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How the restaurant industry normalizes wage theft

in Food/News

By Matt Marcus

“If they’re clocked in before they’re scheduled to work, then you don’t have to pay them.” This is a tip Eddie Wu, owner and chef at Cook St. Paul, received from another local chef de cuisine from a well-known Minneapolis restaurant. “In a proud way, they were [explaining] how many hours they were able to shave off their payroll and hedge it,” said Wu. 

Wage theft occurs when workers don’t receive their legally or contractually agreed upon wages. This could be non-payment of overtime, paying below the minimum wage, not paying for all hours worked, requiring off-the-clock work, stealing or manipulating tip payouts or not paying an employee a final check. 

This type of theft within the foodservice industry can be obvious, like not paying overtime wages, but there are quieter tactics and loopholes that unscrupulous owners or managers take advantage of, often going unnoticed by workers. 

The most recent compliance sweep conducted by the U.S. Department of Labor’s Wage and Hour Division from 2010-2012 revealed that within nearly 9,000 full-service restaurants, approximately 84 percent of restaurants had at least one violation.

This resulted in the department’s recovering approximately $57 million in back wages for about 82,000 workers. This data largely accounts for violations against documented workers, still leaving a large unknown gap of violations perpetrated against the industry’s most vulnerable group, undocumented workers. 

These figures are startling but as Sam Peterson, co-owner of Kiyatchi, a Japanese-inspired restaurant with locations in both Minneapolis and St. Paul, explained, “It’s so commonplace that people don’t even realize that it is illegal.” Peterson explains a situation where former employees suggested unpaid hours to finish post-service tasks in an effort to cope with higher minimum wages and higher operating costs. 

Peterson quickly explained to his employees why working unpaid hours was not acceptable, but the fact that this proposed solution came from employees illustrates the normalcy of off-the-clock and unpaid work in the service industry.

Centro de Trabajadores Unidos en la Lucha, also known as CTUL, surveyed low-wage workers in the Twin Cities in 2015 and found that half of the respondents experienced wage theft. According to the Department of Labor and Industry, wage theft violations in the state are commonplace across industry. This calendar year alone, the Department of Labor and Industry has recovered nearly $470,000 for workers victim of wage theft, with the average claim amount hovering around $1,400. 

Under federal law, “employ” is defined as “suffer or permit to work.” This time spent working almost always requires compensation, but there are apparent loopholes. “Suffer” work means an employee does work outside their scheduled time that isn’t requested or explicitly granted permission but is ultimately allowed by law. This work could be setting up a workstation, finishing up end-of-shift tasks, assisting a coworker or working through an unpaid lunch break. 

This “suffered” time must be counted as hours worked, but management can claim they did not know this work was being done. In this way, as Wu explained, management can shave 10-20 minutes and workers might not ever notice it.

An additional tactic employers use to further shave time off the clock is by simply rounding clock-in and clock-out times, often done to the nearest quarter of an hour. Eddie Wu explains a scenario where the two tactics can be used in conjunction, “Say an employee comes in 25 minutes before their shift, and the employer claims they didn’t allow any work for the first 18 minutes, and then they rounded down the final seven [minutes].”

The U.S. Labor Department approves this practice “provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.”

This practice seems to have mixed results in an industry with low profit margins and limited enforcement. “Wage theft, it seems or at least we think, it happens more often in highly competitive businesses where if you can increase your margins you’ll do it,” explained Ken Peterson, commissioner of Minnesota Department of Labor and Industry.

Naun Uriostegui, a highly-experienced cook, spent 17 years working at Curran’s Restaurant when he realized he was being underpaid by his employer. Uriostegui was being paid $12.10 per hour and the owner would pay his wages in both check and cash.

His hourly wages were paid on the books by check, and overtime, which Uriostegui claims averaged 15 hours per week, was paid in arbitrary amounts of cash. “In this way [the owner] was stealing a lot of money, if I would work fifteen hours of overtime, I would get maybe like $100 in cash,” explained Uriostegui.

This happened for years and Uriostegui tried to explain to his co-workers that they have rights, whether or not they have documentation, but he said that he discovered that “a lot of people were scared and didn’t want problems so they never reported it.”

“If you go and talk to any of our labor investigators, chances are they’re going to be talking to you about restaurants and hospitality where they see a lot of wage theft,” said John Aiken, director of Labor Standards and Apprenticeship at the Department of Labor and Industry. Aiken is comfortable saying that a high percentage of wage theft violations occur in restaurants but the Department currently does not have supporting data or metrics.

In Minnesota, the Department of Labor and Industry is working to improve wage and labor conditions in the state through some revamped initiatives. The Department recently restructured their complaint system, switching the main channel for reporting wage violations from postal mail to phone calls. The simple change has reduced wage recovery times from one month to having 90 percent of claims settled in four days.

That recovery process and prioritizing of the earned wages of workers is paramount for the Department of Labor and Industry Commissioner Ken Peterson. “In most cases, we don’t want to punish [restaurant owners]; all we want to do is put the money in the employees pocket,” said Peterson.

The working culture of food service is to be adaptable and accommodating, but systems designed for just outcomes should dictate that nature should not transcend the bounds of compensation and labor. Education about labor laws can combat these tendencies and push back against exploitative owners leveraging this adaptable nature for their own gain. But as Andrea Devora, former server, consultant and advocate for the prevailing tipping model said, “You’re going to always have those assholes who are going to be taking advantage or not doing numbers right, or going in and adjusting time on the clock-ins …”

It’s this truth that in August led workers and advocates to ask Minneapolis Mayor Jacob Frey to support a new ordinance that would more aggressively combat wage theft. CTUL is leading the charge in asking for stricter rules and expanded enforcement across industries.

