041: Two Olympic gymnasts fined for Wage Theft and violating Employee Protection Laws
Learning Objectives
Upon completion of this Case Study, participants should:
- Understand how employee protection laws operate in California;
- Describe penalties for violating employee protection laws;
- Understand ways to avoid violations of employee protection laws; and
- Explain how a written compliance plan and employee training can mitigate any penalties for unintentional violations of the law.
State of the Industry
California employee protection laws are some of the most stringent in the United States. Employee wage theft occurs in several ways – underpayment of wages, paying employees under the table, failing to pay fringe benefits, and failing to provide employees with meal and rest breaks. Business owners face fines and monetary penalties for violating employee protection laws, even when they were unaware of the laws’ existence.
Background and Analysis
Wen and Li opened South Coast Gymnastics (SCG) in 1997. SCG focuses on the education and training of young girls and boys at various levels of gymnastics. According to SCG’s website, Wen and Li both competed in gymnastics at the Olympic level for a decade. Li won a gold medal in the 1981 world championships for the Chinese national team. Wen won a silver medal in the same competition.
According to the Department of Industrial Relations Division of Labor Standards Enforcement (DIR) and the California Labor Commissioner’s Office (CLC), inspectors discovered violations of wage laws at the business during a routine COVID-19 compliance inspection. According to the DIR, employees of SCG routinely received less pay than they should have. In some cases, investigators discovered some employees were making as little as $5.00 per hour. The mandatory federal minimum wage stands at $7.25 per hour. After an audit of SCG’s books and records, investigators found wage underpayments to 28 employees.
According to California employee protection laws, if employees receive less than minimum wage, regulators may penalize employers with Waiting Penalties. If the regulators find the employer knowingly failed to pay the employee’s wages in full, they will assess waiting penalties. Regulators calculate waiting penalties by multiplying the employee’s daily wages by the number of days they remained unpaid. The waiting penalties are only available for a maximum of 30 days of unpaid wages.
Additionally, investigators discovered SCG refused to provide employees with meal and rest breaks. Under California law, employees get one 30-minute meal break for every five hours worked. Employees also get one 10-minute rest break for every four hours worked. DIR investigators found SCG provided neither meal breaks nor rest breaks to their employees.
The DIR issued monetary fines and penalties against SCG and the owners totaling $1,320,450. The fines and penalties break down as follows:
- $590,689 for unpaid minimum wages, meal breaks, and rest break and waiting penalties;
- $342,765 in interest payments due to employees, calculated on the unpaid wages; and
- $386,996 in civil penalties for the violations.
SCG owner Li commented he was not aware of the laws he allegedly violated. As one of the owners of this business, Li focused on teaching gymnastics. Li believes his company should not receive any fines due to their lack of knowledge about employee protection laws. SCG and Li plan to appeal the violations.
Recommendations
We recommend business owners educate themselves about what it takes to run a business in their industry. Owners are frequently experts in their field. However, they may not be as adept at traversing federal and state wage and tax laws. Employers should maintain current human resources policies and procedures, and provide employees with handbooks that explain those policies, procedures, and employer/employee responsibilities. A written internal compliance program helps businesses comply with the law and avoid these types of situations.
A thorough employee training program should accompany any internal compliance program. Employees equipped with knowledge of the laws are more likely to make law-abiding decisions. When employees make law-abiding decisions, companies increase their chances of avoiding regulatory investigations.
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