Wage theft: Millions stolen, little recovered within the restaurant industry

Unscrupulous employers can operate outside the law for years with few consequences, while others turn to legal loopholes and corporate shell games to avoid paying workers what they’re owed.

Hard work put Esteban Romero on the street.

Long days of moving between the extreme temperatures of the kitchen and the freezer took a toll on his health, and after 25 years of working as a baker at a Koreatown café, Romero’s knees, full of arthritis, gave out.

Injured and without a job, Romero couldn’t afford his rent and became temporarily homeless. He turned to the Koreatown Immigrant Workers Alliance for help and learned he had been entitled to overtime pay at his old job. Maybe enough to get him started again. But his ex-boss refused to pay, saying overtime was against the restaurant’s policy.

Estaban Romero in front of his truck. He sells fruit to make ends meet, while he hopes for his $16,000 wage claim to result in back pay. (Photo: Karen Foshay)
Esteban Romero in front of his truck. He sells fruit to make ends meet and waits for his $16,000 wage claim to move through the system. (Photo: Karen Foshay)

Undaunted, Romero filed for $16,000 in unpaid wages. That was in December. Nothing has happened with his claim since.

Meantime, he sells fruit out of his pickup truck to make ends meet.

“This is really something for me to do while I wait,” he said. “This barely buys food.”

“A wage claim is filed every four minutes”

Romero’s is not an isolated case in an industry that employs roughly one out of every 10 people in the state. Data show that of the 40,000 workers who submit wage claims annually about 10 percent are restaurant employees.

KCRW examined thousands of these wage claims and spoke to dozens of workers and found that waiting months, even years, for a claim to move through the system is common. Collecting on a claim is rare. Unscrupulous employers can operate outside the law for years with few consequences, while others turn to legal loopholes and corporate shell games to avoid paying workers what they’re owed.

California’s multi-billion dollar restaurant industry operates on thin margins and employs a population of low-wage workers – some undocumented – who do not necessarily have the wherewithal to navigate an enforcement system that can be confusing and is itself under-resourced and understaffed. As a result, wage theft in the industry is all too common and difficult to uncover.

“Employers know it’s very hard for workers to find a lawyer, go through the process and win,” said Sebastian Sanchez, an attorney for Bet Tzedek, a nonprofit legal service in Los Angeles that hosts weekly clinics for low-wage earners. “So it makes complete sense to commit wage theft because it’s a good way to get ahead.”

Unlike food inspection grades or restaurant reviews, which serve as a form of social regulation, customers have no easy way to find information about the conditions facing kitchen staff. If customers knew, labor advocates say, they would think twice about where they spend their money.

Wage theft comes in different forms: stolen tips, no overtime pay, off-the-clock work, and denial of meal and rest breaks. Victims of wage theft who can’t afford representation have little recourse but to go to the state Labor Commissioner’s office. It’s there that they fill out a form called a wage claim.

A claim is filed every four minutes in California, state Labor Commissioner Julie Su said. “That gives you a sense of how prevalent it is.”

California Labor Commissioner Julie Su (Photo: Karen Foshay)
California Labor Commissioner Julie Su (Photo: Karen Foshay)

KCRW reviewed 2,683 wage claims filed between 2013 and 2016 and found Southern California restaurant workers had claimed $22 million in back wages and penalties. Individual claims range from a high of $192,000 to a low of $24.

The list of restaurants alleged to owe back wages includes everything from everything from fast food joints like China Wok  to celebrity chef Ludovic Lefebre’s Trois Mec, where a five course tasting menu costs $100 per person .

Five of the claims target Cemitas Tepeaca, a food truck in East Los Angeles. Claudia Alvarado is the worker behind one of them. She alleged she was asked to work an 18-hour shift once a week but never received overtime. She claimed the employer owed her $33,600 in unpaid wages. Two years after filing the claim she has not received a dime.

A system overwhelmed

State and local agencies lack the resources to fully enforce the labor laws that aim to protect the 1.1 million people who work in California’s restaurants.

