This podcast accompanies the article Wage Recovery Funds, written by Professor Elizabeth Ford.

Transcript

Speakers: Taylor Graham, Elizabeth Ford

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When employers commit wage violations against their low wage employees, recovery of those funds through a lawsuit or the administrative process is difficult and time consuming, no matter the outcome of the litigation, the result is a transfer of wealth from the victims of wage theft to the perpetrators. But what if there was a way to ensure employees are paid up front for their lost wages?

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Welcome to the California Law Review podcast, our goal is to provide an accessible and thought provoking overview of the scholarship we publish. Today, we will be discussing wage recovery funds, a piece by Elizabeth Ford, a visiting professor at Seattle University School of Law, Professor Ford's article was published in Issue five of volume 110, in October of 2022. Professor Ford, thank you so much for taking the time to talk with us about your article today. Oh, well, thank you for inviting me, I just think it's wonderful that you at California law review are creating this kind of platform to both elevate work like this, but also to spread the information more broadly. So I'm thrilled to be here and also excited to talk about wage recovery funds. Thank you. Yeah, that's exactly what we're what we're trying to do. So to begin with, can you summarize your articles main argument for us?

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I'd be happy to. Um, so I'm gonna say this in the most provocative way I can think of and that is this.

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Our enforcement system for minimum wage and other minimum pay standards is resulting in the divestiture of wealth from low wage workers. And that is because the agencies charged with recovering unpaid wages are as a practical member matter only recovering wages owed and not interest do on those wages, the cost of money over time.

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This means that effectively, low wage workers are forced to give a no interest loan to their employer. And it's especially troubling because these workers already bore the cost of not having access to their money, which might mean the cost of credit or more commonly, the cost of having forgone basic needs, you know, losing housing, forgoing important medical treatment. And so the question is, how does this happen? And what can we do about it?

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And what was it that motivated you to write this article?

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Yeah, so I teach a workers rights clinic at Seattle University, and the students in that clinic. And I represent low wage workers in a variety of workplace situations end, and we see a sort of avalanche of wage theft claims, workers who were paid less than minimum wage were paid nothing were forced to work off the clock that is extra hours for no pay.

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And the, as we began sort of assessing and litigating these cases, we noticed a pattern at our at the agency in Washington State, which is that the agency was as a matter of policy,

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failing to collect interest, they would resolve these cases, for wages only. And so we've thought about the structural implications of that. And the fact that the bet that the burden of wage theft falls disproportionately on bipoc workers. And so what we were seeing case after case after case was this drip, drip drip of wealth, being as a part of the enforcement process, removed from workers. The second thing that motivated me to write this article, honestly, was my brother. And I was

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having

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watched these case after case, I was bemoaning this to him, and he's a bankruptcy lawyer. And he suggested in a kind of offhand way, well, why don't the agencies take assignment, and that is, again, the rights to litigate and recover the, the amounts owed, owed to the worker of the claims, litigate them, and in that recover much more than the worker could.

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And my reaction was, huh, well, that's interesting. And I started looking at it more deeply and realizing that many of the pieces necessary to actually implement that already existed. What is wage theft? Yeah, it's a great question. So.

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So the term wage theft was really coined by

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Kim Bobo who wrote a book called wage theft in America in

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2008 and it is intended to capture the idea that when an employer pays less than they are required to pay less than minimum wage less than the required overtime. They are they are taking the value of that,

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that workers labor without paying for it. So they're taking something valuable and not paying the worker what they're owed. And that's that.

