When you hear the word theft, I’m sure things like robbery, burglary, or even grand theft auto come to mind. However, one of the costliest categories of theft every year in the United States is wage theft – paying less than an employee is legally owed. Every year, more employers cheat their hardworking team members out of more than $50 billion in employee wages.
To help combat wage theft, Colorado Governor Jared Polis recently signed into law HB19-1267. This bill classifies the failure to pay an employee their owed wages as theft. This wage theft law, which goes into effect on January 1st, 2020, will impose criminal penalties if an employer purposefully refuses payment of wages or falsely and intentionally denies the wage amount or validity of a claim in the state of Colorado.
The federal Fair Labor Standards Act (FLSA) places it on employers to pay the full amount of a wage owed to an employee, as well as to track it accurately. An employer’s failure to do so can now lead to law enforcement getting involved to resolve wage claims, with the Gov siding soundly with employees.
HB19-1267 is an employment law that has deep roots in the work of the Colorado Human Trafficking Task Force, which has determined that “labor trafficking” was one of the most common types of human trafficking, but the least prosecuted. One of the reasons the bill gained such momentum was because of the Worker Misclassification Task Force that was established by former Governor of Colorado, Hickenlooper, last year. The task force, which works with representatives from organized labor, the construction industry, and the Colorado Department of Labor and Employment has mainly focused on how to identify and hold accountable businesses that inappropriately classify workers as independent contractors as opposed to employees.
Wage theft is very prevalent in the construction industry. In Colorado alone, nearly 500,000 people experience some form of wage theft per year and most of those individuals are construction workers.
Both the Colorado Human Trafficking and Worker Misclassification Task Force found that a majority of victims of labor trafficking are undocumented workers who speak little to no English. They are often hired by unethical labor brokers who, in most cases, send them across national or state lines to do low-skilled manual labor. These people are not only paid less than their trained counterparts but in many cases, their wages are withheld without their knowledge or consent.
Dishonest companies that take part in such practices also don’t typically provide required protections such as workers compensation or unemployment insurance. As a result of not providing those protections, companies can drastically undercut the prices of legitimate employers in the industry, that accurately classify and pay their workers. The actions of dishonest companies not only their workers but other employers that play by the rules and ultimately lose out on business when they aren’t able to match a lower bid.
Background And Summary Of New State Law
Under the current legal framework, an employer will receive an unclassified misdemeanor charge if found guilty of wage theft. Additionally, they will have to pay a fine of $300 for failure to pay wages or a $500 fine for failure to pay the minimum wage. Under HB19-1267, failure to pay an employees wages constitutes theft, and depending on the amount of wages that are unpaid can be considered a petty offense or misdemeanor. If the amount of unpaid wages exceeds $2,000, the employer could face potential felony charges.
Definitions Of Employee And Employer
The new bill defines an “employee” as any individual who performs labor or services for the benefit of their employer. There are relevant factors in determining employee status, which include the degree of control an employer does or may exercise over the individual.
HB19-1267 defines “employer” using the same definition as found in the Fair Labor Standards Act. That means an employer is any person acting directly or indirectly in the interest of an employer in relation to an employee and includes a public agency, but does not include any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such labor organization. This includes explicitly foreign labor contractors and migratory field labor contractors or crew leaders.
As we previously mentioned, the current fine for failure to pay wages is $300 and $500 for not paying the minimum wage. However, under HB19-1267, fine penalties for theft can range from $50 up to $1 million depending on the circumstance around the crime and the value that was stolen. This will prove to be a significant motivator for employers to pay their workers fairly.
The new bill removes a previous exemption that stated if an employer is unable to pay wages because of Chapter 7 bankruptcy or other court action resulting in the employer having minimal control over its assets, criminal penalties will not apply.
An exemption has been removed from HB19-1267 that said employers who claimed bankruptcy or had limited access to their assets because of court action were exempt from criminal penalties.
In other words, employers will not be able to avoid liability by claiming certain financial situations interfere with their ability to pay their workers. Companies will be held accountable regardless of their status, and if they aren’t able to pay, there will be severe consequences.
The Cost of Wage Theft
A survey done by the Colorado Fiscal Institute shows that more than 500,000 workers in the state, a majority of them in the construction industry, lose more than $750 million a year due to wage theft. Their analysis shows that the most common techniques employers use to short employees on their wages are:
- Nonpayment – This includes not paying employees what they’ve earned as well as late payments.
- Misclassification of employees as independent contractors so they can avoid paying benefits.
- Unauthorized payroll deductions for expenses such as materials, tools, and transportation.
There has been a significant push by some cities and states to address wage theft and misclassification of workers as independent contractors. For example, in California lawmakers are debating codifying a state Supreme Court ruling that determines which workers would qualify as independent contractors. The ABC test, which is the employment-classification test, asks whether the person claiming to be an independent contractor is genuinely free from control and direction of the employer. It also asks if they perform work that the hiring employer doesn’t normally do.
On the other side of the country in Massachusetts, they are cracking down on employers that intentionally cheat employers of out their pay. State Attorney General Maura Healey office cited 66 contractors with wage theft violations and imposed $2.7 million of penalties against them in 2018 alone. Of the $2.7 million, more than $1.4 million was for wage reimbursement.
While it’s sad to say, cases of wage theft can be linked to more evil acts. Recently in California, a construction company owner named Job Torres Hernandez was convicted on forced labor charges. He refused to pay the undocumented workers he recruited from outside of the United States. He even went as far as forcing them to live in housing that was in terrible shape – frequently locked the doors, so they weren’t able to leave. The workers stated if they complained, Torres would threaten physical violence on them and their families. Hernandez is now facing up to 20 years in prison and $500,00 in fines.
Since April of 2017, more than 1,100 Colorado businesses have been cited for wage-theft according to the state’s Department of Labor and Employment. The amount of back pay required to be paid in each case ranged from a few dollars to a maximum of $7,500, with an average of about $1,317.
Not only are the financial costs associated with wage theft quite high, but the impact wage theft has on workers is insurmountable. It impacts them, their families, their communities, and from there, it has wide-reaching implications.
So What Are Your Next Steps?
As mentioned above, HB19-1267 will go into effect on January 1st, 2020, but please don’t think you can put off preparing for the new changes. Colorado employers should use the remainder of the year to review their pay practices and be mindful of any new categories included under the Colorado wage law.
To avoid criminal charges and prepare for any compliance requirements, you should reach out to your legal team soon to discuss the requirements of the new law. All eyes will be watching to see which companies mess up and receive criminal charges. So rather than gaining some unnecessary and unpleasant media exposure, do your research and guarantee your company is in compliance.