DOL Wage and Hour Division Targeted Enforcement – How Vulnerable Are You?

In July, I wrote “Wage and Hour is Increasing its Visibility and Ramping up FLSA Enforcement.”  This month’s article concentrates on the Wage and Hour Division (WHD) component of the DOL strategic plan.  Some employers are much more affected than others. Wage and Hour Division strategic planning invariably involves enforcement initiatives in targeted industries.  Employers […]

In July, I wrote “Wage and Hour is Increasing its Visibility and Ramping up FLSA Enforcement.”  This month’s article concentrates on the Wage and Hour Division (WHD) component of the DOL strategic plan.  Some employers are much more affected than others.

Wage and Hour Division strategic planning invariably involves enforcement initiatives in targeted industries.  Employers of “low-wage” employees are always
given a high priority, because

  • violations are common,
  • employees are less likely to know how to file a complaint with the WHD, and
  • employees are reluctant to file a complaint or to seek out a plaintiffs’ attorney.

Many employers considered to employ vulnerable workers treat the workers as “independent contractors,” subcontract the work, or utilize
third parties to pay the wages.  These employers are targeted for investigation under the portion of the strategic plan that deals with “fissured industries.”  By applying the broad FLSA employment relationship concepts, the WHD is usually able to establish that the principal is an employer (i.e., that the “independent contractors” are actually
employees).  If there are legitimate subcontractors, the WHD develops evidence to establish that the principal (or prime contractor) and the subcontractors are joint employers.  When a third party pays the wages (e.g., a staffing or temporary help firm, professional employer organization, or contract administrator), there are usually two or more joint employers.  All responsible entities and individuals are obligated to achieve and maintain compliance.

Examples of fissured industries mentioned in the strategic plan:

  • Construction
  • Transportation and Warehousing
  • Agriculture
  • Home Health Care
  • Child Care
  • Janitorial
  • Meat and Poultry Processing
  • Hotel/Motel
  • Personnel Services (including temporary help and
    staffing firms)

Other examples of fissured industries based on DOL press releases regarding investigation and litigation activity:

  • Cable/Satellite Television
  • High-Speed Internet
  • Telephone
  • Retail Floor Covering
  • Apparel Manufacturing
  • Forestry and Logging

Two other categories of vulnerable workers mentioned in the strategic plan are:

  • Individuals with disabilities employed by certificate holders under Section 14(c) of the FLSA
  • Employees in statutory programs for which there is no private right of action

Consequently, it appears that work centers utilizing § 14(c) certificates and federal contractors (service and construction) are included in
the targeted investigation program.

Child labor enforcement is a priority, based on this statement in the strategic plan: “As stated previously, vulnerable workers are those who are at risk of exploitation at work, such as young workers —.”  See “FLSA Child Labor Provisions – Even Inadvertent Violations Can Be Expensive” in the June 2012 BizKeys BIZWatch newsletter.

Additional industries that employ vulnerable workers and that are often included when targeted enforcement is planned:

  • Landscape
  • Restaurant and/or Catering
  • Guard Services
  • Health Care Facilities

Employers of homeworkers are often targeted for several reasons:

  • Employees who work at home are vulnerable workers
  • Homeworkers are often not paid overtime wages
  • Inadequate piece rates may result in minimum wage violations
  • Expenses (e.g., equipment investment and maintenance) cause minimum wage violations
  • Poor hours worked records (specific FLSA record keeping requirements apply)
  • Fissured industries (homeworkers are often incorrectly classified as “independent contractors”)
  • Family members may assist, resulting in record keeping, monetary, and/or child labor violations

The DOL strategic plan for fiscal years 2011 through 2016 may be viewed at http://www.dol.gov/_sec/stratplan/StrategicPlan.pdf.
Pages 55 through 57 discuss plans for DOL outreach to vulnerable workers.  Pages 30 through 32 include several WHD plans and goals.  These excerpts will be of interest to most employers:

Protecting Vulnerable Workers

By concentrating its enforcement resources on increasing the percentage of vulnerable workers employed in compliance with the laws that the agency
enforces, WHD can ensure that workers receive the wages and overtime that they have legally earned – fair compensation. As stated previously, vulnerable
workers are those who are at risk of exploitation at work, such as young workers and workers who are reluctant to file complaints when they are subject
to violations at work. Vulnerable workers also include those that are employed in fissured industries – those sectors that increasing rely on a wide
variety of organizational methods that have redefined employment relationships: subcontracting; third-party management; franchising; independent contracting;
and other contractual forms that alter who is the employer of record or make the worker-employer relationship tenuous and less transparent. 12 These
are industries in which the employment relationship is splintered and the beneficiary of the labor is distanced from the workers who are providing the labor.
Employers in these industries often fail to recognize or classify such workers as employees, which leave the workers subject to unfair treatment and disparate
wages. Other vulnerable workers include individuals with disabilities and those employed in statutory programs for which there is no private right of action
and for whom the government offers the only remedy. WHD’s focus on workers employed in these programs and industries contributes to the Department’s
efforts to ensure fair compensation.

Targeting Fissured Industries

WHD’s enforcement program is guided by several key strategic principles. WHD’s directed investigations will be concentrated in high-risk fissured industries
that employ vulnerable workers or in program areas in which workers are at a higher risk of exploitation. High-risk industries include the agricultural,
janitorial, construction, and hotel/motel industries. WHD has begun measuring compliance levels and the severity of violations in these industries by
conducting baseline investigation-based compliance evaluations. These evaluations, in addition to providing measures of compliance, inform WHD on the
likely causes of violative behavior and point to strategies for addressing high violation rates industry-wide. WHD will continue to conduct investigation-based
compliance evaluations to determine the percent of prior violators who come into and stay in compliance with the provisions of the FLSA.

