News Law and Policy

Papa John’s Ordered to Pay Almost $800,000 in Wage Theft Case

Jessica Mason Pieklo

The judgment is the latest victory against a fast food company for wage theft and another step in holding corporate owners legally liable for illegal acts of their franchise owners.

A Papa John’s pizza franchise in New York must pay its workers nearly $800,000 in unpaid wages over allegations the business underpaid employees and failed to pay overtime, a state judge ruled last week.

New York Attorney General Eric Schneiderman in December sued Emstar Pizza Inc., which operates seven Papa John’s franchise locations in Brooklyn and Queens, alleging that Emstar underreported hours worked by employees over the past six years, rounded employee hours down to the nearest hour, and did not pay overtime.

Attorney General Schneiderman is also considering legal action against the franchisor, Papa John’s International Inc., on the theory that it is a joint employer and thus liable for the actions of its franchisees, according to reporting from the New York Post.

The National Labor Relations Board in July ruled McDonald’s a joint employer and thus liable for labor or wage violations at its franchise locations in a first-of-its-kind decision that represents a significant victory for workers’ rights advocates. Corporations like Papa John’s and McDonald’s employ about two-thirds of the low-wage workers in this country, but have so far mostly avoided liability for the illegal actions of their franchise owners under the theory that, despite sharing a common corporate brand, each franchise is independently owned and operated.

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Any legal action taken by Schneiderman would build off that July ruling and advance a similar charge that Papa John’s franchises operate through uniform standards tightly controlled by the franchise’s corporate parent.

Should such a theory prove successful, it would make it possible for former employees to collect their stolen wages.

The U.S. Department of Labor reportedly provided information to help Schneiderman with the wage theft case against Papa John’s in New York.

Schneiderman’s judgment against Papa John’s prevents the franchise owner from selling the six stores unless the proceeds from such sale is deposited into an escrow account of the attorney general on behalf of the former employees.

“This judgment sends a clear message that like every other business in New York, fast food employers must follow the law,” Schneiderman said in a statement. “This Papa John’s franchisee brazenly violated the law, shaving employees’ hours and avoiding paying overtime by various means, including giving managerial sounding titles such as ‘head driver.’”

Schneiderman has sued another Papa John’s franchisee, New Majority Holdings LLC, for similar claims wage theft. That case is pending.

News Economic Justice

Wage Theft Could Cost $32 Million Weekly for Pennsylvania’s Low-Wage Workers

Michelle D. Anderson

Advocates say that government oversight is weak, and laws only provide a slap on the wrist when they are enforced. Pennsylvania—much like the federal government—lacks enough regulators.

The U.S. Supreme Court’s recent refusal to consider a case involving several thousand Walmart employees brought attention to what employment advocates in Pennsylvania call a hidden crisis: wage theft.

Legal aid agencies and advocacy organizations such as the Pennsylvania-based Women’s Law Project use the term to describe employers’ refusal to pay wages due their workers.

“Shortchanged: How Wage Theft Harms Pennsylvania’s Workers And Economy,” a study released by the Sheller Center for Social Justice at Temple University’s Beasley School of Law, revealed that cooks, dishwashers, and food preparers, along with stock/office clerks and retail salespeople, were among the largest low-wage worker groups experiencing weekly minimum wage violations.

Employers commit wage theft by paying a daily rate that does not meet Pennsylvania’s $7.25 hourly minimum wage requirements, misclassifying people who work as independent contractors, paying in cash, failing to keep adequate records, and taking money out of paychecks to account for uniforms, supplies, and other products necessary to perform the job.

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Terry L. Fromson, managing attorney at the Women’s Law Project, a public interest legal center, told Rewire that the practice compromises women’s economic security in Pennsylvania, where women make up about two-thirds of people who work for minimum wage, and where the minimum wage is the lowest allowed by federal law.

“Factor in losing 15 percent of a would-be paycheck to wage theft, and a family led by a primary or sole breadwinning mother sinks further into poverty,” Fromson said.

In the Walmart case, first decided by a Philadelphia jury in October 2006, 186,000 current and former employees from the retailer’s Pennsylvania stores were awarded $187 million in a class action suit for unpaid wages that were withheld between March 1998 and April 2006.

The workers’ counsel, Donovan Litigation Group, said the employees had been owed $140 million of the $187 million and will now split $224 million due to interest, according to the Philadelphia Inquirer.

Walmart had appealed the decision in 2006, taking the case to Pennsylvania’s Supreme Court, who affirmed the jury verdict in 2014. U.S. Supreme Court justices on April 4 decided to not take up the case and to support the state’s high court decision.

In the years since Walmart employees first took action, workers and legal aid agencies across the United States, including in Pennsylvania, have brought many more wage theft cases.

Last year, for example, more than three dozen people who work for low wages at the Denver-area Carniceria y Verduleria Guadalajara grocery store won $305,000 in back wages and penalties in a U.S. District Court ruling using federal and state “wage theft” laws.

