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DOL Announces Aggressive Enforcement Plan for Employee Classifications
March 15, 2009
Employers should carefully review their employee classifications as DOL announces aggressive new enforcement plan.
Overview
A report released by the Government Accountability Office (“GAO”) on March 25, 2009, found that the Wage and Hour Department of the U.S. Department of Labor (“WHD” or “the Department”) consistently falls short in properly investigating claims of wage and hour violations under the Fair Labor Standards Act (“FLSA”). This report summarizes the GAO’s investigative findings following an initial report in July 2008 on the WHD’s systemic enforcement failures. In 2008, the GAO reported that (1) WHD enforcement actions from 1997-2007 decreased by one-third, (2) enforcement actions were generally limited to individual complaints instead of entire industries where violations were suspected, (3) available penalties for non-compliance were underutilized by the WHD, and (4) the Department had failed to maximize its outreach programs to inform workers of their rights under the FLSA.º
During the investigation summarized in the 2009 report, GAO representatives posed as 10 fictitious complaining employees and responding employers in order to test the WHD’s overall responsiveness. The GAO’s investigation “revealed sluggish response times, a poor complaint intake process, and failed conciliation attempts, among other problems.” In one case a Department investigator simply lied about investigating a claim, and delays of as long as five months before beginning an investigation into a complaint were common. Of the 10 fictitious complaints, the GAO reports that the WHD mishandled nine of them. The GAO also audited 20 actual complaints covering more than 1,100 employees and found that they too were “inadequately investigated.” The GAO ultimately concluded that the WHD’s intake and investigative process was “an ineffective system that discourages wage theft complaints.”
In response to the GAO’s findings, Labor Secretary Hilda L. Solis, an ardent supporter of labor and the Employee Free Choice Act, declared that she plans to increase WHD’s staff by a third in order “to refocus the agency on [its] enforcement responsibilities.”¹ Ms. Solis will likely be aided in her efforts by New York’s state labor commissioner, M. Patricia Smith, who was tapped by the White House on March 19, 2009, to act as solicitor, the third most powerful position in the Labor Department. Ms. Smith’s anticipated confirmation will not be good news for employers. A self-described “lifelong labor advocate,”² she enjoys the strong support and backing of labor unions, and is known for her aggressive enforcement approach. In fact, Ms. Smith has a reputation of not simply pursuing complaints filed by individual workers, but of using “dozens of investigators to do sweeps of various industries” suspected of wage and hour violations.³ These factors—two GAO reports highlighting the ineffectiveness of the WHD in a mere seven months, a Department of Labor headed by a pro-labor Secretary committed to redoubling the WHD’s enforcement efforts and its use of heavy penalties, and the likely confirmation of a solicitor favoring the expansive use of the WHD’s powers—underscore the urgency with which employers should evaluate their risks of exposure under the FLSA and take the steps necessary to protect themselves from the aggressive enforcement initiative of the WHD that will soon be underway.
What Employers Should Do Now
WHD investigations typically focus on identifying individual workers or groups of employees who have been misclassified by their employers as “exempt” from the FLSA’s overtime requirements. While at first blush the exemptions to the FLSA appear easy to apply,ª they actually require a fact-intensive analysis of a particular worker’s day-to-day job duties before they may be properly applied. This analysis must be done without regard to the worker’s job title or whether the worker is paid a salary or by the hour. Employers should promptly review all of the positions that they have historically treated as “exempt” to ensure that a recognized exemption to the FLSA actually applies. This review is likely to reveal a number of employment positions that fall within a “gray area” with respect to their exempt status, and employers are encouraged to consult with their labor and employment counsel in these borderline cases. In the face of the WHD’s public statements that increased and more aggressive enforcement initiatives are imminent, this is definitely a situation where an ounce of prevention is worth a pound of cure.
º The full report may be obtained at http://www.gao.gov/htext/d09458t.html. The full 2008 report may be obtained at http://www.gao.gov/htext/d08962t.html.
¹ http://www.nytimes.com/2009/03/25/washington/25wage.html?_r=1
² http://ohsonline.com/articles/2009/03/20/lifelong-labor-advocate-nominated-as-dol-solicitor.aspx
³ http://www.nytimes.com/2009/03/21/nyregion/21labor.html
ª A Department of Labor Fact Sheet outlining common exemptions to the FLSA may be found at http://assets.wnec.edu/45/U.S._Department_of_Labor_--_WHD__FairPay_Fact_Sheets_by_Exemp...pdf.