City Council passes Wage Theft and Payroll Fraud Prevention Ordinance

PHOTO BY BRUCE CHECEFSKY

Monday, December 5, 2022; just outside of the Cleveland City Council Chambers, Cleveland City Hall, 601 Lakeside Avenue: Guardians for Fair Work members Nora Kelley and Justin Strekal celebrate Cleveland City Council’s passage of Fair Work legislation. Members of Guardians for Fair Work lobbied for the legislation as part of a campaign to end wage theft in Cleveland.

PHOTO BY BRUCE CHECEFSKY

Monday, December 5, 2022; Cleveland City Hall Rotunda, Cleveland City Hall, 601 Lakeside Avenue: Members of Guardians for Fair Work pose for a group photo in front of the Christmas tree.

by Bruce Checefsky

     On Monday, December 5, 2022, Cleveland City Council passed the Wage Theft and Payroll Fraud Prevention Ordinance, which prohibits the City of Cleveland from entering into contracts with all businesses, from construction companies to food vendors, found to practice wage theft in the past three years.

     Wage theft is defined as a violation of any federal or State of Ohio law regarding prompt payment of wages, minimum wage standards, prevailing wage rates, and hours worked. The most blatant wage theft is an employee asked to work overtime or through breaks or asked to report early or leave late, all without pay.

     The Ordinance places the burden on employers entering into contracts with the City to disclose any adverse determination. An adverse determination is a denial or limited authorization of a requested service. Failure to disclose will subject the individual or entity to criminal penalties. Once listed as an adverse determination with the Fair Employment Wage Board (FEWB), the employer will remain there for the next three years.

     An employer can be removed from the list before the period lapses by receiving a waiver if it results in a major disruption to City operations, a change in ownership since the adverse determination, or if they have complied with the requirements of the final action placing them on the list.

     The Ordinance is a victory for the advocacy group Guardians for Fair Work and organizer Nora Kelley, who have been lobbying City officials to deliver wage-theft protections for Cleveland workers since last year.

     “This is an important first step at making clear that we have public policies supporting workers,” said Kelley. “Seating the Fair Employment Wage Board within 180 days of passage of the Ordinance is key to its enforcement.”

     Businesses seeking City contracts or financial assistance will report to the Fair Employment Wage Board, a seven-member board meant to monitor the living wage ordinance. It will include two members from labor, two from business, one community representative, one from the Mayor’s office, and one from City Council. Mayor Bibb will make all appointments except for the City Council seat.

     City Council and the Bibb administration need to pass a 2023 budget that provides the Fair Employment Wage Board with the financial resources to implement the regulations before the Ordinance can take effect.

     David Kelley, a Guardians for Fair Work follower and one of more than thirty supporters to attend the final City Council meeting of the year at City Hall, said wage theft disproportionally affects people working for minimum wage.

     “Minimum wage is not a living wage to start with, and then lose some of it though wage theft is stunning.”

     Policy Matters Ohio reports that in the Fiscal Year 2017, food service, retail, construction, healthcare, and hotels were the top five culprits of wage theft, accounting for 14,523 cases and 125,716 affected workers between them. Childcare services, janitorial services, and temporary help also made the top ten list.

     Ohio ranked second in the share of low-wage workers reporting wages below the legal minimum wage. Six wage and hour agents monitor labor practices for over 5.5 million workers.

     Under the Safe Harbor rule of the Revenue Act of 1978, a company can identify its workers as independent contractors. It can exempt employers from treating workers as employees. Companies that operate with the Safe Harbor rule do not need to pay into Social Security, Medicare, unemployment insurance, and workers’ compensation insurance, which can result in the stealing of billions of dollars from workers, governments, and the public, according to a study released by Yale University. The rules governing overtime protections are outdated and difficult to enforce. Even while employers face higher penalties for committing wage theft, compliance rates remain low as the odds of getting caught remain small.

     Major US corporations like Halliburton, G4S Wackenhut, and Circle-K stores are some of the worst offenders, which the US Department of Labor records show, and have collectively taken more than $22 million from their employees since 2005.

     The Biden administration recently issued a proposal that clarifies when workers are independent contractors or employees with the full minimum wage, overtime, and other protections provided under the Fair Labor Standards Act. The proposal directs employers to consider whether a worker is an employee or a contractor, whether the work requires special skills, the degree of permanence of the relationship between worker and employer, and the investment a worker makes, such as car payments. Misclassifying workers as independent contractors deny those workers protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over businesses, and hurts the economy.

     The Wage Theft Prevention and Wage Recovery Act introduced in US Senate in 2019 provides employees with regular paystubs and final payment for uncompensated work hours within 14 days of employee termination. Employers must also allow employees access to wage records. The bill proposes a civil penalty of $2,000 for the first violation of overtime or minimum wage laws and $10,000 for each subsequent violation. It increases wages for workers to triple the amount owed, up from double under the existing law, among other provisions. It makes class-action suits against employers for lost wages easier by automatically including all employees in the lawsuits unless they opt-out.

     In December 2022, the US Department of Labor recovered $370,194 in back wages and liquidated damages from the owners of two restaurants in Los Angeles and Pasadena that illegally denied overtime wages to 54 workers. The agency recovered $1M for 77 care workers employed by Seattle-area adult family home providers who worked overtime to ensure the well-being and daily needs of older adults and people with disabilities. Over $500K in back wages was recovered for 227 workers of a Panama City Beach hotel staffing agency after denying them full wages and benefits when the employer misclassified them as independent contractors.

     Justin Strekal, Cuyahoga County Progressive Caucus (CCPC) Steering Committee Member and Organizer with Guardians for Fair Work, addressed a packed City Council chamber before the vote. “There are over 250,000 documented cases of wage theft every year in Ohio. An average victim loses 24% of their take-home, which is over $2,900 in Cleveland if they stay on the job for a full year,” said Strekal. “I want to thank the City Council for their vote of support and to let you know that we will be back next year to talk about how we expand upon protection for Cleveland workers.”

     Under Ohio law, an employee can file a minimum wage or unpaid wages complaint with the Ohio Department of Commerce. The employee should complete the minimum wage complaint form and provide it to the Department Division of Industrial Compliance, Bureau of Wage & Hour Administration. Here is a link: https://com.ohio.gov/static/documents/dico_MINIMUM_WAGE_COMPLAINT.pdf.

One response to “City Council passes Wage Theft and Payroll Fraud Prevention Ordinance”

  1. Phil

    Wage theft is trashy, employers cheating workers are too. Why does the City of Cleveland need a law to force them to only contract with reputable companies? Shouldn’t those in charge be responsible to review all sorts of criteria anyway, not only wage violations, but other lawsuits, liens, violations, complaints against the vendors? Do we need laws to ensure city purchasers review vendor compliance with every single law? Doesn’t seem to me people the adults in charge really know right from wrong, and another law isn’t going to change that. And it goes both ways, when are they going to pass law about employees hourly stealing time by being on the phone or chit chatting all day?

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