Stealing wages from the working poor

Wage-Theft-coverPhiladelphia sports bar and restaurant chain Chickie’s & Pete’s has signed a consent judgment agreeing to pay current and former employees more than $6.8 million in back wages and damages for improperly taking tips from servers and violating federal minimum wage, overtime and record-keeping requirements. Following one of the U.S. Department of Labor’s largest tipped employee investigations in recent years, the company and its owner, Peter Ciarrocchi, Jr., have agreed to pay $6,842,412 to 1,159 employees at nine of the company’s locations, plus a $50,000 civil money penalty. The proposed consent judgment has been filed in the U.S. District Court for the Eastern District of Pennsylvania and is subject to the review and approval by the court.

“The egregious actions by Chickie’s & Pete’s harmed real people and violated the promise that a fair day’s work deserves a fair day’s pay,” said U.S. Secretary of Labor Thomas E. Perez. “Restaurant servers are among the lowest paid workers in this country, with many earning incomes below the poverty line. Tipped workers deserve better and this action shows that the Department of Labor is ready to stand up for them.”

Under the Fair Labor Standards Act, tips are the property of the employee who receives them; however, restaurant operators can benefit by claiming a credit based on the tips towards their obligation to pay those employees the full minimum wage. If an employee’s tips combined with the employer’s direct wages do not equal the minimum wage, the employer must make up the difference during the pay period. An employer that claims a tip credit is required to pay a tipped employee only $2.13 an hour in direct wages provided that amount plus the tips received equals at least the federal minimum wage of $7.25 an hour. The federal minimum wage of $7.25 per hour was last increased in 2009 and the federal tip credit’s cash wage requirement of $2.13 has not been increased since 1991.

“When employers exploit tipped workers, they not only harm their employees who are working hard to earn a living, but also take advantage of the trust of their customers,” said Laura Fortman, principal deputy administrator for the department’s Wage and Hour Division. “Customers might not realize it, but their tips frequently are paying part of their servers’ wages, not just giving them a little extra to go with their pay. Chickie’s and Pete’s behavior is troubling because they both unlawfully took tips from their workers and failed to pay them even the $2.13 per hour the law requires when an employer takes a tip credit.”

Investigators from the Wage and Hour Division’s Philadelphia and Southern New Jersey offices conducted investigations at locations in Northeast Philadelphia, South Philadelphia, Philadelphia International Airport, Parx Casino in Bensalem, Pa., Warrington, Pa., Drexel Hill, Pa., Audubon, Pa., Egg Harbor Township, N.J., and Bordentown, N.J. Investigators found that the company improperly retained a fixed portion of the tips servers received from customers.

The investigation disclosed that the company required servers to contribute a portion of their tips to an improper “tip pool,” or tip-sharing arrangement, which was approximately between 2 percent and 4 percent of the server’s daily table sales. The owner illegally retained approximately 60 percent of the tip pool. This amount had come to be known as “Pete’s Tax” and was required to be paid to the manager in cash at the end of each shift, even if the server received all tips on credit cards and therefore did not have cash on hand. In some cases, the company required employees to use their own money to contribute to this pool by withdrawing cash from a nearby ATM or borrowing from another server.

Additionally, servers and bartenders were paid only a flat rate of $15 per shift at all locations except for Chickie’s and Pete’s airport establishment  an amount that was not sufficient in all cases to even cover the minimum cash wage of $2.13 per hour that must be paid to a tipped employee when an employer claims a tip credit under federal law. Additionally, the employer failed to pay the required overtime wages to these employees when they worked in excess of 40 hours in a week. Investigators also determined that employees were not paid for time spent in mandatory meetings and training, and were improperly required to pay for uniforms.

Under the provisions of the consent judgment filed in U.S. District Court for the Eastern District of Pennsylvania, and subject to court approval, the company will pay minimum wage and overtime back wages and is required to return the improperly retained tips to the servers, as well as pay liquidated damages. In addition, the company has agreed to enhanced compliance, including: (1) External compliance monitoring for an 18-month period, (2) Internal compliance monitoring for an additional 18-month period, (3) Training for all employees on their rights under the FLSA, (4) Providing a statement to any employee required to contribute to a tip pool detailing the amounts that were contributed by the employee, the job categories of workers included in the tip pool and the specific percentage each category receives, and (5) Peter Ciarrocchi, Jr., will write an article for a restaurant trade publication that addresses an employer’s obligations under the FLSA.

The consent judgment also calls for Chickie’s & Pete’s and Ciarrocchi to be permanently enjoined and restrained from violating the provisions of the FLSA in the future.

The FLSA requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and one-half their regular rates of pay for hours worked beyond 40 per week. Employers also are required to provide employees notice about the FLSA tip credit provisions, to maintain accurate time and payroll records and to comply with the hours, hazardous orders and other restrictions applying to workers under age 18.

Raising minimum wage helps economy

One popular myth is that raising the minimum wage hurts the economy. Seventy-five years of empirical data has busted that myth wide open. Since 1938, the minimum wage has been raised several times yet the economy has grown and grown. Raising the minimum wage creates purchasing power for wage earners who then spend their wages. Their spending creates demand for goods and services.  Because one person’s spending is another person’s wages, the economy grows.

Source: Bureau of Economic Analysis, www.bea.gov
Mid-year population estimates from U.S. Census Bureau, www.census.gov

 

Workers can’t survive on the minimum wage

From Secretary of Labor Tom Perez –

To create opportunity for American workers, we must ensure that they can earn enough to support a family and afford life’s very basics. Tomorrow, it will be exactly four years since our low-wage workers last saw a raise. Now more than ever, we must renew the call to increase the minimum wage.

