Illegal Pay Practices at Three Companies Result in Penalties of $2M

Recently, the U.S. Department of Labor’s (DOL’s) Wage and Hour Division (WHD) found that three customs warehouses (the employers) in the San Diego, CA, area were engaged in illegal pay practices. Specifically, WHD investigators found that the employers were paying workers in Mexican pesos. However, the rate was the equivalent of as little as $2.50 an hour. Indeed, this constituted a violation of wage and hour laws under the Fair Labor Standards Act (FLSA). Most recently, the WHD recovered $538K to resolve a company’s overtime violations.

Background of Wage Standards Under the FLSA

The FLSA provides for several federal wage and hour standards. These include a federal minimum wage, mandatory overtime pay, recordkeeping requirements, and youth employment standards. In general, the FLSA covers employers in the private sector, as well as in federal, state, and local governments. As of the publishing of this post, the FLSA entitles covered workers to a minimum wage and overtime pay according to the following:

• Federal minimum wage of not less than $7.25 an hour, effective July 24th, 2009.
• Overtime pay rate of not less than one and one-half times the regular rate of pay during hours worked more than 40 a week.

Accordingly, the WHD enforces such federal minimum wage, overtime pay, recordkeeping, and child labor requirements under the FLSA. In order to ensure employers succeed in their compliance efforts, the WHD keeps a team of investigators to support the enforcement of the several labor laws applicable to businesses.

Background of the Companies’ Illegal Pay Practices

WHD investigators found that the three employers were engaged in schemes to exploit workers using illegal pay practices. Investigators allege that, in doing so, the employers purposely sought to circumvent their wage and hour obligations under the FLSA. In detail, the investigators found the following illegal pay practices in violation of the FLSA:

• G.A. Investments II Inc. – Denied federal minimum wages and overtime premiums to employees who crossed the border from Mexico to work at the warehouse in Otay Mesa, CA.
• OMG Freight Forwarders – Deceived workers crossing the border from Mexico through an affiliate’s payroll in Mexico as direct deposit in Mexican pesos. Effectively, the employer paid the workers below minimum wage and also denied them overtime pay.
• Atlas Freight Forwarding Inc. – Paid workers at a flat rate and in Mexican pesos for all hours worked, using a Tijuana-based payroll. As such, the employer failed to pay both the legal minimum and overtime wages to employees.

Penalties for Illegal Pay Practices

Based on the WHD’s investigations, the Office of the Solicitor reached consent judgments against the three San Diego-based employers. Accordingly, the U.S. District Court for the Southern District of California ordered the employers to pay a combined $2 million owed for illegal pay practices. Together these penalties consisted of minimum and overtime back wages owed to 108 workers. Additionally, the District Court ordered the employers to pay a total of $56,675 in penalties, citing a reckless disregard for the FLSA’s federal wage and hour requirements. Acting Wage and Hour Division Administrator Jessica Looman stated, “Exploitation like what we found in these investigations is unacceptable … the outcome of these cases sends a clear message that the U.S. Department of Labor will hold these labor law violators accountable.”