The Wage and Hour Division FY 2013 Congressional Budget Justification (http://www.dol.gov/dol/budget/2013/PDF/CBJ-2013-V2-09.pdf)
includes indications of the WHD’s priorities.  Relevant portions of that document state:

Page
WHD -13

WHD’s enforcement priorities are to ensure that the most vulnerable workers are employed in compliance with wage and hour laws.

Vulnerable workers are most frequently employed in high-risk industries, specifically industries with subcontracting, franchising, temporary employment, independent
contracting, and other contingent workforce characteristics. The employment relationship in these industries is often splintered and the beneficiary of the
labor is distanced from the workers who actually provide the labor by multiple layers of contracting. Vulnerable workers also include young workers,
agricultural workers, workers with disabilities, and those workers employed in statutory programs for which there is no private right of action. Employers
fail to classify such workers as employees leaving them without critical benefits, protections and disparate wages. The common thread among vulnerable
workers is a reluctance to complain of unfair or illegal treatment and the lack of opportunities to or knowledge about exercising their rights in the workplace.

Page WHD – 17

Vulnerable Workers: By concentrating its enforcement resources on increasing the percent of vulnerable workers employed in compliance with the laws that the agency
enforces, WHD can ensure that workplaces are safe and healthy and that workers receive fair compensation. Vulnerable workers are those who are at risk of
exploitation at work, such as workers who are reluctant to complain when they are subject to violations for fear of retaliation. WHD’s efforts to increase compliance
in the agricultural industry and among agricultural and young worker populations to whom additional safety and health standards apply specifically contribute to this outcome.

Vulnerable workers also include those that are employed in industries with subcontracting, independent contracting, and other contingent workforce characteristics.
Employers often fail to classify such workers as employees leaving them subject to unfair treatment and disparate wages. In FY 2012, WHD is focusing on industries
where independent contracting is just emerging as a business practice. The focus on independent contracting and the misclassification of employees as
independent contractors will continue in FY 2013. Other vulnerable workers include individuals with disabilities and those employed in statutory programs
for which there is no private right of action. The results of a FY 2010 survey of the compliance level of Community Rehabilitation Program certificate holders
under Section 14(c) of the FLSA showed a low level of compliance necessitating a reenergized commitment by WHD to these vulnerable workers.

Page
WHD – 18

WHD’s focus on workers employed in these programs and in these industries contributes to the Department’s outcome effort to ensure fair compensation.

Worker Protection Strategies: In FY 2013, WHD will continue to employ resource-leveraging strategies and technologies to affect compliance with the
labor laws within its enforcement jurisdiction. The agency will continue to use its directed investigations to increase WHD presence in high risk industries,
i.e., those industries with high minimum wage and overtime violations and among vulnerable worker populations where complaints are not common. Obtaining
corporate-wide compliance, securing future compliance, and deterring future violations in industry sectors and among employers also supports the
Department’s outcome goal of securing fair compensation.

Penalties, sanctions, the FLSA hot goods provision, and similar strategies will be used as appropriate to ensure future compliance among violators and to deter violations
among other employers. WHD will pursue corporate-wide compliance strategies designed to ensure that employers take responsibility for their compliance
behavior. Public awareness and outreach to workers will be targeted to worker populations and industries in which workers are reluctant to report violations.
Outreach will be designed to reduce the perceived risk of filing a complaint with WHD and to increase the benefit to employees and their co-workers of
reporting violations. Employees and the worker advocate groups will be encouraged to report violations of WHD laws through a variety of means. The
newly-implemented ABA-referral system provides a valuable service to employees and allows WHD to shift resources to program areas that have no private right
of action.

Page
WHD – 19

WHD will leverage its partnership arrangements with other federal, state and local agencies, and with worker and community-based organizations to satisfy the
following criteria: the partnership should benefit the overall workforce, be a means for disseminating information on rights and/or obligations, and mitigate
the fear of retaliation among workers who seek assistance in remedying violations. Stakeholder coordination will provide avenues for information gathering on compliance issues and will provide opportunities to develop meaningful compliance assistance tools. Public information releases, issued through various news media and new technologies will be used to inform the public of WHD laws, compliance actions taken, and penalties assessed. Press releases, in turn, have the potential of deterring violations among employers in a given geographic area.

As a synopsis, this is an alphabetical list of the
industries and employment scenarios that, in my opinion, are most likely to be targeted for investigation by the Wage and Hour Division:

Agriculture

Apparel Manufacturing

Cable/Satellite Television

Child Care

Construction

Employers of Homeworkers

Employers of Minors (child labor enforcement)

Federal Contractors (service and construction)

Forestry and Logging

Guard Services

High-Speed Internet

Health Care (e.g., nursing homes and hospitals)

Home Health Care

Hotel/Motel

Janitorial

Landscape

Meat and Poultry Processing

Personnel Services (including temporary help and staffing firms)

Restaurant and/or Catering

Retail Floor Covering (e.g., carpet and tile installation)

Telephone systems installation and maintenance

Transportation and Warehousing (especially courier and
delivery services)

Work Centers (§ 14(c) certification)

Limited resources of the WHD will not allow all of the above to receive national priority, but regional and
local enforcement initiatives will include some of them.

How vulnerable are you?  If you are included in the above list, there is a much higher probability that your organization will be scheduled for
investigation.  Even without “targeting,” investigations of these types of employment are common, and they generally yield violation findings.  If the WHD district
office that serves your area selects your industry as a part of its local strategic plan, the probability of investigation more than doubles, in my opinion.

All employers are encouraged to maintain compliance with the FLSA and other WHD statutes.  However, if you are included in one of the probable targeted industries or scenarios, I encourage you to take steps to “get your house in order” before the WHD pays a visit.  The Wage & Hour Self-Audit Guide, in the Self Auditing area of www.BizKeys.com, will be helpful.

