeping America

Wage theft is fast becoming a top trend of the 21st-century labor market.

Editor’s note: This article is part of an ongoing AlterNet series, “The Age of Fraud.“

Imagine you’ve just landed a job with a big-time retailer. Your task is to load and unload boxes from trucks and containers. It’s back-breaking work. You toil 12 to 16 hours a day, often without a lunch break. Sweat drenches your clothes in the 90-degree heat, but you keep going: your kids need their dinner. One day, your supervisor tells you that instead of being paid an hourly wage, you will now get paid for the number of containers you load or unload. This will be great for you, your supervisor says: More money!  But you open your next paycheck to find it shrunken to the point that you are no longer even making minimum wage. You complain to your supervisor, who promptly sends you home without pay for the day. If you pipe up again, you’ll be looking for another job.

Everardo Carrillo says that’s just what happened to him and other low-wage employees who worked at a Southern California warehouse run by a Walmart contractor. Carrillo and his fellow workers have launched a multi-class-action lawsuit for massive wage theft ( Everardo Carrillo et al. v. Schneider Logistics) in a case that’s finally bringing national attention to an invisible epidemic. (Walmart, despite its claims that it has no responsibility for what its contractors do, has been named a defendant.)

What happened to Carrillo happens every day in America. And it could happen to you.

How big is the problem?

Americans like to think that a fair day’s work brings a fair day’s pay. Cheating workers of their wages may seem like a problem of 19th-century sweatshops. But it’s back and taking a terrible toll. We’re talking billions of dollars in wages; millions of workers affected each year. A gigantic heist is being perpetrated against working people: they’re getting screwed on overtime, denied their tips, shortchanged on benefits, defrauded on payroll, and handed paychecks that bounce like rubber balls. A conservative estimate of unpaid overtime alone shows that it costs workers at least $19 billion per year.

The laws protecting workers are grossly inadequate, and wage thieves go unpunished. For giant companies like Walmart, Citigroup and UPS, getting fined is just the cost of doing business. You could even say that they’re incentivized to cheat because punishment is so unlikely, and when it happens, so light. The protections we used to take for granted, like the right to receive at least the minimum wage, the right to workers’ compensation when hurt on the job, and the right to advocate for better working conditions, are nothing more than a quaint memory for many Americans. Activist Kim Bobo, author of Wage Theft in America, calls it a “national crime wave.”

The sheer scope of the problem is jaw-dropping, sweeping across key industries and inflicting massive damage on individuals and society as a whole. In 2009, the National Employment Law Project (NELP) released a ground-breaking study, “Broken Laws, Unprotected Workers,” which found that in America, an honest day’s work is frequently rewarded with theft and abuse. A survey of over 4,000 workers in Chicago, L.A. and New York found that minimum and overtime violations were rife, and any attempt to complain or organize was swiftly met with punishment. Among the revelations:

• 26 percent of low-wage workers got paid less than the minimum wage.

• 76 percent of workers toiling over 40 hours were denied overtime.

• Workers lose an average of $2,634 a year due to these and other workplace violations.

Who gets cheated?

Women, minorities, immigrants, and workers at the bottom of the wage scale are hardest hit, but wage theft is thriving across the employment spectrum.

People hired for jobs like yard work and domestic services in which the employer pays cash are denied social insurance like Social Security, and often what’s paid doesn’t add up to minimum wage. Some employees are paid for piece work, like the number of shirts produced in a garment factory, and get cheated when the tally falls below minimum wage (that’s one of the things that’s alleged to have happened to Carrillo). Another common form of theft is the “last paycheck” scam in which a worker is either fired or quits and finds that her final wages are withheld.

Low-wage tip workers are frequently the victims of theft in which the boss illegally keeps tips or makes you pay for your uniform or a ride to the job site. Restaurants are infamous for paying wages below the legal minimum; some charge a fee to convert credit card tips into cash, while others simply steal tips outright. When I was in college, I waited tables at a restaurant where the manager required the waiters to turn over tips at the end of the day, ostensibly so a certain percentage could be distributed among the cooks and other staff. I thought my manager was doing something to create fairness. Actually, he was stealing tips.

Then there’s the payroll fraud scam. Misclassifying workers as independent contractors means the business doesn’t pay overtime, employer contributions to Social Security and Medicare, or unemployment insurance. Sometimes bosses misclassify by mistake, but often they do it knowingly. Temporary and seasonal workers are especially vulnerable. The construction and trucking industries are notorious offenders, but payroll fraud impacts people like engineers, financial advisers, adjunct professors, and IT professionals. It doesn’t matter if you have agreed to call yourself an independent contractor, you may not be under the law.

Two tests are commonly used to determine your status: the Department of Labor “economic reality” test and the IRS “Right to Control Test.” These tests consider questions like: Do you set your own hours? Can you make a profit or loss depending on how you do the job? Is the job contracted for a specific time period?  Unfortunately, various federal and state entities have their own criteria, creating widespread confusion. The independent contractor issue is one of the fastest growing areas of litigation, with class actions by independent contractors jumping by 50 percent in 2010.  Congress has introduced bills to deal with this problem, but they tend to die in committee.