Papa John’s franchisees in New York were found guilty of wage theft last year and ordered to pay back more than $500,000 to settle claims that they swindled employees out of earned income.

There remains, however, little information as to how prevalent wage theft has become across the country, advocates for low-wage workers told Rewire. The Sheller Center last year sought to fill the void in wage theft data in Pennsylvania.

The study, which used the state’s right-to-know law to obtain data from the Pennsylvania Department of Labor and Industry (DLI) and relied upon extrapolations rather than original data, found that the state’s people who work for low wages, on average, lose about 15 percent of the their earnings to wage theft.

The study suggested that nearly 400,000 people who work in Pennsylvania experience a minimum wage violation and more than 300,000 experience an overtime violation every workweek. The weekly loss amounts to an estimated $19-32 million in wages, according to the “Shortchanged” authors.

The study revealed that the DLI, the state agency responsible for handling wage theft matters, was unable to collect wages in more than half of the complaints filed by people who work.

In fact, despite closing 5,000 cases annually, the DLI collects wages in about 2,000 of those incidents, according to the Temple University study.

The U.S. Department of Labor in a study released last year acknowledged the prevalence of wage theft among wage and salary workers in California and New York.

The report concluded that more than 300,000 people who work in those states were victims of wage theft. Many of those affected, the federal study revealed, work in service-based positions in the restaurant and hotel industries and were more likely to be women, people of color, and undocumented people.

Undocumented residents in New York, for example, were 3.1 times more likely to experience wage theft.

A local report released by Centro de Trabajadores Unidos en Lucha in Minneapolis found that nearly half of low-wage workers in the Twin Cities have experienced wage theft.

Nadia Hewka, senior attorney at Community Legal Services, a Philadelphia-based legal aid outlet, said many businesses exploit undocumented workers’ vulnerabilities.

“Employers cut corners—some of them will choose to hire immigrant workers because they think they won’t complain,” Hewka told Rewire.

At Community Legal Services, Hewka said many people who work don’t know they are entitled to overtime and often seek to recover wages after they haven’t been paid for extended periods of time.

“That often happens with immigrant workers who are not familiar with laws in the U.S.,” said Hewka, co-founder of the Pennsylvania Immigrant Workers Rights Coalition.

The “Shortchanged” authors noted that undocumented workers fear their supervisors will call immigration authorities, while immigrants with employment visas are often afraid they may lose visa privileges if they speak up.

Identifying Wage Theft

The Temple University study, which excluded low-wage employees in more rural settings, like farm, forestry, and fishing workers, outlined the many ways employers get away with wage theft.

The report relied upon a landmark investigation released in 2009 called “Broken Laws, Unprotected Workers,” which surveyed low-wage workers in Chicago, New York City, and Los Angeles.

The “Broken Laws” study estimated about 90 percent of home health-care workers were victims of off-the-clock violations.

Philadelphia resident Natasha, whose last name was withheld by the “Shortchanged” authors, was a victim of wage theft while working as a home health-care worker.

Her employer, who often avoided workers and created barriers to keep employees from engaging each other about their paychecks, failed to compensate Natasha for travel time between client homes and even missed paycheck due dates.

The mother of four, who made $9.50 per hour and witnessed her boss call the police on coworkers who complained about wage theft, was ultimately fired after becoming ill despite her stellar attendance and documented excuse for missing work.

“I was so frustrated and I wanted to break down and cry because I couldn’t spend another week not being able to feed my children, having to choose between bread, eggs or milk,” she said, according to the study. “It was the worst experience of my life.”

Advocates for people who work low-wage jobs contend that wage theft also hurts the state’s economy, because money that would otherwise be spent in the economy is stolen from people who work, while businesses evade taxes that could be used to fund schools and road projects.

Law-abiding businesses may struggle to compete with enterprises that steal wages, advocates said.

The U.S. Department of Labor study noted that the burden of wage theft ultimately shifts from the private sector to the government because people who work for low wages will seek public assistance if their pay is insufficient.

People who work for low wages and their allies have looked to key policy changes to address wage theft, though it’s proven difficult because of resistance in Pennsylvania’s Republican-controlled legislature, Hewka said.

Some measures proposed during the 2015-2016 legislative session, like HB 250, which sought to raise the penalty for wage theft and for retaliating against an employee for reporting said theft, get stuck in committees and die there, she said.

A resolution to discharge the house’s labor and industry committee from further consideration of HB 250 was presented in October 2015.

Legislators in other states have proposed measures aimed at addressing wage theft. Democratic lawmakers in Wisconsin last year proposed legislation that would allow the state’s Department of Workforce Development to charge interest on unpaid wages and levy fines up to $1,000 per violation against employers who break state wage theft laws.

Hewka added that government oversight, overall, is weak and laws only provide a slap on the wrist when they are enforced, she said. Pennsylvania—much like the federal government—lacks enough regulators, she said.

