When UCB Tried To Pay Workers In Money They Could Only Spend At UCB

Experts say this was not strictly legal, but what else is new?

When UCB Tried To Pay Workers In Money They Could Only Spend At UCB

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UCB is famous for a great many things: launching the careers of countless comedy workers, stealing their wages, laying off its employees at the beginning of a pandemic, making a movie called Freak Dance. Today we can add a new achievement to the list: paying workers in company money.

One way to study improv at UCB without paying hundreds of dollars is by participating in its work-study program. Work-study students, formerly called interns, earn class hours by performing various duties at the theater: opening up, mopping floors, cleaning toilets, working the box office. Until earlier this year, work-study students typically worked one eight-hour shift each week, with one hour of work earning one hour of class. They logged their hours on index cards they periodically turned in to the training center, which kept its own master tracking system. To redeem hours for classes, work-study students emailed the registrar, who could check their request against their hours. The training center traditionally reserved a few class spots for UCB employees, though if no spots were available it could place them on a waitlist.

Former work-study students and UCB employees say this ad-hoc system often resulted in confusion. The training center had no way of formally verifying workers’ informally recorded hours, and oftentimes there did not seem to be spots set aside in new classes. UCB told its Los Angeles work-study students it was trying to streamline this process when it transitioned them to a new payment system earlier this year. The system was not fully implemented before UCB shut down in March due to the coronavirus pandemic, and only one former work-study student I’ve spoken to used it to redeem class hours. Still, UCB’s plans as they were described to workers in late 2019 and early 2020 reveal the company’s cavalier attitude toward its labor force and labor law. The plans were to pay work-study students minimum wage via a payroll system where they could not cash out their wages. They could only spend them on classes at UCB.

In November 2019, UCB informed LA work-study students that their work-for-credit system would change in 2020. “We all gathered in a room and they just kind of explained that we were going to have a UCB bank account,” Dan Leahy, a former work-study student, told me. Workers were told they would have to fill out tax forms and become part-time, W2 employees. If they had questions about their tax obligations, they would have to ask their accountants.

The announcement was made by UCB’s former work-study coordinator, though the change appeared to come from its former Chief Financial Officer, Daryl La Fountain. One former worker, who asked not to be identified, said La Fountain was present at a meeting where the new program was announced. A second, who also asked not to be identified, said workers were told to direct any questions about it to him. La Fountain was removed from UCB’s management team yesterday after writing a Facebook post criticizing the Black Lives Matter movement. UCB did not clarify his continued role with the company. It also did not respond to multiple requests for comment about its work-study payment system.

Here’s how UCB explained the new program, according to internal emails and conversations with five former work-study students. Worker would be paid minimum wage through a payroll system called ADP. They would clock in to ADP at the beginning of each shift and clock out at the end. When they were ready, they could sign in to the system and use a dashboard to redeem their after-tax pay on classes. They would not be able to withdraw their wages from ADP.

An email sent to work-study students in December 2019 described the new system like this:

How do I clock in? When will my credits be available to use?

WSS [work-study students] clock in and out from ADP. Compensation will be available to WSS in their admin account. WSS will sign up for classes through dashboard, and will no longer have to email the registrar to sign up for a class. Credits will be uploaded twice a month.

Will this impact our tax returns? Possible. Check with your tax professional.

Will there be minimum hours required to be in the program? Possible

Are WSS We are not independent contractors we are actually employees? Yes, employees.

Will you need our social and copy of DL? UCB does not want or need your personal documents. We use a private payroll system (ADP) and you will enter a I9 through the secure site. More info to come.

What amounts will be taken out (medicare, social security, etc)? Depends on your tax settings, ask your tax professional.

Will there be minimum hours required to be in the program? The amount of hours each WSS works to earn the potential 6 classes will be unique to each person based on their withholdings.

Since we’re no longer using “credits” and we’re paying for classes will we be able to use the WSS payment towards any class and workshops? Yes. You can use your funds towards $20 workshop a $500 class or even towards a class that costs more

Will classes be the same price for WSS? Yes, however from time to time there are discount codes (like 10% off a class) and you will be able to use these.

Can I purchase classes for someone else? Currently no, but this could possibly change.  

Can I use my credits to purchase shows/merch? Currently no, this may possible change.  

Is getting Cash an option? No only class credit

Why is the program changing? We are always upgrading the program to make it the best it possibly can be.

As you can see, UCB was explicit about the nature of the program: workers would be paid in—and taxed on—wages they would only be allowed to spend at the UCB training center.

That was in December 2019. In January 2020, UCB informed workers in an email that work-study hours accrued before the changeover would be converted into electronic gift cards they could also only spend at UCB:

If you have remaining credits from your time as a WSS you are going to be emailed an electronic gift card with your balance of your remaining unused WSS hours/credits.

This is scheduled to take place in the next couple of weeks.

*Current Los Angeles minimum wage is $14.25 (as of July 2019).

Gift Cards will be issued for remaining hours/credits earned prior to Jan15 at this rate. (Some of you started working before July when minimum wage was $13.25 however all of your unused credits will be calculated at a rate of $14.25 an hour.)  

You will be issued one electronic gift card. This is not transferable.

You can use your gift card to purchase classes and shows from the website and will no longer need to email me or the registrar for classes (you can also use discount codes, (follow UCB Classes on instagram and twitter @ucbclassesla they post discount codes). Gift cards can be used for full or partial payment in LA or NY.