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I think it's such an important term and evocative term. And for for folks who have suffered wage that could you describe why the agency enforcement process is essentially the only option available to them? Yeah, so in most states, the and federally, a, an employee who's not paid, for example, minimum wage, has the ability to bring

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in court piece of litigation, right to sue their employer for unpaid wages, and the employee has an option to bring a wage claim through a state agency. So theoretically, those are equally available. The reality is that they are not for low wage workers whose claims tend to be small,

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that they cannot afford certainly to hire a lawyer on an hourly basis. And in terms of lawyers willingness to take these low damage cases on contingency,

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they generally are not willing to do that. And that is because the recovery,

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the attorneys fees necessary to gain the recovery will quickly outstrip the amount of the recovery making it difficult for lawyers to recover their their attorneys fees. And so it is highly unusual outside the world of class actions, that an individual low wage worker will be able to bring a

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lawsuit against their employer. So that means the administrative agencies are incredibly important for for low wage workers. They are pretty much it. Theoretically, you could bring a claim in small claims court, but I will tell you, Small Claims judges do not understand in most places outside of Boston, do not understand wage theft. And so the administrative enforcement process, is it. And it could you describe that administrative enforcement process for us? Sure. So in this, it will vary by states, right. There are some states that that,

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you know, don't set minimum standards, therefore, outside of the federal standard, and therefore have no administrative enforcement agencies. But there are some things we can say in general about it at the states that do have administrative enforcement agencies. One is that those agencies are generally charged with

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receiving complaints from individual workers, or groups of workers and investigating those, those complaints.

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And so meaning gathering information from the employer gathering information from the employee, and then some agencies have the authority to issue a,

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an order a citation can take a variety of forms, but a requirement that the employer pay, and those requirements generally are appealable through the state's Administrative Procedures Act, and some states

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complete their investigations and then have the authority to litigate.

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So I would say most states fall in the first category of sort of strict administrative orders requiring the employer to pay so it is they have a fair amount of power. And they can in most cases, issue subpoenas. They have they can, in most cases, recover penalties, and they can in nearly all cases, recover interest. Who is on you, and what does her story tell us about the shortcomings of the administrative enforcement process? Yeah, on you is a

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is a composite, a story that I tell in the article to demonstrate how this how this

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plays out in real life.

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On you is based on a client that I had early on in the clinic, and she's an amazing woman, and she

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so on your story is loosely based on

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I'm on hers, but on

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came to the United States from Korea, and got a cosmetology license, went, went to school, got a cosmetology license and started doing a wanted to start doing beautician work, looked around and got hired by a salon. And that salon

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told her that they would pay her a set amount every week.

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So let's say you know, $300, well below minimum wage, if for a 40 hour work week,

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and on worked for about six months for this employer making the set amount of money working 10 hour days

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doing work that that was not satisfactory to her.

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And, and falling behind on her bills, because this work was not enough to make a meet her basic expenses. So she fell behind on her rent, she fell behind, she needed to use various kinds of high interest credit, because that was the credit available to her. She she had to make decisions to forego certain kinds of medical treatment, which had consequences later.

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And so all because she was making far less than was Ben is

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mandated in Washington, and far less than she needed. And she eventually left her job. And when she did the employer

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bailed to pay her her last paycheck. And that's what brought her into the clinic.

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So she came in wanting to recover that last two weeks of pay. And we took a look at it and said, No, you're owed a lot more than that.

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And, and we said about recovering it by filing an administrative charge. And

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so now, Ms. Yu is probably, you know, six months or a year beyond when she should have gotten her money. And at that point, the department that enforcement agency said to, to us and to the employer, if you pay the unpaid wages,

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we will resolve this case.

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And we turned to our client and said, you know, we can fight this, we we think it's important for you to recover wages. And our client said quite reasonably, I can't wait. It will be far more valuable to me to have a little bit, you know, almost all now than it would be to wait for the interest. And we couldn't disagree with that.

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And so what you ended up doing in order to get

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her wages was to give her employer a interest free loan. For a year and a half. The employer had misused money during that period of time was able to make

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you know, earn, earn money with that money. And meanwhile, Ms. You was going deeper and deeper into debt.

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Yeah, just wanted to read a quote that, that you wrote in the article that I think really sums up that that example it's so powerful. And you right in the end miss you gave sassy hair salon and interest free loan, even while she was paying interest on loans she was forced to take because of sassiest failure to pay minimum wage. So I'm thank you so much for that, for that story illustrates the problem. Well, yeah, yeah. Oh, it's so frustrating. How do these same problems arise when it comes to the Department of Labor's approach to wage recovery?

