Presentation to NYC Office of Labor Policy and Standards March 10, 2017
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1 Presentation to NYC Office of Labor Policy and Standards March 10, 2017 Janice Fine Associate Professor Labor Studies and Employment Relations Center for Innovation in Worker Organization School of Management and Labor Relations
2 Raising standards at the state and local levels Since 2003, 33 states, 16 cities and counties have passed minimum wage laws higher than federal Since 2008, over 30 states and 20 cities and counties have enacted wage theft laws Since 2012, 7 states, 30 cities and counties have adopted paid sick days laws
3 But how will they be enforced? School of Management and Labor Relations
4 More impactful enforcement of basic labor standards must begin with an effective logic of deterrence.
5 Over the past 70 years, WHD has struggled to find an effective logic of enforcement Complaint-based enforcement alone does not work for vulnerable workers in low wage industries but eats up majority of resources Proactive or strategic enforcement was never given sufficient resources, time or teeth until very recently State-based beat cops on labor market patrol systems deteriorated Firms under private monitoring arrangements still have a lot of non-compliance among their contractors
6 Why don t businesses comply? Different reasons --Organizationally weak or incompetent firm (bad management systems) -No normative motivation (don t care what s right or wrong) No social motivation (no community of compliance they are participating in and measuring themselves against) -Amoral economic calculator (cost/benefit) -Political citizen (principled disagreement so does not comply) -Margins too tight (cutthroat competition, subcontractor being squeezed by firms higher up on the food chain)
7 The Benign Big Gun Idea Regulatory agencies are best able to secure compliance when they speak softly but carry big sticks. Tit for Tat TFT enforcement: regulation that is contingently provokable and forgiving. The bigger and more varied the sticks, the greater success regulators will achieve by speaking softly. Sound public policy must speak to the diverse motivations of the regulated public.
8 Logic of Deterrence Broader, more impactful state enforcement of basic labor standards must begin with an effective logic of deterrence. To prevent firms that lack social or normative motives to comply with the law, there must be a credible threat of detection and costly punishment.
9 Motivations Matter for Enforcement Approaches Some corporate actors will only comply with the law if it is economically rational for them to do so; Most corporate actors will comply with the law most of the time simply bc it is the law; All corporate actors are bundles of contradictory commitments to values about economic rationality, law abidingness and business responsibility They have profitmaximizing selves and law-abiding selves, at different moments in different contexts, different selves prevail. A strategy based totally on persuasion and self-regulation will be exploited when actors are motivated by economic rationality. A strategy based mostly on punishment will undermine the good will of actors when they are motivated by a sense of responsibility.
10 Pyramids Increasingly stringent enforcement measures are needed to respond to the diverse objectives of regulated firms. An enforcement pyramid subjects regulated firms to escalating forms of regulatory intervention if they continually refuse to respond to regulatory demands.
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12 Assumption: repeat interactions Many of the firms in the low wage sector are not part of any sort of ongoing regulatory community. They are extraordinarily unlikely to be visited by an inspector once, let alone twice. In other words, there is seldom the repeat interaction that is at the core of the responsive regulatory model.
13 Our Challenge In light of how unlikely it is for a firm in the low wage labor market to be inspected in the first place and then to be effectively monitored over a period of time, what should an inspector do when she knows she will probably see a firm only once and has only one shot to change its behavior and to maximize the ripple effects of deterrence in a local labor market or industry?
14 Real world context of non-compliance in low wage sectors: Need heightened penalties to send a clear message to firms: if caught engaging in systematic non-payment and underpayment of wages and overtime, or placing workers health and safety at risk, they should expect to pay a very high price immediately. This should be the initial stance inspectors take toward the non-compliant until a new set-point is reached in which the long-term internalization of a desire to comply is more widespread in these industries
15 Weil s three essential enforcement questions Where are the biggest problems? (How do you know?) Why do companies behave the way they do (and how do you change that behavior)? How to cause sustainable change in workplace compliance across an industry? And I would add: who is in relationship with the workers? Who do they trust?
