Theft As THE Business Model

The combination of the pandemic and rising inflation has exposed some of the glaring inequalities and inefficiencies in our economy, from how poorly “essential workers” are compensated to a supply chain that has multiple weak links that break under supply or demand shocks. It has also exposed theft as a significant part of the business model of modern corporations. Wage and time theft; fraudulent fees; price-fixing; wage-fixing; and price gouging – all of these are common corporate tactics that are apparently widely used across multiple sectors of our economy and even by Fortune 500 companies.

The simplest form of wage theft is to avoid paying workers the minimum wage or less than the wage agreed upon on employment. Around 17% of the low-wage work force in the ten most populous states are paid less than the legal minimum wage. A 2017 study by the Economic Policy Institute estimated that workers were cheated out of $8 billion annually due to just minimum wage violations. An associated tactic is time theft, either by refusing to pay overtime or by requiring employees work before or after they clock in or out.  When time theft is included with minimum wage theft, it is estimated that as much as $15 billion per year is stolen from workers. (As a comparison, $15 billion is twice as much as the US Government spends on energy annually.) To show how widespread these tactics are, especially for lower wage workers, another recent report showed that 85% of fast-food workers in California said that they had experienced some form of wage theft.

Companies that engage in these kinds of wage thefts have little to fear. The Department of Labor rarely punishes repeat offenders and even more rarely requires the companies to pay the effected workers damages above and beyond the stolen wages. In fact, in many cases, companies often get away with repaying workers less money than the firms originally stole. As one labor analyst noted, “Some companies are doing a cost-benefit analysis and realize it’s cheaper to violate the law, even if you get caught.”

Another form of wage theft is the misclassification of workers. This could be as simple as declaring certain workers as “managers” so that overtime pay is not required. This tactic is especially common in the fast food, service and retail sectors. But by far the biggest area of misclassification comes from the designation of independent contractors. Independent contractors don’t get access to unemployment benefits, workers compensation, and protection from discrimination and wage and hour laws. In addition, their employers shift the burden of the employer contribution to Social Security and Medicare back onto the independent contractor. Misclassification as an independent contractor not only steals fair wages and benefits from workers but also robs federal, state, and local governments of legitimate tax revenue.

Independent contractor misclassification is rampant. According to the Department of Labor, at least 30% of all employers have misclassified some workers as independent contractors. The Economic Policy Institute reports that “In California, nine out of 10 employers inspected in 2017–2018 were found to be out of compliance with the state’s laws against misclassification”. A separate study found that “found that 10% of construction workers across these three states were misclassified as independent contractors—13% in Illinois, 5% in Minnesota, and 9% in Wisconsin…By classifying (or misclassifying) construction workers as independent contractors, employers reduce their labor costs by 29% in Illinois, 36% in Minnesota, and 31% in Wisconsin…[The] study estimated that the three states together lose $152.1 million annually in income tax payments, unemployment insurance premiums, and workers’ compensation premiums from employers misclassifying construction workers as independent contractors.”

The pandemic has also exposed the fact that there are a number of industries where time theft is actually legalized. The supply chain collapse and the backlogs at our ports highlighted the fact that port truckers weren’t being paid for waiting times. Long-haul truckers are typically paid by the mile, not the hour, so any time spent waiting for the truck to be loaded or unloaded is unpaid. Again, because of the supply chain snafus, wait times for truckers have doubled and even tripled. We’ve also learned that airline flight attendants have not typically been paid until the cabin door closes and ends when it opens, meaning that all the work they do during boarding and debarkation is unpaid labor.

Finally, there is the ultimate in legalized wage theft – prison labor. Most prison labor involves prison maintenance duties and the pay is usually under $1.00 per hour, and that’s before any other wage garnishments imposed by the original sentence or the state. Refusal to work or sick days can actually result in punishment, even solitary confinement. For private prison operators, this is having the equivalent of a slave labor force keeping up their facilities.