You might think that joining the managerial ranks would protect you from wage theft. You would be wrong. Some people are given titles as managers so they can be forced to work overtime without extra pay. Managers pressured to “improve their numbers” sometimes resort to falsifying employee records. Others deny breaks or deduct the break from the workers’ wages. Walmart has engaged in so many of these practices that researcher Susan Miloser of Washington & Lee Law School refers to retail wage theft as a result of managerial strain the “Walmart Pinch.”

How did we get here?

The world of work in America has fundamentally changed in the last 30 years, and not for the better.

In her paper, “Picking Pockets for Profit,” Susan Miloser traces a struggle for protection that began over a century ago with the public outcry over brutal workhouses where recent immigrants, women and children were paid substandard wages. Massachusetts was the first state to enact minimum wage legislation in 1912. Then came the Great Depression, and President Franklin Roosevelt responded with New Deal legislation that included the Fair Labor Standards Act pushed by his labor secretary, Frances Perkins. One of the key things the Fair Labor Standard Act did was ensure a minimum wage under the theory that wages were subject to something economists call “market failure.” The idea is that you, as a worker, are at a serious disadvantage compared to your boss when negotiating your wages. So the government has to intervene to correct this failure of the market and create a more level playing field.

The act also made provisions regulating payment for overtime. Employers who violated the law could be sued for back pay and damages. Roosevelt insisted that businesses that violated fair labor standards were toxic to the economy: “Goods produced under conditions that do not meet rudimentary standards of decency should be regarded as contraband and ought not to be allowed to pollute the channels of interstate trade,” he said. Roosevelt, we may assume, would frown on shopping at Walmart.

Clearly, the New Deal has somehow transformed into the Raw Deal. Since the rise of Ronald Reagan, the American workplace has been morphing from a relatively level playing field into a theater of exploitation. This process has been aided and abetted by influential economists known as “free-market fundamentalists,” who dominate the Ivy League and policy circles. They have convinced policy makers and politicians that a voluntary system magically guided by an “invisible hand” produces outcomes that are good for most people. In their view, the economy is a system of equal exchanges between workers and employers in which everybody who does her part is respected and comes out ahead. Obviously, they don’t focus their research on labor: they may talk about unemployment or wages – keeping the former high and the latter low — but the conditions workers face are completely off the radar of these economists. (If you’d like to see how this kind of thinking plays in the mainstream media, take a gander at a recent post by Slate’s Matt Yglesias: “ Different Places Have Different Safety Rules and That’s OK.”)

Here’s where we are: the twin evils of high unemployment and economic inequality have joined forces to turn workers into so many expendable units in the great capitalist machine. Union-busting, globalization, outsourcing, downsizing, and recession have turned dignified jobs into opportunities for employer predation. I have called job insecurity the “ Disease of the 21st Century” and it has clearly metastasized into a situation in which people are terrified of doing or saying anything to jeopardize employment, no matter how egregious the abuse. As long as there aren’t enough jobs, bosses maintain the upper hand. In the face of public opposition and recent revelations about the flaws in research used to support austerity, deficits are still the focus of economic policy rather than job creation. All of this conspires to protect crooked employers and exploit workers, making wage theft a crime without punishment.

What do we do?

The Department of Labor is supposed to enforce fair labor practices, but budget cutting at the insistence of Big Business has had the desired effect. Currently, there are only 1,000 enforcement officers protecting 135 million workers. That would be enough to cover, say, the city of Chicago. Maybe! You can place a claim through the department, but you may not get results. Workers are often left to fend for themselves. (One thing every worker can do is consult the website CanMyBossDoThat.com to at least get a sense of your rights.)

In Wage Theft in America, Kim Bobo outlines a variety of things that communities and activists are doing to address the crisis, from creating task forces to identifying agencies that help low-wage workers know when they are being cheated. There’s been some good news: campaigns to strengthen wage theft laws in several states, cities and counties are underway. The state of New York has enacted statewide legislation to protect workers from wage theft. In Miami-Dade County, a city-wide ordinance was established in 2010 which focuses on eliminating the underpayment or nonpayment of wages and targeting unscrupulous businesses. Chicago’s newly adopted wage theft ordinance will strip employers of their business license if they are caught cheating workers. But the key word is “if.” Methods are sneaky and workers often have no idea that they are being robbed.

Local direct actions have sometimes been effective in highlighting and shaming wage thieves. In Seattle, Eric Galanti of the Admiral Pub tried to withhold the final paycheck of his cook Lucio when he was deported to Mexico. But Lucio’s family, along with advocacy groups like Casa Latina, fought back by plastering the city with posters, placing messages on social media and picketing. Finally, Galanti gave in. Stories like this are encouraging, but it’s hard to imagine that sort of thing working in, say, Mississippi.

Immigration reform is a key piece of the puzzle — it will help many low-wage, undocumented workers from being exploited by wage thieves who use deportation as the threat. Modernizing record-keeping, imposing criminal liability on wage thieves, and increasing public awareness of wage fraud would also help to combat the problem. High unemployment remains one of the biggest factors in encouraging wage theft, but we’re not making good progress in that area. The sequester is expected to lay off 750,000 Americans this year alone. Instead of helping the problem, our elected officials are worsening it. Until these issues are addressed, workers will remain vulnerable to predatory bosses. And that costs everybody.

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