On March 6, 2018, the U.S Department of Labor's (DOL) Wage and Hour Division announced its new Payroll Audit Independent Determination (PAID) program. A six-month pilot program, PAID allows employers to proactively address potential wage and hour underpayments under the Fair Labor Standards Act (FLSA) by seeking early resolution of potential wage and hour violations. Karen Harned, Executive Director of the NFIB Small Business Legal Center, will provide an overview of the program and discuss the benefits and possible pitfalls of participation by employers.

 

Featuring:

Karen Harned, Executive Director, National Federation of Independent Business Small Business Legal Center

 

 

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Event Transcript

Speaker 1:                           Welcome to the Federalist Society's Practice Group Podcast. The following podcast, hosted by the Federalist Society's Labor Employment Law Practice Group and Regulatory Transparency Project was recorded on Wednesday, May 9, 2018 during a live teleform conference call held exclusively for Federalist Society members.

Laura Flint:                          Welcome to the Federalist Society teleform conference call. This teleform we will discuss the Department of Labor's new PAID program. My name is Laura Flint and I'm the Deputy Director of Practice Groups here at the Federalist Society. As always, please note that all expressions and opinion are those of the expert on today's call. Today we are happy to have with us Karen Harned, Executive Director at the National Federation of Independent Business Small Business Legal Center. After hearing from our speaker, we will go to audience question and answer. Thank you for speaking with us, Karen, the floor is yours.

Karen Harned:                   Great. Thanks for having me, Laura, and thanks for those on the call joining us today. I work for small business owners and one of our constant complaints has been, over the years, that government does a really good job at playing gotcha and catching you when you run afoul of some law, coming in, inspecting you unexpectedly for some potential violation, and then rooting around until they find one; but they don't do as good of a job of telling you what the laws are.

                                                As we all know, there are a tremendous amount of laws on the books and when it comes to wage and hour laws that are governed by the statute, the Fair Labor Standards Act, and concern over time, and those types of issues, you see that not just the small businesses that I represent, but even the significant number of large businesses, in fact at one point I saw the percentage guesstimated in the 70% range, are really out of compliance in some way or another. Over the years, this is actually, I guess I would say probably over the last 10 years or so, we've really seen the trial attorneys, the trial bar, see this as a real problem and as a problem that they can exploit.

                                                Across the country you're seeing a number of multi-million dollar Fair Labor Standards Act cases that are filed on behalf employees claiming that whether it was overtime, failure to pay overtime, or failure to pay for all work performed, or misclassifying an employee, whatever it might be, the company was out of compliance and as a result was on the hook for back wages, attorneys fees. I think if you're caught, I think it's treble damages if you're caught for not paying enough in back pay, so it's three times the amount due the employees.

                                                This gets really costly, especially for the larger firms, but even for a small firm this can be in tens of thousands of dollars to defend and resolve. If not into the hundreds of thousand, which could really hurt. With the new administration, with their push to deregulate, the Department of Labor has announced a new program that they are trying. It's a nationwide pilot program. They announced it, I think, in March. They started it in April. It was launched, officially, last month. It's called the Payroll Audit Independent Determination, or PAID, program, because every agency needs yet another acronym.

                                                This PAID program facilitates the resolution of potential overtime and minimum wage violations that you would find under the Fair Labor Standards Act. The primary objective of the program is to resolve such claims quickly and without litigation so that you're really encouraging employers to improve their compliance with overtime and minimum wage laws and, also, ensure that more employees are receiving the back wages they're due and getting those faster.

                                                On that, I would just say, lots of times, especially in light of all the litigation that you've seen over the last year of FLSA, employers will figure out, "Oh my, we've been classifying that employee wrong. They actually should be an hourly employee, not a salaried employee." They'll go and work with their attorney on this, but really there's a lot of incentives, or were before this PAID program, to not do anything about it because you didn't want to get a full scale federal investigation or costly litigation. This really, again I think, is why DOL is trying this.

                                                Their hunch is that this will bring up to open a lot of these issues and let companies really have a grace period, if you will, to fix these issues that maybe they've known about for a while. What is it? What is PAID and why now? It's a self audit, self reporting program and employers are going to preemptively remedy potential FLSA non-compliance and they're going to do that with DOL as a partner. As I said, DOL launched this program to recognize that employer efforts to come into compliance by reducing the threat of litigation from self reporting is a good thing and needs to be encouraged.