16 The Problem with Complaint-based enforcement alone Those who are most vulnerable to wage theft and workplace accidents are not only the least likely to know their rights but also to come forward even when they do. Due to the ground-breaking research of David Weil, former Wage and Hour Administrator at the US DOL, we now know how to approximate sectoral noncompliance with wage and hour laws by using worker self-reports on hours and wages from the Community Population Survey (CPS)
17 Relating complaints to underlying compliance: FLSA complaints and overtime violations FLSA Complaint Rates versus OT Non-Compliance, FLSA complaint rate (Complaint per 100,000) Little relationship between complaints and underlying problems OT Compliance (EEs PIV per 100 workers) SOURCE: N=165. Industry-level observations of complaint rates from WHISARD and CPS; Overtime violations based on CPS data. David Weil, Boston University
18 The Problem with Complaint-based Enforcement alone Those who are most vulnerable to wage theft and workplace accidents are not only less likely to know their rights but also to come forward even when they do. Weil s research demonstrates: Little overlap between the sectors with high rates of noncompliance with wage and hour laws and those sectors from which the highest numbers of complaints originate. In other words, enforcement systems premised on the assumption that all workers will complain when they have a problem, are inadequate.
19 Implications for enforcement: Strategic refocusing of investigations High Noncompliance Low Noncompliance High CR QUADRANT 1 High Complaints High Violations QUADRANT 3 High Complaints Low Violations Low CR QUADRANT 2 Low Complaints High Violations QUADRANT 4 Low Complaints Low Violations David Weil
20 Complaint Rate School of Management and Labor Relations Relating complaints and compliance: Right and wrong signals Measures of noncompliance High High o Eating and Drinking o Hotels and Motels o Building services (pest control and janitorial) o Gasoline stations Low o Credit agencies o Dairy and other misc. food stores o Auto parking, car washes Low o Hospitals o Grocery stores o Department stores o Health services, n.e.c. o Groceries (wholesale trade) o Drug stores o Petroleum refining David Weil, Boston
21 David Weil, Boston School of Management and Labor Relations Strategic enforcement approach: Resource decision rules Hig h CR Low CR High Noncompliance QUADRANT 1 Complaint response: High threshold for conciliations; Integration with directed initiatives Directed initiatives: Focused on special industry initiatives only (e.g., garment, eating & drinking) QUADRANT 2 Complaint response: High threshold for conciliations; Integration with directed initiatives Directed initiatives: Focus on these * Unless IND is specific MW or OT problem; ** unless approved by national office Low Noncompliance QUADRANT 3 Complaint response: Conciliate* Directed initiatives: Few** QUADRANT 4 Complaint response: Conciliate* Directed initiatives: Few**
22 The essence of regulatory jujitsu What factors drive policies related to workplace outcomes and compliance? Which of those factors are systemic? Which of those factors can be affected by public / other institutions? Three examples: Garment Eating and drinking Hotel and motel David Weil, Boston University
23 U.S. Department of Labor, WHD: Traditional enforcement strategy Retailer Manufacturer ( Design / Cutting / Sewing) Jobber (Design / Cutting) Contractor (Assembly) Contractor Contractor Contractor Contractor Contractor (Assembly) SubCont (Sew.) Sub. SubCont (Sew.) Sub. SubCont (Sew.) Sub. David Weil, Boston University
24 WHD: Public enforcement / private monitoring Retailer Manufacturer ( Design / Cutting / Sewing) Jobber (Design / Cutting) Contractor (Assembly) Contractor Contractor Contractor Contractor Contractor (Assembly) SubCont (Sew.) Sub. SubCont (Sew.) Sub. SubCont (Sew.) Sub. David Weil, Boston University
25 Eating and drinking industry segments Industry description Average EEs per establishment Total number of EEs Number of establishments Percent of sector (EEs) Food services and drinking places (722) ,219, , % Limited-service restaurants (722211) ,997, , % Full-service restaurants (72211) ,963, , % Source: U.S. Department of Commerce, County Business Patterns, 2001 David Weil, Boston
26 Fast food: The role of product brand & franchising Two industry insights: Importance of brand means fast food chains are concerned about quality, consistency and public image. Franchising creates a different degree of investment in the brand. David Weil, Boston University
27 Franchising and compliance: A relationship? School of Management and Labor Relations Average Backwages per Case Average BW/EEPIV per Case $1,000 $250 Prediction: $900 $840 Franchised units have greater focus on $199 $800 costs and lower stake in the $200 brand than company- $700 owned units. Company-owned $137 $503 $150units of a fast food company should therefore have higher levels of $100 compliance than franchisee-owned units of the same $50 company. $600 $500 $400 $300 $200 $100 $0 $0 Franchised Company-Owned Franchised Company-Owned (3183 Cases) (238 Cases) (3183 Cases) (238 Cases) WHISARD FLSA cases; David Weil, Boston University
28 Directed inspections yield minimal findings in company-owned establishments $300 Complaint Inspections Mean BW/EEPIV $300 Directed Inspections Mean BW/EEPIV $250 $249 $250 $200 $200 $150 $150 $128 $100 $50 $0 Franchised $63 Company-Owned $100 $50 $0 Franchised $6 Company-Owned (791 Cases) (37 Cases) (900 Cases) (46 Cases) WHISARD FLSA cases excluding conciliations and self-audits; David Weil, Boston University