 

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?

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 […]

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.

 

Tips, Gratuities, and Service Charges – What are the FLSA Rules?

There has recently been publicity about IRS clarification of the differences between tips and service charges. Several articles indicate that prior IRS guidance was ambiguous. See http://www.irs.gov/irb/2012-26_IRB/ar07.html for the new IRS rule (Internal Revenue Bulletin 2012-26, June 25, 2012). The DOL position concerning service charges, for Fair Labor Standards Act (FLSA) purposes, has been clear for […]

There has recently been publicity about IRS clarification of the differences between
tips and service charges. Several articles indicate that prior IRS guidance was
ambiguous. See http://www.irs.gov/irb/2012-26_IRB/ar07.html for the new IRS
rule (Internal Revenue Bulletin 2012-26,
June 25, 2012).

The DOL position concerning service charges, for Fair Labor Standards Act (FLSA)
purposes, has been clear for more than four decades. Other than the IRS citation
above, this article is limited to the FLSA.

The title is redundant for a reason – to include all three related terms. Tips and
gratuities are actually interchangeable terms. However, some employers have a
tendency to inaccurately refer to a service charge as a “gratuity.” This can
result in record keeping and overtime violations.

Employers often misunderstand the differences between tips and service charges. A good
grasp of these differences will enable an employer to achieve and maintain
compliance with FLSA record keeping, minimum wage, and overtime compensation
provisions.

While the DOL position regarding service charges has been clear over the years, tips
are another matter. DOL guidance and enforcement policies (regarding tips) have
varied because of statutory changes, ambiguity of the FLSA provisions, and (prior
to April 5, 2011) obsolescence of regulations.

The hospitality industry dominates when there are concerns about tips and service
charges, but many other types of business are also affected.

Tip and service charge comparisons, and FLSA considerations:

  1. A tip or gratuity is given voluntarily by the customer. A charge added to the ticket
    (usually a percentage) based on the establishment’s policy is generally viewed
    by DOL as a service charge.
  2. A tipped employee may be paid wages of less than the minimum wage (but no less than
    $2.13 per hour), if tips received and retained bring the employee’s wage rate
    up to the minimum wage. This computation is done on a workweek basis. If tips
    are insufficient, supplemental pay is required.
  3. Employers of tipped employees, even if the full minimum wage is paid and no “tip credit” is
    taken, must abide by very strict rules regarding confiscation or sharing of
    tips. For the DOL response to an adverse Ninth Circuit decision, see http://www.dol.gov/whd/FieldBulletins/fab2012_2.htm and http://www.dol.gov/whd/regs/compliance/whdfs15a.htm.
  4. Tip credit is not allowed for hours of work in a non-tipped job (e.g., cook, janitor, etc.).
  5. Tips do not increase the regular rate for overtime purposes.
  6. See http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.1.13&idno=29#29:3.1.1.1.13.2.89.18 for the
    record keeping requirements with respect to tipped employees (29 CFR, Part 516,
    §516.28).
  7. Service charges, not subject to the rigid tip rules, may be retained by the business,
    distributed to various employees, and/or paid over to employees who dealt
    directly with the customers.
  8. To the extent that service charges are paid to an employee, this remuneration must be
    included in the employee’s total weekly regular wages. See §516.2 of the record
    keeping regulations at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.1.13&idno=29#29:3.1.1.1.13.1.89.1.
  9. Service charges paid to an employee count toward meeting the minimum wage requirement.
  10. Service charges received by employees increase the regular rate for record keeping and
    overtime computation purposes.
  11. An employee of a “retail establishment” who is paid primarily on the basis of percentage-based
    service charges might qualify for an overtime exemption. http://www.dol.gov/whd/regs/compliance/whdfs20.htm provides a synopsis of the exemption requirements.
    See also §§ 779.410 – 779.420 at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.2.40&idno=29#29:3.1.1.2.40.5.303. This is a
    highly technical exemption and must not be considered without a cautious review
    of the prerequisites and a scrutiny of the employment scenario.

During my DOL career, I asserted back wage liabilities on numerous occasions when
employers had failed to compute proper overtime compensation for tipped and/or
service charge employees. As an FLSA consultant, I have assisted clients who
were making these types of mistakes. An employer will find it easier to
understand the overtime concepts when tips and/or service charges are involved
if the overtime wages are viewed as additional half-time pay (not as
“straight-time plus time and one-half”). The result, of course, must be time and one-half.  All of the wages, for all of the hours
worked, are initially determined (on the basis of a workweek). This is the regular pay. Total regular pay divided
by total hours worked equals the regular rate. This is the average hourly rate, for the workweek, that is being paid
for all of the hours of work. The regular rate is never less than the minimum wage; it is likely to exceed the
minimum wage if service charges are involved or if an employee has worked
non-tipped hours at a rate higher than the minimum wage. One-half of the
regular rate times the overtime hours equals premium overtime pay for the
workweek. A review of the record keeping regulations, previously linked, is
helpful in this regard. Also see http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=ad743bd49d828e6ffa1f97829ae7b77c;rgn=div5;view=text;node=29%3A3.1.1.2.39;idno=29;cc=ecfr.

If a tipped employee is paid a cash rate of the full
minimum wage, or greater, the rate paid is the regular rate (unless there are
supplements that increase the rate, such as commissions, bonuses, or service
charges). True tips do not increase the regular rate.

If a tipped employee is paid a cash rate (not less
than $2.13 per hour) of less than the full minimum wage, the regular rate is
the minimum wage. In such a case, the additional half-time compensation owed
for overtime hours is .5 times the minimum wage (not one-half of $2.13).

If there are some hours worked during the workweek in a non-tipped occupation, at least the
minimum wage must be paid for each of those hours (no tip credit). If such
hours are paid at a rate in excess of the minimum wage, the weighted average
rate for the workweek will be greater than the minimum wage.