                                                The issues that you could correct under this program is misclassification of an employee. For example, you've got an employee that really should be an hourly employee, open subject to overtime, meal and rest breaks, all of that, but all through the years you've had them on a salaried basis. Now, you've got to figure out what that wage would look like on an hourly basis, how much were they working overtime, were they taking their breaks, that sort of thing. All that's going to have to be calculated.

                                                Any off-the-clock work, especially in this digital age where everybody's mobile with a cell phone that's hooked up to their work email, if that employee is an hourly employee and they're sending emails to their boss at 8:00 at night, that time has to be counted to the 40 hours they're allowed to work a week before they start getting overtime. Then regular rate and overtime calculation issues because there continue to be discrepancies on what work is eligible for overtime. For example, in certain industries putting on your safety equipment is eligible, sometimes it's not eligible. That's been heavily litigated over the years. Those types of issues or other issues are also issues that could be corrected through this program.

                                                The Fair Labor Standards Act really applies to pretty much every business in America, so really any business in America has to worry about these wage and hour laws. Some of the key features of this program are that it's open to [Evolus 00:07:53] A covered employers to address these violations. It's only available for claims that are not yet subject to investigation or litigation. You are going to be required, if you participate in the program, to review the Wage and Hour Division's compliance assistance materials and carefully audit your pay practices. Then, really, you're also going to have to go in knowing that you're going to correct, and agree to correct, the at-issue pay practices moving forward. We fixed the bad in the past and moving forward we're going to do it the right way.

                                                The good news is it's going to permit the resolution of these violations without liquidated damages or civil monetary penalties, so it's really meant to foster cooperation between the employers, the employees, and DOL, so that employers can find and correct pay errors and ensure that employees are paid what they are owed as quickly as possible. It's going to foster more voluntary settlements of FLSA claims without employees incurring legal expenses or attorneys fees. Those are some of the good parts of it.

                                                I would also just say, generally, I've looked at the website that you can go to on this, which is quite comprehensive. It's DOL.gov/whd/PAID. You can also just Google Department of Labor PAID program or something like that and it'll come up really quickly. They have a lot of good step-by-step instructions, including for you to make sure you're eligible. They've got a section on determining your eligibility and ask questions about your size and all of that sort of thing, to the extent that might impact it.

                                                They also have a lot of compliance materials on there. You will have to register with DOL in order to participate in this and do an online review of those FLSA compliance materials. The only way you're going to get access to those is by providing identifying information, including the company name. Now, the Department says that the Applicants who are not accepted, who they decide cannot participate in this pilot program, they will not be subject to DOL investigation as a result of the information provided in the Application unless there is a health or safety risk. The black helicopter crowd's going to have to believe that before they want to provide their information to DOL.

                                                They anticipate that Applicants are going to get their final claims determined within 90 days, so they are working for fast resolution. Then any employees that DOL determines back wages are due to, that they're going to need to be paid by the employer the next pay period following DOL's determination. That's also a calculation that businesses are going to need to make as far as the timing on when they might enter this program if they choose to do so.

                                                Interestingly, if there's back wages owed to former employees that now cannot be located, that money is going to go to the Treasury because the government's always going to get their cut. Employers that want to use this program, but then choose to privately resolve any wage claims with their employees but do it outside of this Department of Labor process, they are not going to be able to obtain waivers from those employees of their FLSA claims.

                                                As a result, the protection of following this program the whole way through is that claims by those employees are not going to be honored by DOL moving forward. That's not going to be the case if you decide to exit the program when it comes to resolving the wage disparity with your employee and do that on your own without the DOL official mark of approval.

                                                This is important too for companies to consider if they're thinking about doing this. The records, for the program, including the Applications, resolution documents, are not going to be confidential and they're going to be subject to the same Freedom of Information requests and defenses as other DOL investigation documentations would be. With that, that's really an overview of the program. I have to say I was, personally, skeptical going in, but in reviewing this, I really think this provides a great opportunity for employers to get into compliance.

