For some time now, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) has been taking a progressively more aggressive approach to wage and hour compliance, marked by increased staffing/resources and more frequent investigations. Certain industries, like construction and gas/oil industry employers, are now frequent targets, but no business is immune from the government’s reach and the potential for a time consuming and costly wage and hour investigation. Unfortunately for employers, the potential for significantly increased damages is now also part of the equation. More specifically, the WHD is pursuing not only back wages but also liquidated damages for overtime violations under the Fair Labor Standards Act (FLSA). Liquidated damages are assessed in an amount equal to any unpaid wage/overtime liability. With double damages, liability can become quite significant, particularly when multiple employees/collective action claims are involved.
While the FLSA has always provided for liquidated damages, the WHD traditionally pursued only back wages in connection with an administrative investigation. Liquidated damages were typically pursued only in litigated cases (whether employee initiated or filed by the WHD on behalf of one or more employees). Now, however, the WHD appears to be assessing liquidated damages almost as a matter of course as a normal part of the investigation process, thus subjecting employers to double liability (back pay plus an equal amount in liquidated damages) in the event an employer is determined to have violated the FLSA.
Although the FLSA recognizes a “good faith defense” to the assessment of liquidated damages, establishing that the defense applies is difficult. An employer must demonstrate that it acted in good faith (such as by seeking and relying in good faith on the specific advice of counsel in advance of a violation) and had reasonable grounds to believe that its actions were in compliance with the FLSA. The defense is very narrow and cannot be established by showing that the employer did not intend to violate the law, did not know that it was violating the law, acted based on pure mistake or ignorance, or that its employees are otherwise paid well.
Waiting to address these issues until after the DOL knocks at your door is a mistake that many employers all too often regret. The smart employer is proactive, not reactive. The best way for an employer to minimize and protect against wage and hour liability is to conduct internal audits and review compensation, payroll and recordkeeping practices. Start now and conduct periodic audits going forward, to ensure and maintain compliance with wage and hour laws and to allow for an opportunity to correct issues of concern before you are faced with an outside investigation or lawsuit. Audits should include review of employee classifications and payroll practices, how salary is paid and deductions are applied, how work time is tracked and recorded, and how overtime is calculated and when wages are paid, all to ensure that employees are properly classified as either exempt or non-exempt and that all practices, classifications, and payment methods are legally compliant with the FLSA and Pennsylvania’s Minimum Wage Act and Wage Payment and Collection Law.
The McNees Labor & Employment Practice Group can assist you with conducting internal audits, reviewing your employment practices, and responding to any DOL compliance inquiry. Please do not hesitate to contact any member of our group for assistance with these issues and any questions you may have.