Truth and Consequences: The Quandary of Employment References for Dangerous Former Employees

The DOL’s aggressive sweep through employers is not just limited to small employers. Last April, an Oregon jury found that Taco Bell managers doctored timecards of more than 13,000 employees to reduce labor costs. Damages are expected to run into the millions of dollars.

The Oregon verdict followed a February settlement in a California case in which the company agreed to pay $9 million in overtime to 3,000 California Taco Bell managers and assistant managers for misclassifying them as exempt salaried employees (free from overtime) when, in fact, they were nonexempt salaried employees who should have been receiving overtime wages.

Mervyns, a dry goods department store in California (sister company of Target Department Stores), settled a wage claim for paying employees a weekly salary as exempt employees (without overtime) when they were actually nonexempt (with overtime) employees. That settlement was $11.3 million.

The most obvious violations the DOL discovers in a small company is the misclassification of employees, inadequate employment compliance posters (or no federal and state compliance posters in the workplace at all), and the failure to keep accurate time records. As a result of these three glaring violations, the DOL has the authority to assess large monetary penalties and back pay for the prior two years to every employee who was misclassified as being exempt from overtime wages.

I guess the most obvious question is, what would you do if your company received a letter from the United States Department of Labor stating that an investigator would be at the door in the next few days to talk to the company’s employees and examine the company’s wage and hour records? Worse, what if an investigator showed up unannounced and demanded to speak with employees and to rifle through the company’s records? This article addresses the DOL’s investigatory process and suggests ways to manage liability in the face of an investigation.

Does the DOL Have the Right to Investigate? The Wage and Hour Division of the DOL has the right to investigate a company’s records and talk to employees about pay practices. Although most investigators will notify an employer prior to starting an investigation, such notice is not required. If the company is investigated, you can expect the DOL to come to the facility, gather and review company records, interview employees, and make a determination about potential violations of the Fair Labor Standards Act (FLSA). If you deny an investigator access to your company’s premises, he or she will eventually gain access by subpoena.

What Triggers an Investigation?

Complaints by current or former employees can trigger an investigation. Recently terminated or disgruntled employees initiate many of the investigations. In addition, in the absence of a complaint, the DOL may simply select your workplace for investigation. Although all employers are subject to investigation, the DOL frequently undertakes targeted sweeps of employers in particular industries.

Should We Contact an Attorney Upon Learning of an Investigation?

It is advisable to immediately contact an attorney with experience handling DOL investigations. An experienced attorney will offer advice concerning the technical and often confusing requirements of the FLSA and assist in making important decisions during the investigation. Self-representation during an investigation may lead to severe monetary damages by misstating a company process or procedure as it would relate to employee classifications and pay structures.

What Is the Role of the DOL Investigator, and How Should I Interact with That Person?

The DOL will assign an investigator who will be your company’s main DOL contact throughout the investigation. It is beneficial to establish a cooperative relationship with the investigator from the beginning. Your company should communicate to the investigator that, although it does not believe it has violated the FLSA, it will work cooperatively with the investigator and, if violations are found, do what it takes to come into compliance. (Of course, if the company disagrees with the DOL’s findings, it should be prepared to respectfully defend its position.)

What Can an Employer Do During an Investigation to Limit Its Potential Liability?

• Determine who will interact with the investigator. (A company representative? An attorney?)

• Before providing any information or documents, determine the scope of the investigation. (All locations? All employees?)

• Carefully review all documents for accuracy before submitting them to the DOL.

• Consider submitting a detailed “position statement” setting forth the company’s legal and factual support for its position.

• Train supervisors and managers on the pertinent issues so they are prepared for questions from the DOL and employees.

• Consider interviewing employees prior to the DOL interviews to gain accurate and thorough information.

What if the DOL Finds That My Company Has Violated the FLSA?

If violations are found, the DOL first will require that the company change its pay practices so no additional violations occur. Once future compliance has been promised, the DOL will require that the company pay any back wages owed to current and/or former employees. The amount owed will depend on the nature of the violations and the number of employees at issue. A two-year statute of limitations applies to the recovery of back wages, except that in the case of willful violations a three-year statute of limitations applies. The DOL will state the amount of back wages it believes are owed and will then give the company an opportunity to submit its own calculation and supporting evidence. The DOL and employer then typically enter into settlement discussions to reach a resolution. At this point in the process, the company may submit an offer to settle the case for an amount of money substantially less than the DOL is requesting. Advice of counsel is recommended during these negotiations.

What if My Company Disagrees with the DOL’s Findings?

If the company disagrees with the DOL’s findings, it may refuse to comply with the DOL’s orders. The DOL will then decide whether to file a lawsuit seeking to enjoin the company from further violations and compel payment of unpaid back wages. even if the DOL does not pursue the case, any employee who believes he or she is owed money may file a private lawsuit.

What Steps Can My Company Take, Before an Investigation, to Limit Its Liability?

Employers should conduct self-audits to ensure compliance with the FLSA and State employment laws. Before doing so, the company should consult with employment counsel concerning the various legal requirements of the FLSA and the company’s State; lack of knowledge is no defense to liability. In general, the company should do the following:

• Review each employee’s actual job duties and classification as exempt or nonexempt under the FLSA, and make adjustments as necessary.

• Update job descriptions regularly. For exempt positions, ensure that job descriptions include duties that meet the “duties” test of the applicable exemption.

• Review FLSA record-keeping requirements. Maintain updated and accurate information.

• Prominently display the DOL’s required FLSA poster in the workplace.

• Review rules regarding what is considered “working time” under the FLSA and ensure that nonexempt employees accurately record hours worked.

• Periodically review the status of independent contractors to ensure that they are correctly paid as independent contractors rather than employees.

• Ensure that employees who complain of FLSA violations are not subject to retaliation.

Compliance with both Federal and State wage and hour laws is a difficult but mandatory task. The consequences for noncompliance can be severe and could result in large monetary damages. While reviewing these laws personally or with the appropriate advice of counsel, keep this rule in mind: Whether applying the Federal Fair Labor Standards Act or your individual State Employment Laws to your employment practices, the law most favorable to the employee is the law that must be used. Here are some examples:

• The FLSA does not require overtime after 8 hours in a day but does after 40 hours in a week. But if the State requires overtime after 8 hours in any workday, then the employee receives overtime after 8 hours.

• The FLSA does not require rest breaks during the workday. But if the State requires a rest break for every 4 hours worked and a meal break for shifts longer than 5 hours, the employee receives both the rest and meal break if the prescribed hours are exceeded.

• The FLSA requires a salaried exempt-from-overtime employee to have control (defined as being able to hire or terminate a minimum of 2 employees) over other employees. If the State does not have laws pertaining to a salaried employee receiving overtime, then, if your salaried employee lacks the FLSA-defined level of control, the FLSA applies to the classification and the salaried employee receives overtime.

In short, employee wage and hour laws are a current issue requiring the attention of any employer, no matter the number of employees they have or independent contractors they retain. Don’t be caught unprepared.

About the author
Robert Palow is president of RP Consultants, a Placentia, CA based company that specializes in labor and employment practices. He has more than 30 years of management and legal experience in the human resource field.