Businesses in low-paying sectors — such as food services and retail — had the most federal wage violations in the Miami Valley, and low-income workers are often the most vulnerable to wage theft. Some labor advocacy groups suspect that wage theft is growing because of the poor economy and tight job market.
Many wage violations are not reported because of a lack of education about worker rights and a fear of retaliation for filing complaints against an employer, according to some labor and employment-law experts.
They claim wage theft is costing the state hundreds of millions of dollars in lost revenue.
But some legal experts who represent employers said very few wage violations result from companies deliberately cheating their workers out of money. Instead, they said misclassification occurs because of a lack of education on labor rules and statutes.
Misclassification costs company
WinWholesale Inc., a supplier of domestic and industrial supplies that is headquartered in Dayton, agreed last year to pay almost $1.56 million in back wages to about 839 employees who were misclassified, according to federal records.
WinWholesale has 3,934 employees, including 175 at the Dayton headquarters, and it boasts 458 locally owned wholesaling corporations and 66 companies under Noland, a wholly owned subsidiary, according to the company. Its website lists Springfield Winnelson Co., 1919 Commerce Road, as part of its group of companies. WinWholesale had sales of $1.76 billion in the fiscal year ending Jan. 31.
The company worked with the federal agency’s Wage and Hour Division to resolve errors in the payroll classification of some employees working for Win Companies and Noland Company between January 2009 and January 2011, said Steve Edwards, vice president of marketing with WinWholesale.
He said any misclassified employees were paid last year to reimburse them for overtime they were estimated to have worked during that two-year period.
“WinWholesale and the Win/Noland Group of Companies are committed to complying with applicable payroll requirements and appreciate the assistance and support provided by the U.S. Department of Labor throughout this process,” Edwards said.
The company was not assessed any civil penalties, and the federal agency did not take any legal action because the company complied with the findings in the case and took appropriate action, said Rhonda Burke, spokeswoman with the Department of Labor.
WinWholesale was one of about 120 across the Miami Valley that, in total, agreed to pay almost $2.36 million in back wages to about 2,040 workers for violations of federal labor laws dating back to 2007, according to a News-Sun review of data from the Department of Labor’s Wage and Hour Division.
Only closed cases were available for review. Workers who believe they are victims of wage theft can file complaints with the labor department or the state, depending on the type of violation. They can also file a civil lawsuit.
Misclassification of employees as independent contractors and unpaid overtime are the most common types of wage theft and they are often connected, said Michell McIntyre, the project director for the National Consumers League’s Special Project on Wage Theft.
McIntyre said businesses often wish to hire workers as independent contractors instead of as employees because then they do not have to pay payroll taxes, unemployment insurance or workers compensation.
She said this saves businesses lots of money, and it can give them an unfair competitive advantage as far as bidding for contracts and controlling costs. It typically also means workers do not receive overtime.
Although misclassification is common, it is under-reported like all forms of wage theft because some workers are reluctant to anger their employers by filing a complaint while others are either unaware of the violations or the proper channels to lodge a complaint, McIntyre said.
“What (investigators) are able to get to is just a drop in the bucket,” she said. “I would say that it’s 50 to 100 percent (higher) than what’s being reported, and I would say that’s just people being scared.”
A 2009 report by the Ohio Attorney General’s office estimated the state is losing hundreds of millions of dollars in state and local revenue from employers who misclassify their workers and underreport their income.
The report said also wage theft gives other businesses an incentive to cheat to compete with the “artificially low prices of their dishonest counterparts.”
Employers that play by the rules often find themselves undercut by competitors that reduce their labor costs 20 to 30 percent by misclassifying their workers, said Scott Allen, spokesman with the labor department.
Job sectors that had most cases
The majority of local businesses found in violation of federal labor laws were in fields that typically pay lower wages. They included restaurants, hotels and motels, janitorial services, farming and supermarkets and grocery stores, according to labor department data.
A 2009 study by the National Employment Law Project found that about two-thirds of low-wage workers surveyed reported at least one wage violation the previous week, including unpaid overtime or receiving less than minimum wage. A different survey of day laborers found that about half of laborers surveyed said they were victims of wage theft within the two previous months.
Low-income workers, undocumented workers and workers who are paid under the table are especially vulnerable to wage theft, because they are extremely dependant on their paychecks and they are afraid to put their incomes at risk by reporting violations, said Brennan Grayson, an employment attorney with Kircher, Suetholz & Grayson in Cincinnati and a member of the nonprofit group Ohio Alliance Against Wage Theft.
“Employees, even if they know there is some legal protection for them (against retaliation), they prefer the guarantee of their under-paid checks to taking any risks of losing their livelihood by making a complaint that the checks aren’t meeting the legal requirements,” he said.
Other times, he said workers are unfamiliar with wage laws and they do not realize that their employers are breaking the law.
Contractors vs. employees
In September, U.S. District Judge Thomas Rose from the Southern District of Ohio ruled that Cascom, a now-defunct Fairfield, Ohio-based company, violated the Fair Labor Standards Act, which establishes minimum wage, overtime pay and record-keeping rules.
The Department of Labor in 2009 filed a lawsuit against Cascom claiming it misclassified about 250 of its workers as independent contractors instead of employees and owed them more than $800,000 in back wages for overtime and another $800,000 in liquidated damages.
Cascom handled television, telephone and Internet installation services in southwest Ohio for Time Warner Cable, and the company hired installers as contractors to perform the work.
Cascom installers were required to complete employment applications, wear T-shirts with the company logo and were paid for every installation performed instead of by the hour. The company could also alter their contracts at any time, and issued orders to the installers and forced workers to pay for their own tools.
Will Lunsford, 42, who worked for Cascom for six years as an installer, said the company punished installers who did not follow orders to pick up jobs that required working extra hours and long days. He said installers who declined extra assignments could count on receiving the most undesirable jobs the following day.
Lunsford said he endured 60- to 70-hour work weeks because he was making good money and he has five children to support. He said in retrospect he can see that the company took advantage of workers who were unaware of the law.
“They knew how to scam the system,” he said. “We didn’t know any better.”
Installers interviewed by the News-Sun said they had no idea when they worked for Cascom that the employment arrangement might be illegal, but they were treated like employees.
Cascom, a family-owned business headed by 73-year-old Julia Gress, went out of business in early 2011 because it could not negotiate a new contract with Time Warner, according to court records.
Cascom claims it had no idea that it was violating the law, and it only was following standards of the cable industry that date back at least 20 years.
Cascom said it fully cooperated with the labor department’s investigation, but it disputes the amount of back wages the department claims it owes. As the company’s owner, Gress is the government’s only source of financial recovery, according to court documents filed by the company. The court has not ruled on the amount of compensation owed.
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