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It’s 6 p.m. Friday and just as you get ready to leave, the phone rings. Suzie, an hourly employee in one of your company’s manufacturing plants, tells you, the director of human resources, that she has to talk to someone.
“Please don’t tell anyone I’ve called. I just know my boss will fire me. It’s Bob—he tells us we’re not working hard enough and we could lose our jobs if we don’t work harder. He says we have to come in early and stay late, but he won’t let us clock in until 9 a.m., and makes us clock out at 5 p.m., even though we are working before and after those hours. We don’t mind working hard but we ought to get paid. He told us if you don’t like it there’s the door. I like my job. I can’t afford to go anywhere else. I don’t like to complain but this isn’t fair. Some people have talked about going to a lawyer. I don’t think you want a lawsuit. We just want to get paid.”
You assure her you’ll look into her complaint right away. After completing your investigation the results are clear: Since Bob joined the company six months ago, at least 30 employees have been working off the clock. You call your in-house counsel and tell him the bad news.
While you both agree that Bob should be fired and the off-the-clock work must stop immediately, you can’t decide what to do about back wages. He thinks the best thing to do is fix it going forward. He thinks the employees will exaggerate their back wages and then sue for even more money. You think they’ll sue if you don’t pay them. It’s a stalemate. What do you do?
Every year, more employers find themselves confronted with individual and class claims under the Fair Labor Standards Act (FLSA) and state wage-and-hour laws. In 2007 alone, more than 7,300 FLSA claims were filed in federal district court.
In response, employers have rushed to audit their compensation practices, often discovering violations. Employers then struggle to remedy any violations without prematurely alerting employees and triggering the type of lawsuit the audit was designed to prevent.
Employers have used a variety of remedial measures to correct violations including, in the most serious cases, the time-tested strategy for eliminating employment claims: a release of claims. Unfortunately, some employers have been shocked to learn that these releases are unenforceable and have been left to ponder the question “what is an employer to do when it discovers a clear FLSA violation and thinks a lawsuit is imminent?”
High-risk problems call for unconventional solutions. One such solution, increasingly employed by forward-thinking employers, is a voluntary compliance agreement with the U.S. Department of Labor, Wage and Hour Division (DOL).
You Want Me To Do What?
In the past, when I have suggested that clients consider approaching the DOL to self-disclose FLSA violations, my advice has been met with disbelief and occasional questions about my sanity. As business people, we’ve been trained to mistrust the government; the thought of voluntarily disclosing violations to the DOL and asking for assistance is contrary to our experience, honed instincts and collective business wisdom regarding the federal government.
Understandably, employers often worry that if they invite DOL officials in the door, they might overstay their welcome and broaden their inquiry to other matters. While that’s a legitimate concern, in my experience DOL officials are committed to working cooperatively with compliance-minded employers and typically will not expand an inquiry into other matters unless they receive a complaint from an employee.
Nevertheless, approaching the DOL is not for the faint of heart. Indeed, it is not unlike the biblical story of Daniel’s trip into the lion’s den. Fortunately, that story had a happy ending, and numerous employers have likewise discovered that you can walk into a den of regulators and come back alive and ahead in the race toward compliance.
Why Turn Myself In?
A voluntary compliance agreement offers an important advantage unavailable in private negotiations—the DOL can negotiate a valid release of affected employees’ claims. An employer cannot.
The second important benefit of a voluntary compliance agreement is that the DOL will generally only seek to recover two years of back wages instead of three years and it will not seek liquidated damages (under the FLSA, equal to back wages), attorneys’ fees or interest. In contrast, in private litigation, a plaintiffs’ attorney will ordinarily pursue a willful violation and three years of back wages, an equal amount in liquidated damages and attorneys’ fees.
Thus, a settlement with the DOL may involve less than a third of the potential liability an employer might otherwise face in private litigation. An added advantage for affected employers is that the DOL does not seek any kind of contingency fee or portion of employees’ back-wage recoveries.
Not for Everyone
In recent years, the DOL has focused resources on providing employers with compliance assistance.