29 What is Strategic Enforcement? Targeting investigations where evidence shows labor law violations are greatest that is, in industries where workers are most likely to be mistakenly or deliberately cheated out of their wages, and where they are least likely to speak up and report such violations
30 Wage and Hour Division Strategic Enforcement: WHD s strategic enforcement strategy entails focusing at the top of industry structures, targeting entire business entities rather than individual workplaces, holding joint employers liable for violations, expanding the use of the hot goods provision of FLSA and ensuring that firms pay the full fines and penalties owed. FY 2012 Congressional Budget Justification, USDOL-WHD,
31 What is strategic enforcement? Strategic enforcement: Enforcement policies that allow regulatory agencies to focus their limited resources on those workplaces, companies, and industries where the biggest problems are. What major decisions it covers: Decisions about which industries as well as segments within those industries to focus on Decisions about which workplaces to target within a given industry Decisions about which tools to use in undertaking regulatory activities Decisions about which organizations have relationships with workers in the sector (worker centers, community organizations, unions, legal services, immigrant rights)
32 Creating Ripple Effects Increasing cost of non-compliance by using all enforcement tools including licensing, maximizing fines and penalties, strong settlement agreements, bringing criminal charges Identifying formal and informal networks in which the employer is embedded, including labor and product supply chains, in order to hold parties further up the chain jointly liable for violations, and to alter their behavior Publicizing repeat violators as well as the results of significant cases through the media
33 Triaging Complaints Triage is a system an agency uses to sort cases into different treatment categories and to decide which complaints to prioritize for full investigations, such as those where: The worker is still employed The issue is ongoing, not in the past More than one worker is affected Risk of retaliation is high Wage theft is occurring frequently in the industry or occupation involved Business is a repeat offender
34 Complaint-based enforcement had long been the dominant approach taken by the federal government, but by 2016 strategic enforcement accounted for a remarkable 48% of investigations an unprecedented percentage in WHD s history. But at the state and local levels.
35 My survey of states and localities where minimum wage, wage theft or paid sick passed in last 4 years El Cerrito Emeryville Los Angeles Los Angeles County Oakland, Berkeley Palo Alto, Mountainview Richmond San Francisco San Jose Santa Monica Johnson Co, IA Seatac Seattle Chelsea, MA Minneapolis Philadelphia Pinellas Co, FL Portland, ME Tacoma, WA Santa Fe, NM Miami Beach, St Petersburg, FL Montgomery Co, MD Lexington, KY Washington DC Alaska Arkansas Colorado Georgia Hawaii Maryland Michigan Minnesota New Jersey, Ohio, Montana, Oklahoma North Dakota, Wisconsin, Wyoming Pennsylvania, California, Connecticut South Dakota, Utah, Rhode Island Vermont, Washington, West Virginia
36 Is enforcement solely complaint based? State City 35% 46% 54% Yes No Yes No 65%
37 Wrong signals When agencies don t receive complaints, many conclude that there is not much of a problem.
38 No plan to target the worst sectors
39 Is there strategic enforcement? City State 24% 33% Yes No Yes No 76% 67%
40 Connect Licensing to Enforcement? 61% No 39% Yes
41 Most do not triage complaints based upon severity, number of workers impacted, or even whether the complainant is still employed at the firm.
42 Is there triage? City State 8% Yes No 53% 47% Yes No 92%
43 Study Findings Policies didn t have many specifics about enforcement Acute lack of resources for state and local enforcement outside of large cities No theory of the case logic of deterrence, for the most part Majority complaint-based only and no triage Agencies don t think they have resources to engage in strategic enforcement Cities feel they are out there on their own, different agencies are being assigned responsibility Many agency leaders feel new state or local policy was imposed upon them, poorly conceived, don t feel ownership or enthusiasm
44 Findings continued Some agencies reluctant to engage in aggressive enforcement (either due to politics of the mayor or governor, power of business, or not the culture of the state or local agency) Organizations say they avoided or traded away enforcement specifics in order to pass the bill Most state and local agencies recognize the value of working with organizations, not exactly sure how to do it
45 Strategic enforcement=co-enforcement The ascendance of strategic enforcement into a co-equal position with complaint-based enforcement at the federal level is a major step forward For strategic enforcement to fulfill its promise, workers, worker organizations and high road firms must play a central role It is not just about there not being enough inspectors, although that is undoubtedly the case. Workers, worker organizations and firms will always know things that government won t.