The Labor Commissioner’s Office has fewer than 60 field deputies – fewer than one per county. Only recently did the county and city of Los Angeles establish their own wage theft task forces to boost oversight.

Under state law, a hearing on any claim is supposed to be held within four months of its filing, but the wait time to get an initial hearing at the Labor Commissioner’s Office can take years. LA County workers have to wait an average of 495 days for a hearing. In Oakland, the wait is 1,050 days, according to data compiled by the UCLA Labor Center.

In the long interim, workers sometimes disappear or move on to other jobs. If they miss even one of the scheduled hearings, their case is automatically dismissed. Employers do not have this same burden to show up. They can also change business names, switch owners, declare bankruptcy, sell off assets, or move.

An industry leader in poverty wages

Wage theft often hits people at the low end of the economic spectrum. Studies estimate that one in six restaurant workers lives below the poverty line and 27 percent of “back of house” workers – prep cooks, line cooks, and dishwashers – are paid less than minimum wage.

“In real life,” said Matt Sirolly, head of the nonprofit legal aid group Wage Justice Center, “it’s about the poor and low income, and increasingly, the formerly middle class, not being able to make a living to pay their rent.”

In LA County, employers steal as much as $26 million a week from low-wage workers, many of whom are employed by restaurants, according to the UCLA Labor Center.

And while wage theft hurts the victims most, the repercussions of wage theft are felt more broadly, said Manuel Pastor, economist and sociology professor at USC, and an expert in economic inequality. “When you have low-wage workers losing $26 million a week, that’s spending power that’s not in the local economy, and that ends up dragging the economic situation down for everyone.”

In addition to the socio-economic benefits, Pastor argued there is a moral component to stopping wage theft. “It’s just in our values, our human decency, to know that we live in a society where work is rewarded, where people receive the pay they earn, and where people are treated decently.”

In a statement the National Restaurant Association said the industry is a positive force in job creation and career advancement. “The reality is that America’s one million restaurants provide career opportunity and training to over 14 million Americans.” The association suggested worker advocacy groups are attempting to “paint a misguided picture” of the restaurant industry.

Matt Sirolly, founder of the Wage Justice Center. (Photo: Julie Su)
Founder of the Wage Justice Center, Matt Sirolly. (Photo: Karen Foshay)

“I see why people just give up”

Ryan Arnachellum worked four days as a waiter at Chez Antoine in Highland Park before he was fired. He never got paid and filed a wage claim shortly after his dismissal in July 2014. It took a year to get a judgment from the labor commissioner in his favor, but Arnachellum says the owner refused to pay him and he still hasn’t received a check.

“It’s only about $300 that he owed me, but now it’s over $3,000,” said Arnachellum. The tenfold increase in the judgment is due to added penalties and interest on the original claim.

Arnachellum ultimately hired a judgment recovery service to get his money. “Winning the case is one thing,” he said, “but recovery is another. I see why people just give up.”

Chez Antoine’s owner did not respond to calls for comment.

It took six years for a group of cooks at Kane Sushi in Contra Costa to get a $270,000 award for back wages, but the employer refused to pay the full amount and instead pays them $2,000 a month. At that rate, it’s possible the workers will never get all they’re owed.

When workers go through the wage claim process, their cases are dismissed, settled or the Labor Commissioner issues a decision, which states how much, if anything, the worker is awarded. That decision often becomes a judgment – a court order to pay.

“You are holding a piece of paper that says, ‘congratulations, you are owed this money.’ It’s literally a piece of paper,” said Tia Koonse, a UCLA Labor Center attorney. It’s up to the workers, she added, to collect.

In 2013, Jessica Kochu was waitressing at Jack n’ Jill’s of Beverly Hills when she showed up for a shift to find the doors locked. The restaurant had closed, yet still owed her money. After a year of going through the wage claim process, she received a judgment for more than $3,000 against the restaurant. She has had no luck collecting.

“There’s no way to break down their doors and say ‘give me $3000’,’” said Kochu.

Of all the workers who won judgments in California between 2008 and 2011, only 17 percent collected any money, according to a joint study by the National Employment Law Project and the UCLA Labor Center. The same study found that when workers did collect, they received an average of 15 cents on the dollar.

