How Corporations Steal Millions Of Dollars From Workers Each Week

March 6th 2015

Alicia Lutes

When it comes to the fight against income inequality, there's a lot more to it than simply raising the minimum wage, it's also about fighting injustices that are slightly more invisible. Like wage theft. Every day, millions of low-wage workers toil hard to provide services in industries most Americans wouldn't deign to do, but are necessary in order for societies to thrive. But it is from these very folks that an average of $26 million is stolen each week in Los Angeles alone: a staggering statistic that shows just how rampant are these practices, according to Matthew Sirolly, the legal director for Los Angeles' own Wage Justice Center. So we sat down with Sirolly to talk about the who, what, where, when, and why behind the wage theft epidemic and how he and a group of volunteer and pro bono attorneys are working to help fight against these insidious practices. 

ATTN: What's interesting to me about wage theft is how little people talk about it or care when it effects so many people — and a lot of young people.

Matthew Sirolly, Legal Director of The Wage Justice Center: There are certainly a large number of young people who are very directly affected by wage theft. A lot of them may not have student loans because they may not have attended college, or they may have some student loans from one of those for-profit colleges.

ATTN: Can you explain to me a bit what exactly the “underground economy” is and how it’s able to let this sort of wage theft occur?

MS: To begin with, the underground economy has a bit of a fuzzy definition. When I’m talking about it, I’m not talking about drug economy or prostitution or something like that. It’s sometimes called the grey economy, where people are doing legal jobs — they’re engaged in lawful activities — but the business that they work at are not following all of the laws and regulations that exist to protect workers and consumers; they don’t necessarily pay taxes, so that’s sort of the scope of the underground economy that I’m talking about. And there are some studies on this. Fairly recently, the UCLA Labor Center did a study on the size of the low income workforce in Los Angeles and the number of wage violations in it and they found, in terms of raw numbers, there’s $26 million a week that is stolen from low income people through wage theft.

ATTN: Something like that points to this issue at the center of it, which is the fact that it seems just so easy for companies to take advantage of people that are already on the lowest rung of the ladder. And I don’t even think people necessarily realize it happens.

MS: And it cuts across a broad swath of the economy. In Los Angeles and other places, too. Los Angeles, New York, and Chicago have the largest rates of wage theft in the country, and Los Angeles is the highest. We don’t deal with a lot of agricultural or meat packing worker cases, but those are also instances where people are not paid minimum wage, and there are tons of health and safety violations in those industries. But in Los Angeles, in the urban economy, it’s most of the jobs that people tend not to think about too much; the workforce that people don’t think about too much but are vital to how a city like this operates. It’s in restaurants, people involved in transportation, construction, janitorial work — all of these very basic service jobs that allow cities like Los Angeles to function and wage theft is rampant in those industries. In that same UCLA study they found that 30 percent of the workers were not being paid minimum wage and 90 percent suffered some sort of pay-related work violation the week before. So people are not even getting the bare/legal minimum, put aside living wages.

I think fear of negative immigration consequences is something that does sort of help employers who want to keep people in check. 

Perhaps a bigger part of it, from what I’ve seen [centers around] people for whom English is a second language. There’s a lot of not-great jobs — but somewhat better jobs — like customer service, that if your English is good you can get, but if you do not have great English — regardless of your immigration status, there are plenty of Americans who don’t speak English — they don’t have access to a large swath of the job market, so there is a tendency to use that desperation and vulnerability to say ‘Well you don’t have any other options.’

The bigger reason why the underground economy is able to flourish like that is because we have a legal system that does not create a lot of consequences for violations. In the 1960s, when the population was roughly half of what it is now, there was something like three times the number of labor inspectors in the Department of Labor than there are now. So the population’s gone up but we’ve dropped the enforcement mechanisms that we used to keep some of this stuff in check. So I think that’s part of it.

And in general, this is what we deal with a lot, there’s problems with the enforceability of these rights because they’re enforced against corporations and the way corporations work is they protect the individual owners from liability. So people who get into hot water with a corporation can basically dump it, create a new corporation, and then the worker never gets paid and the business is able to keep on operating without paying the wages. There are people who do this almost as a business model, where they’re playing with the loopholes of corporations law to constantly evade ever having to meet the minimum standards for their employees.

ATTN: Are there a lot of loopholes with which people can do this?

MS: Yeah, there are. It doesn’t take that many loopholes, at the end of the day. Which is what makes it such a thorny problem to solve. Really, the vast majority come down to the fact that if you’re Corporation A, you do not have to accept any responsibility for what Corporation B did, even if you operated the same business in the same location with the same owners.

ATTN: So how do you deal with that when fighting for your clients?

MS: The main way to get at that is to sue the owners for fraud. But that’s a kind of fraud that’s labor intensive and cumbersome to deal with, considering this is something that’s just so rampant.

ATTN: And it must be so expensive to prosecute, outside of working with offices like the Wage Justice Center, making it hard for most people to even consider fighting back an option. Is that’s another layer of protection for these corporations?