A far smaller group of prisoners do industrial labor, either working for the state or private companies. State industrial prison labor, such as the prisoner firefighters in California, is not covered by minimum wage laws, but private industrial prison labor, from farm work to manufacturing, is. However, again, those private companies can and do deduct up to 80% of the prisoner’s wage for taxes, room and board, and other expenses. As recently as 2005, prison labor accounted for 4% of the manufacturing work force in the US. Today, prison labor is a billion-dollar industry. It is difficult to determine how much of this business benefits major American companies since the prisoners usually work for a variety of subcontractors, potentially hiding the ultimate beneficiaries. But it is hard to imagine at least some large companies not having their hand in a billion dollar industry.

Wage-fixing and no poaching agreements are yet another way wages are stolen from workers. Apple and Google admitted to wage-fixing back in 2014, as well as having a no-poaching agreement in place. Intel and Adobe were also implicated in the lawsuit. Raytheon is currently a target in an investigation into a wage-fixing and no-poaching scheme in the aerospace industry. For years, franchises in the fast-food industry had no-poaching agreements with other franchises within the same chain.

In addition to theft from workers, companies also engage in theft from consumers. Price-fixing and price-gouging are widespread. Meatpacker JBS recently settled a beef price-fixing case and there is currently other price-fixing litigation in the pork and chicken processing business. The chicken processing litigation involves alleged price-fixing that went on for seven years, between 2012 and 2019, and includes major companies like Pilgrim’s Pride and Tyson. Major drug companies such as Novartis, Pfizer, and Teva divvied up the market and fixed the prices for generic drugs. Apple conspired with the major book publishers to fix prices on its e-books. A similar case has been filed against Amazon. During the pandemic, we saw price-gouging for medical supplies like N95 masks. We regularly see gas stations engage in price-gouging during times of short supply. Many new pharma companies have sprung up that specifically focus on purchasing the rights to existing drugs for rare diseases and then raise those prices to exorbitant levels. Valeant, a Wall Street darling, “Pharma bro” Martin Shkreli, and Joe Manchin’s daughter at EpiPen are some of the best-known medical price-gougers.

The banking industry is notorious for ripping off customers with hidden fees. The CFPB estimates that banks make about $15 billion a year just from overdraft fees alone and another $1 billion in account maintenance fees. Those fees vary little from bank to bank, also indicating a kind of price-fixing in fees. For over a decade, Wells Fargo forced their employees to illegally open additional accounts for existing customers simply to extract extra fees. Even after Wells Fargo was caught doing that in 2016, TD Bank apparently still carried on a similar scheme. Beyond the banks, ticket companies are notorious for their excessive fees, often 20% to 30% of the face value of the ticket, and nearly half of Live Nation’s revenue comes from fees from its ticket vendor subsidiary. Cable companies are also infamous for their hidden fees, with fees now accounting for a nearly 25% surcharge on top of the listed price for service and an estimated $28 billion in extra revenue.

Cable companies also specialize in another type of consumer theft, namely the logistical nightmare of cancelling service. In 2014, one Comcast customer spent four hours on the phone attempting to cancel his service. Gym memberships are also incredibly difficult to cancel. Most, like Planet Fitness and Crunch, require either a certified/notarized letter or showing up in person to speak to a manager who may only be there during certain hours. Most also include a hefty cancellation fee as well.

In addition, there is the common practice of deceptive advertising. Intuit routinely charged customers for its TurboTax product that they were entitled to get for free under a partnership agreement with the IRS. The company even went so far as ensuring that details about the free version would not appear in any search engine. Food labelling is also wildly deceptive, with products described as “all natural” commanding higher prices when they are filled with antibiotics or not environmentally sustainable.

As the author of a study on wage theft wrote, “[W]age theft goes far beyond sweatshops, fast-food outlets and retailers. It is built into the business model of a substantial portion of Corporate America.” Walmart, FedEx, Bank of America, Wells Fargo, and JPMorgan Chase are among the top dozen companies with the most penalties for wage theft. Major American companies have been involved in price-fixing and wage-fixing. Price-gouging is now common in the pharmaceutical industry. Hidden fees have been a staple for the major banks and cable companies. Not just wage theft, but theft in general is now part of the business model of US corporations. It is built into the DNA of most major American businesses. As with wage theft, it is often cheaper for these companies to violate the law, even when they get caught. They will pay the fines; some of their executives might even go to jail; but the incentive to produce expected returns for shareholders by stealing from their employees and/or customers will always be there.