Sometimes, you just end up shaking your head in amazement at the lengths to which unscrupulous employers will go when trying to avoid paying their workers properly. Sometimes it may be inadvertent, but in all too many cases it’s clear the employer knew exactly what they were doing.
I know none of my discerning readers would even contemplate anything like this. But we can all still be entertained by the harebrained schemes some employers think they will be able to get away with. It’s a bit like watching a train wreck — terrible, yet so fascinating you just can’t look away.
Here are a few of the more outstanding examples I’ve collected recently:
Going for the Gusto
If you’re going to violate wage and hour law, you might as well go all-in. Or at least, that seemed to be the philosophy of Alliance Property Services Inc., Alliance Property Services PA Inc., Secure Assets First Inc., and Imperial Property Services Inc.
These four companies, headquartered in Syracuse, NY, provided preservation and inspection services for foreclosed properties in New York, Pennsylvania, Massachusetts and Connecticut.
According to a February 2015 press release by the Department of Labor (DOL), all four businesses plus Michael McCaffrey, the owner, were charged with cheating workers out of their wages by:
- Avoiding overtime by paying some workers on two checks from sister companies;
- Paying other workers in cash off the books;
- Not paying some workers at all for their last week or two of work.
In addition, the companies did not keep the required time records, and one employee allegedly was fired for cooperating with the DOL investigation.
Multiple Locations, Multiple Paychecks
What multi-location businesses sometimes do not realize is that if employees work at more than one location in a single workweek, their hours at all locations must be combined to determine if they’re owed overtime.
In Michigan, A & M Hospitality and Management Inc., Grand Hospitality Management Inc. and owners Akram Namou and Hikmat Piromari discovered this to their chagrin. Up to 96 maintenance and housekeeping workers employed by these two management companies worked at any of seven hotel properties in and around Grand Rapids, sometimes putting in a total of more than 40 hours in a week. However, Namou and Piromari paid them separately for their time at each location, thus depriving them of the overtime they properly earned.
In addition, the companies didn’t maintain proper time records and failed to pay for work performed before and after scheduled shift times. The employer was required to pay $50,000 in back pay and liquidated damages and make “significant changes” to their operating policies to ensure future compliance with the law.
The same issue tripped up a group of three restaurants (Grassroots Kitchen and Tap #1, Grassroots Kitchen and Tap #2, and Twisted Grove Parlor and Bar) in Scottsdale and Phoenix, Arizona. All three share common ownership and are considered joint employers. When employees worked at more than on restaurant during the same work week, they paid the time worked at each restaurant on a separate paycheck. As a result, they failed to account for overtime when the employees worked a combined total of more than 40 hours in a work week at different locations. The restaurant group had to pay more than $105,000 in back wages and damages to 19 workers.
A Coding Error?
Cilantro Mexican Grill, a chain with seven locations in Rhode Island, was found to have underpaid 32 cooks and servers by only paying straight time for overtime instead of the required time-and-a-half. In fact, they seemed to go out of their way to avoid paying time-and-a-half. In addition to failing to combine hours when employees worked at multiple locations, they also entered overtime hours under a different payroll code and paid some employees for overtime in cash, bypassing the normal payroll process.
As a result, the company had to pay over $100,000 in back wages and liquidated damages to the employees.
Sharing is (Not) Caring
Now this one is just totally over the top. According to a federal lawsuit filed by the DOL in March 2015, at least 47 employees of Magic Touch Cleaning Inc., a janitorial services company in Lee’s Summit, Missouri, were not paid for all hours worked.
The problem? The employees were allegedly expected to share their paychecks with other workers. In fact, some were paid entirely with checks actually written to other employees! I’m pretty sure this is not what people mean when they talk about the “sharing economy.”
Did the company really think this was legal?
Not Such a Great Bonus
Advanced Design, Engineering & Manufacturing, LCC, a manufacturing company in Santa Clara, California, had to pay more than $280,000 in back pay and damages to 38 current and former employees, plus an additional $14,212 in civil penalties to the DOL.
According to the DOL, the company paid the workers straight-time for any overtime hours worked, instead of the time-and-a-half required by the law. To disguise the ruse, they doctored their payroll records to designate the overtime pay as “bonuses.”
THIS is Why We Track All Work Time
More than 100 social workers employed by the San Mateo County Human Services Agency in California will share $1.7 million in back pay. The DOL found the employees were correctly paid overtime when they met with clients. However, they were not paid when they worked overtime to complete reports and paperwork.
Lesson: if they’re working, they need to be paid. You can’t pay for some kinds of work, but not others.
In a similar case, St. James Home for the Elderly, Inc. in California was ordered to pay over $103,000 to 40 employees for overtime violations. The company didn’t track time, but only paid employees for their scheduled hours. They failed to pay for work before or after the scheduled shifts.
Also in California, Adora Ancheta, operator of seven residential care facilities, was found to have underpaid 53 workers. The employees were paid a monthly salary that, given the number of hours they worked, was less than the current federal minimum wage of $7.25 an hour.
Because she considered the workers “salaried,” she didn’t keep accurate records of their work time, so some workers also didn’t receive overtime they earned. In the end, she was required to pay over $203,000 in back wages and liquidated damages.
You know, I bet they all could have purchased good time tracking systems for way less than the cost of all those damages and saved themselves a ton of hassles.
