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National Trend: Criminal Prosecution of Employers for Improper Pay Practices

Then presidential-candidate Hillary Clinton's 2015 statement about the possibility of incarcerating employers for alleged “wage theft” was, to many, an alarming prospect. Since that time, this position has become more mainstream among workers’ rights advocates, politicians, and, critically, prosecutors. Today, prosecutors across the country increasingly seek criminal fines and jail time for what were previously seen as non-criminal labor violations better handled by Departments of Labor and other civil regulators.

We recently explored the rise in wage theft prosecutions in Pennsylvania and around the country in an article for ALM’s Business Crimes Bulletin, (“Employers Must Be Mindful of Pay Practices, As Criminal Charges for Underpayment of Workers Becomes Increasingly Common”). Our analysis shows that these prosecutions are becoming a significant risk for employers in all industries, who should closely monitor their worker classification and pay practices, as well as their compliance with relevant federal, state, and local compensation-related laws.

In Pennsylvania, so-called “wage theft” prosecutions are poised to increase following recent high-profile actions by District Attorneys and the Pennsylvania Attorney General.  For example: 

  • In Philadelphia in January 2021, the DA’s office brought charges against a plumbing contractor who allegedly never paid over to his workers’ union some $110,000 in dues that the employees had authorized him to pay. 
  • In February 2021, a construction contractor owner pled guilty to felony theft by unlawful taking and conspiracy to commit workers’ compensation fraud, as well as improper classification of workers. This appears to be the first use of a decade-old law aimed at criminalizing misclassifying employers as independent contractors.
  • In April 2021, the Pennsylvania AG announced what he called “the largest prevailing wage criminal case on record,” state or federal, against a contractor who allegedly failed to set aside sufficient funds for prevailing wage employees’ fringe benefits.

This trend of criminal prosecution for employers’ pay-related compliance issues shows no signs of abating, particularly in areas with notably progressive prosecutors. Prosecutors are motivated, have dedicated resources, and are trying legal theories new and old to punish underpayment — even seemingly garden-variety misclassification or underfunding of fringe benefits — criminally. Most importantly, they have had a taste of success. Employers should consider doing what they can now to ensure they do not land on the wrong side of this trend.

Employers should:

  • Consider whether they have written policies and procedures governing payroll, worker classification, and the like, whether the appropriate individuals are effectively trained on those policies, and whether they are consistently followed.
  • Have an independent lawyer conduct an audit of wage practice and consider formally documenting the lawyers’ conclusions.
  • Consider at the outset of such an audit the possibility that the employer may one day want to waive privilege as to the subject matter of the lawyers’ investigation, and guide itself accordingly; and
  • Most critically, follow the lawyers’ advice, should they conclude something needs to be changed — not doing so could put the employer in a particularly bad position.

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Disclaimer: This post does not offer specific legal advice, nor does it create an attorney-client relationship. You should not reach any legal conclusions based on the information contained in this post without first seeking the advice of counsel.

About the Author

Abraham J. Rein is a Principal in the Firm's Internal Investigations & White Collar Defense Group, Co-Chair of its Information Privacy & Security Group, and a member of the Firm's Diversity and Inclusion Committee. He focuses particularly on the intersection of technology and the law, advising clients on legal aspects of data security, social media compliance, electronic discovery, the application of certain constitutional rights in a digital era, and related topics.

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