The Wage and Hour Division of the U.S. Department of Labor (DOL) announced last week that it is implementing a new program, the Payroll Audit Independent Determination (PAID) program, to encourage identification and resolution of potential violations of the Fair Labor Standards Act (FLSA). Under the PAID program, employers that discover a violation of the FLSA may resolve those claims by paying the amount of the unpaid wages to all affected employees. Employers that take advantage of the program will not be subject to any liquidated damages (i.e., “double damages”) or monetary penalties as a result of the FLSA violation. In exchange, the DOL will approve a release of claims by affected employees with respect to the identified violations.
This addresses a dilemma currently faced by employers who discover wage/hour violations within their organizations. Because FLSA waivers are not enforceable unless approved by the DOL or a court, employers who discover an inadvertent wage/hour violation and want to fix it are essentially faced with two options: pay back wages to the employee but get no release of claims, in which case the employees could still sue the employer for double damages and attorneys’ fees; or try to obtain DOL approval for a release of claims in exchange for the payment, which notifies the DOL of the violation and risks action by the DOL to recover double damages and/or impose monetary penalties on the offending employer.
Under the PAID program, the DOL will approve a release of claims as long as the employer pays the back wages owed to each affected employee. The release will be for the reported violations only; the DOL will not approve a general release of all FLSA claims. Additionally, employers may not use the program to resolve claims that: 1) are already under investigation by the DOL; 2) are already in litigation or about which an employer has received a threat of litigation from an employee’s attorney; or 3) relate to pay practices that were previously resolved under the PAID program (in other words, an employer cannot continue the same unlawful practices and continue to take advantage of the program).
One caveat, however, is that the affected employees still have the choice to reject the payment and pursue a private lawsuit to recover back wages and liquidated damages, and employers are prohibited from retaliating against any employee who does so. Thus, participation in the PAID program does not eliminate all risk of a wage/hour lawsuit, but the risk is likely lower than the risk of doing nothing and simply hoping that employees do not discover the violation on their own. And many employees may prefer a definite, immediate payment to pursuing the possibility of a larger payment after what could be many years of litigation.
So how does an employer take advantage of the PAID program? First, the employer must complete a self-audit of their compensation practice. If the employer finds FLSA violations that it wants to resolve, it must provide the DOL with the following information:
• A calculation of back pay owed to affected employees, with an explanation of how the calculation was made;
• An explanation of the scope of the violations that would be included in a release of claims;
• A certification that the employer reviewed all of the compliance assistance materials and information provided by the DOL;
• A certification that the violations at issue are not the subject of current or threatened litigation, arbitration, or other dispute resolution;
• A certification that the employer will correct the practices that led to the identified violation(s)
Based on this information, the DOL will determine the amount of back wages due, issue a summary of unpaid wages, and issue a form (including release language) for employees to sign to receive payment. Employers will be required to pay the full amount of back wages due directly to the employees by the end of the next full pay period after receiving the summary of unpaid wages (and provide proof of payment to the DOL).
The PAID program will be in place for six months, after which time the DOL “will evaluate the effectiveness of the pilot program, as well as potential modifications to the program, to determine its next steps.”
Massachusetts employers may already be considering a compensation audit in order to take advantage of the affirmative defense provided under its new Pay Equity Law. In light of the new PAID program, employers should consider including in that audit an examination of pay practices to ensure compliance with wage/hour laws. If you would like information on how Skoler Abbott can assist with such an audit, please contact any of our attorneys.