MS: It’s true. A lot of people just don’t bother to do anything about it because they figure it’s not going to help them. So they lost some money at this particular job: they’ll just have to go find another job. It’s the cost of getting by. It’s really common with day laborers — they are fairly often stiffed and not just paid less than minimum wage, but actually stiffed for a week or month of work. So a lot of day laborers have this sort of resignation about it like, ‘Oh, this is just what life is like and I have to accept that.' And some of that is because a lot of them have gone through the legal process and it hasn’t given them a real remedy. They’ll get decisions that they’re owed wages but they never get those decisions paid because of these loopholes. So it undermines their faith that the legal system even protects this stuff.

ATTN: Do you feel like the whole idea of the American Dream — work hard and do good work in order to succeed — feels as though it's been oddly manipulated and warped?

MS: I think there is some truth to that. The American Dream as it is often portrayed now has more to do with the idea that you’ll start a business and become a millionaire quickly, and do it often by playing a quick game like turning around and selling your company to investors at an inflated price and then running off with the profits. Rather than you’re going to do some honest work that contributes to society and lives a fairly decent, comfortable human life.

The majority of [our clients] are usually coming to us after they’ve been in a pretty bad situation, and although they all have unpaid wages, they don’t necessarily start there. The reason they seek out legal help is that they feel really disrespected and that their work was devalued. But interestingly enough money is not often where people are starting. Where they’re starting with is ‘they wouldn’t even let us use the bathrooms.'

ATTN: Which is really just inhumane.

MS: They weren't being treated humanely or with any real respect or basic dignity at all. And I think the wage claims are — from a legal standpoint — the easiest and most straightforward to make because there are certain standards people have to follow. Not letting people use the bathroom would not actually be a legal claim. But the things that actually really, really matter to people are disrespect: employers calling them stupid or having their schedule constantly rearranged. Those are huge issues to people that really matter to people’s lives. Most of these people are not looking for a bunch of money, they’re looking to have some sort of dignity and respect in their workplace and we’re trying to get them to a point where they can and we can have some trust in the legal system being there to enforce the basic rules. Often the clients are settling in terms of monetary damages — they’re not getting all of the money they’re owed.

ATTN:  Do you think there are ways the system can be fixed or is it more of a lost cause at this point, given its prevalence? 

MS: Well that’s kind of what unions or something like unions, are for: laying out all these more subtle terms for their employees. … It would be impossible for the legal system to do; it has to be contractually agreed to by the people who are involved and the worker organizations. Which is what they used to do.

But there’s good news, too! There’s been a strong low-wage worker movement in Los Angeles for 20 years reacting to the fact that working conditions were so bad and there was so much exploitation. It’s been one of the highlights of social activism. It’s really been this movement to restore some balance to the economy. It’s a long struggle, there’s not any instant, obvious solution but there is a dynamic, strong movement that’s worker-led. They’ve done significant things to raise the profile of these issues.

ATTN: Do you see anything coming down the pike that’s going to be a big win for them?

MS: Well a lot of it tends to be industry-by-industry. Of course the push for a higher minimum wage is the big one right now. So that’s good and it raises the profile of low-wage workers. As part of that — and this what’s actually really interesting — there’s been a movement of community groups involved in this. Not just for a higher minimum wage, but to have specific regulations enacted that would help ensure enforcement of those claims in a way that isn’t happening right now.

ATTN: So stuff that really sort of bolsters their confidence and probably has a ripple effect, yes?

MS: It makes the clients I am actually serving believe and behave like ‘Yes, I have a stake in this society, yes I can be apart of it; yes I do have rights’ and that’s really positive and empowering.

ATTN: How many cases are brought to you versus the amount you're actually able to work on?

MS: We have an active caseload of about a thousand and it’s not even close to the actual need in Los Angeles let alone all of California. But among those 1,000, probably 100 are active contentious litigation and the rest of them are less time-consuming cases, so we try to balance it out.

It seems like the only way you resolve that from a practical level is to have employees who are empowered to enforce their own rights and are in a position where they can really do that. The way to do that is not by filing an endless stream of legal cases, it’s by restoring some of the balance and having employees in a position where they can enforce their own rights.

ATTN: How many of your cases end up with a judgment in their favor?

MS: Historically, about 75 percent of the cases. We’ve never lost any case, actually — we’ve settled cases, but we’ve never lost a single case. What we do have are cases where we have judgments against persons or corporations and that person or corporation for whatever reason is not going to ever be able to pay. So unfortunately you do get situations where people get ripped off.

The truth of the matter is: wage theft doesn’t get that much attention but it’s getting more attention which is good. But something that’s getting no attention is the shell corporation game and it’s key to what’s happening with wage theft and it affects consumers, too. Because a lot of the shell corporation games are done to escape debts owed to consumers, too. It actually hurts the overall society in the form of taxes because it’s often done to escape taxes, too. And it’s proliferated. The use of the corporate shell game, using all the loopholes in corporate law to get around ever paying debts to anybody has become really, really common. And people don’t realize that it costs $300 and fifteen minutes to form a corporation so why bother to pay a debt if you can just form a new corporation? And then a new one, and a new one. We see these defendants sometimes that have 70 corporations under their name.