The fleecing of America's hourly workers

More than 200,000 workers across the country are owed $163.3 million in back pay, according to a website maintained by the Department of Labor (DOL). This is money companies have paid after they were found liable for wage theft violations — like withholding tips from workers — but has not been claimed.  Workers who believe they are owed wages can check the DOL website, Worker Owed Wages. Other forms of wage theft include pressuring workers to work off-the-clock, cutting lunch breaks short, deliberately paying below the minimum wage, and failing to pay overtime.

Currently, the largest amount of unclaimed back wages is in food services. More than 36,000 food service workers have yet to claim wages that they are owed, USA Today reports. DOL data reveals that since 2020, investigators have recovered more than $130 million in back wages in the industry. In November 2023, officials ordered Plaza Azteca, an East Coast restaurant chain, to pay “$11.4 million in back wages and liquidated damages for more than 1,000 employees.” According to the DOL, the restaurant was aware of its “legal obligation to pay workers minimum wage and overtime…and yet, willfully disregarded federal law.”

Other “low wage, high violation” industries include health care and construction. Home health care, in particular, has been a central focus of the DOL’s Wage and Hour Division (WHD). Last year, the WHD recovered more than $67 million in back wages across both industries, officials report.  In June 2023, a federal court ordered a Philadelphia-based home care agency to “pay more than $7 million in back wages and liquidated damages,” nearly two years after the department filed a case against the company. 

These figures, while significant, are only the tip of the iceberg. In 2014, the Economic Policy Institute (EPI) estimated that wage theft costs workers more than $50 billion per year, most of which was unreported. A 2023 CBS investigation found that “[o]ften, employers threaten to report workers who complain of wage theft to immigration.” Those who do come forward often wait months, sometimes years, for the resolution of their complaint. But even if they win their claims, it’s not guaranteed that they’ll see their owed wages. CBS found that “more than a third of those successful cases — totaling nearly a billion dollars — showed no money was ever recovered.”

Part of the issue, according to one study, is the declining number of labor inspectors. For industrial market economies like the US, the International Labor Organization sets a standard of one or more inspectors for every 10,000 workers. But, “[a]s of 2008, the United States had one inspector per 75,000 workers.” 

The resources of WHD, which investigates wage theft claims, are in even worse shape. In 1978, the agency had one inspector per 69,000 workers, the EPI reported. But, by 2018, this ratio ballooned to one in 175,000 workers. According to EPI, “[i]n 2012, the probability that a U.S. employer would be investigated by the WHD was a paltry 0.5%.” And even when an employer is investigated, and evidence of wage theft is found, the consequences are minimal. 

When theft is not a crime

When someone steals a six-pack of beer from a grocery store or a sweater from a boutique, it is generally treated as a criminal matter. The billions of dollars in wages stolen from workers, however, are almost always treated as a civil offense. 

At the federal level, the DOL is only empowered to impose civil penalties against repeat offenders or when it finds that the wage theft was "willful." According to the Peterson Institute, among 148,000 wage theft violations between 2005 and 2020, 91% were first-time offenders. And the DOL found only 2% of those first-time violations were willful. In cases of willful or repeat offenses, the DOL imposes no penalty 41% of the time.

Therefore, for the vast majority of the cases, employers are only required to pay the stolen wages to the employee plus an amount equal to the wages owed as damages. As a result, until they are caught once, the financial risk of stealing wages from employees is nominal.

Even for willful and repeat violations, the civil financial penalties are low. The maximum civil penalty is $2,374 for each violation. This is not a significant amount of money for large employers. In contrast, in Australia, the penalty for wage theft is up to $630,000 per violation. 

Federal law does have a provision that establishes criminal penalties for repeat and willful wage theft violations. The law says serial violators can face up to six months in prison. But this criminal law is effectively ignored. Between 2005 and 2016, the DOL identified about 3,000 willful wage theft violations. But the Peterson Institute found that there were only ten criminal convictions. 

Some states have also established criminal penalties for wage theft. In California, for example, wage theft is a felony punishable by up to three years in jail. In 2021, workers filed over 19,000 complaints of wage theft, alleging $320 million in stolen wages, with the California Department of Labor. But between 2015 and 2022, just 13 complaints to the California Department of Labor resulted in criminal prosecutions for wage theft. And even those cases are generally resolved with monetary restitution. 

In recent years, some district attorneys have focused more on the criminal prosecution of wage theft. But enforcement, both civil and criminal, remains severely underresourced. 

The arbitration trap

Many workers are effectively powerless to recover their lost wages because they are forced into binding arbitration as a condition of their employment. A 2021 study by the National Employment Law Project (NELP) found there are nearly 18 million workers earning $13/hour or less who are subjected to binding arbitration. The study estimated that nearly one-quarter of them were the victims of wage theft, totaling $9.2 billion. 

But 98% of these workers "will never file a claim at all to recover their stolen wages." Why? The arbitration agreement prevents them from joining a class action lawsuit or joining forces in the arbitration process itself. These are hourly workers who do not have the ability to hire legal representation individually. And, even if they did, the cost of litigating an individual case of wage theft almost always exceeds the amount that was stolen.

Moreover, locking workers into arbitration agreements removes one of the biggest deterrents to wage theft: reputational damage. Arbitration is generally a secretive process with parties prohibited from talking about their complaint or the resolution. 

Arbitration agreements do not prevent government entities from taking action against employers. But the NELP study estimates that even if government agencies were to devote all of their resources to the task, "operating at their current capacity, could recover less than 4%" of wages stolen from employees subject to forced arbitration.