Many workers were skeptical about the changes. “A lot of people realized immediately that it was kind of shady,” Leahy said. A third former worker, who asked not to be identified, told me UCB offered little clarity about the program’s finer details. “It just felt like a lot of questions that were raised, their response was, 'That's a valid concern and that may be a problem,'" said this person, who estimated that they still have around 32 hours accrued and unpaid. "I asked, how is this going to affect taxes? 'Cause they're gonna take taxes out and stuff like that… And they said, 'That could be something you'll have to deal with, so you'll have to decide if you're okay with that.’ Which just felt frustrating. It just felt like we were already working for free, and then it felt like the new system was going to be more hours in order to qualify for the same number of classes."

Workers were right to be skeptical. Both federal and California law prohibit employers from paying workers in scrip, or money they can only spend in a company’s internal economy. “The government regulations under the Fair Labor Standards Act disallow the use of this type of scrip for wage payments,” Letitia Saucedo, a professor at the UC Davis School of Law, told me in an email. She cited the following section of the FLSA:

29 CFR § 531.34 – Payment in scrip or similar medium not authorized.

Scrip, tokens, credit cards, “dope checks,” coupons, and similar devices are not proper mediums of payment under the Act. They are neither cash nor “other facilities” within the meaning of section 3(m).

Saucedo also cited California Labor Code, which prohibits companies from paying employees in “Any scrip, coupon, cards, or other thing redeemable, in merchandise or purporting to be payable or redeemable otherwise than in money.”

Orly Lobel, a professor at the University of San Diego School of Law, told me in an email that the gift cards and wages that can only be spent on class credits "are problematic in kind payments," referring to a form of payment that uses goods or services in placement of cash. Federal and California law require employers to obtain an employee’s consent to receive in-kind payments; California law requires the employee’s written authorization. "In kind benefits like gift cards can only be calculated as part of the salary if it primarily benefits the employee and is voluntarily the arrangement," Lobel wrote.

My sources tell me UCB did not seek their written authorization for the arrangement, and none of the internal emails I’ve reviewed include documents to that effect. When I asked one source if UCB ever asked for their consent to be paid in scrip, they responded, “Absolutely they did not!” Another told me, “It was more of a ‘this is happening and you must attend a mandatory meeting about it or risk losing your position as a work study student.’”

“To the best of my knowledge, this is an illegal practice,” David Bibiyan, a Los Angeles-based labor attorney, told me of the payment system. "The point of the minimum wage is for someone to pay for their rent, to pay for transportation. It's not made to be used at an improv theater. So it would do away with the whole point of what the minimum wage is—to be used toward livelihood. So it would seem like an end run around the minimum wage and therefore be illegal."

UCB’s work-study program is intended to make UCB’s training center more accessible and inclusive. It allows people who otherwise could not afford UCB classes to take them, with three eight-hour shifts generally equating to a single class. (Classes are generally 24 hours long, broken into eight three-hour sessions.) Former work-study students feel the new system stood to make the program less inclusive. For one, the transition to minimum wage reduced the buying power of their shifts: eight hours would come out to $114 before taxes, and (pre-pandemic) UCB classes usually started at $450 plus fees.

UCB’s December 2019 email about the changes addressed this issue passingly:

Since class price increased and minimum wage is increasing will our past credits be worth less? We are working on figuring out a way to ensure the changeover is fair to everyone.

The changeover also meant that non-US citizens could only participate in the program if they were on a work visa. Here’s what UCB’s email had to say about that:

If someone doesn’t have a work permit (work visa) can they work in this program? Applicants will be held to the terms of their Visa. We are looking into the possibility of potentially sponsoring someone in this position in the future.

Two former employees of UCB’s New York theater, which did not implement the new system, told me their understanding was that the changes were intended to simplify a messy process. Instead of recording hours in what amounted to an honor system, and then asking the registrar to sign them up for classes, work-study students would be able to log their hours online and sign up themselves.

Former workers say they struggled to see how the new system, in which they were paid taxed wages they could only spend at UCB, made things any simpler. "I just remember feeling like they were complicating it," one source told me. "They literally could have just had a system where you can go sign in and check your hours on a weekly basis, or a monthly basis, and be like, ‘okay, that matches up with what I have written down’… or ‘there’s a discrepancy, I need to call somebody and figure it out.’"

The changes were drastic enough that many work-study students simply didn’t return to the program. Some left, as Leahy said, because they felt the new system was shady. Others didn’t want to pay taxes on income they weren’t actually receiving. “They told us they completely understood and would not hold it against us if we wanted to quit,” Leahy said. Another source told me on background, “UCB was like, ‘If you don’t want to make the change, we can figure out an end date for you.”

For those who stayed, the rollout was rocky, even before it was cut short by the coronavirus pandemic. A January 28 email thanked work-study students for sending in their paperwork, noting that it would be “a few more weeks” before they could start using ADP. The email said they would soon receive their electronic gift cards, and until then they should continue emailing the registrar to redeem their hours.

One former work-study student told me they have yet to receive their electronic gift card, though they accrued the equivalent of “seven or eight” classes over their tenure in the program. Another said they paid for one class with their “UCB bucks” and still have about $500 accrued, “which I should honestly just hit them up for.” Three others said they never received their gift cards either. UCB continues to maintain a skeleton staff and offer online classes during the pandemic, so this delay is not fully accounted for by the shutdown.

For Leahy, what stung most about the scrip system was the way it exposed UCB’s leverage over its students and workers. “Because being on a team at UCB has so much potential for exposure within the entertainment industry, the folks who decide which students get on teams have power in shaping our future,” he told me. “This favors students who are wealthy or receive support from parents and can continuously take classes and network within the UCB community.” Students who can’t afford to do that have two choices: leave UCB, or take whatever other route it offers. Even if that means working for company money.

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