If there are some hours worked during the workweek in a non-tipped occupation, at least the minimum wage must be paid for each of those hours (no tip credit). If such hours are paid at a rate in excess of the minimum wage, the weighted average rate for the workweek will be greater than the minimum wage.

Service charges paid to an employee count toward meeting the minimum wage, as do tips,
but they may increase the regular rate to above the minimum wage. For purposes
of overtime calculations, treat the service charges as supplemental
compensation, similar to bonuses or commissions. See “Nonexempt Employees Paid
on a Commission Basis – Common Overtime Mistakes” in the April 2012 BIZWatch,
or access this link: http://bizkeys.com/pages/2012/04/16/nonexempt-employees-paid-on-a-commission-basis-common-overtime-mistakes/.

DOL regulations related to tipped employees were modified April 5, 2011. https://www.federalregister.gov/articles/2011/04/05/2011-6749/updating-regulations-issued-under-the-fair-labor-standards-act#h-23 includes the
preamble and regulatory changes.

Regulations concerning tipped employees (including April 5, 2011 modifications): http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.1.21&idno=29#29:3.1.1.1.21.4.

For fact sheets regarding tipped employees, see http://www.dol.gov/whd/regs/compliance/whdfs15.htm and http://www.dol.gov/whd/regs/compliance/whdfs15a.htm.

The Wage & Hour Self-Audit Guide, in the Self Auditing area of www.BizKeys.com, contains a minimum wage section that briefly discusses tips, and
an overtime compensation section that covers the overtime basics.

 

 

 

NLRB STRIKES DOWN OVERBROAD RULES, NIXES SOCIAL MEDIA POLICY

A recent decision from the NLRB illustrates the importance of carefully reviewing work rules and policies to assure that the mere maintenance of a rule does not end up being an unfair labor practice.  In Costco Wholesale Corporation, 358 NLRB No. 106 (2012), the NLRB reviewed several rules and policies in Costco’s employee handbook.  It […]

A recent decision from the NLRB illustrates the importance of carefully reviewing work rules and policies to assure that the mere maintenance of a rule does not end
up being an unfair labor practice.  In Costco Wholesale Corporation, 358 NLRB No. 106 (2012), the NLRB reviewed several rules and policies in Costco’s employee handbook.  It found that Costco violated Section 8(a)(1) of the National Labor Relations Act (the “Act”) by maintaining rules stating that:

(a) “unauthorized posting, distribution, removal or alteration of any material on Company property” is prohibited;

(b) employees are prohibited from discussing “private matters of members and other employees . . . includ[ing] topics such as, but not limited to,

sick calls, leaves of absence, FMLA call-outs, ADA accommodations, workers’ compensation injuries, personal health information, etc.”;

(c) “[s]ensitive information such as membership, payroll, confidential financial, credit card numbers, social security number or employee personal

health information may not be shared, transmitted, or stored for personal or public use without prior management approval”; and

(d) employees are prohibited from sharing “confidential” information such as employees’ names, addresses, telephone numbers, and email

addresses.

It was held that these rules were overbroad since they directly restricted the employees from engaging in concerted activities
guaranteed by Section 7 of the Act.

In its first decision on a social media policy case, the NLRB found that Costco’s social media policy violated Section 8(a)(1).   The policy
stated: Any communication transmitted, stored or displayed electronically must comply with the policies outlined in the Costco Employee Agreement. Employees should be aware that statements posted electronically (such as [to]online message boards or discussion groups) that damage the Company, defame any individual or damage any person’s reputation, or violate the policies outlined in the Costco Employee  Agreement, may be subject to discipline, up to and including discharge.

While the rule does not explicitly reference Section 7 activity, the NLRB felt that, by its terms, the broad prohibition against making statements that“damage the Company, defame any individual or damage any person’s reputation” clearly encompassed concerted communications protesting Costco’s treatment of its employees. The NLRB noted that there is nothing in the rule that even arguably suggests that protected communications are excluded from the broad parameters of the rule. In these circumstances, employees could reasonably conclude that the rule requires them to refrain from engaging in certain protected communications (i.e., those that are critical of the Company or
its agents).  Since Costco’s rule did not present accompanying language that would tend to restrict its application, employees could reasonably assume that it pertains to — among other things — certain protected concerted activities, such as communications that are critical of the Costco’s treatment of its employees. The  maintenance of the rule
thus had a reasonable tendency to inhibit employees’ protected activity and, as such, violated Section 8(a)(1).

The NLRB did
find, however, that a rule requiring employees to use “appropriate business decorum” in communicating with others did not violate the Act.  Nor did Costco violate the Act by maintaining a rule prohibiting employees from “[l]eaving Company premises during working shift without permission of management.”
This particular rule was lawful, because it did not prohibit employees from “walking off” the job without permission, a rule that has been ruled
unlawful because “walking off” is too similar to the term “walk out”, a synonym for a strike.

This case clearly shows that the current NLRB accepts many of the Acting General Counsel’s recently published legal theories relating to how employers’ social media policies that are broadly written inhibit employees in the exercise of their rights.   It also shows that the NLRB is willing to interpret work rules in a way that will protect employees who complain to others, either inside or outside the workplace, about working conditions.  One ray of hope is the NLRB’s references to the lack of a disclaimer in the social media policy to let employees know that it did not prohibit protected activities.  The Acting General Counsel has asserted in litigation that such a disclaimer is ineffective to save an overly broad rule.  Perhaps the NLRB will give effect to a disclaimer that the rules or policies will not be interpreted or applied in such a manner as to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights.

