One of the biggest criticisms I have of the FLSA is that it provides no safe harbor or protection for an employer, who having realized it made a wage and hour mistake, to voluntarily self-report and correct its mistake. Instead, it can encourage employers who learn of a potential FLSA violation that has not otherwise been discovered to continue its current practice hoping that the violation will not be discovered. This week the U.S. Department of Labor announced its Payroll Audit Independent Determination (PAID) program that takes a step in providing employers with an incentive to voluntarily identify and self-correct wage and hour violations. The stated purpose of the program is to
to resolve such claims expeditiously and without litigation, to improve employers’ compliance with overtime and minimum wage obligations, and to ensure that more employees receive the back wages they are owed—faster.
The PAID program is similar to the IRS’s Voluntary Classification Settlement Program I wrote about seven years ago. In 2011, the IRS provided a limited safe harbor for employers that had misclassified employees as independent contractors. The IRS program (with a few modifications) is still in effect today.
Under the new PAID program, the DOL is implementing a six-month pilot program allowing employers who discover potential overtime and minimum wage violations to resolve the violations with the DOL by self-reporting the violations, paying the back wages to employees and committing to future FLSA compliance. According to the DOL, an advantage of self-reporting under the PAID program is that the Department will allow the employer to correct the violation without paying liquidated damages or civil monetary penalties. The program cannot be used by employers that are currently under DOL investigation or who are involved in wage and hour litigation (or threatened violations) over the same violation.
Many of the same problems I identified in the IRS’s program in 2011 exist with the PAID program. For example, self-reporting and participating in the DOL program does not bar an employee from pursuing his or her own claims for the unpaid wages, liquidated damages and attorney’s fees because it does not require employees to surrender any rights unless the employee accepts the amount calculated to the employer under the supervision of the DOL. Unfortunately, the employees are not required to accept the amount and can pursue their own individual claim or claims on a collective basis. Similarly, self-reporting and disclosing the violations to the DOL is tantamount to admitting the employer violated the FLSA. Any employee, or group of employees, could elect to retain their own private plaintiff attorney to pursue their individual or collective claims and the employer. The potential violations the employer is reporting are violations that have not yet been identified by the DOL itself or private plaintiff’s counsel and participation in the PAID program may be the catalyst for triggering an FLSA lawsuit.
Because the program is only available for a limited time before undergoing agency review, employers should expeditiously conduct their own payroll audits and, if potential FLSA violations are discovered, seek guidance about whether they should participate in what could be a limited time offer of safe harbor from the DOL.
The DOL’s release on the PAID program can be viewed here.