Q. I suspect that our company may have inadvertently committed overtime and minimum wage violations. Is there a way I can make this right without incurring substantial legal liability?
A. Possibly. Earlier this year, the United States Department of Labor (DOL) Wage and Hour Division announced the creation of a new nationwide pilot program called the Payroll Audit Independent Determination (PAID) program. In short, the PAID program encourages employers to conduct payroll self-audits and, if they discover overtime or minimum wage violations, self-report those violations to the DOL and work with the DOL to rectify the problem and ensure employees are paid any wages owed.
Before reaching out to DOL in an effort to resolve any pay issues under PAID, employers must certify that they have read certain compliance materials about the federal Fair Labor Standards Act (FLSA). After reviewing the compliance materials, employers can self-audit their payroll practices by themselves. While the materials on the DOL website about the PAID program do not address attorney involvement, a company may consider conducting a payroll audit under the direction of an attorney. One benefit of auditing payroll practices under the supervision of an attorney is the potential to keep confidential the legal analysis and conclusions from such an audit under the attorney-client privilege. However, if an employer chooses to resolve any wage and hour issues with the DOL through the PAID program, information collected in a payroll audit inevitably will need to be disclosed to the federal government.
The PAID program is not available to employers to resolve claims that are already being investigated or litigated. Further, if either DOL or a court has determined in the past five years that the employer has violated the FLSA by engaging in the same compensation practices at issue in the proposed PAID self-audit, an employer will be prohibited from participating in PAID.
The benefit of this program? After evaluating information provided to it, DOL can accept a company into the PAID program and then facilitate the payment of wages to employees in exchange for employees agreeing to release claims with regard to the particular FLSA violation at issue—all while the company avoids the payment of liquidated damages and attorneys’ fees. Companies typically cannot require employees to waive wage claims unless the process is supervised by a court or the DOL.
The major downside? Neither the employer nor the DOL can force an employee to sign a waiver and release of claims. Employees may opt to accept payment and sign a release of claims or they can decline to accept payment and then file a private lawsuit with the knowledge that its employer believes it may have violated the law. However, an employee may be reluctant to file a private lawsuit because of the likelihood that it would take many years and require the employee to incur the cost of both attorneys’ fees and litigation.
In addition, it is possible but not certain that the DOL may share this information with other agencies, resulting in further liability. It also appears unclear whether the DOL will apply a two year or three year statute of limitations to employers who participate in the PAID program.
The PAID program’s impact on employee claims under state wage and hour laws is uncertain. According to the DOL website, DOL “may not supervise payments or provide releases for state law violations.” Thus, even if an employee signs a release of claims while participating in the PAID program, the employee may not release claims under state law. As such, a state labor department or private plaintiff may still try to recover unpaid wages, liquidated damages, and attorneys’ fees if available under state or local law.
As a pilot program, much remains to be seen about how the PAID program will actually be implemented. There are perhaps just as many risks as there are benefits for an employee participating in the PAID program. If your company is interested in conducting an audit of its payroll practices, or exploring the possibility of participating in the PAID program, please contact any member of the Pepper Hamilton Labor & Employment group.