County Sees Surge in Worker Exploitation

Last November, Ignacio, a 23-year-old casual laborer from Cuernavaca, Mexico, learned a new meaning of the term minimum wage.

He toiled through that month in a small Laguna Beach furniture shop, polishing marble for tables, pictures and pulpits. He had been told by his employer, whom he knew only as Steve, that he would receive a lump sum of $1,800 by early December.

Steve gave him $20 on occasion, but Ignacio was forced to do casual gardening on weekends to make enough money for food and rent. He had been supporting his wife and two infant daughters in Mexico, but he was forced to stop sending checks when his money ran out.

“The money I was sending my family from here was the only money they had to live on,” said Ignacio, who requested that his last name not be used.

Boss and Money Gone

Then one day, Ignacio said he showed up to work, and Steve was gone--along with Ignacio’s money.

In the last several years, unfair and unlawful labor practices like these have increased dramatically in Orange County, according to the county Human Relations Commission and the state Division of Labor Standards Enforcement.

The abuses range from non-payment of wages to a lack of employee safety nets required by state and federal law, such as worker’s compensation insurance.

Labor experts contend that these abuses are evidence of the ugly side of the entrepreneurial explosion, a means of cutting costs and competing in cutthroat industries.

Many victims are the area’s marginal laborers, usually dayworkers living from paycheck to paycheck, for whom illegally withheld wages or an uncovered work injury can be the first step toward financial disaster.

This is a recent and “drastic” departure from Orange County’s general labor picture, said Gus Carras, regional manager in charge of wage adjudication for the Division of Labor Standards Enforcement.

In the past, Carras said, most of the complaints made at the Santa Ana labor standards office were disputes over issues such as commission payments and were filed by big-buck salespeople, men and women with attorneys and a sophisticated knowledge of their legal rights.

More Blue-Collar Claims

“We still get a lot of complaints from highly commissioned salespeople,” he said. “But we’re also noticing a helluva lot of traditional blue-collar claims, where employers are not meeting payrolls, are going out of business and not paying. More and more of the claimants are Hispanic. . . . Maybe we’re getting more since the enactment of amnesty laws.”

According to Carras, wage claims to his agency grew nearly 25% from 1986 to 1987, pushing the Santa Ana office ahead of his agency’s Oakland office as the busiest in California.

In 1986, his office fielded 3,873 Orange County claims and collected more than $900,000 in wages owed to employees. In 1987, the number of claims rose to 4,819 and the wages collected increased to $1.5 million.

But marginal workers aren’t the only ones who lose when employers circumvent the law. The state and federal governments do not collect taxes, honest employers contend that they can’t keep up with their unscrupulous competition, and social service agencies are left to care for an indigent class that didn’t start out that way.

The employers at fault make up a huge underground economy, experts say, paying cash when they pay wages at all, keeping no records and failing to provide mandated worker safeguards.

In 1985, the last time the issue was studied at length in California, the Commission on California State Government Organization and Economy estimated that underground economic activity accounted for up to $40 billion in business transactions annually and defrauded the state out of more than $2 billion each year in taxes. There are no separate Orange County estimates.

While the study acknowledged that such criminal activities as drugs, prostitution and gambling are included in the figures, the commission (also known as the “Little Hoover Commission”) said that the “largest segment of the underground economy . . . involves self-employed persons and employers and employees who pay or receive cash for work performed or for goods sold without withholding proper income, payroll or sales taxes.”

For the 12 months ended July 31, workers allegedly abused in the workings of this underground economy filed 153 complaints with the Orange County Human Relations Commission. That figure is triple the estimated 50 cases in 1985, the first year the commission made a concerted effort to reach local workers and educate them about their rights, said Rusty Kennedy, the commission’s executive director.

Kennedy said the cases reported to his agency represent only a small fraction of the problem.

Litany of Abuses

The litany of abuses brought to the commission in the past three years include a failure to provide mandated workers compensation and unemployment insurance, discrimination based on immigration status, forced and unpaid overtime and poor working conditions.

The commission has scheduled a forum for Thursday at 7 p.m. to address these labor issues.

But by far the most prevalent--and serious--problem is non-payment of wages, Kennedy said. Of the 153 complaints, 68 were for unpaid wages or overtime paid at straight-time rates or not paid at all, he said.

“When you’re talking about unfair labor practices, you’re talking about very poor people, many of whom are in unstable living situations,” Kennedy said. “If they’ve been denied their pay, they may be evicted from their homes.”

Although the commission does not compile formal statistics on how its cases are resolved, Kennedy estimates that at least 50% reach some sort of settlement between the complaining workers and the accused employers. The settlements are generally cash reimbursement for unpaid wages, he said.

The remainder of the cases--those that go unresolved--are split pretty evenly among three scenarios: The agency loses contact with the employees filing claims. The employers against whom claims are filed cannot be found. Or the employers dispute the claims and refuse to negotiate with the complaining employees.

“But 50% of the time, they (employers) are basically admitting that they’re wrong,” Kennedy said.

While Kennedy attributes his agency’s increased caseload in part to stepped-up outreach efforts, Carras contends that fundamental changes in the county account for his higher numbers. His clients find their own way to his agency, which has no outreach effort.

“I think Orange County now is where the city of Los Angeles was maybe 20 years ago, when the office there was the hub of activity, surrounded with commerce,” Carras said. “I think the people simply moved from downtown L.A to downtown Orange County. Orange County has become the big urban sprawl where all the business is. The ones that aren’t making it are closing, and we’re getting the wage complaints.”

Increased Problem

In addition, Carras said, recent changes in immigration law and increased numbers of traditionally vulnerable minority workers also have increased the incidence of abuse.