The CTUL organizers have been instrumental in the $15 minimum wage movement in Minneapolis, and the organization has worked to protect and expand the rights of the Twin Cities’ most marginalized low-wage workers: recent immigrants, people of color and women.

The push for greater enforcement of wage theft violations is in response to documented violations. CTUL also anticipates a possible increase in violations as Minneapolis businesses are required to increase minimum wages in accordance with the new ordinance over the next four to six years.

Uriostegui took his case to the U.S. Department of Labor, but he ultimately didn’t have a favorable experience with their case managers and decided not to proceed. Later the Department of Labor negotiated a settlement for about $400. But Uriostegui explained, “If we were able to get back all the money that was actually owed, it would probably be like nine or ten thousand dollars because it was over the course of seven years.”

CTUL supported Uriostegui in bring legal action against his employer. Unfortunately, the small claims court judge simply backed up the earlier Department of Labor settlement, awarding Uriostegui nothing from their $5,000 claim.

Dennis Curran, owner of Curran’s Family Restaurant admits their wrongdoing in part, but ultimately refutes the larger claims made by Uriostegui. Curran admits they failed to pay the hours accounted for in the Department of Labor’s investigation, and that they were happy to pay what was rightfully owed.

But the majority of the back wages claimed were from overtime hours, which were paid in undocumented amounts of cash. These claims were successfully challenged by Curran in small claims court. Both Curran and Uriostegui confirm that his overtime hours were paid in cash, but Curran paints a picture of being forced into the opaque payment agreement.

“I won’t say he blackmailed me, but he forced my hand,” explained Dennis Curran, who attests that the agreement was Uriostegui’s request. When asked how long this payment agreement went on for and what amount he was paid in cash hourly, Curran couldn’t provide any details.

After Uriostegui’s complaint and the Department of Labor’s subsequent investigation, Curran says he has implemented prevailing wage laws and made necessary changes like ceasing to pay any employees off the books in cash. Curran adamantly maintains that he treats his employees fairly and that the unpaid wages to long-time employee Uriostegui aren’t indicative of their restaurant’s working environment.

Uriostegui is staunch in protecting his and fellow workers rights to equitable and legal pay, but for him it’s also about a baseline of respect and appreciation. “I really wish he would have said ‘thank you, you were a good worker, you spent 17 years of your life here,’” said Uriostegui.

Wage theft is a national crime

When looked at in isolation, wage theft violations can seem small, but incremental and continuous extraction of wages make for a substantial loss to workers. This transfer from low-income wage earners to business owners increases inequality and adversely affects the livelihoods of some the nation’s most vulnerable populations, with women of color being disproportionately affected.

Nationally a 2009 study published by Center for Urban Economic Development, National Employment Law Project, and UCLA Institute for Research on Labor and Unemployment focuses on three cities: Chicago, New York, and Los Angeles. The study found that two-thirds of workers in low-wage industries had experienced at least one pay-related violation.

On average, a worker who earns $17,616 yearly losses approximately $2,634. The total estimated annual wage theft for the three cities combined exceeded $3 billion. When these findings were generalized for the remaining 30 million low wage workers in the country, wage theft is costing American workers an estimated $50 billion annually.

The word theft is invoked, a wide variety of illegal activity may come to mind. The most feared and arguably the most cliché, and often racist version of theft may be robbery. But in comparison to wage theft, the dollar cost to victims is substantially less.

All U.S. robberies reported in 2012 (bank robberies, residential robberies, convenience store and gas station robberies, and street robberies) cost victims approximately $341 million. The number of actual occurrences of wage theft in 2012 is unknown, but the total amount recovered for victims of wage theft was approximately $933 million – nearly three times the amount stolen in robberies.

The restaurant industry has steadily grown over the last few decades, even during a devastating recession. Restaurants have become a large piece of our domestic economy and are predicted to employ more workers than manufacturing by 2020. The Twin Cities employs about 161,000 food service workers with an estimated 5.5 percent increase over the next eight years. The growing pool of low-wage workers deserve not only higher wages, but more robust protections from wage violations.

The need for greater employer accountability

At present, there is no official data from the Department of Labor and Industry to pinpoint specifically what industries, localities, or demographics have a greater percentage of wage theft occurrences. “The hope is that we’ll not only have those numbers in the future but it will help inform where we put our resources so we can be more strategic,” said Aiken.

The Department of Labor and Industry currently has nine investigators assigned to the wage and hour division to oversee a workforce of 3.1 million. The workforce has grown by one million since the 1980’s but the number of investigators remains the same.

Two years ago, the new MN legislature allocated an extra $500,000 annually to the Department of Labor and Industry, which allowed them to employ their current nine investigators, an improvement from the previous six. They hired four other individuals, some with Spanish as a second language, to work the phones fielding wage complaints in order to expedite wage recovery times.

A Community Outreach Coordinator position was also created to educate employees and employers on workers rights and wage laws. This individual primarily hosts informational events through employers and community-based organizations.

“This idea of citations, I’ve always liked that idea. It’s just like a traffic ticket, if you don’t do something about this, you’re guilty,” said Peterson. The Department of Labor and Industry has indeed begun enforcing penalties with more teeth, the maximum fine for employers for non-compliance has increased from $1,000 to $10,000. Aiken explained that the steeper fine could act as a greater deterrent for restaurants operating on such small profit margins.

The Department of Labor and Industry is working to inform employers about The Packing House Bill of Rights, which requires employers to provide employees with information about their rights and duties as an employee in their native language.

Education is key and ensuring employers detail an employees’ rights is important, but without worker empowerment there may not be much change. Steeper fines and stricter laws create the foundation for accountability, but workers need resources and support in order to claim their lawful rights.

This story originally appeared in the Twin Cities Daily Planet and is being republished through a partnership with the INN Amplify program.

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