In New York, Wage-Theft Violators Get Millions in Government Contracts — ProPublica

In the lobby of its midtown Manhattan headquarters, Fedcap Rehabilitation Services has a large wall display that pays homage to its near 90-year history of leading “the fight for equity and opportunity” for the disabled community.

The nonprofit is known in New York as having pioneered the field of vocational rehabilitation, a service that helps find jobs for people with disabilities.

Fedcap has received dozens of contracts worth more than $110 million from 10 New York City and state agencies since 2018.

That’s despite the fact that the company has committed millions of dollars in wage theft against hundreds of its workers in recent years.

Under New York City and state procurement laws, contracting agencies are required to check vendors’ backgrounds, including for labor law violations, and award contracts only to those deemed “responsible.”

But who is a “responsible vendor” is vaguely defined. And New York state’s contracting rules are more lenient than some other places when it comes to approving wage theft violators for contracts. Advocates and officials in those places say tighter rules have been an effective deterrent against wage theft.

In New York, a company is only banned from receiving contracts if it committed multiple “willful” violations of wage laws, and that ban only applies to public construction projects and building service work, such as janitorial and security services. Many wage theft cases, including Fedcap’s, are not deemed willful, meaning that the federal Department of Labor did not determine that it knowingly broke the law.

As a result, city and state agencies repeatedly award contracts to companies even after the vetting process flagged histories of wage theft, an investigation by Documented and ProPublica has found. Joseph Brill, a spokesperson for the state Office of General Services, which oversees many centralized contracts for the state, said in a statement that “we are not aware of any vendor that has been deemed non-responsible solely because of a failure to pay appropriate wages.”

At least 25 companies and organizations, including Fedcap, have received a New York City or state government contract within three years of federal and state investigators finding that they had owed at least $100,000 in back wages to their workers, according to an analysis of nearly six years of contract records beginning in 2018, as well as wage-theft databases obtained from the U.S. and New York Labor departments.

Between January 2018 and September 2023, those employers received about 160 contracts collectively worth more than $500 million from dozens of city and state agencies — all within three years of committing wage theft, according to the analysis. The contracted work included catering, career assistance, nursing, security services, and highway and subway construction.

With Fedcap, its history of wage theft was hardly hidden. A 2018 investigation by the U.S. Department of Labor found that Fedcap had failed to pay required retirement benefits for over one year, then subsequently failed to pay the correct amount for workers at a New York City location. The agency expanded its investigation to 18 other federal offices and facilities served by Fedcap, and it also found that the company illegally deducted third-party administrative fees from its workers’ wages. The company agreed to pay $2.8 million to more than 400 workers to resolve the violations.

“When employers receive federal funds to provide services to the government, they must comply with all applicable laws to ensure that their employees receive legally required pay and benefits,” said David An, Wage and Hour Division District Director in New York City, in a press release about the case issued by the agency.

Then, in 2021, a worker for Fedcap’s job placement program filed a class-action lawsuit on behalf of herself and co-workers, alleging that the company committed wage theft against them.

In court documents, the lead plaintiff, Brickzaida Aponte, alleged that she regularly worked long hours — sometimes 100 hours a week — but was denied full wages. Aponte, who worked for the company for eight months ending in January 2019, also alleged that Fedcap made her work through unpaid breaks and required her to work double shifts that involved commuting to other locations without compensating her for the travel time.

Fedcap denied wrongdoing but settled the case last year, agreeing to put $850,000 into a settlement fund for approximately 4,000 workers, as well as attorney’s fees and other expenses.

Among the 25 contractors, Fedcap committed the highest amount of wage theft, according to our analysis of state and federal wage theft databases. Within three years of the 2018 Labor Department investigation, the company received 25 city and state contracts worth nearly $100 million. Since then, it has also received at least five additional contracts worth $18 million. (One of those was initiated within months after settling the class-action lawsuit last year.) The contracted work included providing rehabilitation services for mentally ill and formerly incarcerated people, as well as job placement programs.

