When a Wage and Hour Division investigation results in Fair Labor Standards Act (FLSA) violation assertions, what types of legal action may be initiated by DOL?

By: Morris Jennings

Wage and Hour Consulting Services

Last month’s “OFF THE CUFF” discussed the most common factors that trigger litigation or administrative legal action by DOL. This article is related, in that the actual types of legal action are reviewed.

The most common types of FLSA legal actions filed by DOL are:

• Suit to recover unpaid minimum wage and/or overtime compensation, plus liquidated damages (generally equal to the back wages)

• Injunctive action, to obtain both future and retroactive compliance

• “Hot goods” action*, seeking a civil injunction restraining the removal of goods for shipment in interstate or foreign commerce

• Suit to recover unpaid civil money penalties (if the defendant failed to contest the penalty assessment or has exhausted administrative appeals)

• Administrative legal actions may come into play subsequent to civil money penalty assessment. If the employer contests the assessment, a hearing is scheduled before a DOL administrative law judge.

*A “hot goods” action is usually filed when there is a need to quickly prohibit shipment of “tainted goods” by obtaining a temporary restraining order. This type of litigation is intended to pressure an offending employer to promptly achieve compliance and pay back wages under DOL supervision. It is possible for “hot goods” litigation to be filed under criminal provisions of the FLSA, but the usual approach is civil injunctive action. The injunction is normally sought against the offending employer (the producer of the goods). If the producer has already shipped the goods, the possessor of the goods (other than a common carrier or the ultimate consumer) may be sued to restrain further shipment into commerce.

Civil action that seeks a court order requiring payment of back wages reaches back three years when willfulness is proved. Absent willfulness, the standard FLSA two-year statute of limitations applies.

The FLSA includes a provision that allows the filing of criminal charges against an employer. The WHD District Directors instruct investigators to prepare the most egregious cases for criminal prosecution, based on WHD National Office policies. As criminal development of a case is done against the worst offenders, and the FLSA allows for imprisonment only after a second conviction, the case development includes sufficient evidence to also permit charges of violations of other federal criminal statutes (e.g., mail or wire fraud, peonage, or slavery). Conviction on such multiple counts may result in a prison term, even for first offenses.

The DOL Office of the Solicitor litigates only civil and administrative law cases. Criminal cases are prosecuted by the U. S. Department of Justice. It has been my experience that DOL believes civil litigation to be sufficient in most cases. FLSA criminal litigation is rare, but I see an occasional DOL news release about a conviction of an employer who had been charged with criminal violations of the FLSA (and usually other statutes).

In addition to the legal actions described above (that may be filed by the DOL Office of the Solicitor or the DOJ United States Attorneys), employees have a private right to file suit for recovery of unpaid minimum wage and/or overtime compensation, liquidated damages, court costs, attorney fees, etc.  

See http://www.dol.gov/elaws/esa/flsa/screen74.asp for a synopsis of how the DOL Wage and Hour Division enforces the FLSA.

The author, a former enforcement agent with the DOL Wage and Hour Division, offers consultation and technical guidance to attorneys and employers. You may contact him at Morris@FLSA-SCA.com or 866-895-3572.

The U. S. Department of Labor (DOL) is authorized to initiate various types of litigation and other legal actions in order to ensure compliance with the Fair Labor Standards Act (FLSA) and other statutes that fall under the jurisdiction of the Wage and Hour Division (WHD). Enforcement options vary, depending on the specific law in question. This article is limited to FLSA legal actions. 

 The fact that the agency possesses the ability to “haul employers into court” does not mean that it prefers to do so. Investigation, negotiation, and persuasion are the most efficient means of securing compliance and payment of back wages. Investigators and their superiors generally will attempt resolution “administratively” (the DOL term for enforcement procedures other than litigation).

 The WHD investigators and managers operate under established litigation policies and priorities. Certain types of cases are much more likely to trigger litigation early on, while the investigator and WHD District Office management will have some degree of discretion in others. Examples of cases that fit the WHD “potential litigation” criteria are:

1.  Repeat offenders (i.e., violations have been asserted in one or more previous investigations)
2.  Falsification or concealment of records, or misrepresentation of facts (reflecting monetary or child labor compliance when there actually are violations)
3.  Refusal to achieve prompt compliance after being informed of the results of an investigation 
4. Refusal to pay back wages

 If the back wage total is not substantial and any child labor violations are not “serious” or extensive, a repeat offender can usually avoid litigation (if records have not been falsified or concealed, or facts misrepresented) by displaying full cooperation, achieving prompt compliance, and paying back wages. It is a virtual certainty, however, that there will be administrative legal action (civil money penalty assessment). In exchange for agreeing to not file suit, the WHD may require that the employer sign a stipulation of compliance.