Ignacio, the casual laborer from Cuernavaca, Mexico, is part of the changing face of Orange County’s labor problems. Shortly after being stymied in his attempts to recoup his unpaid wages, Ignacio called the Human Relations Commission for help.

Barbara Considine, the commission’s employment specialist, said she wrote to Ignacio’s former employer outlining the laborer’s complaints. When the employer called, she said, he insisted that Ignacio was a “business partner” with whom he would split profits and not an employee who needed to be paid.

He had sold no furniture, he said, so there were no profits to split. Ignacio was on his own, he said.

So Ignacio filed a claim with Carras’ office. Eight months and several hearings later, the state labor commission awarded Ignacio $2,300 in back wages and interest. But he has still not received his due; his employer never attended the hearings and has not been found, Considine said.

Workers like Ignacio often end up at the doorstep of the county’s social service agencies. Frank Castillo, a community worker for Catholic Charities Outreach Program, sees at least one case a week in which a worker has not been reimbursed for labor done.

“The biggest problem is that this is someone who is probably homeless, unemployed, works for a few days or weeks, then is not paid,” Castillo said. “This is money they really need to survive and they really counted on for basic things, food, shelter. . . . Or maybe it’s money they felt they could finally send home.”

David Dittemore, president of Dittemore Brothers, an insulation contracting firm based in Orange, considers himself as much a victim of unscrupulous business owners as Ignacio.

In his business, Dittemore contends, at least half of his competitors pay their workers in cash, do not pay taxes on their profits and do not pay into workers compensation, unemployment insurance or Social Security.

As a result, said Dittemore, who has spent most of his 56 years in construction, they can cut costs, increase profits and outbid him. He pays taxes, he loses business, he doesn’t know what to do.

“How many contracts or dollars do I lose in revenues? It’s awfully hard to put a number on it, but it’s extreme,” he said. “How does it affect small business like mine? It just decimates us.”

‘Criminal Situation’

In Dittemore’s opinion, such business practices are “like any criminal situation.”

“If the criminal mind sees that no one really cares about policing it, it invites others to follow,” he said. “The small companies coming into the market today know the only way they can compete at the entry level is to do what the competition does” and break the law.

According to union and state labor experts, construction is among the industries where cash pay and its subsequent abuses are most prevalent. Other problem industries include landscaping, housework and garment making.

Construction in particular is a highly transient industry, which makes it harder to enforce labor laws, and it is also very competitive, which gives business owners more incentive to operate illegally.

“The cost of doing business, providing workers comp insurance and things like that, is rising very fast,” said Roger Miller, regional field enforcement manager of the state Division of Labor Standards Enforcement. “People are economizing and cutting back, and these are areas they can control.”

Pam Ackrich, labor relations director for the Building Industry Assn. of Southern California, agreed that cost-cutting is behind the problems that occur.

“I’ve heard from many contractors that this goes on, although I have never heard any specific companies named,” Ackrich said. “It’s a cost savings not to have to pay all these things. They’re trying to get by with as cheap a cost as possible. . . . But it’s not condoned.”

Since 1986, just after the Little Hoover Commission report was issued, state agencies including the Department of Industrial Relations (under which the Division of Labor Standards Enforcement falls), the Employment Development Department and the Contractors State Licensing Board have coordinated and stepped up their efforts to control the underground economy and the abuses it engenders.

Unlike the industrial relations department and the licensing board, the EDD’s efforts focus primarily on investigating companies and recouping unpaid taxes.

In fiscal 1987, the EDD’s investigating arm audited about 120 companies statewide. In fiscal 1988, which just ended June 30, that number more than doubled to 253 investigations--of which 46 led to criminal prosecution, said Suzanne Schroeder, spokeswoman for EDD.

Criminal prosecution statistics are unavailable for fiscal 1987, Schroeder said. But felony charges were brought against at least one Orange County company, Canyon Plastering of Anaheim. Canyon allegedly paid its workers in cash, failing to withhold deductions for state income tax and failing to make the necessary employer payments to the state disability and unemployment insurance funds.

More recently, as part of its stepped-up enforcement efforts, the EDD filed a search warrant and raided a Santa Ana-based parking company, Professional Parking Systems, which provides valet parking to such hotels as the Newporter Resort and the Newport Marriott Hotel in Newport Beach and the Irvine Marriott and Hilton hotels.

On Aug. 18, EDD investigators searched the company’s headquarters and seized ledgers, tax records, sign-in sheets and canceled checks.

According to an affidavit filed in support of a search warrant, Professional Parking Systems allegedly has paid its employees mainly in cash, not making deductions for workers compensation and unemployment insurance.

No charges have been filed, the investigation is continuing, and investigators decline to comment on the case.

A company official refused to comment.

AN EMPLOYER’S RESPONSIBILITIES All employers in California have a number of specific responsibilities to their workers, as spelled out in the state labor code and U.S. labor laws: - As of July 1, the minimum wage increased to $4.25 per hour. When workers are paid by the piece, their wages must at least equal the minimum wage. - Workers compensation insurance must be provided for all job-related injuries, including any medical treatment and payment for inability to work because of that injury. - Employers also are required to pay into state disability, unemployment insurance and Social Security funds. - Time-and-a-half must be paid after an employee works eight hours in a day and 40 hours in a week. Double time is required after 12 hours worked in a day. - Workers should have a paid rest period every four hours. An unpaid meal period is required every five hours. Twenty-four hours off are mandatory after an employee works 72 hours in one week. - If an employee is called in and no work is provided, “reporting-time pay” of at least two hours’ wages must be granted. Source: Orange County Human Relations Commission