Wage Wars

Activists have won citywide wage theft laws in El Paso and Houston. But local and state bureaucracies have ensured that the problem persists.

by Gus Bova
@bova_gus
June 13, 2018

For seven years, Paola Hernandez cleaned a city-run health clinic on Houston’s Northside for $8 to $9 an hour. It was a rough area, full of dilapidated houses, shuttered businesses and rundown apartment complexes. Hernandez, 37, sometimes felt unsafe working alone in the evenings. Her employers were cleaning companies hired by a larger firm, McLemore Building Maintenance, which held contracts with the city of Houston to clean its buildings. It was a tough job, but for years, Hernandez got her 40 hours, the pay was on time, and it was better than the $30-a-week maquila work she left behind 14 years ago in Coahuila, Mexico.

Then, in 2015, Hernandez got a new boss. It was the fourth time her employer had changed. The new company, JBM Janitorial Maintenance — hired by McLemore — had her working far more, 60 to 65 hours a week. And according to a complaint Hernandez filed with the city, the company often failed to pay overtime, either by underpaying her or misclassifying her as an independent contractor. Though Hernandez believed she was getting ripped off, she didn’t know what to do.

“They take you for a fool,” Hernandez told the Observer in April. “You know you’re not, but you’re scared to lose your job.”

wage theft
Paola Hernandez outside the city-run health clinic she used to clean.  Gus Bova

Things changed in early 2017, when a union organizer with the local chapter of the Service Employees International Union (SEIU) showed up at Hernandez’s workplace. The organizer asked her about any issues she was having at her job, and soon enough, Hernandez — who’d never been involved in activism or organized labor before — found herself part of a campaign.

Hernandez joined dozens of other workers last April in filing wage theft claims with the city against JBM and other contractors and subcontractors. Over the course of the year, Hernandez testified three times before City Council. In doing so, she was availing herself of a local wage theft ordinance that passed in 2013, but had never led to consequences for any employer. The ordinance allows the city to investigate complaints, terminate the contracts of wrongdoers and potentially deny employers permits and licenses. But Hernandez would soon find out the measure was no panacea.

Soon after Hernandez went to City Council the first time, JBM forked over about $900 of the $43,000 she alleged in her complaint that she was owed.

Speaking out also came with a price. In January 2017, she’d been approved by her supervisor to take an unpaid vacation to visit her mom in Mexico for Mother’s Day. But suddenly, after she spoke to City Council, she was told she couldn’t have the vacation, for which she’d already bought a plane ticket. When Hernandez insisted on going, she says, she was fired. (Mary Ann Guillen, then JBM’s head of HR, generally confirmed the account, but claimed the problem was that Hernandez changed her vacation request from one to two weeks).

In June 2017, Hernandez filed a wrongful termination claim with the National Labor Relations Board (NLRB), claiming she was fired for her union activities. JBM declined to fight the claim, and officials ruled in May that the company was guilty of unfair labor practices, putting it on the hook for thousands more in wages starting from the time of Hernandez’s firing.

But late last year, JBM went out of business, a move that could free the company of all outstanding wage debts. Houston officials say they have no way to punish a defunct entity, and the city doesn’t hold contractors like McLemore accountable for wage theft by their subcontractors. Similarly, in January, an NLRB attorney wrote to JBM offering an “opportunity to show the Board that it does not have the ability to pay the money owed.”

Subcontractors often fold to avoid wage theft claims, and typically neither the subcontractor nor the contractor is held accountable, according to Marni von Wilpert, an analyst with the Economic Policy Institute. “What happens so often is the bigger company is off the hook,” she said. “The smaller companies committing the violations, which are kind of fly-by-night, are much harder to track down.”

In an email, Mary Benton, press secretary for the mayor, put the matter bluntly: “We understand that JBM is out of business, so can’t get blood out of a turnip.” But the Observer found that key JBM personnel have simply put down new roots in Houston.

Texas has a wage theft problem. In 2017, analyzing just one form of wage theft, the Economic Policy Institute found that around 11 percent of low-income Texans are effectively paid less than minimum wage — a collective theft of almost $1.2 billion a year. Texas is also unique among the country’s five most populous states in requiring employers to pay only the federal minimum of $7.25, so when the Lone Star State’s poorest workers are robbed, it hurts them more than a poor Californian or New Yorker.