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The Department of Labor

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has has a really interesting history around this issue. So the first thing that's important to know, under the Fair Labor Standards Act, which is the law that requires minimum wage across the country, it sets that minimum wage at $7.25. So

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and that,

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that minimum wage and overtime law is enforced by the Department of Labor's Wage and Hour Division. The

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the Fair Labor Standards Act does not

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allow for interest per se. In other words, it doesn't calculate interest based on a percentage. Instead, the Fair Labor Standards Act requires the payment of liquid

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Data damages that is double

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the amount of the unpaid wages as a substitute for interest.

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And so the when the Wage and Hour Division investigates and remedies, let's say minimum wage violations under the federal law, it has the authority to collect liquidated damages as a substitute for interest. In the Obama administration, the Department of Labor's Wage and Hour Division, as a matter of course, was collecting those liquidated damages. And that was an innovation brought by the then administrator of the Wage and Hour Division, David Weil.

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In during the Trump administration, the

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the administrator reversed that

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fine finding that the payment of interest was slowing down recovery. And so it should be there should be no recovery of liquidated damages.

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During during the COVID crisis, but with likely beyond.

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And so for a period of time, a particularly vulnerable period of time. For low wage workers, the Wage and Hour Division was collecting no interest by order of the administrator.

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The Biden administration changed that policy almost immediately when it came into office. And so the Wage and Hour Division has gone back to its former practice. It does demonstrate though, that the that this

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this rule is vulnerable. What is a wage recovery fund? So a wage Recovery Fund is designed not not to

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require the recovery of interest in every case, though, so though, I think it's a, that's a good thing, it actually goes one step further, and serves to get the employee their money earlier, so that all of the damage that accrues as a result of the employee not being having access to their money is doesn't happen.

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So here's how it works. The

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Imagine a worker coming to an agency with a claim of unpaid minimum wage, the agency

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would take that claim, take, take a look at it, make sure it has merit, and then say to the worker, here is here your wages. And here's the interest that's accrued up to this moment. And now the workers whole, the agency then takes assignment of the claim.

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And it is now the agency's job to to litigate that claim to do what it needs to do to recover more fully. And now the agency has skin in the game, and it has a lot more leverage to actually achieve a more complete recovery. So the agency then recovers from the employer recovers wages, recovers interest, maybe even recovers penalties. And all of that money goes into a wage recovery fund that is a dedicated fund within the agency to support the prepayment of claims. And so the

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the fund now has recovered more than it paid out. So the fund should grow. Because the agency's recovering,

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paying out some recovering more taking a new case paying out some recovering more. And so

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that is how a wage recovery fund works and is potentially self sustaining. Your article outlines a few of these systems that states have already adopted. Could you describe a couple of those examples and tell us what those systems still lack when it comes to being self sustaining? Yeah, yeah. So as I started looking state by state to see what it would take to build this, I was surprised to learn that the pieces many of the pieces necessary to build this are already in state laws in various states. So for example, it to you know, in order to to to build a wage Recovery Fund, you need a few things, you need the ability to accept assignment, so the agency needs to be able to take assignment of a worker's claim that is so what I discovered is almost every state already can do that. And they generally are pretty straightforward.

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And it's every state you can imagine from California to New Hampshire to Kansas.

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So the first piece is there, the second piece that you would need to create a wage Recovery Fund is a fund, right a designated place for the wage recovery to go. So that it's dedicated to the proposition of, you know, making workers whole.

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So many states have already dedicated funds.

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So, for example, Oregon, Kansas, Hawaii all have a, a sort of a budgetary place where if they collect penalties, if they collect attorneys fees, those penalties go into this fund, that is, in most states, theoretically dedicated to supporting the agency as a whole.