                                                Honestly, in this day and age, with so much litigation in this area, is nothing but a good idea. I think this is great and I'm really anxious to see the proofs in the pudding, but to see how this ultimately resolves itself and whether it results in more compliance and the win-win for employer and employee that it's really being touted as from the administration. With that, Laura, I'm happy to take any questions.

Laura Flint:                          Let's go to audience questions. In a moment, you'll hear a prompt indicating that the floor mode has been turned on. After that, to request the floor, enter star then the pound key.

                                                When we get your request, you will hear prompt and then you may ask your question. We will answer questions in the order in which they are received. Let's go to our first audience question.

Robert Freed:                    Well, thank you so much. This is Robert [Freed 00:14:45] from California. I am wondering how this might integrate, if at all, with the Secretary's new willingness to issue opinion letters. We just had a bit of an earthquake type case out in California called Dynamex that raises special issues on independent contractor classifications. I'm curious if you have any insight on how IC will be treated or GIG employers, particularly in the trucking industry?

Karen Harned:                   I wish I knew that answer too, because we have a lot of our small business owners that I represent wanting to know the same thing. I can say that the Department, it appears, trying to do ... There's been a fundamental shift and they're trying to get information out to employers so they know what is and is not permitted. Thus, as you see, they've reconstituted the opinion letter process, which a lot of us had wanted them to do long ago.

                                                That is a good thing, because for those that don't know what an opinion letter is, you write in and say, "Hey, if I do this, is this a problem under DOL or not." They let you know if it's something that they would regulate or see in violation and how to navigate that. It's actually a more specific guidance document process, if you will, that DOL will do to just inform employers, again, what their obligations are. We've seen more of that.

                                                On the GIG economy and independent contractor, this is an issue that everybody's struggling with and I just have not gotten a good read, if I'm being honest, about where this administration's going to be on those issues. I just don't know. It's an unknown right now, so I'm sorry I can't answer that question for you.

Robert Freed:                    A quick related question, if I might, and that is would an employer who chooses to participate in PAID, nonetheless proceed with an opinion letter request?

Karen Harned:                   I don't know why you wouldn't be able to, especially if it's ... I would think, though, that you would want to do it on an unrelated issue, not on whatever the focus of ... I think, with this PAID program, if I'm reading it correctly, you can focus what it is going to cover. You just need to make sure that the issues ... That would be something I'd want to ask them, but I'm thinking you'd do the opinion letter on issues that are not going to be presented in your PAID program participation.

Robert Freed:                    Do you have a guess as to who the point person at DOL would be?

Karen Harned:                   Well, we're waiting on a Wage and Hour Administrator. It's definitely the Wage and Hour Division and I don't know. I should know who the acting person is for that right now and I do not. You can just call the Wage and Hour Division and ask that question.

Robert Freed:                    There's no one holding the fort at this point apart from the acting?

Karen Harned:                   No, that is one of our many vacancies right now at the Department of Labor. There's an acting, but I don't know who that is. Let me see if I can find that out.

Robert Freed:                    No, thank you so much.

Laura Flint:                          I think the acting is Brian Jarrett-

Karen Harned:                   Yes?

Laura Flint:                          ... Maybe?

Karen Harned:                   Yeah, that does sound right. Brian Jarrett. That does sound right.

Laura Flint:                          Again, to ask a question, please enter star then the pound key on your telephone key pad. Doesn't look like we have one lined up right away, so I'll ask one of my own. What do you think the disadvantages are to the program?

Karen Harned:                   Well, you are trusting the government here with your participation. That is the thing. Are you putting a bullseye on your business if you participate in this? Now, I have to think that they they thought about that and are going to be careful to not use that as a way to get you caught up in future enforcement issues that are separate and apart to this, like OSHA violations or that sort of thing. Similarly, what does that mean? Would it open you up to potential state violation? I really have to think that they thought about that before and are going to be very strong in not letting it result in that, because then people aren't going to use the program. I think they really want people to use the program.

                                                Then, also, employees, they're not going to be required to accept wage payments offered by employers through this program, so you could go through this program but your employee could still choose to pursue their federal claims in court and seek additional financial remedies to get, from their perspective, trying to get paid more. Yeah. Then on the State thing, again, employers are also, I think, going to be concerned that if you let your employee know, "Hey, we've had these past wage violations at the federal level," the employee may think, "Well, I wonder what that means about state law? Maybe I could go after them on that?"