In an email to Documented and ProPublica, Fedcap spokesperson Josh Vlasto defended the company, noting that some of the problems with payments occurred during a “change in systems” and that once it became aware of the issue, Fedcap “immediately corrected the error and paid the required funds with interest.” Vlasto also said that other than determining that back wages were owed, the Labor Department didn’t issue “any fines, penalties, or other punitive assessments.” The law that Fedcap violated — which sets wage and benefit standards for employees working on government contracts — does not authorize penalties or fines, according to the Department of Labor.

Vlasto added that his company had been willing to “vigorously contest” the class-action lawsuit but decided to settle the case “not because of any admission or finding of fault but because as a nonprofit we could not afford a lengthy litigation.”

Aponte, the lead plaintiff in the class-action lawsuit, declined to comment.

Worker advocates said New York’s current rules are too vague and loose to be effective.

“The system is broken,” Elizabeth Joynes Jordan, co-legal director at Make the Road New York, an immigrant-rights organization that has advocated for workers in labor disputes, wrote in an email. “The city and state must do more to ensure that they are not awarding major contracts to wage thieves.”

The ability of wage-theft violators to receive government contracts in New York stands in contrast to Washington state and a number of cities across the country — such as Houston, Philadelphia and two Ohio cities, Cleveland and Columbus — that have much tighter restrictions.

In Washington, for instance, companies and organizations are banned from bidding on all government contracts after a single willful wage-theft violation. In Cleveland and Columbus, companies are banned from bidding on government contracts after they’re found to have committed any amount of wage theft, whether intentional or not. The ban stays in place for three years in Washington, Cleveland and Columbus — regardless of whether they pay back wages to their workers.

Washington Attorney General Bob Ferguson said in a statement that his state’s ban is based on a premise that “taxpayer-funded government contracts should only go to those who play by the rules and pay their workers the wages and benefits they’ve earned.”

Others, including New Jersey and cities like Philadelphia and Somerville, Massachusetts, have gone even further, passing laws that allow them to strip wage-theft violators of their business licenses.

In New York, however, recent efforts by state lawmakers to ban the awarding of government contracts to companies that commit any amount of wage theft have failed in the face of opposition from industry groups, such as the Business Council of New York State, which represents more than 3,000 companies and chambers of commerce.

In 2021, for instance, then-state Sen. Brian Barnwell, a Democrat from Queens, proposed legislation to bar wage-theft violators from bidding on government contracts in cities with a population of 1 million or more in the state — which would have covered only New York City. But his bill failed to gain traction and died without getting a single committee hearing.

Assemblymember Jo Anne Simon, who represents several neighborhoods in Brooklyn, told Documented and ProPublica that she’s determined to keep trying. She said she believes wage theft “should be disqualifying” for any vendor bidding on government contracts; without such a provision, “the state is subsidizing wage theft.”

Vetting Can Fail to Flag Wage Theft

In order to receive each of its government contracts, Fedcap had to undergo what’s known as a “vendor responsibility” determination, a two-step vetting process required by both city and state rules.

First, the company had to disclose to contracting agencies information about itself that could be considered “unfavorable” or “negative” — such as whether its business license had ever been suspended or whether the company or its officials had come under a government investigation of any kind during the past five years.

Next, the agencies had to conduct their own vetting of Fedcap’s background by examining a number of factors, including the company’s performance on previous government contracts, financial capacity and record of “integrity.”

Under the city’s rule, the agencies were specifically required to check whether the company had committed labor law violations. The state asks in its vendor responsibility questionnaire if the vendor was found to have committed any willful violations of labor law in the past five years. According to Brill at the state Office of General Services, a wage theft violation “doesn’t automatically make a vendor non-responsible.” He explains that a finding of non-responsibility “depends on multiple factors, such as the nature of the violation, the vendor’s role, whether the vendor has cured the problem, whether they have paid their restitution, etc.”

Based on what was flagged during the vetting process, each agency then had to determine whether Fedcap should be deemed a responsible vendor.

Documented and ProPublica reached out to the 10 city and state agencies that awarded contracts to Fedcap within three years of the 2018 Labor Department investigation. The news organizations wanted to find out whether the company’s wage-theft history had been flagged during the vetting process and, if so, how they still decided to award contracts.

The agencies included the city Department of Social Services, which gave nine contracts worth $65 million to the company to provide career assistance; the state Education Department, which gave two contracts worth $11 million for vocational rehabilitation services; and the city Department of Health and Mental Hygiene, which gave three contracts worth $9 million for rehabilitation for people with mental illness and other services.