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You can imagine that it may or may not actually get used for that, it may end up being an offset to a budgetary allocation, but it exists. And there are some states that do both, that they had the ability to take assignment, when they do so and recover the certain parts of the recovery go into the fund that then supports the agency, Kansas is a great example. And I love it that it's Kansas, right. So

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in Kansas, the

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the agency is required to accept assignment of any case that is worth less than $5,000. The idea being those are workers who aren't going to be able to find a lawyer. And so we, the agency and Kansas have decided we'll take those cases, and we will, you know, litigate them for you.

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And in Kansas, the this combined with a font where certain extra penalties are are placed and go to support the agency as a whole. It's it is admittedly smaller than what the wage recovery fund would look like, but it's there.

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The third piece

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that you would need for a wage Recovery Fund is the ability to prepay, that is to pay wages before the employer has paid, so to act less like a broker, and more like an insurance plan.

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And so, there are three states

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that have the ability to prepay,

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Maine, Oregon, California, Maine and Oregon have a budgetary yearly allocation to a to support paying wage claims where the employer is insolvent. So it's not self sustaining, it just gets replenished every year. And once the agency has spent the money, there's, it's there is no more.

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In California, the the legislature created a garment worker fund that

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where employees in the garment industry can be pre paid wage claims, the assumption being those contractor employers are sometimes hard to find, let alone recover from described wage to self sustaining

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claims in advance of the enforcement action would be administered,

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the fund would be administered by the agency itself. So what's kind of nice about this is that the agency, all of those employers pretty deep expertise exists. So all the pieces are out there, there's just started to do with a wage Recovery Fund. The first is assessing those cases that are appropriate for this kind of recovery. And I'm

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suggesting in the article that not every case might be maybe appropriate for wage recovery fund. So the agency has experience sort of assessing the the very strong from the sort of strong cases right and so the the first thing that agency would need to be able to do is pick which cases are appropriate for this kind of process.

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And then the second thing that the agency would need to do is to

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take assignment of the case which of course they already can do and and then

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investigate and or litigate the case. So the the agency has deep experience with investigation and generally has either in house

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capacity to, to litigate or partnership with the their attorney general's office, which also has,

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you know, serious horsepower when it comes to

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this, you know, litigation. So suddenly you've got the sort of leverage calculation,

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really, dramatically switch. Because because you've got, I think a, or should have a pretty good ability to administer the wage Recovery Fund. Now, theoretically, it's the agency has the ability to administer a wage Recovery Fund, it's important to acknowledge that there are real limitations on the on the agency's functioning. And the first and maybe most important of those is the question of funding and staffing. And I, I can say with some confidence that across the board, these enforcement agencies are

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thinly staffed and thinly funded. And so a wage Recovery Fund, while it does create a self sustaining pool of money to pre pay claims,

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doesn't necessarily create more funding for more positions within the agency. So that problem of underfunding

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is continues to exist. And so at a wage Recovery Fund, neither helps nor I think, harms that existing problem.

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And in regards to that problem, your article discusses a couple of potential solutions, including a potential social insurance supplement. Could you describe that and and some of the other potential solutions?

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Yes, so. So one potential way to approach that challenge is to add to the wage recovery fund as a social insurance component. And what I mean by that is sort of like the garment worker fund, that the idea would be employers would pay in a small amount to supplement the wage recovery fund to allow that fun to,

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to operate more broadly, to allow that fun to take on larger, perhaps, riskier cases, and to allow that fun to start to become a source of more generalized funding for the agency to begin to address some of those questions of

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staffing. And the last suggestion that your article makes, I think it's really great is that we could actually take this wage recovery fund and make it community based and make it administered by a community organization as opposed to an agency. So I'm wondering if you could describe how that would work and what benefits that might have? Yeah, so I agree, I find this possibility, really exciting.