Falsification or concealment is how an employer “can write his/her own ticket” to a U. S. District Court. Such cases not only fit the “potential litigation” criteria for civil litigation, they may be elevated into the criminal category. Even so, such an employer might be able to persuade the WHD to refrain from development of the case for criminal prosecution, or filing a civil suit, by agreeing to comply, pay back wages, and sign a stipulation of compliance.

An employer who does not agree with WHD assertions of violations may elect to have a court decide whether violations have actually occurred and whether current practices must be modified. Therefore, refusal to comply is not ordinarily considered for criminal action (absent falsification or other potentially criminal factors). However, when an employer does not agree to comply with the investigator’s instructions regarding how to achieve compliance, civil litigation is essentially automatic. There are exceptions. DOL often avoids filing suit if the outcome is in doubt, such as when there is an unsettled question of law. The WHD District Director mails notification letters to affected employees (advising them of their right to sue for back wages, liquidated damages, court costs, attorney fees, etc.).  

Even though DOL has elected to not pursue a “refusal to comply” case through the courts, civil money penalties may be assessed (if violations were repeated or willful). When the employer is subsequently reinvestigated, civil money penalty assessment is extremely likely (if violations have continued).

When an employer agrees to achieve compliance, but declines voluntary payment of back wages, litigation is a possibility. When back wages are substantial, there is a strong probability that DOL will file suit. If the total back pay liability is insubstantial, and none of the other “potential litigation” elements are present, DOL is ordinarily inclined to close the case and mail notification letters to affected employees.  

FLSA litigation by DOL generally extends back three years. The statute of limitations period will ultimately be two years if the court does not find that the violations were willful.

It is possible, in most cases, for an employer to disagree with the assertions of violation, yet avoid or postpone litigation. The following suggestions should be helpful.

First, it is important to ensure that you are in compliance (preferably long before the WHD investigator comes a’ knocking on your door). See the FLSA self audit area of BizKeys. If you are prepared for an investigation, there will probably not be any assertions of violations.

If violations are asserted:

• Listen carefully to the investigator’s presentation, and make meticulous notes. You will not receive a written report.
•  Ask for clarification and explanations if you do not understand why certain practices are being held to be non-compliant.
•  If it is not clear to you that the investigator’s position is correct, request citations in the statute and/or regulations supporting his/her position.
•  At the conclusion of the conference, you have four options: 

                                      Refuse to comply 

                                     Agree to comply  

                                    Do not agree to comply, but request time to consider and research the matter (a week will usually be allowed)

                                    Inform the investigator that you wish to schedule a “second level” conference with WHD District Office management (this will usually be the Assistant District Director who is the immediate supervisor of the investigator             

•   If you have agreed to comply, and if litigation is not already a certainty, the investigator will ask you to agree to pay back wages.
• If you have asked for time to consider the matter (no compliance agreement yet), feel free to raise the back wage issue. However, it is probable that the investigator will not discuss back wages without a compliance agreement.

• Use your time wisely while evaluating your situation. The first step should be to confer with an experienced FLSA consultant and/or engage the services of an employment law attorney. Inform your attorney or advisor that your immediate quandary is whether or not to “agree to comply” and that you need prompt assistance; this cannot be “put on the back burner.” Keep in mind that you have not yet promised the WHD that you will achieve compliance; under those circumstances, litigation can happen quickly.

• I do not recommend, in most cases, that the employer ask to meet with District Office management prior to performing independent research and securing technical advice and assistance.

• You may subsequently ask to meet with District Office management even if the investigator has allowed some time for you to make a decision.

• If you ultimately schedule a meeting with District Office management (i.e., a “second level” conference), your employment law attorney should be present (in my opinion).

• Convincing the Assistant District Director that the investigator is incorrect will not be an easy task. It is futile to schedule this meeting unless you are quite certain that there are clear errors in the investigator’s assertions.

 The preceding discussion concerns an employer’s probable options when future compliance is in question. The same options are generally available when the dispute concerns payment of back wages. The focus should be to avoid leaving the impression that you are refusing to pay back wages, but that you question the validity of asserted facts, application of the law, or accuracy of computations. If an employer and his/her advisors prepare compelling arguments and present them to the Assistant District Director, there is a possibility that back wages will be reduced. The assertion that back wages are owed, however, will not be dropped unless WHD District Office management is persuaded that the investigator erroneously asserted violations. This is rare, but it happens.

