August 30, 2018

Mark Gaston Pearce Nominated for Another NLRB Term

Steven Gutierrez

Late on August 28, 2018, President Trump nominated Mark Gaston Pearce to serve another term on the National Labor Relations Board (NLRB or Board). Pearce was appointed to the Board in 2010 by then-President Barack Obama for a partial term. He then served a full five-year term from 2013 until this week. Due to the expiration of Pearce’s term on August 27, 2018, the Board currently sits at four members, rather than the full five-member contingent.

As with all Board nominations, the Senate must vote to approve Pearce’s nomination before he may begin to serve a new five-year term. As a former union attorney, Pearce may face some opposition from management groups that see him as too pro-union. But the make-up of the five-member Board is traditionally comprised of three members who align with the president’s political party, in the current case, Republican, with the remaining two members aligning with the minority party. Currently, the three Republican members are Chairman John Ring, William Emanuel, and Marvin Kaplan. The lone Democrat, at least until Pearce or another person is confirmed, is Lauren McFerran whose term expires on December 16, 2019.

With the Board revisiting many hot button issues, such as joint-employer status and the use of an employer’s e-mail system for union activities, the Board members wield significant influence on workplace policies and potential employer liability for both union and non-union employers alike. We will keep you informed on Pearce’s confirmation as well as any other Board developments.

August 23, 2018

Asking Employees About Prescription Medicine Use

By Brad Cave

Brad Cave

As an employer, you may be tempted to ask your employees what prescription medications they use and whether their prescription drugs could affect their ability to perform their job. After all, you want to identify any potential safety and performance issues before they arise.

Be aware, however, that employers may ask about prescription medicine only in limited circumstances. The Americans with Disabilities Act (ADA) restricts employers from asking medical questions of applicants and employees. Asking about prescription medications clearly falls into the category of medical-related questions.

Under the ADA, an employer may ask a current employee about prescription medicine only when it’s job-related and consistent with business necessity. That means you may not ask all employees to disclose any medications they take. Instead, you need to determine the job positions for which prescription-related questions would be job-related and consistent with business necessity. Typically, those will be safety-sensitive positions, such as drivers, police officers, and heavy equipment operators. Employees in jobs that don’t face a significant job-related safety risk associated with the side effects of prescription medications should not be asked about their use of those drugs.

Remember that the ADA doesn’t permit employers to ask medical questions of job applicants. Only after a job offer has been extended to a candidate may you inquire about medical information or require the individual to undergo an examination. In addition, be certain to keep all medical information confidential and in files separate from your regular personnel files.

August 7, 2018

What Do Your Executives Have In Common With Seven-Figure Income College Coaches?

Beth Nedrow

By Beth Nedrow and Jeremy Ben Merkelson

Tax-exempt organizations may be surprised to learn of the practical impact of a statute enacted as part of the Tax Cuts and Jobs Act in December 2017. Section 4960 of the Internal Revenue Code immediately put in place restrictions on what it labels “excess” executive compensation. Some organizations initially concluded that Section 4960 would have little or no impact on them, but many are now finding that the rules have more bite than anticipated.

Section 4960 focuses on compensation paid by a tax-exempt organization to any “covered employee.” A “covered employee” is any person who was one of the organization’s five highest compensated employees for 2017 or any later taxable year. The surprising thing about this definition is that once a person is labeled a “covered employee” for any given year, they will remain in that category for the rest of their life. Read more >>

August 2, 2018

NLRB Revisiting Use of Employer E-Mail Systems

Steven Gutierrez

By Steve Gutierrez

On August 1, 2018, the National Labor Relations Board (NLRB or Board) issued an invitation for interested parties to file briefs on whether the Board should change or overrule its 2014 decision in Purple Communications, Inc., 361 NLRB 1050. In that case, the Board ruled that employees who already have access to an employer’s e-mail system at work may use that e-mail system during non-working time for Section 7 communications. In other words, employees may send e-mails to their co-workers related to union organizing and concerted activities related to wages or other terms and conditions of employment via their company’s e-mail system.

