The federal Fair Labor Standards Act (FLSA) and some state wage laws contain provisions that impose criminal penalties on violators. These provisions, once rarely used, are taking on new life as government officials have begun leveraging them in recent criminal-enforcement actions.
Historically, the most common penalties employers faced for violating wage laws were money damages resulting from civil lawsuits brought by private plaintiffs or government agencies. Although Section 216(a) of the FLSA provides that employers (defined broadly enough to include companies’ owners and many managers) found to be in willful (i.e., reckless) violation of certain provisions of the FLSA may face criminal liability, such liability has generally been reserved for extreme cases involving “kickbacks,” falsified sets of time records, and willfully falsifying or withholding wage information. Similarly, most state and local wage laws have not been enforced through the criminal process, except for the most extreme, willful employer misconduct.
Under Pennsylvania’s “prevailing wage” law, no construction businesses had been criminally prosecuted for misclassifying employees or for failing to pay applicable prevailing wage rates, until quite recently. A detailed process for imposing civil penalties after an administrative hearing has always been required by law. But in a recent case, the Pennsylvania attorney general brought an array of criminal charges against an HVAC contractor for failing to pay approximately $65,000 in prevailing wages. Notably, the bulk of the charges did not stem from criminal provisions in the prevailing wage law itself, but from separate “wage theft” statutes in the Pennsylvania Code, never previously applied to the prevailing wage law. This is believed to be the first such prosecution in the decades-long history of Pennsylvania’s prevailing wage law, raising serious constitutional due process concerns. Although the company’s owner pled guilty to misdemeanor charges, the case resulted in the owner receiving up to a two-year prison sentence. An appeal is likely.
The Pennsylvania attorney general also recently filed criminal charges in another prevailing wage case involving allegedly improper crediting of fringe benefits, not previously thought to be covered by any criminal law provision. And in January, a Pennsylvania county prosecutor filed charges against a drywall contractor under the Construction Workplace Misclassification Act, as well as under other criminal statutes, related to alleged misclassification of workers as independent contractors.
While there are continuing doubts about the constitutionality of the recent criminal prosecutions, these recent cases serve as a stark reminder that criminal penalties, including jail time, are a possibility for business owners or other company stakeholders who are accused by local prosecutors of failing to pay their employees properly. Indeed, the FLSA and most state wage laws may impose individual liability on any person acting directly or indirectly in the interest of a covered employer. Moreover, courts have held that companies’ owners, officers, and supervisory personnel may be liable as joint employers with the business entity under these laws.
Under any circumstance employers should regularly review and audit their pay practices for compliance with federal, state, and local wage laws. With enforcement agencies now taking renewed interest in criminalizing wage underpayments and misclassifications, it is critical that businesses take a fresh look at their pay practices to ensure compliance.