 

 

 

Seven FLSA Quirks – Unanticipated and Costly

Would it concern you to know that you might have individual responsibility forcompliance failures of your company? If you or your entity were to be sued for back wages, how would you feel about a six-year statute of limitations? What if a minimum wage or overtime suit accuses you of being a racketeer? Certain types […]

Would it concern you to know that you might have individual responsibility forcompliance failures of your company? If you or your entity were to be sued for
back wages, how would you feel about a six-year statute of limitations? What if a minimum wage or overtime suit accuses you of being a racketeer? Certain types of compliance failures, or the results of them, can be completely unexpected. Let’s examine these (and other) FLSA nuances.

1.  You might believe that your relationship with another employer, such as a subcontractor, should not result in an obligation regarding that employer’s practices with respect to wages or employment of minors. Similarly, you would not expect to be held responsible for FLSA practices of the entity by which you are employed. However, Joint employment concepts allow for multiple entities and/or individuals to be held simultaneously responsible for the same violations. Most back wage suits filed by DOL or by plaintiffs’ attorneys cite, as defendants, individuals believed to have been “acting directly or indirectly in the interest of an employer in relation to an employee.” The same is
true when the DOL assesses civil money penalties. When I was with the Wage and Hour Division, one of my investigations, of one establishment, resulted in
civil money penalty assessment against three entities and four individuals. http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.2.50&idno=29 explains FLSA joint employment principles.

2.  Interns and trainees are often
treated as non-employees. In a business setting, this is usually not an accurate determination. See http://www.dol.gov/whd/regs/compliance/whdfs71.htm. When an employment relationship exists, failure to pay minimum wage and/or overtime compensation obviously results in a back wage liability. Likewise, allowing under-aged children to work – even when it is believed that they are “interns” – results in an assertion of child labor violations. Prior to retirement, I investigated a veterinary clinic and kennel. Minors, under fourteen years of age, worked on weekends – feeding and caring for the animals. These children were treated as “interns” or “volunteers.” They received no compensation, and there was no record of their employment. Child labor, record keeping, and minimum wage violations were charged against the employers.

3.  Record keeping provisions of the FLSA are explicit, but they are often ignored. There is no civil money penalty for failure to maintain proper records, but insufficient records often lead tomonetary or child labor violations. For example, failure to record time devoted to preparatory or concluding activities, checking emails and voice mail after scheduled hours, or compensable travel time, can result in a significant number of unrecorded (and uncompensated) hours worked. As I previously mentioned, certain workers might not even appear on the records. The lack of records is never a good thing, and perceived concealment will be treated as an indication of willfulness (increasing the civil money penalties). The penalties are even greater when child labor violations result from minors working “off the records.” Required records: http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.1.13&idno=29.

4.  Exemption misclassification errors are familiar to most employers. However, the possibility that an inapplicable exemption might be claimed is not limited to “white collar” scenarios, and the result is not always limited to an overtime issue. Child labor violations can also occur because of exemption misclassification. Agricultural employment is generally exempt from overtime provisions, and employment of minors is less restrictive. However, the determination of agricultural status is sometimes difficult. An example of such a quandary is Christmas tree planting, maintenance, and harvesting. Christmas tree production is not “agricultural” for FLSA purposes unless the activities qualify under the complex explanations of “secondary agriculture.” See §§ 780.105, 780.159 – 780.205, and 780.208 at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.2.41&idno=29#29:3.1.1.2.41.2.355.6. Not only are employees owed overtime pay (unless another exemption applies), but the non-agricultural child labor standards apply. In a non-agricultural setting, a minor must be at least eighteen years of age to operate a power saw (including a chain saw). In a true agricultural operation, a minor may legally operate such a saw at sixteen years of age. Of interest to Christmas tree
growers in Maryland, North Carolina, South Carolina, Virginia, or West Virginia – the United States Court of Appeals for the Fourth Circuit ruled that the production of Christmas trees is “agricultural” for FLSA purposes. It is improbable that DOL will attempt to enforce its position within the Fourth Circuit, but you should consult with your attorney. The FLSA § 13(b)(28) overtime exemption applies to non-agricultural Christmas tree production and harvesting operations when eight or fewer employees are involved. See § 788.10 at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=97db7fbc09311d3382f49aade5cfaa82;rgn=div5;view=text;node=29%3A.1.1.2.47;idno=29;cc=ecfr.

5.  How the FLSA applies is sometimes dependent on other laws under which the employer has obligations. For example, if your state’s minimum wage is higher than the FLSA minimum wage, and you have failed to comply with that higher wage rate, DOL will compute any FLSA overtime back wages at the state minimum wage plus the half-time premium. Similarly, if you are subject to state “prevailing wage” laws, the wage determination wage rate will be treated as the regular rate (if you paid less than that rate) when computing overtime back wages. The same is true with regard to federal contract laws (Davis-Bacon Act, laws related to the DBA, and the Service Contract Act),
but the DOL Wage and Hour Division has full enforcement authority regarding those statutes and a related non-FLSA overtime law.

6.  An even stranger quirk involving another law is the FLSA effect of the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). That law requires farm labor contractors and joint employers to comply with the FLSA. MSPA has no statute of limitations. While this law ordinarily involves agriculture, it also applies to certain non-agricultural employment (e.g., forestry restoration and maintenance crews, employed by a labor contractor, are treated as “agricultural” for purposes of MSPA). In such a case, the FLSA overtime standards apply, but the FLSA statute of limitations does not apply to legal actions filed under MSPA. If a “farm labor” contractor fails to comply with the FLSA, litigation to recover back wages may be pursued by employees (plaintiffs) without regard to the FLSA three-year maximum statute of limitations. By alleging MSPA violations (i.e., that failure to comply with the FLSA equals failure to comply with MSPA), the plaintiffs may take advantage of the lack of a MSPA statute of limitations. I assisted the defense attorneys on one such case, in which the court allowed a six year statute of limitations (based on the state’s applicable statute of limitations under contract law). I have no reason to believe that DOL would deviate from its customary two-year (three-year in the event of willfulness) litigation practices, but employers
who are subject to MSPA are very vulnerable to an extended statute of limitations when employee plaintiffs sue for FLSA back wages.