                                                The statutes of limitations in different states are longer than the Fair Labor Standards Act two year or three year filing period. For example, in New York and California, respectively, you've got New York's the six years, California's is four. That's why I would recommend, as we always do on any of these things, that you talk to your employment counsel before you decide to participate. Again, ultimately, this could be a real win-win for employers, I think. I think it's definitely worth looking into.

Laura Flint:                          Again, to ask a question, please enter star then the pound key on your telephone key pad. I'll make a brief announcement. Our next teleform conference call is scheduled for Friday May 11th. That call will be a courthouse steps call on the late Ron Rotunda's newest book, "John Marshall and the Cases That United the States of America" and will feature Professor James Ely, Professor of Law at Vanderbilt Law School, and Professor Stephen Presser at Northwestern University School of Law. Jack Park will also be our moderator and he's our Professional Responsibility and Legal Education Practice Group Chair.

                                                I'll ask another question while we wait for an audience caller. What do you need to do to participate in the program?

Karen Harned:                   Again, you'd want to go to their website and you will have to fill out this compliance assistance review certificate. When you go to that website, it's the fourth thing down after you've determined your eligibility, you fill out this certification, and then you're going to go through, basically, Fair Labor Standards Act, compliance assistance training online, I guess, through them. Then you're going to conduct your audit. Once you've completed the PAID compliance assistance review, generated the certificate saying that you completed it, then you're going to want to audit your business's compensation practices.

                                                You're going to want to specifically identify the potential violations that may have occurred in the last two years, which employees were affected, the timeframes within the last two years in which each employee was affected, and calculate the amount of back wages the employer believes are going to be owed to each employee. Then, if you pay back wages to your employees before the Wage and Hour Division reviews and assesses it, again, you're going to find that those employees will not have waived their rights to pursue a private lawsuit.

                                                You want to submit that information to DOL, the calculations, all of that, and get their blessings. They'll send out a determination and then, with that, you can go ahead and do the next thing, which is pay the wages, which will be due the next pay period after the determination letter comes out. Again, they're hoping to get these determination letters out within 90 days of you applying.

Laura Flint:                          I'll make another call for questions. Again, to ask a question, please enter star then the pound key on your telephone keypad. Not seeing any. Can you participate if you had a prior investigation or litigation on a different FLSA issue?

Karen Harned:                   Well, on a different one, I think you can, but if it's on the same issue within the last, I think they said, five years or something, you cannot. Also, if you're currently subject of an investigation of whatever the issue may be, you cannot participate. You're going to want to just make sure on all of that, if you've got any prior investigations or any current litigation, make sure that whatever that is, isn't covering the same issues that you would be wanting to participate in with regards to this.

Laura Flint:                          I'll make a final call for audience questions. Again, to ask a question please enter star then the pound key on your telephone keypad. Reminder to keep an eye out for emails announcing upcoming teleform calls. You can consult the full schedule or our upcoming calls on the Federalist Society's website. Also available there are podcasts and previously recorded teleform calls you may have missed. Do you have any final remarks, Karen?

Karen Harned:                   No, it's just one more, from our perspective, or my perspective, I guess I would say, it's just the deregulation has been welcome and these compliance assistance tools, I think, are worth a try. Under George W. Bush, the 43rd President, his DOL under Secretary Chao, at the time, they did something with OSHA that was somewhat similar. I don't know if it was exactly similar, but it was more of a compliance assistance, call if you have questions. I can say, from experience, that a number of small business owners I know did use that program and really appreciated it and did not have any negative repercussions as a result. I think it might be worth trying out but, again, I would definitely not do so without first consulting with your employment attorney.

Laura Flint:                          On behalf of the Federalist Society, I want to thank our expert for the benefit of your valuable time and expertise today. We welcome listener feedback by email at info@fedsoc.org. Thank you all for joining us. We are adjourned.

Speaker 1:                           Thank you for listening. We hope you enjoyed this Practice Group Podcast. For materials related to this podcast, and other Federalist Society multimedia, please visit the Federalist Society's website at fedsoc.org/multimedia.