Labor Dept. Plan to Circumvent Wage-Hour Lawyers May Backfire

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By Ben Penn

The Labor Department is scheduled to open its doors today to businesses who wish to confess their minimum wage and overtime sins.

Administration officials are promoting a new self-reporting initiative on the premise that when employers disclose violations and the DOL facilitates back pay to workers, everyone wins from avoiding the costly, lengthy hassle of private wage-hour litigation. Attorneys, especially those representing workers, would seemingly be the only losers.

Except lawyers for workers and management—hardly fearful that they’ll be squeezed out of the equation—are skeptical whether the six-month pilot project will become a permanent feature in the Trump DOL’s broader goal to enforce the law with the carrot instead of the stick. The efficacy of the program may determine whether the decadeslong boom in Fair Labor Standards Act class actions will retreat, or if DOL leaders have unintentionally opened a new avenue for the plaintiffs’ bar.

Starting April 3, the DOL’s Wage and Hour Division will accept applicants to what it’s calling Payroll Audit Independent Determination (PAID). Companies can submit a self-audit to the WHD and, if approved, distribute the wages owed to workers, who would then need to sign a waiver foreclosing their right to sue under federal law. In addition to limiting their class action exposure, participating businesses would be able to avoid paying workers double damages, a deterrence tool commonly leveraged under Obama-era wage enforcement.

Labor Secretary Alexander Acosta, asked at a recent Senate hearing whether the DOL lacks the will to enforce the minimum wage, responded by detailing the virtues of PAID.

“We will make sure that 100 percent of the dollars go back to the employees, and by bypassing the litigative system and letting” businesses “say, ‘we made a mistake, we want to pay what we owe,’ we hope that the dollars go back to the employees much more quickly,” Acosta said.

But the secretary didn’t mention a provision of the pilot that’s causing some management-side consternation: Workers can deny the paychecks and instead file claims in federal and state court for at least twice the amount and potentially covering a longer period of liability.

“I think it’s likely that workers who don’t take the settlement will contact firms like ours,” Melissa Stewart, a partner at plaintiff firm Outten & Golden in New York, told Bloomberg Law. Outten & Golden has recently filed class action claims alleging wages owed to employees of such corporations as Chipotle, Wells Fargo, and Jimmy Johns.

Even some management attorneys who support the DOL’s concept of giving businesses a pathway to correct errors are stopping short of endorsing PAID to clients.

“Since each individual has the right to accept or not accept, and then you layer over it the issues of potential state claims, those are all the things that I think any given employer would have to think through,” James Coleman, who heads the national wage-hour practice at Constangy in Washington, told Bloomberg Law.

Triggering Lawsuits

Employers have wrestled for years over what to do once they realize they aren’t complying with wage-and-hour laws. That includes, for instance, situations in which an internal audit reveals they’ve been failing to pay the minimum wage for break periods, or were misclassifying certain occupations as ineligible for time-and-a-half overtime pay. Self-correcting always comes with the fear of triggering a lawsuit from workers who have suddenly been given a lesson on their FLSA protections.

The WHD has a chance to assuage some of the concerns that fessing up under the PAID process still won’t eradicate their long-standing angst that volunteering to pay up will backfire with a new lawsuit. The agency intends to release April 3 more detailed guidelines on the program’s parameters, a DOL spokesman said.

But even based on the scant specifics the WHD has offered thus far, some management attorneys are telling clients that the potential benefits of signing up for this project aren’t worth the risks of informing federal investigators and employees of the past transgressions.

“What if an employee said, ‘I don’t want that. Thanks for alerting me to this issue. My uncle’s a lawyer—I’m going to go talk to him,” Coleman said.

Workers in New York could file a claim for six years of back pay, rather than two years that the DOL would recover. In California, the statute of limitations allows for a four-year lookback.

Greg McGillivary, a senior partner at employee-side firm Woodley & McGillivary in Washington, said workers dissatisfied with the DOL’s offer could turn to the courts.

“I think everybody would be excited to represent these workers,” McGillivary told Bloomberg Law. Plus, an employer’s confession would be “easy pickings” for state attorneys general, who “wouldn’t have to engage in a full new investigation,” he added.

Another possible pitfall cited by several attorneys is that there’s no guarantee that the WHD wouldn’t deny an applicant that doesn’t meet the program’s good-faith requirements, and use the business’s internal audit to start an investigation.

Interest Still High

For those companies that do decide to give this program a shot, management attorneys have a chance to swoop in and help them prepare their audit.

Tammy McCutchen, the WHD administrator under President George W. Bush, is now a principal at Littler Mendelson, where she’s advising companies on whether to partake in PAID. McCutchen recently hosted a webinar on the program that she said attracted more than 1,000 attendees.

While the WHD’s imminent release of more details will be crucial, McCutchen is encouraged by the fact that the department is creating a formal mechanism for employers to report, instead of the less official system for voluntary reporting last used in the George W. Bush administration.

“It’s going to have published standards; they’re not going to work with employers who have already been under investigation,” she told Bloomberg Law. “They’re looking to help the good-faith employers.”

The risk of activating plaintiff lawyers doesn’t necessarily mean businesses won’t give this a chance, Caroline Brown, an attorney with Fisher Phillips in Atlanta, said. Workers can always decline the back pay that the WHD has recovered from a standard investigation, but they almost always opt to take the money, she said.

“I have dealt with some situations where the employee did not accept the payment, but those are few and far between,” Brown told Bloomberg Law. “It is much faster than the litigation process.”

Perhaps by the end of April 3, the WHD will publish program parameters that provide the clarity to get businesses jumping at the chance to report their violations. But for now, Acosta and the WHD’s ability to achieve their mission to circumvent private litigation remains to be seen.

“I have communicated with my clients that the program is out there,” Betsy Davis, an attorney with LeClairRyan in Richmond, Va., told Bloomberg Law. “I have not had anybody dying to participate yet.”

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