Employees Can’t Be “Volunteers”
In August 2015 the DOL accused Cathedral Buffet of Cuyahoga Falls, Ohio, of paying four managers weekly salaries that were lower than the minimum wage (in addition to improperly classifying them as overtime-exempt, even though they didn’t meet the salary threshold), as well as paying 235 other employees below minimum wage.
Worse than that, though, they allegedly treated some workers as “volunteers” and paid them no wages at all. These “volunteers” cooked, cleaned and waited on tables, stocked and maintained the buffet line and served as cashiers. The problem: even though the buffet was operated by televangelist Ernest Angley’s church, the restaurant itself functioned as a for-profit business.
According to some reports, the restaurant agreed as part of a 1999 DOL audit to stop using “volunteer” labor — but soon after starting operating with “volunteers” again anyway. The restaurant could be on the hook for over $208,000 in back wages, not to mention damages and penalties.
Pro tip: If you operate a for-profit business, you can’t hire “volunteers” to work for free.
Double-Dipping Is a No-No
A.C.E. Restaurant Group Inc., a company headquartered in Saddle Brook, New Jersey, which operates 17 Houlihan’s restaurants in New Jersey and New York, along with related company A.C.E. Restaurant Group of New York and owner Arnold Runestad have been charged by the DOL with multiple violations of the FLSA. Specifically:
- Deducting the cost of meals from employee paychecks, while also sometimes requiring separate payment for the meals. Not only did this mean the amount of the deductions exceeded the cost of providing the meals, it often had the effect of bringing employee compensation below the minimum wage.
- Requiring some employees to work for tips only.
- Forcing servers and bartenders to contribute a portion of their tips to a tip pool, which was then used to pay other employees for custodial and kitchen work.
- Failing to combine hours for employees who worked at more than one restaurant, so they didn’t receive overtime when they worked more than 40 hours in a week.
Given that there are more than 1,400 employees involved and the severity of the alleged violations, the DOL estimates the damages could reach into the millions of dollars.
No “Take Backs”
I’ve heard about this scheme being tried by many different employers over the years. Here’s one example: Dancing Wasabi Hyde Park, Inc. (an Ohio sushi restaurant) and owner Chang Hee Choi were sued by the DOL seeking more than $7,600 in back wages plus additional damages on behalf of four kitchen workers when the business owner tried to take back checks issued to the workers.
Initially, the business was investigated in 2012, and was found to have paid kitchen workers a straight salary, even though they worked 65 to 70 hours a week, and to have improperly required servers to share tips with kitchen workers, both of which caused the workers’ pay to fall below the minimum wage. The restaurant signed a compliance agreement that they would repay 65 workers $38,494 in back wages, install a time clock to properly record hours, and abide by the FLSA in the future.
In a follow-up investigation in 2013, investigators found the company had installed the time clock, but continued to violate the FLSA by still paying the kitchen workers a fixed salary, part by check and part in cash.
Worse, after the owner gave workers the checks for back wages stemming from the 2012 investigation and the workers had signed receipts for them, he demanded they return the checks to him. He reportedly fired workers who refused.
In another example, Sands Mechanical, Inc. of Bristol, Pennsylvania, and owner Leonard Santos got in trouble for a similar scheme. When, following a DOL investigation, the company was ordered to pay their employees back wages totaling $80,000, they cut the checks. But the workers were then forced to endorse the checks over to a company supervisor, Santos’s son-in-law, Richard Cottone. Mr. Cottone then took the checks to a check cashing service and turned the money over to the company owner, his father-in-law, Mr. Santos.
In the end, Santos, Cottone, and another accomplice all did jail time.
Pro Tip: When the DOL is already looking over your shoulder, it’s probably a bad idea to attempt an end-run around paying the back wages you’ve been assessed. It’s an even worse idea to pocket your employees’ back pay for yourself. And if the DOL says you need to install a time clock, you should strongly consider not just installing it, but actually using it for its intended purpose!
Just Plain Draconian
You may have heard about this one; it was all over the news recently.
American Future Systems, doing business as Progressive Business Publications, and its owner Edward Satell have been found liable for about $1.75 million in back wages, plus an equal amount in damages. Apparently, more than 6,000 workers in 14 call centers were informed they were allowed to take short breaks, such as to go to the bathroom, stretch their legs or get a drink of water. (How generous!) However, they were required to clock out — and their pay was docked — every time they left their desks, even for breaks as short as two minutes.
The DOL advised the employer that this practice was illegal, as short “rehabilitative breaks” are compensable time under the law, but the company refused to change its policy. Stubbornness can sometimes be quite expensive; according to a DOL press release: “Progressive’s refusal to come into compliance for more than two years during the course of the litigation will increase significantly the amount of back wages and damages due its employees as a result of its illegal pay policy.”
Don’t Court Trouble
So many of these situations could have been avoided entirely if the employers involved had simply resolved to pay their employees properly from the start. This simple step would likely have cost them a lot less in the long run — not just in dollars, but in time spent in court and in damage to their reputations.
One of the best (and easiest) things you can do to prevent these kinds of issues at your organization is to install and use a good time recording system. Fortunately, Acroprint offers a full line of time-tracking products ranging from traditional punch clocks to sophisticated cloud-based workforce management systems, so we’re sure to have one that works for your business. Contact us today to explore your options and find the best time and attendance solution for you.