Reposted from the Labor & Employment Law Navigator Blog

On Monday December 5, 2022, Cleveland City Council passed the Wage Theft and Payroll Fraud Prevention Ordinance (the “Ordinance”) – which prohibits the City of Cleveland (the “City”) from entering into contracts with “any person or entity” that has received an adverse determination pertaining to wage theft or payroll fraud in the past three years. Significantly, the Ordinance applies to all businesses that contract with the City, ranging from construction companies to food vendors.

While the intent of the Ordinance is focused on ensuring City contractors appropriately pay wages, the text of the Ordinance goes much further, potentially resulting in serious financial and criminal consequences for companies that currently (or hope to) contract with the City.

For example, under the Ordinance:

• Adverse determination means a final adjudication or final action by a court or governmental agency that a contractor or subcontractor or recipient of financial assistance has committed wage theft or payroll fraud.
• Wage theft means a means a violation of the Ohio Prompt Pay Statute, Section 4113.15 RC; the Ohio Minimum Fair Wage Standards Act, Chapter 4111, RC; Oh. Const. Art. II, Sec. 34a; Chapters 4109 or 4115 RC; Sections 4113.17, 4113.18, 4113.52 or 4113.61 RC; or a violation of any substantially equivalent federal or state law; as any of these laws may be amended or superseded.
• Payroll fraud means concealing an entity’s true payroll tax liability from government agencies by misclassifying employees, not reporting or underreported payment of wages, or executing cash transactions while not maintaining proper records of reporting and withholding.

The Ordinance’s broad terms essentially mean that any wage related claim that results in any adverse determination against an employer prohibits them from working with the City prospectively. Presumably, the Ordinance’s sweeping definitions include minor, inconsequential technical Fair Labor Standards Act (“FLSA”) violations, such as timely disclosure of records to the Department of Labor, to inadvertent Independent Contractor misclassifications. Although the Ordinance specifies that settlement agreements related to wage theft and payroll fraud do not constitute adverse determinations, the Ordinance creates an additional area of concern in an already heavily regulated and highly technical area of the law.

Of even more concern is that the Ordinance puts the burden on employers who are entering into contracts with the City to disclose any adverse determination, and failure to do so will subject the individual or entity to criminal penalties. Moreover, once an employer discloses any adverse determination, they are placed on an “adverse determination list” with the Fair Employment Wage Board (“FEWB”), where they will remain for the next three years. Only upon receiving a waiver from the FEWB can an employer be removed from the adverse determination list before the time period lapses.

While the Ordinance still needs to be signed by Mayor Bibb, employers that contract with the City of Cleveland should have even more heightened awareness as to ensuring they are complying with all wage and hour laws - as if the cost of wage and hour litigation was not concerning enough.