In Pennsylvania, the Minimum Wage Act and the Wage Payment and Collection Law are the protections low-wage workers can rely on to reclaim stolen wages.

The Wage Payment and Collection Law limits penalties to the higher of $500 or 25 percent of wages owed, and includes criminal fines limited to $300.

The state’s minimum wage law, on the other hand, doesn’t offer any damages to people who work low-wage jobs, unlike federal law.

“Shortchanged” authors have recommended harsher penalties for employers, including business license revocation and allowing people who work to place a hold on employer’s property until they receive unpaid wages.

Other solutions encourage state policymakers to collaborate with community groups to target investigations and to create a process for workers to submit anonymous or confidential complaints.

The state has enjoyed some successes in battling systemic wage theft against people who work.

Philadelphia City Councilman William “Bill” Greenlee sponsored a bill that will create a wage-theft watchdog in the city’s Managing Director’s Office.

The bill, which was unanimously approved by the council in November, requires a wage-theft coordinator to respond to worker complaints and find victims who may lack education about their rights.

The coordinator will be responsible for looking at thefts of anywhere between $100 and $10,000, and can revoke business licenses and impose a city fine of $2,000 per incident.

Hewka, who worked with Greenlee on the measure, said the city should be prepared to handle complaints in July.

The measure, she said, will offer relief to low-income citizens who cannot afford a private lawyer and legal aid groups who can only provided a limited amount of free services.

News Economic Justice

Survey: Wage Theft Rampant in Twin Cities

Nicole Knight Shine

In a report, 82 percent of low-wage workers in the Minneapolis/St. Paul area of Minnesota said they have to work at least two jobs to make ends meet. Sixty-four percent reported they worked when sick because they were denied paid time off.

Low-wage workers in the Twin Cities earn wages that put them below the poverty line and nearly half have been subject to wage theft, according to a new labor survey.

The report, released November 13 by Centro de Trabajadores Unidos en Lucha, a Minneapolis-based workers center, found respondents make an average of $10.34 per hour, with 82 percent saying they have to work at least two jobs to make ends meet. Sixty-four percent reported they worked when sick because they were denied paid time off.

The results were drawn from 173 surveys completed by workers in hotels, restaurants, manufacturing, construction, janitorial services, and other industries in the Twin Cities, the Minneapolis/St. Paul area of Minnesota.

Nationwide, thousands of low-wage workers have organized in the #FightFor15 movement to demand fair treatment under the law and a hike in the $7.25 federal minimum wage, which hasn’t budged since 2009. Forty-two percent of U.S. workers earn less than $15 an hour, a report by the National Employment Law Project found, and more than half of those workers are women.

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Terin Mayer, lead organizer of the Workplace Rights Defenders Program at Centro de Trabajadores Unidos en Lucha said the labor survey documents a “failure of the existing enforcement system.” Mayer said the organization is calling for reforms, including a city law to withhold the business license of employers that repeatedly violate labor laws.

Business groups in October blocked a push by some local lawmakers for a “working families agenda” to require employers to set employee work schedules four weeks in advance and pay workers if those schedule times are changed, according to reports. The agenda included rules to require all businesses to offer workers paid sick leave.

Mayer said unpredictable scheduling disrupts workers’ lives, and labor groups would continue to advocate for reforms.

The Twin Cities study documents cases of labor violations, such as wage theft. Cecilia Guzman, a commercial cleaner, described how she was fired after complaining that her employer owed her $4,570 in unpaid wages. The report estimates that wage theft costs the average worker $2,634 out of $17,616 in total average annual earnings.

Mayer said that low-paid workers, unaware of labor protections or fearing reprisal, often don’t demand their legal rights. His group is calling for greater worker education on labor laws and stronger enforcement.

“You’re not going to see actual enforcement of wage and employment laws if there’s a culture of violence and threats,” Mayer said.

Increasingly, employers like Amazon and McDonald’s have been slapped with class action lawsuits claiming wage theft. Papa John’s has been found guilty of violating wage theft laws in New York. Owners of Papa John’s franchises have refused to pay employees minimum wage and overtime.

The Department of Labor under President Obama has made strides in bolstering labor and employment law, including a recent ruling by the National Labor Relations Board that could hold corporate parents like Papa John’s responsible for the unlawful employment actions of franchise owners.

Lawmakers in several states, including Democrats in Wisconsin, have proposed laws that would crack down on employers who commit wage theft against their employees. Business groups nationwide oppose the effort to penalize companies and corporations that don’t pay employees for the work they do, decrying wage theft laws as harmful economic policies.

A study of 2008 data released by the National Employment Law Project, the UCLA Institute for Research on Labor and Employment, and the Center on Urban Economic Development found that of workers in low-wage industries in Chicago, Los Angeles, and New York City, 26 percent were paid less than the legally required minimum wage, and three out of four employees who worked more than 40 hours a week were not legally compensated for their overtime hours.

Six in ten low-wage industry workers were underpaid by more than $1 per hour.