If you work full time in the wealthiest nation on earth, you shouldn’t live in poverty. You shouldn’t have to lay awake at night worried about how you’re going to pay the utility bill, or what you’ll do if the car breaks down, or whether you can put dinner on the table the next day.

Minimum wage infographicJoin the conversation on Twitter and Facebook using the hashtag #MWraise.

President Obama has proposed raising the federal minimum wage from $7.25 to $9 per hour. Since the last increase, its value has eroded 7.3 percent due to the rising cost of living, so the president also wants to index the minimum wage to inflation beginning in 2015. Why shouldn’t workers’ take-home pay keep up with the price of a gallon of milk or a pair of children’s shoes?

The president’s minimum wage increase is part of his vision of an economy where opportunity is available to everyone; where we all get a fair shake; where the middle class is within reach no matter who you are or where you come from.

There is a lot of sky-is-falling rhetoric suggesting that a higher minimum wage will be a catastrophic job-killer. But we’ve seen this movie before. This argument rears its ugly head every time an increase is on the table. The minimum wage has increased in 22 steps since the 1930s, thanks to strong bipartisan support. Not once did it send the nation into an economic death spiral.

Quite the contrary. A higher minimum wage boosts consumer demand, the engine that powers our economy during a recovery like this. Study after study from credible economists demonstrate that raising the minimum wage has no negative effect on employment and may be good for business as it leads to a more stable workforce with less turnover, lower training costs and higher productivity.

The minimum wage numbers tell a compelling story, as the above graphic illustrates.  But behind the numbers are stories of real people, their struggle and sacrifice – a father working in the grueling heat as an airport baggage handler, a grandmother doing back-breaking work cleaning offices at night. They’re working hard and taking responsibility. They’re not looking for handouts or special favors. They just want a fair day’s pay for a fair day’s work.

It is time to increase the minimum wage. As a matter of social justice, it’s the right thing to do; as a matter of economic common sense, it’s the smart thing to do.

Raise the Minimum Wage

A few remarks from a Nobel-prize winning economist on raising the minimum wage –

[The President has called for] a rise in the minimum wage from $7.25 an hour to $9, with subsequent increases in line with inflation. The question we need to ask is: Would this be good policy? And the answer, perhaps surprisingly, is a clear yes.

Why “surprisingly”? Well, Economics 101 tells us to be very cautious about attempts to legislate market outcomes. Every textbook — mine included — lays out the unintended consequences that flow from policies like rent controls or agricultural price supports. And even most liberal economists would, I suspect, agree that setting a minimum wage of, say, $20 an hour would create a lot of problems.

But that’s not what’s on the table. And there are strong reasons to believe that the kind of minimum wage increase the president is proposing would have overwhelmingly positive effects.

First of all, the current level of the minimum wage is very low by any reasonable standard. For about four decades, increases in the minimum wage have consistently fallen behind inflation, so that in real terms the minimum wage is substantially lower than it was in the 1960s. Meanwhile, worker productivity has doubled. Isn’t it time for a raise?

Now, you might argue that even if the current minimum wage seems low, raising it would cost jobs. But there’s evidence on that question — lots and lots of evidence, because the minimum wage is one of the most studied issues in all of economics. U.S. experience, it turns out, offers many “natural experiments” here, in which one state raises its minimum wage while others do not. And while there are dissenters, as there always are, the great preponderance of the evidence from these natural experiments points to little if any negative effect of minimum wage increases on employment.

Why is this true? That’s a subject of continuing research, but one theme in all the explanations is that workers aren’t bushels of wheat or even Manhattan apartments; they’re human beings, and the human relationships involved in hiring and firing are inevitably more complex than markets for mere commodities. And one byproduct of this human complexity seems to be that modest increases in wages for the least-paid don’t necessarily reduce the number of jobs.

What this means, in turn, is that the main effect of a rise in minimum wages is a rise in the incomes of hard-working but low-paid Americans — which is, of course, what we’re trying to accomplish.

Finally, it’s important to understand how the minimum wage interacts with other policies aimed at helping lower-paid workers, in particular the earned-income tax credit, which helps low-income families who help themselves. The tax credit — which has traditionally had bipartisan support, although that may be ending — is also good policy. But it has a well-known defect: Some of its benefits end up flowing not to workers but to employers, in the form of lower wages. And guess what? An increase in the minimum wage helps correct this defect. It turns out that the tax credit and the minimum wage aren’t competing policies, they’re complementary policies that work best in tandem.

So Mr. Obama’s wage proposal is good economics. It’s also good politics: a wage increase is supported by an overwhelming majority of voters, including a strong majority of self-identified Republican women (but not men). Yet G.O.P. leaders in Congress are opposed to any rise. Why? They say that they’re concerned about the people who might lose their jobs, never mind the evidence that this won’t actually happen. But this isn’t credible.

For today’s Republican leaders clearly feel disdain for low-wage workers. Bear in mind that such workers, even if they work full time, by and large don’t pay income taxes (although they pay plenty in payroll and sales taxes), while they may receive benefits like Medicaid and food stamps. And you know what this makes them, in the eyes of the G.O.P.: “takers,” members of the contemptible 47 percent who, as Mitt Romney said to nods of approval, won’t take responsibility for their own lives.

Eric Cantor, the House majority leader, offered a perfect illustration of this disdain last Labor Day: He chose to commemorate a holiday dedicated to workers by sending out a message that said nothing at all about workers, but praised the efforts of business owners instead.  The good news is that not many Americans share that disdain. We should raise the minimum wage, now.