7.  The FLSA provides, via the liquidated damages provision, that the back wage award may be doubled. An employer informed me that he owes FLSA back wages, but that the plaintiffs’ attorney sought to recover treble damages by filing a civil suit under the Racketeer Influenced and Corrupt Organizations Act (RICO). This might have been a stretch, but the threat of a RICO suit is another potential aggravation and expense for employers.

The child labor provisions were referenced on several occasions. This topic was discussed in the June 2012 BIZWatch.

An FLSA compliant employer with no joint employment exposure is not likely to be affected by any of the described FLSA quirks. If there is doubt, “getting your house in order” is always advantageous (instead of waiting for DOL or a court to become involved). If there is a possibility of joint employment, it is to your benefit that such other employers take the initiative to ensure that there is not a continuing accrual of back wages. Whether you are seeking to enhance compliance within your own area of control, or assisting a joint employer in a compliance review, the www.bizkeys.com FLSA self-audit area will be very beneficial.

 

 

 

D.C. Circuit Court Enjoins NLRB on Posting Requirement

Yesterday we issued an Alert about the District Court in South Carolina ruling that the NLRB’s Poster Rule exceeded the agency’s authority and was, therefore, invalid.   We mentioned that there was a somewhat contradictory decision from the District of Columbia District Court that upheld the posting requirement, but struck down certain remedial aspects of the […]

Yesterday we issued an Alert about the District Court
in South Carolina ruling that the NLRB’s Poster Rule exceeded the agency’s authority
and was, therefore, invalid.   We
mentioned that there was a somewhat contradictory decision from the District of
Columbia District Court that upheld the posting requirement, but struck down
certain remedial aspects of the rule.
That D.C. case was appealed and the U.S. Circuit Court of Appeals for
the D. C. Circuit has, today, issued an injunction against the NLRB pending
review by the Court of Appeals that prevents the NLRB from requiring that the
poster be put up.

This appellate court decision means that
private employers who are subject to NLRB’s jurisdiction will NOT have to post
the poster on or before April 30.  It
will likely take several months to get a final decision by the Court of
Appeals.  Until then, employers need not
post the NLRB-mandated poster. (Note, though, that federal contractors are
required to post an almost identical poster under E.O. 13496).

As always, we will keep you up to date as
developments occur.

 

Nonexempt Employees Paid on a Commission Basis-Common Overtime Mistakes

Nonexempt Employees Paid on a Commission Basis – Common Overtime Mistakes Overtime compensation is required irrespective of the method used to calculate wages.  That is “common knowledge.”  Yet, mistakes are made.  I have seen numerous occurrences of incorrectly computed overtime pay for commissioned employees.  It is also not rare for an employer to initially compute […]

Nonexempt Employees Paid on a Commission Basis – Common Overtime Mistakes

Overtime compensation is required irrespective of the method used to calculate
wages.  That is “common knowledge.”  Yet, mistakes are made.  I have seen numerous occurrences of
incorrectly computed overtime pay for commissioned employees.  It is also not rare for an employer to
initially compute the overtime wages correctly, and then obliterate the good
intentions by adding one final step.

Piece rates and job rates are as likely to involve the same mistakes, but I am focusing on
commissions because that arrangement is more common.  If you are utilizing any type of incentive
pay plan, my observations and suggestions should be useful.  In fact, some of the shortcomings that I will
describe often affect hourly-paid employees.

Before discussing common errors, let’s look at the correct way to compute overtime
compensation when employees are paid on a commission basis.  It is important to “keep it simple.”  When unnecessary nuances enter into the
equations, mistakes happen.  The Code of
Federal Regulations, Title 29 Part 778, at §§ 778.117 and 778.118, sets forth
some very straightforward rules regarding the computation of overtime wages
when commissions constitute all or part of the regular wages.  Part 778 (the overtime compensation CFR) may
be accessed at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.2.39&idno=29.

When an employee’s regular wages result from a commission plan, those wages are
typically compensation for all hours worked (not just the first forty) in the
workweek.  Therefore, the required overtime pay is the half-time premium.  As
overtime pay must be a multiple (at least time and one-half) of the regular
rate, it is necessary that the regular rate be determined each workweek.  A DOL opinion letter – www.dol.gov/whd/opinion/FLSANA/2008/2008_09_22_12NA_FLSA.htm – is an excellent example of the simplicity of properly computing overtime pay for a commissioned employee.

The FLSA record keeping rules (Part 516) correlate with the above explanations by
requiring, in part, that the records reflect, for each workweek and for each
employee,

 

  • basis of pay (e.g.,
    “commission,” “piece rate,” “hourly,” etc.),
  • the regular rate,
  • total regular wages (for all
    hours worked), and
  • overtime premium wages
    (half-time pay for overtime hours).
  • It is helpful, in developing an understanding of the overtime compensation
    principles, to be knowledgeable of Part 778 in general, but particularly §§
    778.100 through 778.308.  Especially
    useful are the §§ 778.107 through §§ 778.109 explanations of “the regular
    rate.”

These are examples of practices that lead to overtime back wage liabilities.

