Published date: 01/16/2022

Although noncompliance with prevailing wage statutes can sometimes be seen as a form of theft under law, past prosecutors might not have always treated it this way. And while this may have occasionally led some to believe that wage thieves can get away with a “slap on the wrist”, things have undoubtedly changed over the years.

Government wage-related enforcement, especially in the construction industry, is growing. As a result, repercussions for construction companies’ wage-and-hour compliance violations are growing as well.

Employers in the construction industry are starting to see heavier fines for instances of noncompliance, including the failure to correctly pay regular (and overtime) rates, allocate benefits, classify workers properly, etc. Likewise, prosecutors are increasingly treating egregious cases as theft, sometimes even resulting in incarceration.

There’s plenty of examples from last year alone, but for brevity’s sake, we’ll review a few cases from just one state.

Prosecution in Pennsylvania: Civil or Criminal?

Traditionally, wage-and-hour compliance disputes have been treated as civil disputes and have rarely resulted in criminal action. A typical dispute will either go through private litigation, where the victims sue the perpetrators in hopes of getting restitution, or through the United States Department of Labor (USDOL). The USDOL has the authority to enforce obligations as laid out in the Fair Labor Standards Act (FLSA).

However, we are starting to see more prosecutors use a section of the FLSA (Section 216(a)) that provides for the possibility of criminal prosecution against employers who do not comply with wage and hour guidelines.

Some states, like Pennsylvania, give employees the ability to resolve wage payment in civil courts but do not provide specific criminal penalties for wage payment noncompliance. Generally, underpaid employees in Pennsylvania must let the employer know of the discrepancy and give the employer the opportunity to pay the right amount.

But prosecutors are using Pennsylvania’s Prevailing Wage Act (PPWA), which does not explicitly specify criminal penalties, as a predicate for arguing criminal theft on the part of the noncompliant company. Let’s look at a few examples…

Drywall Company in Pennsylvania Gets in Trouble for Improper Classification of Workers

The Delaware County District Attorney & the Pennsylvania Attorney General brought their first wage prosecution in January 2021 against a drywall contractor. The company allegedly classified workers as “independent contractors” in order to avoid paying benefits and appropriate wages.

This contractor was prosecuted under Pennsylvania’s Construction Workplace Misclassification Act, 43 P.S. Section 933.1 et seq., among other statutes. Despite worker misclassification always being illegal under this act, it was rarely used to bring defendants to criminal trial.

PA Construction Company Required To Pay $20 Million, Charged With Felony Wage Theft

In April 2021, Pennsylvania AG Josh Shapiro brought what he describes as “the largest prevailing wage criminal case on record” based on a contractor’s alleged violation of the federal Davis-Bacon Act. They were charged with failing to set aside funds for prevailing wage employees’ fringe benefits. The Attorney General charged the company with four counts of “theft” under 18 P.S. Section 3927. This section was used to charge the company with “theft by failure to make required disposition of funds received.”

What’s even more notable is that the company later pleaded no contest to all four counts of felony wage theft. It was sentenced to five years’ probation, the imposition of a corporate monitor, and was required to pay more than $20 million in restitution to over 1,000 current and former employees.

With $20 million of restitution owed, this shows how seriously the US government (and, more specifically, the state of Pennsylvania) is taking wage violations. Companies violating wage laws are now being charged with theft more often than ever before.

Central PA Contractor Sentenced To Two Years in Prison For Underpaying Workers

It didn’t take long before another similar case was brought in Pennsylvania. A contractor from central PA pled guilty to underpaying workers on prevailing wage projects, in violation of the PPWA. The individual charged was sentenced to over two years in prison and ordered to pay over $64,000 in restitution to workers. The company affiliated with this individual was ordered to pay a $10,000 fine related to the alleged underpayment. This contractor was “the first to be charged criminally for violating the nearly 60-year-old [PPWA].”

It’s worth mentioning that this was not the first confirmed incident of payment noncompliance by a company associated with the individual: according to the Attorney General, a previous company affiliated with this contractor was involved in a similar scheme. Last time, they were addressed with administrative sanctions. This time, likely as a result of the individual’s past violations, it has resulted in a criminal conviction and prison time.

Why now in PA?

The concurrence of these cases in PA begs a larger question… If violations like these had occurred in the past, and the PPWA had been in force for nearly 60 years, why are we starting to see criminal prosecutions appear now?

While the verdict may not be out, some see that it’s part of a larger trend of state governments (in conjunction with the federal government) taking greater steps to clamp down on wage and hour violations. We are seeing this trend continue all over the East Coast.

In Part 2 of this series, we will cover a few more examples from 2021 in another state and discuss some best practices for how to avoid prosecution…

These materials are being issued with the understanding that LCPtracker is not engaged in rendering legal or other professional services, and is providing these for informational purposes only. If legal, accounting or tax expert assistance is required, the services of a competent legal, accounting or tax professional should be sought.

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