Something to keep in mind – if the investigator refuses to allow you to devote a week or so to ponder the allegations (an immediate decision regarding compliance and/or voluntary payment of back wages is demanded), engage the services of an employment law attorney without delay. The investigator has probably been instructed to submit the case file for “hot goods” action. That type of litigation, and others, will be discussed in next month’s “OFF THE CUFF.”

In summary -

Investigators do make mistakes. They are under time constraints, often leading to failure to fully consider all of the facts or to thoroughly research the law. Do not be reluctant to ask questions, request time to consider your options, seek professional guidance, and/or meet with WHD District Office management. Until you are prepared to suffer the consequences, do not inform the WHD representatives that you will not comply and/or pay back wages. Make it clear that you intend to reach resolution, and the WHD District Office management will usually allow you to present your arguments.

Even when a case meets one or more of the “potential litigation” criteria, the WHD may opt to decline litigation in order to conserve its resources or for the reasons previously mentioned. Civil money penalties (if warranted) will be assessed, and employees will be notified (via letters) of their private right to sue. Such notifications often lead to a very inconvenient, time-consuming, and expensive outcome for the employer. It is usually preferable to nail down the best deal you can get from the WHD, achieve compliance, and pay back wages. This reduces the probability of plaintiffs’ collective action suits.

If back wages are being paid as a result of an investigation, and the investigator does not make available the official receipt forms, you should request them. The form number is WH-58.

This article refers to WHD procedures and employer options in typical FLSA investigations. There are sometimes exceptions or unusual circumstances. Further, this is not intended to be an exhaustive treatise on the subject.

I mentioned the possibility that you might be asked to sign a stipulation of compliance. Another document that you will be pressured to sign is a “Summary of Unpaid Wages.” I recommend that you not sign either document until your employment law attorney has advised you to do so.

http://www.dol.gov/whd/regs/compliance/whdfs44.htm is a fact sheet that explains how a typical investigation proceeds.

Next month’s “OFF THE CUFF” will discuss the various types of legal actions utilized by the DOL Wage and Hour Division in order to ensure FLSA compliance, collect back wages, and/or to collect civil money penalties.

The author is retired from an enforcement career with the DOL Wage and Hour Division. You may contact him at Morris@FLSA-SCA.com or 866-895-3572.

Personnel Changes To Cure Employee Grievances:

   The National Labor Relations Board (“the Board”) recently held that an employer violates the National Labor relations Act (“the Act”) by announcing during a union organizing campaign that it hired a bi-lingual human resources manager to improve workplace communications.  The Board found that the hiring was made to address an issue of poor employee communications that existed in the workplace.  The hiring was presented as an improvement in working conditions allowing employees to better communicate with managers.  The Board reasoned that the violation was committed by announcing the change as an improved working condition.  Presumably, hiring a bi-lingual manager would have been legal if the employer had not made a big fuss over it and presented it as a solution to an employee grievance.  What employers should take away from this is that if a campaign issue involves the hiring or firing of management personnel to appease employees, do not make the change and tell employees it was done to remedy their dissatisfaction.  If the change is made and the employees figure it out on their own, the same benefit will be attained.  The case is Newberg Eggs, Inc., 357 NLRB No. 171. 

Decision on Work Rules:

   The Board has ruled that a work rule stating: “unauthorized soliciting of contributions on company premises” was prohibited violated Section 8(a)(1) of the Act because it was not limited to working time and because it expressly restricted protected activity.  Even though it was limited to solicitation of contributions, a solicitation of contributions to support an incipient organizing drive, to help a fired fellow employee, and for many similar purposes is protected. 

   A rule subjecting employees to discipline for the “inability or unwillingness to work harmoniously with other employees” was, also, found to violate the Act because the rule was sufficiently imprecise such that it could encompass any disagreement or conflict among employees, including those related to discussions and interactions protected by Section 7.  The Board’s precedent for finding a violation was a case holding that a rule prohibiting “loud, abusive or foul language” was a violation because it did not define abusive or insulting language.  Good thing the Board doesn’t have jurisdiction over kindergarten children. 

   Employers will be glad to know, however, that work rules prohibiting “leaving a department or the plant during a working shift without a supervisor’s permission” and “stopping work before a shift ends or taking unauthorized breaks” are valid, but a rule that simply prohibits “walking off the job” is a violation because employees will think that they are not permitted to strike since the term “walk out” is commonly used as a synonym for a strike.  The case is 2 Sisters Food Group, 357 NLRB No. 168.

