Those of you who attended our annual Employment Law Conference this past February know that failing to complete Form I-9 for all new hires can lead not only to civil fines and penalties, but to criminal penalties (If you missed the conference, all of the materials and audio are available here). That’s true for wage and hour violations, too. And I don’t just mean for the company; I mean for every manager involved. In the highest profile recent example, federal prosecutors indicted a sitting Congressman, Republican Michael Grimm from Staten Island, in April 2014 for violations of wage and hour-related tax laws, and the Immigration Reform and Control Act of 1986 (the “IRCA”), among other charges related to a fast food restaurant he once owned. He allegedly filed false state and federal tax returns to underreport more than $1 million in sales and wages by concealing gross receipts and off-the-books cash wage payments.
Recently, we got another reminder that it isn’t just immigration and tax law violations that can lead to criminal charges for employers. Violations of the FLSA can lead to criminal charges, too.
Last fall, the U.S. Labor Department’s Dallas office issued a press release about criminal charges it had levied against a Texas-based rope manufacturer. Not only did the company face criminal charges, but ultimately the “owner, plant manager and office manager were also convicted on separate felony counts” as well.
Wait, the FLSA Permits Criminal Prosecutions? Yes!
While the majority of FLSA cases involve back-wage payments and various civil penalties, the statute gives the DOL power to levy criminal sanctions, too. Section 16(a) of the FLSA authorizes criminal sanctions against any person who is shown to have violated the FLSA intentionally, deliberately, and voluntarily, or with reckless indifference to or disregard for the law’s requirements. As I explained at our Employment Law Conference, criminal provisions of laws like the IRCA and the FLSA apply not only to business entities but also, as highlighted in the DOL’s press release, directly to business owners, company officers, shareholders, HR managers, supervisors, and even others. Other than a criminal record, which is punishment enough, the potential penalties include a fine of up to $10,000, imprisonment for up to six months, or both.
Don’t Forget State “Wage Theft” and Wage and Hour Statutes
Even where the DOL doesn’t seek criminal sanctions, or can’t, that does not mean employers and their employees are necessarily off the hook. Recently, the Department of Labor reported in its weekly newsletter that the Wage and Hour Division had completed a second investigation of a car wash business in Los Angeles. The employer “was on probation for wage theft after being ordered to pay almost $1 million in restitution as a result of a criminal wage theft case that began nearly five years ago.” Although the DOL’s newsletter does not explain further, the “wage theft case” was actually a California state wage claim according to 2010 news reports about the case. In its recent investigation, the DOL found $24,627 in back wages due to 96 employees and “referred the case to the Los Angeles City Attorney for criminal prosecution.”
Granted, this particular business had some history that may have impacted the DOL’s decision to refer the case for state prosecution, but California is one of many states that criminalize so-called “wage theft” in ways that are much more easily invoked and prosecuted than under the FLSA.
Criminal prosecutions under the FLSA are thankfully still rare, though state prosecutions are on the rise, particularly with the passage of more and more “wage theft” statutes like the one in New York. Given the archaic nature of the federal statute and ease with which employers can violate its provisions, I hope the DOL is not opening a new front to attack employers.
Regardless, these examples should be a wake-up call to make sure your wage and hour house is in order. When was the last time you had a third party audit your job classifications, your payroll practices and your compliance with federal and state wage and hour laws? The DOL and its companion state agencies are clearly not afraid to use criminal sanctions in the right circumstances. You already need an employment lawyer. Don’t leave yourself in danger of needing a criminal lawyer, too.