The Fair Labor Standards Act was passed in 1938 to protect workers against unfair pay practices. The US Department of Labor still enforces the Fair Labor Standards Act, but many states have passed stricter wage theft laws.
What Is Wage Theft?
Wage theft is a multi-billion dollar problem that spans several industries – including construction. When a worker is denied full payment of wages and/or benefits they are legally owed by their employer – that’s wage theft.
Some say the wage theft problem in the construction industry may be caused by soaring material prices and competitive bidding… These factors might motivate contractors to shrink labor costs.
In construction, wage theft can be:
- Refusing to pay workers minimum wage
- Illegal deductions
- Denying overtime pay
- Misclassifying employees
- Writing bad checks
- Blocking pay
Construction workers that get cheated out of pay by contractors is “a problem that’s especially prevalent on the non-union and residential sites where many immigrant workers are employed,” explains Sarah Leberstein, an employment attorney for Make the Road New York.
Minimum wage violations vary by industry and occupation, and violation rates are significantly lower in residential construction / general construction than trades like apparel and textile manufacturing.
Wage Theft Laws by State
Nearly every jurisdiction has a law requiring employers to pay employees suitable wages; some states have created criminal penalties for wage theft.
In Colorado, a wage theft law went into effect in 2020, defining violations as a felony if the amount is over $2,000.
In California, the governor signed Assembly Bill No. 1003 into law. The purpose of this bill is to make the intentional theft of wages punishable as grand theft under the California Penal Code (aka: a felony).
Illinois recently updated its wage theft law to make employers who are in violation liable for damages of an additional 5% of the underpayment each month while the wages or compensation remains unpaid.
A 2017 wage theft study from the Economic Policy Institute found that 32.3% of New York construction workers’ earned wages were not paid – the highest share out of all the industries surveyed.
Since January 2022, New York’s law says general contractors are responsible for ensuring all workers on a project, including those employed by subcontractors, are rightly paid. The NY law also enforces more strict reporting requirements for subcontractors.
The intention is to fight wage theft by making prime contractors liable for “any unpaid wages, benefits, damages, attorney fees related to a civil or administrative action.” The liability is limited to 3 years: An individual or a representative can file a lawsuit against their employer-subcontractor and the prime contractor during that time.
At the end of the day, wage theft laws serve one common goal — To combat wage theft in the construction industry.
“Wage theft affects the whole community’s dignity, affects the state of our economy, and many, many people are hurt by it,” Summer Stephan, district attorney for San Diego County said. NBC News reports that local economies are hurt by wage theft because employers paying cash to workers may not pay local taxes, reducing revenues for cities and towns. Research published by the Midwest Economic Policy Institute showed that wage theft in the construction industry affects about 1 in 5 workers in Wisconsin, Minnesota, and Illinois. The annual cost to taxpayers in those states exceeds $362 million.
Key Takeaways for General Contractors
As a result of a few bad actors, according to Berstein Shur, the state and federal regulators have targeted the construction industry for their crackdown on wage theft.
Legislation against wage theft will become the standard in our industry. Here are a few things all GCs should know…
- Any contractor in a construction contract assumes liability for any wages or debt owed to a worker.
- You can request your subcontractors’ wage and hour records. The records must have sufficient information to determine whether the sub is making proper wage and other benefit payments to its workers. Have legal counsel review the wage and hour records as needed.
- If a subcontractor (at any tier) withholds certain requested information or doesn’t provide certain payroll records, you can refuse to pay for the work they’ve done on a project until they comply.
- You might want to consider a self-audit, where you examine employees, subcontractors, financial control, and the relationship.
- Contractor liability is limited to claims that occurred within the 3 years preceding the initiation of the claim.
The best thing you can do is prepare. Just because “you’ve always done it this way” doesn’t mean you’ll be protected.