Wage & Hour Defense Blog : Wage & Hour Lawyer & Attorney : Epstein Becker Green Law Firm : DOL Enforcement, FLSA Coverage

by Evan Spelfogel

On February 1, 2010, President Barack Obama released his federal budget for the coming fiscal year, including $117 billion for the United States Department of Labor, of which $25 million was set aside expressly to help the DOL combat employee misclassification. This includes, specifically, identifying and litigating against employers that categorize workers as independent contractors when, in fact, they are employees, and that classify as exempt from overtime those employees who do not meet the requirements of the White Collar Exemptions under Part 541 of the Wage and Hour Regulations.

The DOL will use a large portion of these funds to hire hundreds of investigators and other enforcement staff. The new Department of Labor Solicitor, Patricia Smith, will pursue a “Misclassification Initiative” to obtain, for misclassified employees, the wages, overtime pay, unemployment insurance benefits, social security contributions and health, welfare and pension benefits available to employees, but not to independent contractors.

Smith, it should be noted, was most recently Commissioner of Labor in New York State. In that capacity, she publicly identified misclassification as one of the most serious workplace problems today, and created a dedicated taskforce to attack the problem, encompassing representatives from a number of state government agencies, including labor, tax, unemployment insurance, workers compensation and labor relations.

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By Betsy Johnson

President Obama just celebrated his first year in office and his Administration has been busy! Employers of all sizes are starting to see the effects of the Obama Administration’s workplace agenda; especially at the Department of Labor (DOL). The watchword for all employers in the wage/hour arena for 2010 is “compliance.”  The DOL is slated to receive a substantial budget increase this year and it is going on a hiring spree to increase the number of investigators and enforcement personnel. 

The DOL’s agenda includes increased audit and enforcement proceedings related to “off the clock” work and the misclassification of employees as “exempt” under the Fair Labor Standards Act (FLSA). In addition, the DOL (in cooperation with the IRS) will focus its audit and enforcement proceeding on employers who misclassify individuals as independent contractors.  Now, more than ever, employers must have programs in place to ensure compliance with the myriad of wage/hour laws and regulations, and implement a clear strategy for handling government audits and enforcement actions. While the thought of conducting a comprehensive payroll practices compliance audit can be daunting, employers can efficiently conduct “spot” audits of particular areas where they may be vulnerable. 

As an initial matter, employers should determine who will conduct the audits. Utilizing internal resources such as the Human Resources and/or Payroll Departments and/or the company’s General Counsel will help keep the costs down. However, using internal resources may not guarantee that the results will be protected by the attorney-client privilege should the company become involved in litigation regarding the subject matter of the audit. As such, employers may wish to seek assistance of outside counsel to conduct the audit and analyze the results.

The purpose of these “spot” audits is to: 1) identify areas of non-compliance; 2) identify policies, procedures and/or practices that can be improved; 3) develop a plan for improvement; and 4) implement the plan. The areas where most employers are vulnerable to government actions and employee claims in the wage/hour area are:

•         Overtime calculation and payment

•         Off the clock work

•         “Donning and doffing” issues

•         Classification of employees (exempt v. non-exempt)

•         Time keeping

•         Recordkeeping

•         Proper classification of independent contractors

In planning a “spot” audit, employers should determine: 1) the scope and depth of the audit; 2) what data needs to be collected; 3) what documents need to be reviewed; 4) which managers should be interviewed to obtain relevant information; and 5) whether the employees should be surveyed for relevant information. On a cautionary note, if the employer believes there may be too many “skeletons in the closet” that may be exposed in an audit, consideration should be given to retaining outside counsel to assist in the audit so that the process and the results can be protected by the attorney-client privilege.

Finally, employers must decide what to do with the results of the audit. Some things to consider are: 1) who will be apprised of the results and how (written or verbal); 2) will the person who conducted the audit make recommendations regarding problem areas; 3) what, if anything, is going to be done about any problems; 4) how should any changes be implemented (a “spin doctor” may be needed); and 5) how is the employer going to address employee questions and challenges.

In the short-term, the exercise of conducting internal audits may be viewed as a distraction from an employer’s business purpose. In the long run, however, getting the company’s “house in order” before a government agency knocks on the door will save time, attorneys’ fees and the intangible costs of being embroiled in administrative or civil litigation. Remember the old adage: “An ounce of prevention is worth a pound of cure.”

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 by Doug Weiner

The U.S. Department of Labor (“DOL”) has announced an intention to initiate a rule making process concerning the records employers are required to make and keep pursuant to the Fair Labor Standards Act (“FLSA”). Section 11 of the FLSA requires employers to keep specified records of the hours employees work, and the wages they are paid. The DOL proposes to update the recordkeeping regulations under the FLSA in order to enhance the transparency and disclosure to workers of how their pay is computed, and to modernize other recordkeeping requirements for employees under “telework” and “flexiplace” arrangements. 

The DOL states there is a need to modernize the recordkeeping regulations to foster more openness and transparency in demonstrating employers’ compliance with applicable requirements to their workers, to better ensure compliance with the increasing emphasis on flexi-place and telecommuting, to allow for automated or electronic recordkeeping systems instead of the mandatory manual preparation of “homeworker” handbooks currently required for all work that an employee may perform at home.

The DOL intends to develop alternatives to consider revisions to the current recordkeeping requirements. The public will be invited to provide comments on the proposed revisions, and possible alternatives.