Of the five agencies that responded to our inquiries, three — the city Department of Correction, the state Education Department and the city Department of Health and Mental Hygiene — confirmed that they had flagged Fedcap’s wage-theft history in their own vendor responsibility reviews. The other two told Documented and ProPublica that they followed the required vetting process but did not say more about the decision to award contracts to the company.

Five other agencies, including the Social Services Department, did not respond to repeated requests for comment.

Spokespeople for two agencies — the Education Department and the Health and Mental Hygiene Department — explained that they had decided to offer contracts because the company had repaid back wages.

Sen. Brad Hoylman-Sigal, a Democrat whose district in Manhattan runs from Greenwich Village to the Upper West Side, said in a statement that he believed New York should adhere to a policy like those in some other locations and not do business with companies that have committed wage theft, regardless of whether they paid back wages.

“I’m glad that, in the case of Fedcap Rehabilitation, back wages were repaid,” Hoylman-Sigal said. “But without any additional fines, and new government contracts coming in, there is nothing to stop places like Fedcap from continuing to exploit their workers in the future.”

Documented and ProPublica also found that the vetting process doesn’t always catch cases of wage theft. Since 2018, two state agencies awarded five contracts worth more than $2 million to All Metro Health Care, a Valley Stream-based home health care services company, which committed wage theft against the highest number of workers among the 25 companies and organizations we examined.

Neither of those agencies flagged the wage theft during their reviews, even though federal and state investigators had documented or open cases of wage theft before the contracts were awarded.

From 2015 to 2022, federal and state investigators found that the company had committed 31 separate cases of wage theft, totaling more than $650,000 in back wages for 3,400 workers.

All Metro’s parent company, Modivcare, did not respond to questions about the company’s wage-theft violations. In a statement it said the company “is dedicated to ensuring fair wages for all its teammates, with stringent policies in place to prevent wage theft.” And it said that since it acquired All Metro Health Care in November 2020, it has “been vigilant in ensuring that it aligns with Modivcare’s high standards.”

In addition, in 2017, two former All Metro workers filed a lawsuit seeking class-action status against the company.

In court documents, the two plaintiffs accused the company of “systemic wage abuse,” including the violations of the minimum wage and overtime rules. One plaintiff, home health aide Chereda Ivory, alleged that she worked multiple 24-hour shifts a week but was paid the wages for only 13 hours per shift. The other plaintiff, support services aide Jacqueline Sistrunk, alleged that she was denied an extra hour of pay that she was entitled to under the “spread of hours” regulation for days she worked for more than 10 hours.

In December 2022, the court approved the lawsuit’s class-action status, which covers approximately 23,000 workers, and the case is ongoing. In court papers, the company denies the allegations and states that “Plaintiffs and the purported class members have been fully and properly paid for all hours and all time which they are entitled to compensation for.”

Jennifer O’Sullivan, spokesperson for the state Office for People With Developmental Disabilities, which awarded four contracts to All Metro, told Documented and ProPublica that “our vetting process did not identify any instances that would disqualify the vendor.” She also noted that the agency awarded contracts “through a strict and competitive procurement process, which includes due diligence of a vendor’s business practices.”

O’Sullivan added that her agency doesn’t have “access to information about investigations by the Department of Labor.” Details of federal investigations are publicly available, and the state Labor Department also keeps a database of substantiated wage theft cases; although it is not public, the state DOL shares data with “enforcement partners” and other entities with which it has established data sharing agreements, a spokesperson for the agency wrote in an email. Spokespersons for both the DOL and the Office for People With Developmental Disabilities did not respond to follow-up questions about whether they have a data-sharing agreement.

Danielle De Souza, a spokesperson for the state Health Department, wrote in an email that her agency awarded one contract after conducting “a full review of all information provided by the vendor and through additional research efforts.” But a review of the agency’s contracting documents obtained through records requests shows that All Metro’s wage theft history was not flagged during the vetting process.

Jennifer Freeman, spokesperson for the Office of the New York State Comptroller, wrote in an email that a vendor’s failure to disclose all required information “may be the basis for a finding of non-responsibility.” But she noted: “It is the responsibility of the state contracting entity to follow up as appropriate and reassess its responsibility determination in light [of] any relevant new information brought to its attention.” The Office for People With Developmental Disabilities did not respond to this assertion.

