Labor Department’s program on wage theft enforcement is the wrong approach

Imagine a robber enters a bank, demands the contents of the safe, flees with bags of cash, and once caught, has to do one thing: return the stolen money and promise not to do it again.  No penalty, no prosecution, no additional deterrent. More people would likely think, “Why not try? If I get caught, the worst that could happen is I would give the money back.”

The federal labor department this month announced a nationwide pilot program which is pretty close to this scenario.  Under the Payroll Audit Independent Determination (PAID) program, the U.S. Department of Labor would enable employers who have underpaid their hard-working employees to simply pay back those wages owed, while avoiding any penalties and damages. It’s a cute acronym for a very bad idea.

{mosads}Under federal law and most state labor laws, the penalty for wage theft is not just making employees whole by putting the wages back into workers’ pockets, but additional damages and penalties.  These additional costs deter employers from breaking the law, and acknowledge the hardship that workers face when they are unpaid or underpaid, particularly minimum wage and other low-wage workers like janitors, caretakers, carwash workers, construction and garment workers. Waiving penalties eliminates any deterrent impact, and giving up damages is unfair to workers.

The Labor Department’s website notes that employers can avail themselves of PAID only once for the same violations, but why should employers be able to violate workers’ rights once without penalty? And more importantly, what provisions will exist for monitoring employers to ensure that they comply with the law in the future? The program requires the employer to provide “a certification that the employer will adjust its practices to avoid the same potential violations in the future” — a laughably insufficient measure. There seems to be no plan beyond the honor system.

The program is aimed at well-intentioned employers who inadvertently violate the law, but the right approach for them is compliance assistance and education, not a pass on violations. The California Labor Commissioner’s Office, for example, has a self-audit program: employers who discover their own violations can come forward, get assistance with auditing their payroll, and pay wages owed and damages; they receive a discount on penalties to the State. This way, workers are made whole, employers are incentivized to comply to get a clean slate, but they, not their workers, cover the cost of their mistake.

Myriad studies have demonstrated the extent of the wage theft, like a recent report by the Economic Policy Institute which found that 2.4 million workers lose $8 billion annually in the ten most populous states because of minimum wage violations alone, without accounting for overtime or other laws. This doesn’t happen because of honest employers who make a calculation error or can’t make payroll for one pay period.   

Wage theft happens when some employers decide that it’s cheaper to break the law, the chances of getting caught are slim, and the costs of getting caught are minimal.  During over seventeen years of enforcing labor laws at the state level, I’ve seen a lot of clearly intentional misconduct: records that look perfect but misrepresent what is actually paid; payroll records with fake names to avoid payment of overtime; employers shaving workers’ hours to reduce payroll expenses or making employees work off the clock; or records simply omitting underpaid employees who are “off the books.” Several employers required kickbacks from workers if they wanted to keep their jobs. Some employers just stiffed workers altogether, even while promising to pay and hiring new ones. One employer distributed “cheat sheets” to workers, with answers to memorize in case the labor department came calling.

Should such employers be able to come forward and avoid penalties or liquidated damages?  How would the labor department even know if there are off-the-books employees unaccounted for in self-audits? Or reconstructed time cards with hours shaved? Should scofflaw employers be trusted to do their own calculations of back wages owed, or to comply with the law going forward? 

Finally, this program may not even benefit its true intended beneficiaries: employers. They will participate in the PAID program at their peril, because states are still on the beat, and increasingly cities, too, and their laws are often more protective. Employers who sign up for the PAID program may not find the safe harbor they hoped for after all, since they will still be subject to enforcement actions from officials closer to home

No one should have to go to work and wonder if they will get the money they earned at the end of the day. No employer should have to compete against lawbreakers who cut corners and then enjoy a break from the federal government.

There may be some version of a safe harbor program that would contain robust independent monitoring, adequate deterrence measures, and meaningful redress for workers. But PAID is not that program. Instead, it’s one more giveaway to employers at the expense of working people.

Terri Gerstein is an Open Society Foundations Leadership in Government Fellow and a fellow at the Labor and Worklife Program at Harvard Law School. Previously, she was Labor Bureau Chief for New York State Attorney General Eric Schneiderman.