Secretary of Labor Thomas E. Perez

Remarks at the "Enforcement Matters: How Workplace Law Enforcement Can Boost Americans' Wages and Strengthen the Economy," Center for American Progress, Washington, D.C., December 4, 2014

[as prepared for delivery]

Introduction

Good afternoon and thank you so much. It's a privilege to be back at CAP, and I'm grateful to Neera and everyone here for their leadership on so many issues. It was an honor to participate in your 10th anniversary events last year; and I know that in its second decade, CAP will be an even more powerful voice, making an even more profound impact on the important policy debates that change people's lives.

Julie Su and Terri Gerstein — thank you so much for contributing to this conversation and for your bold work on these issues. The Obama Administration's strong enforcement agenda simply isn't possible without close partnership with the states.

Andy Shallal, thank you for joining us and for proving every day that employers can do well by doing good. If every employer were like Andy, we could put Wage and Hour out of business.

And David Weil: thank you for the remarkable vision you've brought to the Labor Department over the last seven months. Our first Senate-confirmed Wage and Hour Administrator in a decade has really got game.

We're here today to talk about workers like Elmer Hernandez, who you see in this poster here. As employees of a recycling company in Southern California, Elmer and his co-worker Alberto Hilario stood up to their employer when they were illegally paid far below minimum wage and denied overtime — for grueling outdoor work, in 100-degree temperatures, without a proper restroom. They courageously pressed forward even when their boss threatened them with physical violence and deportation if they cooperated with a Labor Department investigation. We obtained a restraining order against the employer to prevent him from retaliating, and we were able secure $74,000 in back wages and liquidated damages for Elmer, Alberto and their co-workers. This is just one example of how our enforcement efforts can make workers whole again.

Shared Prosperity

Let me take a step back for a second and talk about the economy more generally. Tomorrow, the Labor Department will release the jobs numbers for the month of November. I don't have a crystal ball, so I can't tell you specifically what the report will say, but I can tell you what the unmistakable trend is. Since February 2010, private employers have created 10.6 million jobs over the last 56 consecutive months. The unemployment rate has fallen to 5.8 percent, its lowest level since July 2008. We are on pace for the highest rate of job growth since the late 1990s.

But the difference between this economic expansion and the one we experienced in the late 90s can be summed up in two words: shared prosperity. We had more of it then; we need more of it today.

The fruits of this recovery have been enjoyed disproportionately at the upper end of the income scale. Too many people are working harder but falling further behind. Even as workers contribute to rising productivity and a growing economy, their wages are remaining flat. Their sweat equity hasn't translated into financial equity. The tide is definitely rising; but while it's lifting the yachts and the cruiseliners, the rafts and the dinghies are at risk of being washed away.

There are many steps on the stairway to shared prosperity, and I'm proud of this administration's work building those steps. Last year, we gave home care workers a raise by guaranteeing that they are entitled to minimum wage and overtime for the backbreaking work they do. We also are working overtime to update the nation's overtime regulation, which hasn't kept up with inflation or with changes in the economy and the workplace.

Increasing the minimum wage has been a centerpiece of President Obama's economic agenda. And although Congress has yet to answer the president's call, there is a groundswell of activity at the local level — over the last two years, 17 states (plus the District of Columbia) have taken matters into their own hands and raised their own minimum wages. That includes four reliably red states -- Nebraska, South Dakota, Arkansas and Alaska — that passed minimum wage ballot measures by convincing margins in last month's election.

We're transforming the workforce development system so that millions of people can upskill and get access to the middle class jobs of today and tomorrow. And we're working to expand access to middle class jobs by advocating for passage of a long-term transportation bill and comprehensive immigration reform.

We're also working to make sure that workers have meaningful voice in the workplace. Because when workers have voice, they do better. The Bureau of Labor Statistics reports that last year, median weekly earnings for union members were $200 higher than for non-union members. That's not pocket change, and it doesn't even account for the superior benefits enjoyed by union members. Unions don't succeed at the expense of business. They succeed in partnership with business.

