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Wednesday, 21 May 2014 13:32

A Cautionary Tale for Restauranteurs

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Photo from U.S. Government website Photo from U.S. Government website

The Brothers Grimm were renowned for recording cautionary folklore tales. For example, the story of Hansel and Gretel teaches us not to wander too far from home and to think twice before leaving a trail of breadcrumbs. Recently, another cautionary tale has been told by federal prosecutors concerning Republican Congressman Michael Grimm. Restaurateurs who steal their workers’ wages should take heed.

This Grimm tale was covered in a recent Huffington Post article entitled Wage Theft is Grimm Business, written by New York City Councilman Rory Lancman. The article notes that “Basically, Congressman Grimm may be going to jail for wage theft.”

This somewhat of an oversimplification, Mr. Grimm was not criminally charged with wage theft. Several states, including New York and California are aggressively enforcing criminal laws against wage theft, but federal law does not provide for any criminal penalties for wage theft.

Nevertheless, Mr. Grimm was indicted on April 28, 2014 on twenty criminal counts in federal court relating to his alleged wage theft practices.  Those charges include conspiracy to defraud the United States, preparation of fraudulent tax returns, health care fraud, wire fraud, mail fraud, perjury and obstruction of an administrative proceeding.

Congressman Grimm’s alleged scheme to defraud the government unfolded in the course of a civil wage theft lawsuit brought by two former employees of Healthalicious, a restaurant in upper Manhattan owned by Grimm, filed in federal court in December 2011. The complaint in that case alleged that Grimm failed to pay the plaintiffs and other Healthalicious workers minimum wage and overtime required by federal law and failed to pay them minimum wage, overtime and spread of hours premium pay required by New York State law.

The civil wage theft case was settled confidentially in March 2013, two months after the Congressman provided deposition testimony in the case. The evidence obtained in the civil case left a trail of breadcrumbs for federal prosecutors to follow.

The criminal fraud charges against Grimm stem from his alleged failure to report nearly $1,000,000 in taxable income and his alleged scheme to pay his workers in cash “off the books” by failing to report those cash wages to federal and state authorities, thereby lowering the restaurant’s payroll tax and worker’s compensation insurance costs.

In addition, the perjury and obstruction charges concern Grimm’s alleged false testimony in the civil wage theft case. The government claims that “in January 2013, while a member of Congress, GRIMM lied under oath during a civil deposition about his role in operating the restaurant, including falsely denying that he paid Healthalicious’ workers in cash.”

Councilman Lancman correctly points out that wage theft "doesn’t merely hurt the cheated worker; taxpayers get fleeced, too. This is where Congressman Grimm finds himself in hot water. The federal government loses Social Security and Medicare revenue. State workers' compensation and unemployment insurance systems become stretched, in some cases to the brink of insolvency. Governments at all levels lose income tax revenue.” 

Councilman Lancman bookends his article with the following opening and closing comments: "[i]f Al Capone introduced Americans to the seriousness of tax evasion, then hopefully Michael Grimm's indictment will do the same for the seriousness of wage theft.” and “[w]hile tax, wire and mail fraud are the mainstays of federal white collar prosecutions, the justice department's willingness to apply those heavy hammers essentially in defense of protecting wages and the integrity of our wage-based retirement and income security system should remind all employers that cheating working people is serious business.” 

I couldn’t have said it better myself.  Wage thieves beware.

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