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Wage Theft on the Front Page of the NY Times!

By Ruth Kraft posted 09-15-2014 11:32 AM

  
In honor of Labor Day, the New York Times, purveyor of all the news purportedly fit to print, published a lengthy piece on wage theft. It included claims by federal and state officials that employers are committing variations of wage theft--including violations of the minimum wage and overtime laws, falsification of work hours, misappropriation of tips, and misclassification of employees--more than ever.  Rather, government is pursuing employers to an unprecedented degree.   I found that the allegation that employers are taking unprecedented steps in pursuit of higher profits to be ludicrous.  Honestly, how many of your clients ask you for advise on how to "cheat" their workers to bolster the bottom line?  My impression is that many of  your clients, like mine, have not benefitted from whatever economic recovery has occurred in the past year. 

The director of the US Department of Labor's Wage and Hour Division, David Weil, is on the record on the issues of franchisees, sub-contractors and temporary agencies.  The feds are going after all three because they are disturbed that companies can shift responsibility to them.  Are they seeking to dissolve corporate structures on the basis of limited liability?  Of course not!  Notwithstanding the fact that the use of these business structures is perfectly legal, war has been declared by the DOL.  It has been on the offensive since 2010 (and it is no secret in my world that the evisceration of the unemployment insurance trust funds caused by the recession and the desire to recoup the billions lent by the federal government to the states propelled this).  I am frequently asked by clients how they came to be the subject of audits on both federal and state levels. We have long known that certain industries are on the "hit list".

We have now entered the era of opportunistic litigation because the payoff from a wage theft case can be so large for employees and their legal counsel, particularly in class or collective actions against national retailers.  The latest salvo in the battle is seeking joint liability from franchisors and the ultimate beneficiaries of subcontractor or temporary workers' services..  The Department of Labor has implied that, to limit joint liability, employers would have to take steps that are completely unrealistic and impracticable in the operational sense.

MISCLASSIFICATION OF WORKERS, whether in terms of employee v. independent contractor or failure to pay overtime, creates enormous potential exposure for employers.  Small businesses can literally find themselves paralyzed by the inability to defend, let alone pay, back wages, together with statutory damages, interest and attorneys' fees.

WHAT CAN YOU DO?  Ask the right questions of your clients!  Don't adopt the ostrich technique, burying your heads in financial statements.  During an audit, clients classically attempt to put the blame on their accountants.  Employment law has become a moving target which neither you nor the client should navigate solo.  Protect yourself and your client by bringing in employment counsel, entering into a Kovel agreement with the attorney and participating in the team effort to resolve the audit on the most favorable terms.

Hon. Ruth Kraft (ret.) chairs the Employment Law Group at Kirschenbaum & Kirschenbaum in Garden City. 
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