The DOL offers employers a variety of compliance tools including the National Call Center for telephone assistance, e-mail responses to employer questions and the interactive First Step Employment Law Advisors. To encourage employers to use these resources, the DOL has adopted the Confidentiality Protocol for Compliance Assistance to alleviate any concerns that an employer might become the target of an enforcement action after contacting the DOL for compliance assistance and materials.
The DOL also offers voluntary compliance agreements to appropriate em ployers who have discovered FLSA violations and wish to voluntarily correct them with the DOL’s assistance and supervision. These arrangements allow an employer to correct FLSA violations, issue back-wage payments and obtain valid releases from employees who accept the payments.
Typically, voluntary compliance agreements are used to resolve FLSA violations that an employer discovers and brings to the DOL’s attention. Voluntary compliance agreements are not used to resolve claims already in litigation or identified during a DOL investigation. Voluntary compliance agreements are not extended by the DOL to every employer. Instead, the DOL considers a variety of factors before entering into a voluntary compliance agreement, including:
In general, there are two types of voluntary compliance agreements: stipulated consent judgments and administrative settlements. The key difference between these agreements is whether the parties have agreed to file a stipulated consent judgment in federal district court and seek judicial approval of the proposed settlement and release of claims. The use of a stipulated consent judgment involves the filing of a lawsuit by the DOL. In contrast, in an administrative settlement, no lawsuit is filed.
The advantage of voluntary compliance agreements is that employers can use them as shields against private lawsuits. Both types of agreements accomplish this goal, although a stipulated consent judgment is a more effective litigation bar than an administrative settlement.
So How Do I Negotiate With DOL?
As a general matter, voluntary compliance agreements must be approved by senior DOL officials, so it is important to involve the appropriate DOL representatives in your negotiations.
A typical negotiation of this kind will involve district and regional DOL representatives, as well as senior officials in Washington, D.C. It is helpful to use in-house or outside legal counsel with experience in such negotiations.
The following steps are recommended:
Depending on the complexity of the matter, several meetings may be necessary to fully inform the DOL of the nature and scope of the violation. The DOL officials typically will not agree to a voluntary compliance arrangement until they have the opportunity to complete an internal review.
Exchange information. During this phase of the negotiations, the DOL officials may request interviews and documents. The early meetings should be used to reach agreement on what type of due diligence the DOL will conduct to verify the employer’s description of the problem and back-wage calculations.
Obtain final approval and pay back wages. This phase of the negotiations will vary depending on the type of agreement to be used. If a stipulated consent judgment is used, the parties will need to agree on the nature of the claims to be included in the complaint and the stipulated consent judgment. The agreement will need to provide for DOL supervision of back-wage payments; the disposition of any funds that are returned as undeliverable; and whether back-wage payments will be subject to deductions including wage orders, garnishments, support orders or 401(k) deductions.
In contrast, if an administrative settlement is used, the company will need to confirm that any back-wage payments will be made under DOL supervision using the WH-58 receipt form and the disposition of any funds that are returned as undeliverable. The company also should determine what, if any, correspondence will be sent by the company to back-wage recipients and whether checks will be sent to current and former employees by the DOL or the company.
While voluntary resolutions of this kind require careful, well-planned negotiations with DOL representatives, a voluntary compliance agreement can be employed to effectively eliminate potential private litigation and reduce the financial risk associated with known wage-and-hour violations.
The author, an attorney at Littler Mendelson in Atlanta, is a former HR executive with extensive experience in wage-and-hour issues, employee relations and general employment matters.
Online extra: No Private Waiver of FLSA Claims
Online extra: Stipulated Consent Judgment vs. Administrative Settlement
SHRM toolkit: FLSA Toolkit
SHRM article: Developing a ‘Clock-Work’ State of Mind: Avoid ‘Off-the-Clock’ Work Claims by Nonexempt Employees (Legal Report)
Web site: Elaws (U.S. Department of Labor)
Web site: Wage and Hour Division home page (U.S. Department of Labor
SHRM web page: SHRM Online Workplace Law Focus Area home page
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