Relying on Labor Commissioner data and court records, KCRW looked at 441 decisions and judgments filed against Los Angeles area restaurants between 2013 and 2016 and found $6.7 million awarded in unpaid wages, penalties and interest.

• $412,000 has been collected.
• $15,347 is the average judgment awarded
• 75 percent of the judgments and decisions were unpaid
• 13 workers have judgments for over $100,000. Four have received payments.

(KCRW reviewed Labor Commissioner data from the Los Angeles and Long Beach offices only. Information from the Van Nuys office was not available.)

Some of the cases may have been settled confidentially and the amounts are unknown, therefore the total paid to workers is most likely higher than the data reflects.

Due to the transitory nature of the industry, collecting on a judgment is particularly difficult for restaurant workers, according to Sirolly. In the majority of restaurant cases his office handles, the establishments have closed, hampering efforts to enforce a judgment.

Playing shell games

In many cases, collecting judgments is complicated by savvy employers who know how to manipulate corporate loopholes to hide assets.

“These employers will play shell games,” said Labor Commissioner Su. “They will close down and open up under a new name. They will transfer their assets, often to family members or friends, in an effort to abscond with wages that should have been properly given to workers.”

A law passed in January empowers Su to go after previously untouchable assets, but the corporate shell games continue.

By paying a filing fee and filling out some paperwork, an employer can easily change names and ownership to escape responsibility.

“It seems like a sleazy trick to play, but it’s permitted under the legal system that exists and, by default, works,” said Sirolly. “In terms of workers, it seems amazing that we would even allow this.”

After employees at the small Vietnamese restaurant Nem Nuong Ninh Hoa in Rosemead were awarded $360,000 in unpaid wages, the restaurant changed its name. The food and décor were the same, but the business is now known as Summer Rolls. This has made collecting the money incredibly difficult.

“This was really a clear case of the kind of corporate shell games of companies putting on different hats to avoid liability,” said Scott Sia, a lawyer with the Wage Justice Center.

In a statement to KCRW, Summer Rolls’ attorney Aisha Adam said the business could not comment on the specifics of the case, adding “My clients are not unlike other small businesses who are in a constant struggle to understand and comply with California employment laws, particularly meal and rest break compliance, which are amongst the most stringent in the country… We have worked hard to draft company policies that comply with the law.”

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Summer Rolls

Lawyers at the Wage Justice Center eventually got Summer Rolls to settle for $190,000. But many workers aren’t so lucky.

“When I talk to a low-wage worker the first thing I think is, ‘Oh my god, where am I going to send this person?’,” said Koonse, who counsels workers at her downtown LA office.

There are three wage law clinics in all of Los Angeles, and statewide there are fewer than 75 legal aid and public interest attorneys who specialize in wage and hour law. The corporate shell games can make the job of collecting back wages too time consuming and expensive for the small band of attorneys to pursue.

“You probably have a case which has gone from ten hours of work to 110 – if not 210 hours of work – because it’s much more complicated under our current laws to go after that second company,” Sirolly said. He recounted a recent a case in which a company changed names 70 times.

A high priority for investigators

Labor Commissioner Su said January law has shown some success. Since the beginning of the year, over $100,000 has been collected for workers, back pay they would not have received otherwise, she said.

In 2013, Su formed a criminal investigation unit that coordinates on cases with district attorneys across the state. There have been 12 felony arrests in the time since, but criminal charges are rarely filed because prosecutors think of wage theft as more a civil matter than a criminal one, she said.

“If a worker walked off the job site and was robbed of the wages in his pocket, we would consider that a crime,” Su continued. “But if the same worker is denied proper wages on the job, basically has his wages stolen by his employer before they are ever paid, suddenly we aren’t so sure.”

Under her leadership, the division has had more wage claims and penalties assessed against employers than in any time in the state’s history.

Su said the restaurant industry is a high-priority for her office.

“These bad actors are bad for everybody. They undermine good honest businesses who are trying to do the right thing and nobody wants that,” she said.