Pizza has become a staple of the American diet, and employees at nine Papa John’s pizzerias in New York often worked more than forty hours per week in recent years to satisfy their customers’ cravings. Despite the long hours, however, the paychecks they took home weren’t as large as they should have been, and the restaurants’ owner is now headed to jail as a result. This is an excellent reminder that violation of federal and state labor laws can lead to personal liability, and even land them in jail.
Fraud and Deceit
The case of People v. BMY Foods Inc., involved Adbul Jamil Khokhar, the owner of numerous Papa John’s pizzeria franchises located in the Bronx, New York. On July 15, 2015, New York Attorney General Eric Schneiderman announced that the State of New York would be bringing criminal charges against Khokhar and his company, BMY Foods. These charges followed a U.S. Department of Labor (“DOL”) investigation into whether Khokhar had violated federal and state laws by failing to pay his employees overtime and minimum wages.
This probably was not a case of simple oversight. Upon learning of the DOL’s investigation, Khokhar appears to have created fictitious identities to conceal the overtime worked by employees, and filed fraudulent tax returns with the State of New York in order to keep the authorities off his trail. In total, it is estimated that around 250 current and former Papa John’s employees were affected by Khokhar’s efforts to scrimp on wages.
Paying the Price
In July of 2015, Khokhar reached a civil settlement with the DOL that required him to pay $230,000 in liquidated damages in addition to $50,000 in civil monetary penalties. Khokhar and his companies will also be required to appoint an internal compliance officer, create controls and procedures to avoid further violations, and will be subject to independent auditing.
Khokhar pleaded guilty in the New York prosecution to a misdemeanor failure to pay wages, and his company pleaded guilty to falsifying business records, a felony. On November 16, 2015 a judge handed down a sentence ordering Khokhar to spend two months in jail. The State also imposed an additional $230,000 in restitution of unpaid wages in addition to the DOL fines. This appears to be the first instance of a franchisee of a large national chain serving jail time for wage violations.
The Bottom Line
Khokar’s case may be an extreme one, but it provides a useful reminder to employers that wage violations can be accompanied not only by hefty monetary penalties, but also jail time. A surprising number of statutes include provisions identifying certain breaches as misdemeanors and even felonies. That’s an extra topping to be avoided.