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R.I. AFL-CIO makes the case for making wage theft a felony

Report cites ‘clear evidence that payroll fraud is rampant in Rhode Island,’ with many employees misclassified as independent contractors

A report commissioned by the Rhode Island AFL-CIO on "Worker Misclassification and Wage Theft in Rhode Island."Handout

PROVIDENCE — A study commissioned by the Rhode Island AFL-CIO calls for making wage theft a felony, saying the state is becoming a “hot house” for worker misclassification and off-the-books employment.

“This report provides clear evidence that payroll fraud is rampant in Rhode Island,” the report states. “Data provided by the Department of Labor and Training are unequivocal in identifying that worker misclassification exists in every corner of the state economy.”

Professors from the University of Massachusetts Amherst Labor Center and Allegheny College analyzed state employee misclassification investigations and unemployment insurance audits from 2016 to 2021.

They found that 9.3 percent of Rhode Island employers are illegally misclassifying workers as independent contractors — rather than direct employees — reflecting a “substantial increase” from a similar review in 2008.

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While misclassification happens in every industry, the construction industry and janitorial companies are among the worst offenders, the report said.

Researchers estimated $185.3 million in workers’ wages and salaries went unreported to the state in 2019 because of worker misclassification and because of failures to fully report earnings of correctly classified workers.

Under state law, this type of wage theft is considered a misdemeanor, no matter the dollar amount, the report said.

“Considering that many employers see the fines and penalties associated with the crime — if they are ever caught in the first place — as simply ‘the cost of doing business,’ it seems unlikely that any meaningful change in labor practices will occur without upgrading wage theft to a felony,” they wrote.

The report called for making wage theft a felony in Rhode Island.

And Senate Majority Leader Michael J. McCaffrey, a Warwick Democrat, on Tuesday introduced a bill to do just that. Under the bill, wage theft would be a felony if the amount totals more than $1,500.

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Last year, Attorney General Peter F. Neronha advocated for making wage theft and the misclassification of employees a felony.

“When employers cheat workers by failing to pay them the wages they are due, it’s theft, plain and simple,” Neronha said at the time. “Wage theft not only harms employees, it also deprives Rhode Island of tax revenue, which means taxpayers also pay the price. Both wage theft and misclassification are crimes that warrant felony treatment.”

Last year, the Senate passed a bill to make wage theft a felony, but it went nowhere in the House.

Business groups came out in opposition to the legislation. For example, the Rhode Island Business Coalition urged legislators to reject the bill, citing the “chilling impact” it would have on employers who would be at risk of a felony charge for each classification of an independent contractor.

And the Rhode Island Society for Human Resource Management warned that the bill “would turn employers and HR professionals into felons for their unintentional violations of wage payment and worker classification laws.” The group’s legislative affairs director said the bill “would create new remedies to address a societal problem where existing remedies are more than sufficient.”

Patrick Crowley, secretary-treasurer for the Rhode Island AFL-CIO, disagreed, saying, “When it comes to a crime at a felony level, intent is important, and this is not going to punish people who do their paperwork wrong. This is going to punish people who intentionally try to steal from workers.”

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Crowley said the union has known anecdotally that wage theft has been a problem for years in Rhode Island.

In the construction and janitorial industries, employers are misclassifying employees as independent contractors, denying them the opportunity to earn higher wages, workers’ compensation, and overtime pay, he said. In some cases, the victims of wage theft are undocumented residents who are afraid to stand up for themselves, he said.

“It’s called the gray economy,” he said. “You have legitimate businesses but around the edges, you may have people losing money through wage theft.”

To quantify the problem, the Rhode Island AFL-CIO secured a $25,000 grant from the Rhode Island Foundation for the report. The authors are Tom Juravich, a professor of labor studies and sociology at UMass Amherst and Russell Ormiston, a professor of economics at Allegheny College and president of the Institute for Construction Economic Research.

The report says misclassifying workers and underreporting wages and salaries lets employers evade required taxes and contributions to social insurance programs. And it estimates that payroll fraud cost Rhode Island taxpayers between $25.1 million and $54.4 million in 2019.

The report concludes that “multiple policy options hold considerable promise in restoring worker rights and ensuring greater justice in Rhode Island’s workplaces,” and it says, “The first would be to make wage theft a felony.”

Crowley said, “If someone breaks into a house and steals $1,500, that is a felony, but if a boss steals $1,500 from a working person, it is only a misdemeanor. If we can change that, that will send a message to unscrupulous employers.”

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Edward Fitzpatrick can be reached at edward.fitzpatrick@globe.com. Follow him on Twitter @FitzProv.