One problem: The Texas Workforce Commission has few resources for combating wage theft. Out of a $1.7 billion budget for 2018, only about $4 million is dedicated to “labor law enforcement.” That leaves the commission outmatched by employers who have myriad ways to dodge accountability. They can intimidate workers into dropping allegations, bog down claims in endless appeals, declare bankruptcy, and lobby against any legislative crackdowns.

“The [commission] does its job, but it rarely follows through on enforcement,” said El Paso employment attorney Chris Benoit, adding that city-level enforcement is needed to fill the gap.

Houston and El Paso are the only Texas cities with a wage theft ordinance. Passed in 2015 after a five-year activist campaign, the El Paso version makes it easier for the city to deny permits and licenses to any offending company, not just city contractors. But unlike Houston, El Paso doesn’t conduct independent investigations. Instead it compiles workforce commission and judicial decisions into a wage theft database, largely based on information it receives from citizens. The database is supposed to be the basis for punishing bad actors.

After three years, El Paso activists say they’re disappointed with the measure. “Because of the ordinance, people have decided to speak up more,” said Lidia Cruz, an organizer with the Labor Justice Committee, an El Paso-based grassroots organization. “But as far as the authorities, we haven’t had any results.”

Cruz said she became an activist after an employer failed to pay her $20,000 in wages — money she’s never been able to collect, despite a court judgement in her favor. Cruz says she receives around 30 wage theft complaints a week, which she regularly passes along to the city. But not much seems to happen after that. The city’s database isn’t readily available to the public, so she’s not even sure who’s in it, and she hasn’t seen evidence of the city taking action.

City officials confirmed to the Observer that no city contracts have been canceled or denied due to wage theft since the ordinance’s passage in 2015, and no permits or licenses have been revoked, either.

Through an open records request, the Observer obtained a copy of El Paso’s wage theft database. As of April, it included just 12 employers; the most recent addition was in September 2015. None of the hundreds of cases Cruz reported ended up in the database. “It’s shameful,” said Cruz. “They’re not doing their job.”

The Observer also obtained records from the Texas Workforce Commission showing that at least nine El Paso-based companies have received final orders to pay back wages since October 2015. All meet the ordinance’s standard for wage theft, but none appear in the database. That could be because no one informed the city about the final orders, or because the companies later repaid their debts. Bruce Collins, the city’s wage theft coordinator, didn’t respond to requests for clarification.

Collins pushed back, however, on the idea that the city hasn’t been doing its job. City contractors, he said, have paid up after being informed a complaint existed — no database entry or sanctions necessary.

And with employers that don’t hold city contracts but could have permits or licenses revoked, Collins said the matter’s out of his hands. The ordinance specifies that workers need to go through the commission or the courts and then bring him proof of a final decision — not just informal reports. That’s not happening, he says, and he’s under no obligation to seek out such information himself. “We can have regulations on the books, but we need individuals to come forward and go through the process,” he said.

Benoit, the employment attorney, said the city is doing “absolutely nothing proactive” to identify wage thieves. He said that most El Pasoans don’t even know the ordinance exists, let alone the exact bureaucratic steps to take. “As far as I can tell, the city is purposefully avoiding educating the public about this law,” he said, noting that the city’s website itself reflects an outdated version of the ordinance. The ordinance also requires that Collins provide annual wage theft reports to City Council, but Collins said he hasn’t done so since 2015, the year the measure passed, because no new companies have been put in the database.

Benoit added that activists face a further obstacle because the Texas Workforce Commission doesn’t even maintain a readily accessible database of its findings — something El Paso state Representative Mary González has tried unsuccessfully on three occasions to fix at the Legislature.

For its part, Houston’s wage theft database is available online, and unlike in El Paso, the city actively solicits information from the workforce commission every few months. But until recently, the database only contained 13 employers, none of which were even based in the city of Houston. In response to Observer inquiries in late April, a city official acknowledged that the wrong information had been uploaded to the site; the new database now contains dozens of additional companies.

In all, the SEIU campaign in Houston brought 45 complaints to the city, and officials say they discovered wage theft in 41 of those cases, involving five different companies. But only one of the five settled its debts. Three others contested the city’s determination and were referred to the U.S. Department of Labor, which will be investigating only one of the three, according to a spokesperson. Then there’s JBM.

JBM made back payments to some workers last year. Hernandez claims she’s still owed tens of thousands, and city documents show JBM owes at least $16,000 to an additional pair of workers. Last summer, the company forfeited its tax status, but the Observer found that one of its key personnel essentially opened up shop under a new name.

