The adage that an “ounce of prevention is worth a pound of cure” is particularly applicable in the area of compliance with the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA) and the Florida Minimum Wage Amendment (FMW). As the interpretation of these laws often involve grey areas and counter-intuitive rules, we strongly recommend that employers regularly conduct payroll audits with the assistance of counsel
Unfortunately, while an audit can prevent future violations, they also may reveal past errors. It is then that employers will face a dilemma: what corrective measures should be taken?
Often times, an employer’s first instinct is to correct an error on a prospective basis only (i.e. by reclassifying employees, altering pay plans, or improving timekeeping methods). The rationale behind this approach is usually twofold. First, many employers presume that employees, upon being advised of such changes, will accept their employer’s good faith and refrain from bringing lawsuits relating to past practices. Second, often times, correcting an error retroactively is deemed to be cost prohibitive.
The prospective approach is, in essence, a calculated risk. On the day the error is corrected, the “clock starts ticking” on the potential claims arising from past practice by virtue of the running of the applicable statutes of limitations. If enough time passes, those claims will be extinguished. However, if even one employee files a lawsuit, the employer can be saddled with substantial damages and attorney’s fees.
It would seem that a logical alternative would be to settle past claims with employees. Unfortunately, that option is highly problematic. Unlike most other employment related claims, claims for unpaid wages arising under the FLSA cannot be waived by employees through private settlement agreements or releases. Rather, there are only two ways an employee may waive his or her rights under this statute: (1) under the supervision of the DOL, or (2) in the context of a lawsuit. As a result, an employer that provides back wages to an employee and obtains a waiver or release can still potentially be sued by that employee (i.e. if he or she later alleges that the settlement was for less than they were actually owed).
Recently, another option has emerged. On March 6, 2018, the Department of Labor’s Wage and Hour Division (WHD) announced an initiative called the Payroll Audit Independent Determination (PAID) program. Through this program, an employer that discovers a payroll error impacting minimum wages or overtime pay can report the matter and seek assistance from the WHD. The agency will then facilitate a resolution of the matter through a supervised settlement process.
There are several potential benefits of this program. First, it is a faster and less costly mechanism for resolving matters of this type. Second, in a supervised settlement, employers are typically only required to pay two years of back pay (as opposed to the three years available in court), and are not required to pay liquidated (double) damages which are always sought in litigation. Third, in resolving the claims with the WHD, there is no additional cost of paying an employee’s legal fees. Finally, unlike a private settlement, any resolution reached under the WHD’s supervision is binding and final.
The option of “confessing” to the WHD may not be the best option in all circumstances. It could, however, be the least costly remedial measure in certain circumstances.
While the issues that arise in attempting to cure a discovered error in FLSA and MWA compliance may seem daunting, none of them should deter employers from proactively evaluating and, if necessary, correcting their pay practices. Taking control of these problems, both through prevention methods and options to cure errors, is always the best approach. We regularly assist employers in this regard, and would welcome the opportunity to assist your organization.