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And so the the,

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the idea is that, you know, we've we've developed a pretty sophisticated in a lot of states

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system for partnering between community based organizations and state based enforcement. And the, and the reason for doing that is that half of the challenge with with wage enforcement is, is reaching the most vulnerable workers. And the, the most vulnerable workers are unlikely to come to, you know, to a state agency and make a claim, it's just not a safe place. And so, community organizations can operate in a way to to increase access to real enforcement, whether that's

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by partnering with an agency or by enforcing through other mechanisms. And so what if the wage Recovery Fund, almost exactly as conceived in the agency were held by a community based nonprofit, and that nonprofit would be in the same position that I've described terms of administering the fund and the fund then

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grows and and can be used in the same ways that that I described with respect to supporting the agency, but but we're growing this

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community organization and the community organization can do a couple of important things that the state agency cannot one is that it can its decisions about which cases to prioritize can reflect the priorities of the community that that organization serves in the city.

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Second thing that a community organization can do is to complement this enforcement with organizing. And so that potentially creates a a source of support and longevity for that organizing. And that organizing is now funded, in part at least by wrongdoing, employers, which has a certain kind of poetic justice to it. What are some of the challenges that would be faced by a community based wage Recovery Fund? There are so there are a couple.

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One, which took me back to law school myself was

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champerty. champerty refers to the English English common law disfavoring, the purchasing of legal claims. And theoretically, in the United States that preference is in applicable right, we don't theoretically disfavor the purchasing of legal claims. However, they're state by state, there are some

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some exceptions to that New York being a big one. That prohibits it. So there So setting up a community based wage recovery fund would require some research on the champerty laws in that state.

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And I think there are ways to

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you even where you have some of those prohibitions to build it, it in a way that is compliant with those champerty laws, I discussed that in the paper.

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And the other is a very practical question. And that is that

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creating a wage Recovery Fund will require some

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initial investment and also some stability in the organization. So it will be important to to

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make sure that the the organization itself is on a solid footing before taking this on. And I guess the last thing is that the organization needs to have a solid partnership with

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with a an outside law firm. So a great example is the Chinese progressive Association, and Asian Americans Advancing Justice, which is a nonprofit law firm that they partner with

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regularly. So I sort of give that example in the paper.

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In conclusion, could you describe for us the ways in which the wage recovery phone that your article proposes is preferable to the current system?

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Yeah, I mean, I think this takes us right back to the top right, the current system, it's it is difficult to imagine how to

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solve the problem of

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agencies and workers foregoing interest.

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Without thinking about how you would get how you would devise a system where, where workers are paid earlier.

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And so this, I think, creates a roadmap for,

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you know, one way that that workers could get paid upfront. So it starts to look a lot more like a safety net, than just like an agency brokering a settlement conversation between employer and employee. And in that way, it is switching the leverage. And that I think, is the first a first step toward thinking about switching, shifting the power in the workplace more broadly. So this is intended to start the conversation about ways to

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adjust our thinking about the minimum minimum wage minimum standards enforcement system, so that it doesn't simply replicate the power imbalance that exists in the workplace, so that our agency or community based systems are actually engaged in the project of

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shifting the allocation of power in the workplace. And this idea, does that by borrowing the power that an agency might have or borrowing the power that

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community organizing presents, and applying that to the to the process of

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recovering wages.

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So I really want to invite anyone who is excited by this idea, or who hates this idea, or who just wants to talk more about this idea to get in touch with me, I welcome it. I would be excited to

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talk more, I do have some follow on research that I'm planning that has to do with figuring out exactly how much money is being left on the table. And so that we can figure out if, to what extent this fund will be self sustaining or maybe able to fund other things. So I

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I would love to hear anyone's thoughts or ideas or comments about this article. And I really appreciate the opportunity to talk more about it.

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It was a real real pleasure. Thank you so much, Professor Ford for joining us today.

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We hope you've enjoyed this episode of The California Law Review podcast. If you would like to read Professor Ford's article. You can find it in volume 110 Issue 5 of the California Law review at Californialawreview.org. For updates on new episodes and articles, please follow us on Twitter. You can find a list of the editors who worked on this volume of the podcast in the show notes. We'll see you in the next episode.