JBM was a family affair. Its president was Viridiana Garcia, and her husband, Rafael Martinez, was the cleaning supervisor. Last November, Martinez started a company in Houston named KRC Floor Maintenance, of which he is the sole director.

Mary Ann Guillen, who was in charge of human resources and bookkeeping for JBM and now works for KRC, explained to the Observer that KRC purchased JBM’s remaining cleaning contracts. (None are for city properties.)

Guillen spoke openly of JBM’s pay practices. She said JBM would often treat its workers as regular employees, paying them up to 40 hours in a workweek, then pay them as independent contractors for any additional hours — effectively avoiding overtime pay. Guillen claimed that workers agreed to the arrangement, and some asked for it. “A lot of these workers were trying to not pay taxes,” she said. “Some of them were receiving food stamps.” (Hernandez claims that workers agreed to the arrangement under threat of termination.)

Houston employment attorney Tom Padgett said JBM’s arrangement as described by Guillen was simply illegal. “An employer cannot just convert an employee to a contractor in order to avoid paying overtime,” he said. “It’s stealing from the federal government, and it’s creating a potential tax liability on the worker. There are many innovative ways to avoid paying overtime; this is a pretty dumb one.”

Asked whether KRC should pay back the money that JBM allegedly owes its workers, Guillen said no. “[Martinez] cannot pay JBM’s debt, because he’s making just enough money to pay his own employees,” she said. Martinez is earning $3,400 a month from KRC, according to his wife’s personal bankruptcy filings.

Guillen stressed that JBM was always barely scraping by. She said that once the primary contractor, McLemore, took its cut of the city’s money, there wasn’t enough for a subcontractor to cover its expenses — something the city doesn’t account for. For that reason, Guillen said, KRC plans to stay away from city work. “With everything we saw, I don’t think it would be a good idea,” she said. “Because really you can’t be making money unless you’re paying the employees nothing.”

Closing shop and reopening in a new guise is a common response to wage theft allegations, experts say, and people tend to get away with it. But in April, Hernandez and four other former JBM employees filed a federal lawsuit against JBM and KRC seeking unpaid wages. As part of the suit, they argue that KRC should be held responsible for JBM’s debts.

In May, Garcia filed for bankruptcy for both herself and JBM, a move she’s hoping will stymie the lawsuit. In court filings, she says she has just $23,000 in assets to her name and $373,000 in debt to a suite of creditors, including the workers suing her. As for KRC, Martinez argues it should be removed from the lawsuit, since it didn’t exist at the time of the alleged wage theft and is a separate legal entity.

Other workers filed a second lawsuit against a Houston city contractor called Norred and Associates, which provides security at the George Bush Intercontinental Airport and is under Department of Labor investigation for wage theft. The city says it’s currently seeking a replacement for Norred.

wage theft
Sarpaul Mehat is one of the workers suing the security company Norred and Associates over unpaid wages.  Gus Bova

Ultimately, many worker advocates believe that bureaucracy and lawsuits are insufficient for addressing wage theft, and that employees need on-the-ground union representatives to solve payment issues when they arise. A study last August, for example, found that unionized workers are around half as likely to experience minimum wage violations as the non-unionized.

Elsa Caballero, president of the Texas SEIU, says her union — which represents workers for around 10 janitorial companies in Houston — negotiates contracts that include specific steps for resolving wage issues. “We’re able to resolve it usually at the first step with a phone call,” said Caballero, adding that the union can proceed to arbitration or help workers go to the courts or the feds if needed. Caballero said she hopes her union will gain recognition among Houston’s city contractors, and added that the city needs to start holding contractors accountable for the actions of their subcontractors.

As for Hernandez, she’s been unemployed since JBM let her go. Right now, she’s back in Coahuila for an extended Mother’s Day visit with her family. When she gets back, she hopes to work for one of the Houston companies with an SEIU contract.

Correction: An earlier version of the article misstated the Texas Workforce Commission’s annual budget. The story has been updated to reflect the commission’s budget for labor law enforcement. The Observer regrets the error.

Illustration by Sunny Sone.

Gus Bova reports on immigration, the U.S.-Mexico border and grassroots movements for the Observer. He formerly worked at a shelter for asylum-seekers and refugees. You can contact him at [email protected]

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