Minnesota lawmakers and labor groups hailed a bipartisan agreement Thursday to hold employers responsible for holding back workers' wages, one of the nation's firmest policies to beat back wage theft.

For the first time, refusing to pay workers would be a felony under an agreement lawmakers plan to vote on in special session. The law would also broaden the state's ability to prosecute employers in an effort to prevent the loss of an estimated $12 million in unpaid wages from roughly 39,000 Minnesota workers each year.

"In my view it's the best piece of policy legislation that's going to pass and I'm very happy about it," Attorney General Keith Ellison said in an interview Thursday.

Under the new law, wage theft in excess of $1,000 would become a felony crime. It would also penalize retaliation against employees who report wage theft. It also boosts the Department of Labor and Industry's budget by nearly $4 million to expand prevention and inspection efforts.

Labor and Industry Commissioner Nancy Leppink, who called for the new law and increased resources to enforce it, praised the deal on Thursday.

"The Wage Theft law will level the playing field for Minnesota employers who both play by the rules and create decent jobs for their workers," Leppink said in a statement Thursday. "The law will also ensure workers receive the wages they have earned."

The issue emerged as a leading priority for House Democrats early this session and was also backed Sen. Eric Pratt, a Prior Lake Republican. Ellison and Leppink also called for new legislation criminalizing the practice. Wage theft can occur when employers don't compensate workers through measures like failing to pay overtime, misclassifying employees as independent contractors or declining to pay them outright.

Despite early disagreements on how to craft the law in a way that protected both workers and Minnesota businesses, Pratt and state Rep. Tim Mahoney, DFL-St. Paul, the bill's House sponsor, managed to strike a deal that was acceptable to state officials and labor groups.

"A couple things we always agreed on is if you earn a wage you should be paid a wage — that was the underlying value statement that we shared which really enabled us to work on this together," Pratt said. "Every job has its dignity and we need to be able to make sure that every Minnesota worker is treated with dignity."

Mahoney added that stronger wage theft laws and enforcement would also benefit businesses that find themselves undercut by competitors who can get by with illegally failing to pay their workers. He took issue with language in the bill's criminal section that requires proof of "intent to defraud," which he said can be very difficult to prove in many cases.

"I think we can after awhile bring that back and show the Senate at some point, two years from now or four years from now how hard it is to prove with that particular line in," Mahoney said.

Ellison recently created a new division aimed at broadening the office's prosecutorial muscle to address economic crimes, and the new wage theft legislation further clarified his office's authority to prosecute such cases.

The new wage theft legislation was also a victory for the state's labor movement, which led a sustained push to get a new law on the books.

"It gives us hope because we're being taken seriously," said Nely Bautista, a wage theft victim and member of Centro de Trabajadores Unidos en la Lucha, a labor advocacy group in Minneapolis. "This change comes from us, the workers. I'm happy because this is going to benefit a lot of people. We are going to be able to work more confidently with the knowledge that the law protects us."

Stephen Montemayor • 612-673-1755 Twitter: @smontemayor