Anis Uzzaman penned the book on Silicon Valley success. In Startup Bible, the founding partner of San Jose-based Fenox Venture Capital preaches the gospel of prosperity-by-disruption to aspiring entrepreneurs in Japan. The volume touches on fundraising, patents and how to build a team, which he called a company’s “biggest asset.”
In what seemed a gesture of goodwill, he donated proceeds of the how-to guide to help rebuild Japan a few years after the 2011 earthquake that triggered the worst nuclear disaster since Chernobyl.
But to several of his former staffers, the donation looked more like a roundabout ploy for applause after stiffing them out of salaries. Last month, Fenox became the first venture capital firm in the Bay Area busted for wage theft. The U.S Department of Labor (DOL) ordered the firm to cough up $331,269 in back wages and damages to 56 unpaid workers.
From 2011 to 2014, investigators say, the company used free labor to prepare investment reports and recruit startups—the core functions of a VC firm. Under federal law, interns at a for-profit company must earn at least minimum wage if their work benefits the company.
The interns-in-name-only also spent hours translating Uzzaman’s book, which is either ironic or apt, given the region’s labor economics. “In Silicon Valley, exploitation is part of the business model,” says attorney Ruth Silver-Taube, who leads Santa Clara County’s Wage Theft Coalition.
Last year, Apple, Google, Intel and Adobe Systems reached a $415 million settlement in a federal class action lawsuit after a judge found that the companies illegally conspired to suppress wages and stifle upward mobility with a moratorium on soliciting each other’s workers.
The anti-poaching case shows that it takes sophisticated collusion to cheat well-paid software engineers. Pay theft, however, more often impacts immigrants, the working poor and the ever-expanding digital labor force. The nonprofit Economic Policy Institute found that two-thirds of the nation’s low-wage earners have fallen victim to the crime.
Nowhere in California is the problem worse than in Silicon Valley, where white-collar wealth has spiked the demand for service jobs and other blue-collar labor. The South Bay counts more wage theft complaints than any other region in the state and the highest average amount stolen from each worker.
Still, it wasn’t until 2013 that the county formed its wage theft coalition to crack down on what it called an epidemic. Three years earlier, a Florida county became the first in the nation to enact a wage theft ordinance.
The California Labor Commissioner’s San Jose office, which fields about 300 wage theft claims a month, awarded $8.4 million in back pay to 2,000 workers from 2012 to 2013. Since the agency doesn’t readily track which companies pay up, however, two-thirds of those judgments remain uncollected.
San Jose also falls under purview of the DOL Wage and Hour Division, whose 11-county Bay Area district has claimed $32.8 million for 16,980 workers since 2011. Nationally, the agency helps about 300,000 people a year recover $280 million in back pay. That doesn’t include what's recovered by state attorneys general, state labor departments or the $460 million a year reclaimed by private attorneys.
Silver-Taube says the tech industry’s penchant for unconventional work arrangements opens the door for abuse. Some employers, she says, purposefully break the rules if a cost-benefit analysis weighs in favor of a violation.
“We’ve always had misclassification,” she says. “But employers have found new ways to be greedy. It’s like old wine in new bottles.”
Victor Batinovich, longtime owner of Fremont semiconductor manufacturer i2A Technologies, failed to pay 23 employees for six months over a 14-month stretch through last year. All the while, he sold goods made for free. Staffers say Batinovich led them on with predictions that the business would recover. Instead, he filed for bankruptcy and, in what seemed a last-ditch effort to skirt liability, demoted himself.
U.S. District Court Judge William Alsup gave him two choices: pay up or go to jail. The last time the court threatened to incarcerate someone over a wage violation was in 1999. On March 1, the day Batinovich was ordered to surrender to the U.S. Marshals office, he brought in a cashier's check for $56,470.42. It was enough to avert arrest, but hardly covers the $200,000 the feds say he still owes. Batinovich declined to comment on the case.
“This company stood out because the failure to pay was so egregious and so longstanding,” says DOL attorney Rose Darling, who handled the case. “This sends a very clear message. Payroll isn’t just another line item, it’s someone’s livelihood.”
Constante Yanos, a 72-year-old machine operator who worked for Batinovich since the mid-1990s, got bumped down to a $16-an-hour independent contractor a few years ago. He said the lapse in pay, which amounts to about $3,200, prevented him from treating serious health issues. Meanwhile, his age and the region’s dramatic shift from a manufacturing to service economy has made it difficult for Yanos to find work. He briefly drove for Uber, he says, but his gas-guzzling SUV ate up too much of the profit.
Angel Rodriguez, 57, hoped the company would pull through for the sake of his cancer-sick wife and teenaged children. The unpaid wages set off a domino effect that cost him everything except his home in Los Banos.
“I tried to keep it for my boys and my wife,” says Rodriguez, who took up farm work and recycling cans and bottles to get by.
In 2013, another Fremont company ran afoul of labor law by paying workers from India the equivalent of $1.21 an hour in rupees to install computer systems. The case resulted in $40,000 in back wages for eight employees and a surprisingly modest fine of $3,500. “It was appalling,” says DOL Assistant District Director Michael Eastwood, who works out of agency’s San Jose office.
Labor brokers can break the chain of responsibility, says Silver-Taube. As can the so-called “1099 economy,” which enables employers to misclassify de facto staffers as independent contractors. Uber became a high-profile example of the practice last year when the state Labor Commissioner ruled that the company’s control over drivers renders them employees. And, as evidenced by Fenox, work is sometimes presented under the guise of an internship to people eager to get their foot in the door.
While technology has to a degree complicated oversight, it also gives workers a way to organize and police prospective employers. Researchers out of the University of Minnesota and University of California at San Diego recently launched a digital tool to combat wage theft in the fragmented digital workforce.
Turkopticon allows users to rate employers on Amazon’s Mechanical Turk, a website likened to a digital sweatshop where people sign up for “micro-tasks” such as transcribing audio or tagging pictures for pennies apiece. If someone refuses to pay, workers have virtually no recourse and often don’t even know who assigned the task in the first place.
Aaron Sojourner, a union organizer before he became a labor economist at the University of Minnesota, led the research team that evaluated Turkopticon’s effectiveness. He found that Turkers who worked for higher-rated employers made 40 percent more than they did without the app. In that sense, the app plays a similar role to the Freelancers Union and Glassdoor, websites where workers share information about employers.
Another new app enables day laborers to fight wage theft with their smartphones. Jornalero, which launched a beta version last month, lets workers anonymously rate employers, log hours, upload photos and send alerts to other users.
Silver-Taube says she's eager to see how new technologies play a role in curbing pay theft. Meanwhile, she wants to see more policy changes that protect workers. On the state level, Gov. Jerry Brown signed legislation last fall that makes it easier for workers to recover lost wages. The law holds individual executives, not just companies, accountable for unpaid wages. That rule already held true under federal law.
In 2014, the Board of Supervisors passed an ordinance disqualifying wage theft violators from county contracts. This month, the Santa Clara Unified School District voted to require companies it works with to disclose wage judgments and prove that they made good on those payments. San Jose and Sunnyvale are considering similar measures.
“Local governments must close the enforcement gap,” Silver-Taube says. “We are seeing some progress.”