46 Co-enforcement Those with the most information and greatest incentives partner with government to enforce the law. Unions, worker centers, community organizations and high road firms in relationship with inspectors, helping to patrol their labor markets for unfair competition so that government can investigate and swiftly punish businesses engaged in unethical and illegal practices
47 Example: California Commissioner of Labor Targeting sectors rife with wage theft including agriculture, janitorial, home health care, carwash, hotel, warehousing and restaurants Investigators used to conduct randomized sweeps, identifying their targets through the yellow pages and internet searches, they now work with communitybased organizations that, because of their relationships with vulnerable workers in at-risk sectors, know where the violations are occurring and how they are masked The organizations are helping to bridge the trust and information gap between workers and law enforcement, uncovering major cases of wage theft and safety violations and vastly increasing the number of violations identified, claims filed and wages collected
48 Labor Commissioner Julie Su One of the best ways we have established for finding violations is to work with community-based organizations who already have the trust of workers, speak the language of workers, understand how violations occur and are often masked, and are willing to collaborate with us by giving us leads and helping to bridge the trust gap between workers and law enforcement.
49 RESULTS of Co-enforcement in California Highest amount on record of minimum wages assessed Highest amount on record of overtime wages assessed Highest total amount of civil penalties assessed in a decade Highest amount of civil penalties for minimum wage violations in a decade Highest amount of civil penalties for overtime violations in a decade
50 San Francisco Co-enforcement Case Basics Office of Labor Standards Enforcement (OLSE) created in 2001 to enforce prevailing wage is authorized to enforce the MWO and given authority to investigate any possible violations. The agency has the power to conduct investigations, initiate civic actions, involve the City Attorney in pursuing criminal cases, conduct joint investigations with the State, and request that city departments suspend or revoke licenses. As of 2016, it had a budget of $4 million and 22 staff, including 18 investigators
51 Basics, continued SF Department of Health sees wage theft as a theft to public health: has the authority to suspend or revoke health permits (which means closing them down) based upon findings of noncompliance with decisions made by federal, state or OLSE. DPH has used its health permitting authority to pressure wage theft violators to repay workers back wages and penalties owed. Every year they take 10% of their permitted restaurants and ask them for proof they are paying minimum wage and OT. OLSE has referred very uncooperative business owners to DPH, which has initiated hearings to revoke their health permits.
52 Basics In 2006, the Board of Supervisors in San Francisco amended the Minimum Wage Ordinance to add San Francisco Administrative Code Section 12R.25 which states that: The Office of Labor Standards Enforcement shall establish a community-based outreach program to conduct education and outreach to employees.
53 Contract example with metrics: OLSE and the collaborative organizations Task Description Community Outreach: Example: Latino, Chinese, Filipino, LGBTQ Deliverable For each base community: Contractor shall provide weekly street and/or door to door residential outreach at least 26 days per quarter (2 days/week) targeting areas of high concentration for each base community. Contractor shall provide outreach for at least 8 community festivals, fairs or events goal of at least 2 per quarter Contractor shall make at least 2 presentations per quarter to staff and/or clients of non-profit orgs or educational institutions that serve that base community For each outreach activity, Contractor shall maintain detailed records of the date and location and approximate number of persons with whom the Outreach Worker had contact
54 Contract example, continued School of Management and Labor Relations Task Description Worker Trainings Example: Latino, Chinese, Filipino, LGBTQ Deliverable For each base community, Contractor shall conduct at least 4 worker trainings, providing an in-depth description of SF s labor laws and how to navigate the City s enforcement system, per year, with a goal of at least 1 per quarter For each outreach activity, Contractor shall maintain detailed records of the date and locations at which outreach was conducted and, using sign-in sheets, the number of persons who attended each training
55 Contract continued Task Description Counseling and Referral Services Deliverable Counseling and referral services are intended to provide one-on-one assistance to workers with allegations of employer violations of SF labor laws. Following OLSE protocols, the Contractor shall screen the complaint based on an alleged violation of City labor laws for validity and either attempt to mediate the complaint between the employee and employer or submit the complaint to OLSE staff. Within 60 days of the signing of this agreement, all staff covered shall participate in an OLSE training on protocols, worker counseling and navigating the City s enforcement system OLSE protocols shall be followed when referring workers to the City
56 Contract continued Outcomes Contractor shall resolve, or refer to OLSE, at least 5 SF labor law complaints (MWO, Paid Sick Leave Ordinance or Health Care Security Ordinance) each quarter. Contractor shall limit its activities under this Agreement to those listed below unless agreed to in advance and in writing by OLSE staff. However, Contractor may, at its discretion, choose to emphasize the activities that produce the best results. OLSE Protocols/General Rule 1. Membership recruitment, fundraising and workplace organizing are prohibited. Collection and use of personal information beyond what is necessary to meet the obligations of this contract are prohibited. 2. Entering workplaces is prohibited. 3. Interactions with employers, including managers and owners, are prohibited during outreach activities. It is permissible to contact employers during counseling and referral activities approved pursuant to this Agreement.
