Labor: The year of the “gotcha”

Employers must beware of increased wage and hour enforcement and litigation in 2012

Based on the U.S. Department of Labor’s (DOL) Wage and Hour Division’s (WHD) 2012 budget, employers can expect an increase in wage and hour enforcement and litigation. The WHD’s budget increased by more than $15 million in 2012, and the agency will add 107 new investigators this year. The WHD made only one cut to its budget in 2012: it decreased the budget of Employer Compliance Assistance and Call Center by $2 million and eliminated 12 of its employees.

Historically, the WHD initiated investigations based on employee complaints. But in 2012, the WHD pledges to increase targeted investigations as part of its “corporate-wide compliance strategies designed to ensure that employers take responsibility for their compliance behavior” in order to “promote system-wide behavioral changes within industries.” Directed or targeted investigations allow the administration to target industries, specific issues and even select employers.

In 2012, WHD will continue to solicit employees to file complaints through its campaign to build awareness about the agency’s ability to remedy violations on behalf of workers. For example, the agency will continue to use radio and television spots, web-based tools (like its iPhone application), print materials, and partnerships with worker- and community-based organizations to encourage reports of workplace violations. However, the WHD will shift much of its investigative resources to a more directed approach and will not investigate a large portion of the complaints filed with the agency.

Instead, in many cases, the WHD will advise employees who do call to file complaints of their private right of action under the FLSA and, depending on the district, may even refer the employee to a plaintiff’s attorney under the WHD’s bridge to justice program. With the WHD referring the majority of its complaints to the private bar, employers should expect to see an increase in private wage hour litigation.

The primary focus of the WHD’s directed investigations in the coming year will be the misclassification of employees and issues of joint employment. Therefore, a top priority for employers should be the review of their contracts with employment agencies, 1099s, and cash ledgers for possible misclassification and joint employment concerns. The DOL will continue in fostering partnerships with state and federal agencies, as well as community groups, to further these initiatives. It is important to remember that the cooperation between government agencies does not mean that there will be consistent findings among them. Each agency may have a different enforcement policy or test of who is an independent contractor.

The IRS, for example, created a program that provides partial amnesty to employers who self-report misclassified independent contractors. The IRS also has a mechanism where employers can write and receive a determination of whether a contractor is properly classified. However, there is no WHD policy that encourages employers to self-report or that would assist in determining whether a contractor is misclassified.

These investigations are being carried out by 300 new investigators, who are utilizing very aggressive techniques, including:

  • Making demands for documents in addition to the required records that must be kept under 29 CFR 516
  • Issuing civil money penalties after negotiating a complete settlement without ever mentioning the penalties during negotiations
  • Threatening employers with litigation if they do not sign tolling agreements (employers should never sign a tolling agreement)
  • Imposing unreasonable timelines to produce voluminous documents without considering the burden on the business
  • Threatening employers with administrative subpoenas if they refuse to create documents for the investigator (for example, summaries of records, spreadsheets of time worked or an exemption analysis)
  • Arriving in a team unannounced at a business during peak times and disrupting the business

Perhaps the worst “gotcha” tactic being used by the DOL is threatening to damage a compliant company’s reputation with a press release. The threatened companies are usually those that contract with franchisees or have exclusive distribution agreements. For example, say a Fortune 500 company enters into an exclusive agreement with a company to distribute its products. WHD finds gross violations occur within the distribution company, but the company is insolvent and can not pay the back wages. WHD asks the Fortune 500 to pay the back wages, even though it agrees that the company did nothing wrong, or it threatens to include the company’s name in its press release.

In 2012, threats of negative press releases as a means of negotiation will be further supplemented when the WHD will begin listing the results of their investigations on its website and specifically identifying employers who violated wage and hour law.

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