  • Many employers believe that
    employees paid on a commission basis are not subject to overtime
    compensation provisions.  The owner
    of a courier business (under DOL investigation) recently informed me that
    he had classified his owner/drivers as employees (not “independent
    contractors”) to avoid problems with the IRS, but that he assumed the commissions constituted
    total wages (no need to pay overtime compensation).
  • It goes without saying that the
    record keeping rules (Part 516) require an accurate record of hours
    worked.  Employers must be
    especially diligent, when employees are paid on commission, in order to
    ensure that all hours worked are recorded.
    Failure to consider all hours worked when computing overtime wages
    obviously results in FLSA violations.
  • The perception that regular wages are always just for forty hours
    and that overtime pay is time and one-half added to the perceived
    regular wages
    complicates the computation of overtime compensation for
    commissioned employees.  I have seen
    various types of errors occasioned by the misconceptions; the most
    detrimental are those that result in failure to pay any overtime
    compensation, even though the records reflect that overtime was paid.  One client had been creating an
    artificial “regular rate” to make the records appear that overtime pay had
    been added to commission earnings, but in reality the half-time premium
    was imbedded in the commissions (not legal, of course).
  • A similar (but more formal)
    method is to boost the overtime hours by 1.5, divide total commissions by
    the new “total” of hours worked to obtain a (flawed) regular rate, and
    then show in the records that this rate was paid for the first forty hours
    and time and one-half this rate was paid for overtime hours.  Obviously, the result is false records
    and failure to pay any true overtime compensation.
  • “Tinkering” with the results
    after overtime wages have been properly computed often obliterates the
    intended overtime pay.  This happens
    when an employer, intentionally or inadvertently, modifies the calculations
    of compensation.  One example is the
    use of a guaranty plan.  There are
    numerous variations of such an arrangement (always resulting in FLSA
    violations).  Here is an
    illustration: The employer had been paying 25% commission with no overtime
    pay.  After being investigated by
    DOL, and paying back wages, the employer came into compliance  by agreeing to pay half-time premium
    wages for all hours over forty.  The
    employer modified the commission plan, reducing the percentage to
    22%.  However, this employer made a
    serious mistake by advising the employees that he will see to it that they
    do not average less than the previously paid 25%.  Each workweek, after all commissions
    have been determined @ 22%, the employer follows the Part 778 rules in
    arriving at the regular rate and adding the half-time premium pay to the
    commission earnings.  Then the
    employer re-computes commissions at the old (now guaranteed) 25%
    rate.  If this yields less than the
    computed total wages, no change is made.
    If the 25% computation yields more than the wages computed @
    22% plus overtime pay, a pseudo bonus is added to increase the total pay
    to the desired level.  The half-time
    premium compensation that had been computed and added to the 22%
    commissions now becomes meaningless because the pseudo bonus ensures
    payment of the guaranteed commission rate.
    However, even in workweeks when there is no need for adjustment,
    overtime compensation has not truly been paid (because of the guaranty
    arrangement).  The “overtime pay” is
    now simply a part of the regular wages, increasing the regular rate.
  • A subtle variation of the
    above-described guaranty plan is to base the guaranty on a period longer
    than a workweek.  For example, the
    employer might guarantee that the total pay for the year will yield a 25%
    average commission.  If necessary, a
    supplement will be added (at the end of the year) to achieve the desired
    percentage rate.  Again, the records
    do not reflect the facts, the methodology is wrong, and no actual overtime
    compensation has been paid.

All of the described practices result in a back wage liability.  In the first two examples, if the employer
has not been previously investigated by the Wage and Hour Division and there is
no evidence of willfulness, civil money penalty assessment is not likely.  Litigation (if it occurs) will probably
involve the basic two-year statute of limitations.  With regard to the other examples, DOL will
view the records as having been falsified, indicating willful violations.  Civil money penalties are likely.  If there is litigation by DOL or employee
plaintiffs, a three-year statute of limitations will be invoked.

Early on I suggested that, when computing overtime pay for commissioned employees, it is
best to “keep it simple.”  Doing so avoids the deviations and problems that I just described.

In summary, if your overtime computation methods for commissioned employees are less than
straightforward, you should make changes right away.

This article is focused on arrangements involving commission as the only method of
pay.  The same principles generally apply
if commissions are supplements (see Part 778, §§ 778.115 and 778.118).  If the commissions are paid other than
weekly, see §§ 778.119 and 778.120.  Piece rates and job rates are discussed in
Part 778 at §§ 778.111 and 778.112; however, the more detailed information (in
Part 778) regarding commissions will be helpful when analyzing compliance
procedures regarding piece rates or job rates.

The Wage & Hour Self-Audit Guide, in the Self Auditing section of www.BizKeys.com,
contains an overtime compensation section that covers the overtime basics, with
elaboration regarding various guaranty plans that result in violations.

 

Court Decision On NLRB’s Employee Rights Posting Requirement

COURT ISSUES DECISION ON NLRB’s RULE     REQUIRING POSTING OF NOTICE INFORMING EMPLOYEES OF THEIR RIGHTS                                                      BY: William G. Trumpeter, Esq.                                                              Miller& Martin PLLC                                                    btrumpeter@millermartin.com      The court’s ruling in the National Association of Manufactures v. NLRB,  Civil Case No. 11-1629(ABJ) (USDC DC March 2, 2012) challenging the NLRB’s Notice posting rule […]

COURT ISSUES DECISION ON NLRB’s RULE     REQUIRING POSTING OF NOTICE INFORMING EMPLOYEES OF THEIR RIGHTS

                                                     BY: William G. Trumpeter, Esq.

                                                             Miller& Martin PLLC

                                                   btrumpeter@millermartin.com

 

   The court’s ruling in the National Association of Manufactures v. NLRB,  Civil Case No. 11-1629(ABJ) (USDC DC March 2, 2012) challenging the NLRB’s Notice posting rule is in and it is a split decision.  The bad news for employers is that the court has upheld the NLRB’s authority to issue a rule that requires employers to post the notice to employees informing them of their rights under the National Labor Relations Act.   The good news is that the Court struck down the portions of the rule that provided the failure to post the notice would be deemed an unfair labor practice and would also constitute grounds for tolling the short six-month statute of limitations applicable to unfair labor practice charges under the Act.