Assemblymember Linda Rosenthal, a Democrat who represents the Upper West Side and the Clinton neighborhood in Manhattan, said checking vendors’ wage-theft history with the Labor departments should always be part of the vetting process.

If the agencies aren’t checking, she said, they are “cutting corners” and inadvertently encouraging “more of the bad behavior” by wage theft violators who would find it “easy to escape scrutiny.”

Tougher Bills Under Consideration

This year, New York lawmakers are trying once again to pass bills that would make it difficult for wage-theft violators to do business in the state.

In February, Sen. Jessica Ramos, a Democrat who chairs the Senate’s Labor Committee, introduced a package of three bills related to wage theft. While Ramos’ measures don’t call for a ban on the awarding of state contracts to wage-theft violators, they would allow the state to place a stop-work order or suspend liquor and business licenses if a company owes more than $1,000 in back wages to workers.

But Frank Kerbein, director of the Center for Human Resources at the Business Council of New York State, said stricter measures are “unnecessary,” pointing out that there’s already a vetting process for vendors. If wage-theft violators are still receiving government contracts, he said, “they’re not vetting correctly.” Kerbein added that the Business Council supports requiring each vendor’s wage-theft history to be checked during the vetting process.

Without stricter measures, worker advocates said, companies that adhere to the law are at a competitive disadvantage against unscrupulous companies that can underbid on government contracts.

Ferguson, Washington’s attorney general, said that’s what his state’s ban has been able to prevent. “We believe this law has deterred wage theft and helped level the playing field for companies that play by the rules,” he said in a statement. “I hope this law serves as a model for other jurisdictions across the country.”

In Columbus, Rob Dorans, a city councilmember, said his city used the same argument to counter business groups that initially opposed its 2021 ordinance that bans the awarding of city contracts to wage-theft violators.

“We’re just asking everyone to follow the law,” said Dorans, explaining that he sees the ordinance as a way to “disincentivize” companies from committing wage theft. “Why should one company be competing against another company for a city contract and one of them their business model is predicated on stealing from working people and the other folks are doing things the right way?”

Methodology

Identifying wage-theft violators that have received government contracts required us to gather data from a variety of sources: wage-theft data from the U.S. and New York Labor departments, and contract data from the New York state and New York City comptroller’s offices.

In order to focus on recent events, we looked at all contracts from 2018 until September 2023, when we downloaded the contract data. Each contract listed both a start date and a date when it passed through the state or city comptroller’s office, which can occur before or after the contract has started. Our goal was to include contracts from the earliest known moment that they were on the agency’s radar, so for our analysis we used whichever of those two dates came first.

With our timeframe in place, we set out to look for companies that had received contracts within three years of a wage-theft case with either the federal or state Labor Department. We found hundreds of initial matches spanning 2015 to 2022 in federal and state wage-theft databases that we obtained in 2023. That was too many to vet, so we decided to look for the biggest violators, which we verified by cross-referencing the business addresses associated with the wage-theft cases and contracts. Ultimately we identified 25 companies and organizations that had owed a total of at least $100,000 in back wages within three years of receiving contracts.

Because wage-theft cases can span many months — from the date of the violations to when an investigation was opened to when it was finally resolved — we had to rely on the dates each regulator made available to us. The state wage-theft database only indicated the date when the case was first opened. The federal data did not include a date when the case was opened, but we used the nearest equivalent available, which was the last date that violations occurred. For the federal database, we only included wage-theft cases that listed a business address in New York state.

While this wasn’t perfect, we felt this approach gave us a fair window into the intersection of wage theft violations and contracts. Our analysis is very possibly an undercount, since we may have missed some additional companies due to use of subsidiaries or variations in how a company name appears across the databases.

Ultimately, we found these 25 companies and organizations had received more than $500 million in contracts from New York state and New York City. Not all that money has been paid out, sometimes because the contract is ongoing or because the services weren’t fully utilized. And three of the companies — including All Metro — had contracts for which the state did not pay them directly; instead, the contract value represented the estimated amount that would be paid by customers through the state’s home health care marketplace program.