The Purple Communications decision had overturned an earlier ruling in Register Guard, 351 NLRB 1110 (2007) which held that facially neutral employment policies restricting employees’ use of their employer’s e-mail system did not violate the National Labor Relations Act merely because the policies might have the effect of limiting the use of those systems for union-related communications. The Board is now considering a case that will permit it to reconsider the use of an employer’s e-mail system by employees for Section 7 purposes. In fact, the Board also seeks comments on the appropriate standard for the Board to evaluate policies that govern the use of other employer-owned computer resources, not just e-mail.

NLRB Chairman John Ring and NLRB members Marvin Kaplan and William Emanuel issued the Notice and Invitation to File Briefs over the dissent of the other two Board members, Mark Gaston Pearce and Lauren McFerran. Those wishing to file an amicus brief must submit it on or before September 5, 2018.

July 19, 2018

FAQs About Implementing Arbitration Agreements and Class Action Waivers

Bryan Benard

by Bryan Benard

In late May, the U.S. Supreme Court ruled that arbitration agreements between an employer and an employee to resolve employment disputes through one-on-one arbitration do not violate the National Labor Relations Act (NLRA). In a huge win for businesses, the Epic Systems Corp. v. Lewis decision means that employers may use arbitration agreements to prohibit employees from filing and joining class or collective action lawsuits in employment-related matters.

In the weeks since SCOTUS’s decision, organizations have asked important and thoughtful questions on how to implement and use arbitration agreements and class action waivers with their employees. Although no guidance is “one-size-fits-all,” these FAQs may help answer common issues that come up.

Why Should We Use an Arbitration Agreement?

By requiring that employees resolve employment disputes through arbitration instead of filing a lawsuit in court, employers may benefit from numerous differences in both procedure and exposure. First, proceedings before a neutral arbitrator (or panel of arbitrators) are handled in private whereas lawsuits filed in a state or federal court are available to the public. In other words, unless documents are filed under seal, most court documents, hearings, and trials will be open to anyone, including reporters, competitors, other employees, etc. Consequently, requiring arbitration keeps publicity related to employment disputes at a minimum.

Second, procedures and evidentiary rules differ between arbitration and court proceedings. An employer may set forth in the arbitration agreement which arbitration rules will govern employment-related disputes. In addition, the employer and employee (and their attorneys) mutually select an arbitrator whereas the parties to a court action do not have input into the judge assigned to their lawsuit. In addition, an arbitrator has broad discretion over discovery and need not follow formal discovery and civil procedure rules that govern the courts (which may or may not be desirable in a given context). Finally, although there are some grounds for judicial review, arbitration awards generally cannot be appealed, meaning that disputes can get to a final resolution quicker.

What are the Benefits of a Class Action Waiver?

A class action waiver is typically one provision within an arbitration agreement stating that the employee agrees to resolve employment disputes on an individual basis and agrees to refrain from pursuing or joining any class or collective actions in conjunction with his or her fellow employees. By having employees waive class actions, businesses may avoid lengthy and expensive class action lawsuits that often involve hundreds, even thousands, of current and/or former employees nationwide. In addition, attorneys who represent employees are unlikely to receive the millions in attorneys’ fees that can be awarded as class counsel when forced to represent employees on an individual basis.

Are There Any Downsides to Using an Arbitration Agreement and/or Class Action Waiver?

Sure, it is possible that mandatory arbitration agreements and class action waivers may not be a good fit for every employer or for use with every employee. Although generally viewed as a benefit to employers, private arbitration can mean that resolution of an issue with one employee does not bind or even influence the resolution of that same issue with other employees. Accordingly, some employers may want to have a court rule on the lawfulness of a particular policy or practice so that it has more certainty for future enforcement. Also, smaller companies may not see the benefit in separately litigating each employee’s dispute in a separate proceeding if the company only has a handful of employees—meaning that in some situations, addressing multi-plaintiff cases could be less expensive if the pool of employees is relatively small.

In addition, arbitration is not always less expensive than court litigation since the employer is generally required to pay its own attorneys’ fees as well as most of the arbitration and arbitrator fees. There is also criticism and skepticism leveled at arbitration, on the theory that arbitrators will not grant motions to dismiss or summary judgment motions, or may attempt to “split the baby” rather than making tough decisions in favor of employers. Finally, a remote but possible scenario in a tight labor market is that key employees may refuse to agree to these mandatory agreements resulting in the loss of good talent or skilled, experienced workers.

