time is money

Labor Department Pay Violation Program Becomes More Problematic

New York attorney general statement also suggest challenges from states may grow.

The Department of Labor recently introduced a voluntary pilot program to help employers who may have violated federal wage and hour laws. It now turns out that employers might want to think twice before they decide to take part in it.

The six-month pilot project is called the Payroll Audit Independent Determination (PAID) program and is intended to allow employers to self-audit and self-report accidental violations of the Fair Labor Standards Act (FLSA), and to avoid additional litigation, fines and awards if they make 100% restitution of the wages their employees are due.

Complications have arisen since the program was unveiled. One is that a coalition of state attorneys general, including the attorney general of the state of New York, have taken a hard stand against it. Another is that DOL has piled on new qualifications and restrictions for participating employers.

New York AG Eric T. Schneiderman on April 4 called PAID “nothing more than a Get Out of Jail Free card for predatory employers,” and promised that his office “will continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID program.”

Among his responsibilities, Schneiderman supervises the New York Attorney General’s Labor Bureau, an agency long active in enforcement of state labor laws. Even so, the position that he has taken along with the other members of the attorneys general coalition is a little ridiculous given that under the law DOL is not allowed to supervise payments or provide releases for state law violations, and the PAID program specifically excludes them.

“Employers have a responsibility under state and federal laws to pay back stolen wages, as well as damages intended to deter them from breaking the law again,” Schneiderman stressed. “The PAID program allows employers to avoid any consequences for committing wage theft, while blocking lawsuits intended to vindicate employees’ rights.”

His comments may cause employers to think twice before joining PAID out of fear of putting themselves on the radar of aggressive state and local government enforcement agencies, warn attorneys at the Seyfarth Shaw law firm. Along with New York, other state wage and hour laws can provide protections and remedies for employees that are greater than those available under federal law.

One week after Schneiderman issued his statement, the attorneys general of 10 other states joined him in sending a letter to Secretary of Labor Alexander Acosta also protesting the PAID program. The states represented in this coalition include California, Connecticut, Delaware, Illinois, Maryland, Massachusetts, New Jersey, Pennsylvania, Washington State and the District of Columbia.

“Please be advised that we will continue to prosecute labor violations to the fullest extent of our authority, both civilly and criminally, regardless of whether employers have participated in the PAID program,” the attorneys general wrote. “No worker should be required to waive wage theft protections in order to obtain only the partial relief your program is offering, and we intend to pursue every available option to ensure that workers’ rights to fair pay and overtime are protected to the fullest possible extent.”

Qualifying Restrictions Grow

The Labor Department’s Wage and Hour Division (WHD) recently issued a guidance that describes more fully the criteria employers must meet in order to take part and how the PAID program works.

To be allowed to participate in the program, employers must be able to certify:

• That their organization is an “employer” as defined by the FLSA.

• The employees included in the proposed self-audit are not covered by any federal prevailing wage laws, such as the Davis Bacon Act, the Service Contract Act, prevailing wages established by executive orders, or under various immigration visa programs.

• The pay practices that are the subject of the proposed audit cannot be the same pay practices that either the WHD or any court, within the last five years, has found to be a violation of the FLSA’s minimum wage and overtime provisions.

• These pay practices are not currently being litigated, to which the employer is a party to the litigation and are not under investigation by WHD.

• They also cannot be the subject of recent complaints made by the company’s employees or made on the employees’ behalf by representatives to the company and its representatives, WHD or state wage enforcement agencies, about which the company specifically has knowledge of or is aware; or where addressed by the company in a previous PAID program submission.

The employer also has a continuing duty to update WHD on any changes to any of this information.

In addition, WHD stresses that eligibility will be determined on a case-by-case basis, and the division made it clear that it may exercise its discretion to include or exclude any employer from participating in the PAID program, regardless of whether the employer meets these criteria.

How PAID Works

To make sure employers join the PAID program knowing what they are getting into, WHD requires employers to make use of its online portal for conducting a review of all materials submitted. Once this review is completed, WHD website will generate a Certificate of Completion that the employer will need to submit to WHD along with the rest of the required documentation.

Once the company has obtained its Certificate of Completion, the employer may begin the auditing process. While WHD has not provided express criteria about how to conduct the audit, it has identified the information that must be included.

Specifically, the employer must provide to WHD:

• A concise explanation of the scope of potential violation, which later may be used when crafting a liability release.

• Names, addresses and phone numbers of all affected employees.

• Back wage calculations, including methodology and supporting evidence used in these calculations.

• Payroll records and “any other relevant evidence.”

• Detailed time records for each affected employee during the two-year period.

• Records demonstrating that the employer has corrected the compensation practices at issue, and that its pay practices now comply with the FLSA.

To submit the required information and begin the program, the employer must contact its local WHD District Office for specific instructions and discussion of the next steps for it to take.

Attorneys with the law firm of Littler Mendelson point out that while the employer must provide its own calculations of back wages, that sum will not automatically be accepted by WHD. Although not stated in the latest guidance, past practice shows that WHD will not approve a release of employees’ rights to bring a private action if it is not in agreement as to the amount of back wages owed, they say.

In fact, the latest guidance explicitly states that should the employer decide to pay back wages prior to the WHD’s review of the calculation and can make its own assessment, that payment will be considered “unsupervised” and will not act as a waiver of the employees’ private right to legal action.

“The PAID program provides employers with a proactive opportunity to resolve potential FLSA liability quickly and at a lower cost than waiting for the letter from plaintiffs’ counsel or a knock on the door from a WHD investigator,” the Littler Mendelson attorneys say. However, they warn, “participating in the program presents some risk and should not be undertaken without guidance from your attorney.”

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