So the stairway to shared prosperity has many steps, and the destination is the middle class. Today, I want to focus on one of the more critical steps -- fair and effective enforcement.

Administration Record on Enforcement

The principle at stake — the heart of President Obama's workplace policy — is that folks should receive a fair day's pay for a fair day's work. That requires a higher minimum wage and stronger overtime laws for sure. But the law is only as effective as the political will of those enforcing it.

The president and his Labor Department have mustered that will from day one. Under this administration, we are back in the enforcement business, putting more cops on the beat and giving them more resources to protect working families who bear the greatest burden when labor standards are violated.

We've invested in the personnel we need. At the beginning of this administration, there were 730 investigators in the Labor Department's Wage and Hour Division. Today, we're over a thousand, back to late-1970s levels when the labor force was significantly smaller. We've given our people a robust toolbox. We've deployed them wisely, putting in place strategic enforcement approaches that give us the best results. Since 2009, we have recovered more than $1 billion in back wages for American workers — that's a powerful contribution to shared prosperity. Earlier this year, in one of our highest-impact investigations, we reached a $6.8 million settlement with a Philadelphia sports bar chain called Chickie's and Pete's that was improperly taking tips from their servers. $6.8 million in back wages and damages benefitting more than 1,000 workers — that's not chump change.

Successful enforcement requires redundancy — federal, state and local governments and private sector as well. We can't do it alone. We rely on states like New York and California that have robust enforcement mechanisms — they're two of the best partners we have. We work collaboratively, through Memoranda of Understanding, with states from Utah to Massachusetts on these issues.

Leadership matters here…and elections matter too. Some states have simply chosen not to do any meaningful wage and hour enforcement. Enforcement shouldn't be partisan, but some folks have made it so. When I took over the state department of labor in Maryland, I inherited enforcement tools that had been watered down substantially after four years under the previous administration. Again, the law is only as strong as the political will of those enforcing it.

Successful enforcement also has an impact beyond the workers immediately affected. When we crack down on unscrupulous employers, we send a strong message to similar employers about our vigilance. We create ripple effects, as a single investigation can resonate throughout that sector, influencing employer behavior and reforming a race-to-the-bottom culture. We encourage compliance with the law and act as a credible deterrent — ensuring that businesses that shamelessly ignore basic standards don't seize a competitive advantage over responsible employers who are doing the right thing.

And it's important to recognize that most of them are doing the right thing and aren't ripping off their workers. Most studies find generally that about 90 percent of employers are on the up and up. We frequently hear from law-abiding employers that they are being undercut by those who flout the law. Those employers recognize their stake in enforcement.

My experience in talking to business owners coast-to-coast is that the great majority are committed to treating their employees with dignity and respect. They see the high road as the smart road. They believe you don't have to be a bottom feeder to serve the bottom line. They know that paying low wages is a choice, not a necessity. They know that growth doesn't have to come on the backs of workers. They are paying above the minimum wage because they know it's good for business even if the law doesn't require it. Similarly, I've been heartened to see how many employers have done the right thing by continuing to pay workers who couldn't come to work because they were quarantined as a result of exposure to the Ebola virus — which means the Labor Department hasn't had to attempt to require such payments.

ERG Report

Why then are so many workers still working harder and still falling farther behind? Because in some sectors, wage violations are pervasive. A small number of bad apples can do a considerable amount of damage. We need to continue to strengthen enforcement because the problems posed by violations of labor standards are formidable. And we recently commissioned a research study on minimum wage violations in two states that demonstrates exactly that.

The study by the Eastern Research Group draws on an analysis of Census and earnings data from New York and California. And it shows that far too many people are earning a de facto minimum wage below the legal floor — because employers are taking what rightfully belongs to workers.

The study concluded that minimum wage violations in New York and California are widespread and have a significant economic impact. It confirmed what we intuitively know — unscrupulous employers push their workers into poverty when they fail to pay what the law requires.

The report finds that, in those states, roughly 3 to 6 percent of all workers covered by the Fair Labor Standards Act experience minimum wage violations. That translates into a total of between $20 and $29 million in lost weekly income for those workers, which represents 40 percent or more of their total pay.