May We Make New Employees Sign a Class Action Waiver as a Condition of Employment?

Generally, yes. You may make it a condition of employment that new hires sign a mandatory arbitration agreement with a class action waiver. Read more >>

July 17, 2018

New Colorado Data Privacy Requirements Apply to Employers

Dustin Berger

By Dustin D. Berger

Organizations that employ workers in Colorado will soon face more stringent data privacy requirements, thanks to new legislation signed into law by Governor Hickenlooper at the end of May. This new law, HB 18-1128, imposes new obligations on all covered entities in the state that maintain documents that contain personal identifying information of Colorado residents. These obligations go into effect on September 1, 2018. Here are the highlights of the new requirements and steps employers should take to comply.

Practically All Employers Will Be Affected by the New Law

The new law applies to a “covered entity,” which is essentially defined as any individual or entity “that maintains, owns, or licenses personal identifying information”—regardless of how much business the covered entity does within Colorado. The statute defines “personal identifying information” as “a social security number; a personal identification number; a password; a pass code; an official state or government-issued driver’s license or identification card number; a government passport number; biometric data; an employer, student, or military identification number; or a financial transaction device.”

Because virtually all employers maintain information on their employees that is considered personal identifying information, such as social security numbers, employer identification numbers, passport numbers, or driver’s license numbers, employers with Colorado employees will be subject to the requirements of the new law.

The key provisions in the new law are its requirements that covered entities: (1) maintain reasonable security procedures and practices; (2) establish and follow a written policy for the destruction of personal information when it is no longer needed; (3) ensure that third-party service providers handling their personal information have implemented and maintained reasonable security procedures and practices; and (4) follow the law’s notification procedures when it becomes aware that a security breach “may have” occurred.

1. Reasonable Security Procedures and Practices

HB 18-1128 creates a new statutory section, C.R.S. § 6-1-713.5, that requires covered entities to implement and maintain reasonable security procedures and practices to protect personal identifying information from unauthorized access, use, modification, disclosure, or destruction. While not specifying exactly what type of security procedures are required, the new provision states that such procedures must be appropriate to the nature of the personal identifying information and the nature and size of the business and its operations.

If a covered entity discloses personal identifying information to a third-party service provider, it must require that the service provider implement and maintain reasonable security procedures and practices, as outlined in number 3 below.

2. Disposal of Documents Containing Personal Identifying Information

Colorado has had a statute governing the disposal of documents containing personal identifying information since 2004, but the new legislation amends C.R.S. § 6-1-713 to expand covered entities’ responsibilities with respect to personal identifying information. Now, the disposal requirements apply to documents that are kept electronically as well as those kept in paper form. The new law also requires that covered entities implement a written policy specifying that the entity shall destroy (or arrange for destruction of) the documents by making the information unreadable or completely indecipherable.

3. Ensure Third-Party Service Providers Have Reasonable Security Procedures

If a covered entity discloses personal identifying information to a third-party service provider, the covered entity must now require the service provider implement and maintain reasonable security procedures and practices that are reasonably designed to help protect the information from unauthorized access, use, modification, disclosure, or destruction, as appropriate to the nature of the information disclosed to the service provider. A third-party service provider is defined as an entity that has been contracted to maintain, store, or process personal identifying information on behalf of a covered entity.

4. Security Breach Notification Requirements Enhanced

The new law significantly amends Colorado’s statute governing notifications of a security breach, C.R.S. § 6-1-716. A “security breach” is defined, in relevant part, as the unauthorized acquisition of unencrypted computerized data that compromises the security, confidentiality, or integrity of personal information maintained by a covered entity.

Under the new provisions, a covered entity has no more than 30 days to provide notice of a security breach. Notice must be made to affected Colorado residents in a very specific manner including notice by mail, telephone, electronically, or by substitute notice, and must contain a myriad of information regarding the breach and options that are available to the affected person. If a breach is reasonably believed to have affected 500 Colorado residents or more, the entity also must provide notice of the breach to the Colorado Attorney General.

And, unlike the previous law, the 30-day period begins to run when the covered entity becomes aware that a “security breach may have occurred.” In the prior version of the law, the 30-day period did not begin to run until the covered entity became aware of a breach. This change is likely to increase the pressure on covered entities to timely respond to indicators and predictors of a security breach.