57 The OLSE Community Partners: Chinese Progressive Association Filipino Community Center La Raza Centro Legal Asian Law Caucus Delores Street Day Laborers Center Young Workers United In FY 2013, Board of Supervisors added $295,625 to the OLSE education and outreach budget, total funding was $482,125 now close to a million dollars
58 Dick Lee Pastry investigators found that for nearly four years, seven Dick Lee employees had not been paid minimum wage, overtime or double time compensation as required by law, and that the company had falsified payroll records. Workers had been working six days per week on shifts of hours, receiving semi-monthly wages of approximately $550, averaging between $3.02 and $3.91 per hour. Dick Lee owners sought to obstruct the investigation and retaliated against workers who cooperated with OLSE by reducing their hours and firing one of them
59 Dick Lee, continued Charging that these actions constituted unfair and unlawful business practices, the City Attorney sued the company for more than $440,000 in wages and interest and eventually recovered $525,000 including penalties. All the initial intake work they do is so critical because it takes a lot to build trust with the workers, to get them to a place where they understand why it is important to collaborate with different government agencies and to even fill out the form or file a claim. It takes organizing and education to get the worker to finally say I will fill out this claim form and put myself on the line Linshao Chin, OLSE Investigator
60 Yank Sing Restaurants School of Management and Labor Relations
61 Yank Sing Case Investigators on an initial site visit had been unable to get workers to tell them the truth about not having been paid the minimum wage and would not have been able to conduct an accurate audit because payroll records had been falsified.
62 CPA organizers went to work conducting house visits and one-on-one meetings and developing relationships with workers in the front and back of the house, and workers were persuaded to overcome their fears and come forward. CPA staff spent a year working on the case. We stretched our own organization so far, everyone was working double time to be able to make this campaign happen in midst of all the other stuff we were doing, said Shawsan Liu, Organizing Director. Through their organizing work, CPA was able to get more than ninety workers to file claims.
63 They just kept coming faster than I could even process them! That was tremendously helpful for me to be able to talk to workers who previously didn t trust a government agency and wouldn t talk to us on-site. Now I had all these people calling me and sending me information and telling me the true story of what was happening. This is the kind of thing that goes into getting workers to come forward. It is not just about filling out a piece of paper and giving it to us said Chin.
64 The result of this joint work by CPA, OLSE and the state was a 4 million dollar settlement with back of the house workers collecting between $30-60,000 each and a workplace change agreement that includes wage increases for kitchen workers, paid holidays, an increase in paid time off and sick leave, schedules provided with more advance notice, some recognition of seniority, a progressive discipline policy and 8 hours of worker rights training on paid time.
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66 Agency Best Practices City Office of Labor Standards Enforcement Triage Strategic Enforcement Co-enforcement: funding, sharing information, involving organizations in education, training, monitoring and enforcement through walk-around rights, participation in opening and closing conferences Third Party Complaints and worker can designate representative for information-sharing on case Private Right of Action Non-retaliation w Rebuttable Presumption if adverse action occurs within 90 days, Reinstatement and High Penalties
67 Best Practices continued Joint Employer Liability Investigations permitted with or without complaints Strong Remedies: Treble Damages, Attorneys Fees Tying Enforcement to Licensing May refer to Collections Agency Agency has ability to file liens, garnish wages, revoke licenses for unpaid final orders, city contract debarment, no bidding on new contracts until final order paid in full Compliance Monitoring Financial resources for robust enforcement
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