Imagine that: 40 cents out of every dollar you earned doesn't show up in your paycheck but in your employer's pocket. For every hour of tough, on-your-feet work — looking after children, cleaning homes or making hotel beds; preparing food in a restaurant or picking crops in a field — it's possible you could be working 24 minutes for free.

That's just wrong. These violations are driving 7,000 California families and 8,000 New York families below the poverty line.

It's difficult to extrapolate what these figures mean on a broader scale around the country. But using conservative estimates, let's say the national violation rate is half what it is in New York and California — that would mean about 2 million workers total each month are getting ripped off.

According to the New York-California study and others, the violation rate in some sectors — in restaurant, hotel and motel, in the garment industry, for household workers, and those in wholesale and retail trade — are especially high, with over 35 percent of workers not being paid minimum wage. Violations take vulnerable populations and make them that much more vulnerable. Younger workers, Hispanic workers and workers with low levels of educational attainment are at even higher risk.

The implications for these violations are manifold. There's a reverberating effect throughout the economy. The worker and her family, of course, take it on the chin when she takes home a smaller paycheck. Less money in workers' pockets means less consumer demand, which stifles economic growth. Wage violations also distort the playing field, putting law-abiding businesses at a competitive disadvantage. Lower incomes mean smaller payroll tax contributions to programs like Social Security and Medicare that we all depend on. And taxpayers feel the squeeze too. As more people lose income to wage violations, many rely more and more on public services — like food stamps, Medicaid, subsidized health care, and free student lunches — to make ends meet.

Misclassification

These minimum wage violations are over the top, but this is about much more than low-wage workers. We've got millions of people in the middle class — or struggling to stay in the middle class — who need us patrolling the beat, who are also victimized by unlawful workplace practices and eroding labor standards. Jobs we've always considered good jobs are not providing the security they once did. Cable installers, truck drivers, IT workers and others — they're all working hard, they've invested in their skills, but they're not getting ahead.

These are the kinds of folks likely to face the abusive and growing practice of worker misclassification. Now, let me be clear: there are folks out there who are legitimately independent contractors, and they play an important role in the economy. But when you call your employees independent contractors — stripping them of rights and benefits in the process, dodging your own tax obligations as an employer — what you're doing is committing fraud, plain and simple.

We might as well call it what it is. I've never much liked the term "misclassification" anyhow — it suggests nothing more than a harmless clerical error. But there's nothing harmless about it. It's a triple whammy, really. It rips off the workers, of course; it cheats all the employers who are playing by the rules; and it also undermines the treasury.

Conclusion

The bottom line is that enforcement matters. And it matters more than ever at a time when we're seeing a fundamental restructuring of the American workplace. David Weil will talk some more about what he has called a "fissured workplace", which is making wage enforcement that much more challenging. With a proliferation of contracting and subcontracting in certain industries, too many workers don't even really know exactly whom they work for; they don't have employers they can identify or hold accountable.

Enforcement matters. It matters to building a strong economy that works for everyone. It's an important step on that staircase to shared prosperity. It is essential to advancing economic justice, addressing income inequality and ensuring that hard work is rewarded with a fair wage.

At the Labor Department, we are proud of our record on enforcement over the last six years. We are investing more resources more strategically and getting concrete results — results that have a direct impact on the quality of life for millions of workers.

But we want to ratchet it up to the next level — because so many more people still need our help. In communities nationwide today, there are moms and dads who can't afford school supplies, or weekly groceries, or basic holiday gifts — because of wage violations.

To address the scale of the problem, we need more resources, and the president knows that. That's why his 2015 budget calls for hundreds more Wage and Hour investigators. We need an even bigger and better toolbox. And we'll also be looking to the states for innovation, for new strategies to hold employers accountable and empower workers in a dramatically changed 21st century workplace.

Thank you all for your remarkable work in the ongoing struggle to raise the minimum wage. I urge you also to join us in rising to this next urgent challenge — ensuring workers take home the wages they've labored so hard for, the wages they've earned, the wages they deserve