   What does this mean to employers?   Failing to post the notice will not automatically be deemed an unfair labor practice, but failure to post can have adverse consequences.  First, failure to post may be used as evidence of anti-union animus in cases in which animus is an element of the general Counsel’s burden of proof.  Second, although the Board struck down the portion of the rule stating that the NLRB could infer that the failure to post was good cause to toll the statute of limitations, it left open the question of whether the failure to post could be used to justify an equitable tolling of the statute of limitations in a case in which the Board contended and proved that the employee bringing the charge was unaware of his or her rights under the Act.  Third, Failure to post could be used by the Board as justification for overturning an election result in favor of an employer.   Election interference need not rise to the level of an unfair labor practice to result in an election reversal.   

   As it stands now, the Notice must be posted on April 30, 2012.  The teeth of the enforcement provisions of the rule, the creation of an unfair labor practice, have been filed down and the bite may not be as painful, but failing to post the notice may still have adverse consequences as outlined above. 

 If you would like more information concerning these proactive measures to remain union-free, please contact Bill Trumpeter at btrumpeter@millermartin.com or (800) 275-7303, ext. 318.

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 from a Miller & Martin attorney, please call 1-800-275-7303. 

 

“What’s the Big Deal about Independent Contractors, and Why Should I Care?’

  That is probably a question that many readers  are asking, with all of the publicity about DOL, IRS, and states cracking down on employers who treat workers as “contractors.”  There is a perception that this focus by enforcement agencies is new.  The joint effort and publicity are, in fact, new phenomena.  However, the DOL […]

 

That is probably a question that many readers  are asking, with all of the publicity about DOL, IRS, and states cracking down on employers who treat workers as “contractors.”

 There is a perception that this focus by enforcement agencies is new.  The joint effort and publicity are, in fact, new phenomena.  However, the DOL has consistently viewed FLSA employment relationship concepts broadly.  While in on-the-job training, after being hired by the DOL Wage and Hour Division (and prior to the intensive four-week classroom training), I was sent with investigators to observe.  On the very first case, I watched while the seasoned investigator interviewed a carpet installer at a furniture/flooring store.  On the way back to the office, I said “Mr. McClure, he referred to himself as an independent contractor.  Why is there an overtime problem? ”  Investigator McClure advised me that it will all be clear after I receive formal training, but – in the meantime – he assigned some reading material about the FLSA employment relationship.  My point is that DOL has never taken the position that merely designating a worker as an independent contractor destroys an otherwise applicable employment relationship, even when the worker furnishes tools, equipment, and a vehicle.

During my DOL career, I found that efforts to enforce the FLSA when the employer contended that the workers were “contractors” were made more difficult because of lack of interest by the IRS and state agencies.  Employers and their representatives were ready and willing to “fight the battle” with DOL because they believed that the laissez-faire approach of other agencies should be adopted by the DOL.  Some of those investigations resulted in litigation so that DOL could prevent continuing violations and collect the unpaid overtime wages.

The IRS and state agencies are now paying attention to the rampant misclassifications.  They realize that employers who misclassify workers are ignoring statutory payroll taxes, and that allowing employers to treat workers as “contractors” requires more resources to collect federal and state income taxes.  The recent joint agreement between the DOL and numerous state agencies will greatly reduce the expense of enforcement, as the agencies will be sharing information.  The publicity will result in more confidential complaints, helping the agencies to focus their investigations directly on employers who are alleged violators.

It is true that the various laws do not have identical definitions of “employ,” “employee,” and “employer.”  In the FLSA, the Congress made it a point to leave no doubt.  To employ is to “allow or permit” to work (paraphrased).  Of course, there are legitimate business dealings between independent entities or persons, so removed from employment that it is not arguable, but there are often unclear scenarios that must be resolved.  The Supreme Court established FLSA employment relationship guidelines during the 1940s, and the DOL has applied these principles since.

Why should you care?  If you are paying individuals or small crews via 1099 (in lieu of W-2), you are vulnerable to IRS and/or state tax agency enforcement.  If you are using “contractor” classification as an excuse to not pay overtime wages, you are a prime candidate for DOL or state employment law agency enforcement. 

Overtime back wages are not the only possible employment law outcome.  Minimum wage violations are sometimes evident because the costs of furnishing equipment (e.g., a courier driver’s delivery vehicle) may reduce the effective rate to less than the minimum wage.  FMLA violations may be retroactively asserted because the “contractors” bring you up to the fifty-employee thresholds.  ERISA violations might have occurred because of the misclassifications.  There are other possibilities, such as EEOC implications.

Even if all of your contractors are legitimately in their own businesses, you should be concerned about whether they are treating their workers as employees and complying with applicable laws.  The FLSA includes a “joint employment” concept that could extend your contractors’ obligations to you.  Their failure to pay overtime wages, for example, might become your liability.  Their illegal employment of minors could result in your being assessed a substantial civil money penalty (see the November 2011 BizKeys newsletter for an excellent article about the costs of child labor violations). 

Another reason that you should be concerned is competition.  In 1938, the Congress enumerated several reasons for enactment of the FLSA.  One of those reasons was to prevent unfair competition.  In the DOL press release about the memorandum of understanding with the IRS and many states, one of the stated anticipated outcomes is to “level the playing field” among employers.  It is not fair for you to absorb the costs of treating your workers as employees while your competitors are avoiding the expenses of complying with tax and employment laws by treating workers as “contractors.”

The Wage & Hour Self-Audit Guide, in the Self Auditing section of www.BizKeys.com, contains an “Independent Contractor” topic.  That is a good place to start if you have classification concerns.  Also, see http://www.dol.gov/whd/workers/Misclassification/index.htm.

 

“What happens if an employer desagrees with DOL findings…What triggers (initiates litigation”?

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 […]

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.

 
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