Businesses should still take state laws into account

More employers are likely to self-audit their pay practices and correct errors as a result of the U.S. Department of Labor's (DOL's) new pilot program, the Payroll Audit Independent Determination (PAID) program, employment attorneys say. It's not yet certain whether the program will continue beyond its scheduled six months after launch, which may be in April, so "if employers want to participate, they need to get moving," remarked Tammy McCutchen, an attorney with Littler in Washington, D.C.

The PAID program, announced March 6, provides employers with a "huge opportunity" to voluntarily correct errors they discover that violate the Fair Labor Standards Act's (FLSA's) requirements, said Robert Boonin, an attorney with Dykema in Ann Arbor, Mich., and Detroit. Under the FLSA, employees cannot waive their right to sue unless the DOL or court approves the settlement. The PAID program provides employers with a mechanism to obtain such a DOL settlement.

'Get-Out-of-Jail-Free Card'

The DOL has not had a formal program like this before, though it has arranged such settlements in some prior administrations, noted McCutchen, a former administrator of the DOL's Wage and Hour Division. "The Obama administration wouldn't help, which I never understood," she said.

Judy Conti, federal advocacy coordinator for the National Employment Law Project, called the PAID program "a get-out-of-jail-free card for employers" in an interview with The Wall Street Journal.

McCutchen called this characterization of the program "ridiculous," saying there's no way the DOL's approximately 900 investigators can uncover the wage and hour violations at the nation's 28 million workplaces. "If you care about employees and want to ensure more employees are paid in compliance with the FLSA, you can't get there through enforcement only," she said.

HR professionals should be "very excited" about the program, as before they may have had problems they couldn't fix but now can, McCutchen added. Liquidated damages—a legal term meaning double damages—won't be available against PAID program participants because they will be acting in good faith by voluntarily coming forward. Liquidated damages are available only when there's bad faith, she explained.

The PAID program is good for employees too, said Paul DeCamp, an attorney with Epstein Becker Green in Washington, D.C., and a former administrator of the Wage and Hour Division. When a worker accepts back pay under the program, the employee is made whole much faster than is typically the case in litigation and doesn't have to give a share to a lawyer, he noted.

Potential Problems with Program

When a business already has been sued or the DOL is auditing it, the program won't be available. In addition, employees won't be required to accept settlements they disagree with.

For Allan Bloom and Andrew Smith, attorneys with Proskauer in New York City, this is problematic. Writing in a law firm alert, they said, "What if one or more of the affected employees doesn't want to participate in the DOL-supervised settlement and instead decides to seek back pay, liquidated damages and attorneys' fees in court? What if one or more of the affected employees files a lawsuit without even knowing that you've initiated settlement discussions with the DOL? Those lawsuits won't go away simply because you're in negotiations with the DOL."

Another concern is whether the program opens the door to a broader DOL investigation. But given the DOL's sympathetic ear to employer concerns right now, there probably wouldn't be, said Steven Suflas, an attorney with Ballard Spahr in Denver.

One likelier risk is the potential violation of a state wage and hour law, noted Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and a former acting administrator of the Wage and Hour Division.

In most states, correcting the FLSA problems will take care of the state law violations too, McCutchen said. But some states have longer statutes of limitations than the FLSA—such as California (four years) and New York (six years).

It's unknown yet whether employers participating under the PAID program will have to pay back pay for a two-year period (the regular FLSA statute of limitations) or a three-year period (the limitations period for willful violations), according to Boonin, past-chair of the Wage & Hour Defense Institute. He said that good-faith participation in the program suggests that two years would be the "fairest and best approach."

Regardless, the DOL-supervised settlement won't prevent state law wage claims for periods prior to the FLSA's statute of limitations in states such as California and New York, Bloom and Smith noted.

So, employers will have to resolve state law claims outside the PAID program, such as by seeing if the California Division of Labor Standards Enforcement will work with employers to settle California issues, McCutchen said.

Employers may have to pay employees an additional sum beyond what was negotiated through the PAID program to resolve state claims, DeCamp noted.

Despite these concerns, Robinson said that Secretary of Labor Alexander Acosta "should be commended for announcing this pilot program."
Boonin agreed, saying, "The development is refreshing and should be welcomed by both employers and employees." Employees can get all of their back pay without protracted litigation, and "employers can sleep better knowing that they've corrected problems without exposing themselves to the costs of litigation and liquidated damages."

Audit Topics

Rather than merely resolving problems that they were aware of but were reluctant to resolve before the PAID program was announced, employers should take advantage of the program to be more proactive and conduct self-audits to address other problems, according to McCutchen.

Self-audits may examine a wide range of issues, including:

• Uncompensated off-the-clock work.
• Whether the FLSA's travel time requirements are being met.
• Whether an employer is unlawfully paying comp time in lieu of overtime.
• Misclassification of workers as independent contractors.
• Misclassification of workers as exempt who should be nonexempt.