“Wage Theft” Stories Are Back: What Employers Need to Know About Civil and Criminal Liability

As nearly every employer knows, California is just different when it comes to employment law. With hundreds—if not thousands—of technical requirements, even the most conscientious employer may run afoul of the Labor Code. Recently, news headlines have been filled with stories of so-called “wage theft,” broadly defined as wages that an employer should have paid to employees but didn’t (whether intentionally or not). Indeed, the media has begun to describe many run-of-the-mill wage and hour lawsuits as “wage theft” cases. Against that backdrop, California has redoubled its efforts to reduce or eliminate wage theft.

For example, at the state level, currently it may take as long as three to five years to complete wage claim processing. In an effort to streamline and accelerate this process, the 2023-2024 California state budget includes an additional $16 million in funding to add staff to the Labor Commissioner’s Office and tackle the backlog of investigations. The Labor Commissioner’s Office is not wasting any time in moving to bulk up its office; two weeks ago it released a YouTube recruiting video with the catchy title: “Help Stop Wage Theft as a Deputy Labor Commissioner.”

At the same time that the state is increasing enforcement efforts, many local efforts continue as well. For example, in Los Angeles, District Attorney George Gascon, the Carpenters’ Union, and the Labor Commissioner have partnered to promote investigation and prosecution of wage theft (which they also describe as “tax fraud”). The city of Mountain View, located in the pioneer tech capital of Silicon Valley, now requires compliance with wage claim orders before companies are permitted to renew business licenses. In San Diego, where workers filed 3,000 claims with the Labor Commissioner just last year for wage and hour violations, disclosure of previous labor law violations is required when applying for building permits, prior to approval to commence work on a project. And the San Diego District Attorney established a Workplace Justice Unit dedicated to prosecuting wage theft and labor trafficking.

Other municipalities across the country are beginning to take similar steps. Last month, Denver’s city council unanimously passed an ordinance permitting its city auditor to investigate pay records/practices and issue civil penalties for wage/hour violations. The purpose was to simplify the process by which employees can file complaints by using the city auditor’s office instead of the court system.

But state enforcement and local rules are not the only potential areas of concern for employers. Traditionally, enforcement of wage and hour laws has relied on penalties, fines, and citations. Employers now face a far more threatening weapon: criminal penalties. Updates to the California Penal Code now permit criminal prosecution of employers for grand theft when there is an allegation of wage theft amounting to more than $950 from one employee, or more than $2,350 total from multiple employees. While criminal prosecutions have been relatively rare so far, more prosecutions are likely in the future, and there is also a chance that we will see injunctive actions brought by law enforcement agencies. Of course, the number of prosecutions alone is not the only challenge: media coverage of “wage theft” cases is likely to increase, which may have the effect of encouraging more employees to file claims or lawsuits.

So what should employers do? First, with the assistance of counsel, engage in regular audits of policies, procedures, and payroll practices. Second, employers should continue to follow developments on wage and hour issues from workforce enforcement agencies including the Department of Industrial Relations and law enforcement offices. And finally, employers should remember the ever-present threat of civil liability from class action lawsuits or claims under the Private Attorney Generals Act (PAGA). Certain strategies (like the use of arbitration agreements) can reduce the potential exposure from such claims.