WHD Investigation of Merchandising Company Reveals Unpaid Wages

Recently, the U.S. Department of Labor’s (DOL’s) Wage and Hour Division (WHD) investigated a San Diego, CA-based merchandising company, revealing instances of unpaid wages where the company avoided paying overtime. The company, King Graphics, is a contractor for entertainment merchandise manufacturers. The WHD reported that King Graphics cooperated with investigators, submitting requested records and assuring future compliance. In a previous investigation, the WHD had found similar overtime violations across three separate companies, resulting in fines of over $500K.

What the Wage and Hour Division Does

Created in 1938 with the enactment of the Fair Labor Standards Act (FLSA), the WHD enforces federal minimum wage, overtime pay, recordkeeping, and child labor requirements under the FLSA. The FLSA is one of five commonly cited employment laws all businesses should familiarize themselves with. Failures to comply with such laws can result in fines and harsh penalties. 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.

Investigation Reveals Unpaid Wages

The FLSA entitles covered workers to a federal minimum wage of not less than $7.25 an hour. Additionally, the overtime pay rate is one and one-half times the regular pay rate for hours worked more than 40 a week. King Graphics, a contractor that creates official merchandise for many recognizable musicians, had allegedly failed to pay proper overtime rates. In effect, this violation left workers with unpaid wages earned. In September 2021, WHD investigators requested that the company refrain from shipping “hot goods” made in violation of the FLSA. Under the “hot goods” provision, the WHD may seek a court order to prevent a company from shipping goods across state lines if they produced those goods while violating minimum wage, overtime, or child labor laws. Markedly, the order applies to both the manufacturer and the purchaser of those goods.

Penalties for the Company’s Wage Violations

At the investigation’s conclusion, the U.S. District Court for the Southern District of California entered a consent judgment in the case. In the judgment, King Graphics will pay:

• $269,914 in total unpaid wages to 76 workers ($134,957 in overtime pay and the same amount in liquidated damages).
• $10,473 in civil money penalties for its willful violation.

Additionally, the court ordered King Graphics to hire an independent third party to ensure future compliance with the FLSA. King Graphics also agreed to pay $10,473 to lift the “hot goods” hold. Meanwhile, the WHD investigated manufacturers who violated the FLSA when they received and distributed the “hot goods” in question.

WHD’s Statements in Response

The WHD reiterated that it will continue to enforce provisions under the FLSA. They will hold employers accountable for unpaid wages and related violations. According to WHD Acting Administrator Jessica Looman, “Celebrities, retailers and manufacturers profit from T-shirts sold for $40 or more, while the low-wage workers who produce the merchandise work overtime to meet consumer demand and become victims of wage theft.” Looman continued, “A manufacturer or retailer must ensure their supply chain is free of ‘hot goods’… or risk legal liability.”