Developments in this proposed recordkeeping rulemaking will be posted on this blog as they become available.

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by Doug Weiner

Employers have been experiencing a new wave of wage and hour lawsuits with significant six and seven figure recoveries and, in some cases, liability for managers who are responsible for failures to pay the wages required by the federal Fair Labor Standards Act ("FLSA") and state wage and hour laws. At the same time, state legislatures have been amending the laws to increase protection for employees.

Governor David A. Paterson announced on August 27, 2009 that he had signed a bill (A. 6963) into law to enhance wage and whistleblower protections for workers. The new law takes effect on November 24, 2009. Following the national trend of expanding the rights of workers, New York's legislature stated that "strengthening the recovery of unpaid wages will also help the state and local economies." Further, "the penalty increases are estimated to generate $75,000 in state revenues."

The bill increases penalties against employers who retaliate against employees for exercising their rights under the New York State Labor Law. Minimum penalties are increased from $200 to $1,000, and maximum penalties are increased from $2,000 to $10,000.

The bill also provides that when an employer is found to have violated New York State Wage Laws, liquidated damages of 25 percent of the unpaid wages will automatically be added unless the employer proves a "good faith belief that the underpayment complied with the law." Under the prior law, liquidated damages were awarded only upon a finding that the employer's failure to pay the wage was "willful."

As a result, under the new law, liquidated damages can be awarded if the employer had not inquired about whether its wage system was in compliance with state law. Since New York State liability can go back as many as six years, liquidated damages can be significant indeed. This suggests that a periodic audit of pay practices is a wise course for employers to take to ensure they are in compliance with applicable laws and regulations and not vulnerable to class actions and administrative proceedings.

Section 1 of the bill amends New York Labor Law 198(1-a) to allow the Commissioner of Labor to bring either a court action or an administrative proceeding to collect wage underpayments and liquidated damages on behalf of workers.

Section 2 of the bill amends New York Labor Law 215(1) to expand the categories of conduct protected against employer retaliation. Significantly, the new state law now expressly prohibits retaliation when an employee has made a complaint to his or her supervisor. This expands whistleblower protection beyond the federal FLSA, which in the Second Circuit pursuant to Lambert v. Genesee Hospital, 10 F. 3d 46 (2d Cir. 1993), requires an employee to "file" a formal complaint before his or her conduct is protected from reprisal.

In light of this new law particularly, and the prevailing national climate generally, employers now must redouble internal efforts to verify that their pay practices comply with applicable state and federal wage and hour requirements. Even though a pay practice has prevailed in an industry for decades without challenge, the practice still could be challenged today or tomorrow and found to be in violation of laws passed recently or over 70 years ago.

When employees are disciplined, it is vital to document the reasons for the discipline. A contemporaneously written explanation for imposing legitimate discipline is the best defense to a claim of retaliation.

Questions about pay practices and discipline are best brought to the attention of experienced employment counsel to prevent inadvertent and costly mistakes.

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After the recent seventy cent increase in minimum wage to $7.25, there were some interesting statements being made by Labor Secretary Hilda Solis.  In a press conference on July 24, Secretary Solis announced that the increase will help 3 million to 5 million workers and is "projected to generate $5.5 billion in consumer spending over the next year."  Of course, this statement implies that the money, if kept by businesses, would have just sat in a vault in the boss' office, and not have been spent on additional equipment, more employees, or expanding the business.

Under Solis, employers can expect increased enforcement and a more aggressive eye towards litigation.  During the first six months of 2009 alone, DOL has collected a total of $82 million in back wages from employers.  DOL is in the process of hiring 250 new field investigators for the Wage and Hour Division, who will be tasked with targeting industries with poor track records of compliance.

So, don't be surprised if you get a knock on the door from DOL in the near future looking to collect back wages  Just look on the bright side -- your company is doing its part to boost consumer spending and stimulate the economy.

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A report by the Government Accountability Office found that the Department of Labor's Wage and Hour Division, the federal agency charged with enforcing minimum wage, overtime and other labor laws, "is failing in that role, leaving millions of workers vulnerable," according to an article in today's New York Times.

One of the reports concerned the Division's office in Miami:

When an undercover agent posing as a dishwasher called four times to complain about not being paid overtime for 19 weeks, the division’s office in Miami failed to return his calls for four months, and when it did, the report said, an official told him it would take 8 to 10 months to begin investigating his case.

The report concludes that "Labor has left thousands of actual victims of wage theft who sought federal government assistance with nowhere to turn." 

Nowhere to turn? In Florida that's simply not true.  As anyone who pays attention to court filings can tell you, dozens of workers each week, many on the low end of the pay scale, file claims for overtime and minimum wage violations in Florida state and federal courts.  Indeed, as previously reported here, according to the Administrative Office of the United States Courts, for the past five years the Southern District of Florida alone has averaged 28.7% of all Fair Labor Standards Act cases filed in the United States.  The notion that workers have "nowhere to turn" is absurd.  They need only turn to one of Florida's many wage-hour lawyers, who have turned wage-hour litigation into a cottage industry in the sunshine state.  Does the GAO not realize that the FLSA permits private lawsuits, and in fact encourages them through its fee-shifting provisions? Why would an employee need the Wage and Hour Division when he has the Shavitz Law Firm or The Celler Legal Group in his corner? 

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