Pdf icon
Related Sectors & Services

Tough Love - Philadelphia's New Wage Theft Law Carries A Mighty Punch (Or Does It)

By Stephanie K. Rawitt / Jul 28, 2016

Over the past several years, wage and hour litigation has increased dramatically. In addition to focusing on employee classification issues, i.e. exempt vs. non exempt status and independent contractor vs. employee, the issue of "wage theft" is often raised in wage and hour litigation both at the state and the federal level. While "wage theft" (more commonly known as non-payment or underpayment of earned wages) is already subject to penalty under the Fair Labor Standards Act, the Pennsylvania Minimum Wage Act ("PMWA") and the Pennsylvania Wage Payment and Collection Law ("PWPCL"), the City of Philadelphia ("City") has enacted an ordinance which now provides covered employees and authorized organizations with another avenue to pursue wage claims.

On December 1, 2015, Mayor Michael Nutter signed the Philadelphia Wage Theft Ordinance into law. It became effective on July 1, 2016. The Ordinance defines "wage theft" as any violation of the PMWA or PWPCL where employees perform work in Philadelphia or "the employment contract underlying the violation is made in Philadelphia." Accordingly, employers who are covered by the Ordinance now face additional exposure for wage and hour violations.

The Ordinance does not create new obligations for employers. There are no new wage compliance requirements, however, the Ordinance does provide another avenue of complaint. The Ordinance creates a cause of action for individuals as well as for "authorized organizations," such as labor unions. The inclusion of labor unions in the Ordinance brings a new avenue of exposure for employers.

The Ordinance provides minimum ($100) and maximum ($10,000) limitations on claims. The Ordinance focuses on the claimed wages and not on the penalties or attorney's fees, which are discussed more thoroughly below. Employees may pursue claims that fall outside of the limitations through other statutes or laws. The Ordinance provides that each week in which there are unpaid wages is a separate violation. There is no guidance as to whether a plaintiff must file claims over longer periods, i.e. weeks, months, years, together (which would exceed the maximum threshold) or if it is permissible to file them separately, thereby enabling the claims to proceed under the Ordinance.

Similar to its state counterparts, the Ordinance provides for a three year statute of limitations. Once a complaint is filed, applicable statute of limitations for any action in state or federal court concerning the same facts and circumstances are purportedly tolled. This is certainly one of the many provisions of this new law that employers will challenge.

The Complaint Process

An employee alleging wage theft under the Ordinance must provide a signed complaint to the Wage Theft Coordinator ("coordinator") (a newly created position) within the statutory period. The coordinator provides a copy of the complaint to the employer, after making certain that the complaint, on its face, sets forth a viable claim. Similar to the Department of Labor's investigation protocol, the Ordinance enables the coordinator to "keep a complainant's name confidential...if there is a substantial risk of retaliation by the employer." Upon receipt of the complaint, the employer is provided with 30 days to file an answer with all supporting documentation. The coordinator is empowered to subpoena documents from the employer. 

The initial burden rests with the complainant who must present "sufficient evidence" to show that earned wages are due. The employer, of course, may refute the claims with evidence establishing either that the wages were not earned or due, or that they were paid. The only evidence permitted is documentation as the process does not provide for sworn testimony or a hearing. The coordinator must issue a finding of fact and law within 60 days of the employer's answer, or within 110 days of the filing of the complaint, whichever is earlier.

In addition to the administrative process described above, the Ordinance creates a private cause of action for covered employees or authorized organizations. A complainant is not required to exhaust administrative remedies and, accordingly, can file a court claim without utilizing the administrative process. Available damages include unpaid wages, costs, attorney's fees and penalties.

The Ordinance also contains an anti-retaliation provision.

Penalties

The new Ordinance carries hefty penalties. The City can penalize employers up to $2,300 for each violation for each week any wages are unpaid. It appears that the Ordinance has its own version of a willful violation test with reference to the imposition of a penalty. The language of the Ordinance suggests that the City or a court could subject employers to multiple fines in a single complaint where the complaint covers a period of time greater than one week. Although not specifically addressed in the Ordinance, the fines could lead to exposure far greater than the $10,000 threshold as it appears the cap is focused upon the claimed wages and not the fines.

Additionally, the Ordinance enables the City to deny, revoke, or suspend any license or permit to an employer who violates the Ordinance or any other federal or state wage law. If the City revokes or suspends a license or permit, the license or permit holder may not obtain a license or permit from the City for one year, subject to an appeal.

Resolution

The Ordinance does not discuss settlement.

Notice

Employers must provide their employees with notice of the new law. Covered employers must incorporate a provision explaining the new law into their employee handbooks and prominently display the new Ordinance poster.

Conclusion

Wage and hour litigation is already in the limelight and this new Ordinance will certainly add fuel to the fire. Permitting unions to bring wage and hour claims could lead to an increase in the number of local suits filed against Philadelphia employers as can the fact that employers now need to notify their employees of their rights under this Ordinance. However, while the Ordinance creates a new cause of action with penalties, it is unclear what kind of a role it will play in Philadelphia. Employees may overlook the administrative process given that they are permitted to file their claims in court without exhausting administrative remedies. If that is the case, employees may use the Ordinance as an additional claim raised by covered employees, after their FLSA, PMWA and PWPCL claims. Given that all of these statutes also contain penalty provisions and award attorney's fees to a prevailing plaintiff, it is unclear whether this new law will expose employers to additional damages.

However, employers can minimize their exposure risks by making certain to evaluate their employee classifications, overtime practices and payroll practices on a regular basis. Wage and hour law compliance is the best offense.

If you would like more information about Philadelphia's Wage Theft Ordinance, or state or federal wage and hour law, please contact Stephanie K. Rawitt at (215) 640-8515, srawitt@clarkhill.com or another member of Clark Hill's Labor and Employment Practice Group.