 Back Pay to Undocumented Immigrants:

   The Supreme Court ruled in Hoffman Plastics Compound v. NLRB that the Board cannot award back pay to employees who were not authorized to work in the U.S.   The current Board does not like this decision and is doing what it can to limit it.   Recently, the Board ruled that a Respondent employer cannot raise a defense to back pay liability based on an employee’s legal work authorization status unless the employer can show facts at the stage in which it is called upon to raise all of its defenses that the employee was not allowed to lawfully work in the country.   In some cases, this ruling will result in undocumented workers receiving back pay awards even though the Hoffman decision prohibits that result.  Member Hayes dissented and stated that Congress, not an administrative agency, is the appropriate body to re-write the law if it disagrees with the Supreme Court.  The case is Flaum Appetizing Corp., 357 NLRB No. 162.   Given that the Board will prohibit an employer from inquiring into lawful work status unless it knows for certain at the time it has to file its answer that the employee is here illegally, it is fairly certain that the Board will not make any independent inquiry of anyone. 

 For more information or any questions concerning labor law or related issues, please contact Bill Trumpeter at 423-785-8318.   The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations.  As always, readers should consult a qualified attorney for specific legal guidance.  Should you need assistance, please call 1-800-275-7303.ext 318

   The National Labor Relations Board (NLRB) continues its agenda of administrative labor law reform that Congress failed to pass when efforts to enact the Employee Free Choice Act (EFCA) were unsuccessful.    In recognition of the fact that Member Becker’s recess appointment is to expire on December 31, 2011, reducing the Board to only two members, rendering it unable to act due to a lack of a quorum,  the two Democratic appointees have voted to adopt new rules that will speed up the election process.  The part of the overall rule proposal adopted yesterday provides:

• The National Labor Relations Act provides for a pre-election hearing to determine whether there exists a “question of representation” to be resolved by an election. Currently, parties can raise issues at the hearing that are not relevant to that question, which can result in unnecessary, expensive, and time-consuming litigation for the Board and all parties. The first proposed amendment gives the hearing officer authority to limit the hearing to matters relevant to the question of whether an election should be held.
   
• Most cases involve only routine issues based on well-known principles of Board law. In such cases, regional directors can reach a fair and sound decision based on the record from pre-election hearing, including closing arguments. Parties may currently file briefs after the hearing, but the briefing adds nothing to the regions’ decision-making process in such routine cases and substantially increases the parties’ litigation costs. The second proposed amendment authorizes the hearing officer to decide whether to permit briefing depending on whether the case presents issues that would benefit from it.
   
• The Board’s current rules require parties to file two separate appeals to seek Board review of pre-election issues and issues concerning the conduct of the election, respectively. Appeals concerning pre-election issues must be filed before the election, and are often subsequently mooted by the results of the election. The third amendment reduces unnecessary litigation by consolidating the two appeals into a single post-election procedure and by avoiding altogether appeals of issues that become moot as a result of the election.
   
• The fourth amendment follows directly from the third, by ending the practice of delaying the scheduling of elections to permit time for a pre-election appeal. (In any event, even under the current rules, the delay does not serve its stated purpose because the Board typically permits the election to be conducted and directs that the ballots be impounded while it considers the appeal.)
   
• In keeping with the effort to avoid multiple appeals in a single case, the fifth amendment would narrow the circumstances in which a request for special permission to appeal to the Board would be granted. Such permission would be granted only in extraordinary circumstances when it appears that the issue addressed in the appeal would otherwise evade review. (Board review would remain available following the election on all issues for which permission to appeal was denied or not sought.)
   
• The sixth amendment would simplify appeal procedures and avoid litigation of appeals that do not present a serious issue for review. It would do this by giving the Board discretion to hear and decide any appeals to the election process, whether they concern pre-election or post-election issues. 

     What this means to employers is that the time between the filing of the petition and the holding of the election will be substantially reduced.   Employers wishing to remain union free will have to be proactive.   Supervisors and management should be trained to recognize early warning signals of possible union activity and be  equipped  with information as to what they can and cannot do in such circumstances.  Work rules and policies need to be reviewed for legality and implemented before the union comes knocking.

     The current Board’s labor law reform has occurred through issuance of decisions in unfair labor practice cases that overrule employer-friendly precedent in favor of labor unions, aggressive use of discretionary injunctive procedures, enhanced remedial measures, and controversial rule-making efforts such as the new quickie election rules and the notice posting rule that was adopted earlier this year.

For more information or any questions concerning labor law or related issues, please contact Bill Trumpeter at 423-785-8318

The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations.  As always, readers should consult a qualified attorney for specific legal guidance.  Should you need assistance, please call 1-800-275-7303.ext 318.

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