Sanctions

Employers who violate the law can face enforcement proceedings from the Colorado Attorney General or the district attorneys of the state. These proceedings can result in civil penalties of up to $2,000 per affected person, up to a maximum of $500,000 per incident. They also can be liable directly to affected persons who are harmed by the violation.

Steps for Employers to Take

The new data security requirements go into effect on September 1, 2018, so employers who maintain personal identifying information on Colorado residents have little time to prepare to comply. Steps to take include:

Develop and implement reasonable practices designed to protect personal identifying information from unauthorized access, use, or disclosure (e.g., password-protection, encryption, etc.) that are commensurate with the sensitivity of the personal identifying information.
Create a written policy regarding the destruction and disposal of paper and electronic documents containing personal identifying information.
Review agreements with third-party service providers to ensure that service providers have reasonable procedures to protect the security of personal identifying information provided to them.
If you have a security incident response plan, update it to reflect the changes in the law.
If you do not have a security incident response plan, prepare one to ensure that you can meet the new law’s notification requirements.

July 3, 2018

California Supreme Court Changes Test for Independent Contractor Status

Bryan Benard

by Bryan Benard

For purposes of compliance with California wage orders, a company seeking to establish that a worker is an independent contractor rather than an employee now must meet a three-part test, according to a recent opinion by California’s highest court. This new test is a significant departure from the previous multi-factor test that has been the standard in California since 1989.

The New “ABC” Test

The Industrial Welfare Commission (IWC) regulates wages, hours, and working conditions in California, and issues wage orders that specify required minimum wages, meals and lodging credits, exemptions, meal and rest periods, seating and temperature requirements, and other work-related requirements in the state. These wage orders apply to employees, not to independent contractors, so the IWC’s definition of what it means to “employ” an individual is key in determining proper classification. Under the IWC’s wage orders, “employ” means “to engage, suffer or permit to work.”

In its recent decision, the California Supreme Court stated, “[i]n determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the “ABC” test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors.” Dynamex Operations West, Inc., v. Superior Court, S222732 (Cal. Apr. 30, 2018). Under the ABC test, a hiring company must establish the following three factors in order to show that a particular worker (or group of workers) should be considered an independent contractor rather than an employee:

A. that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

B. that the worker performs work that is outside the usual course of the hiring entity’s business; and

C. that the worker is customarily engaged in an independently established trade, occupation, or business.

If the hiring company is unable to prove any one of these three parts of the test, the worker will be considered an included employee for purposes of the California wage order, not an independent contractor.

Previous Borello Test Abandoned

By setting forth the ABC test for independent contractor status under the wage orders, the Court rejected the previously accepted test which had been in place since 1989. The so-called Borello test was established by the California Supreme Court in the case of S.G. Borello & Sons Inc. v. Dep’t of Industrial Relations, and it set forth a multi-factor test for determining independent contractor status, relying primarily on the principal factor of whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired. The Borello test also included nine additional factors that were not to be considered separate tests, but instead were intertwined and whose weight would often depend on the particular circumstances of employment/engagement.

In establishing the new three-part ABC test, the Court stated that its “interpretation of the suffer or permit to work standard is faithful to its history and to the fundamental purpose of the wage orders and will provide greater clarity and consistency, and less opportunity for manipulation, than a test or standard that invariably requires the consideration and weighing of a significant number of disparate factors on a case-by-case basis.”

Consequently, going forward the ABC test now replaces the Borello test for determining independent contractor status for purposes of the California wage orders. An open question is whether the new test will apply retroactively to existing and/or past worker relationships or prospectively only. Reports state that the California Employment Law Council has filed an amicus request to ask the Court to clarify whether the new test is prospective only.

Wage-and-Hour Class Certification at Issue

The new ABC test arose out of a delivery company’s challenge to class certification of a class of delivery drivers whom the company treated as independent contractors. The drivers alleged that they had been misclassified and were instead employees, entitled to the wages and protections afforded by the relevant wage order.

Applying the new ABC test to the delivery drivers in the case, the Court concluded that there was a sufficient commonality of interest to support the certification of the proposed class. In particular, the Court wrote that there is sufficient commonality of interest under part B of the test as the hiring entity is a delivery company and the work performed by the proposed class is as delivery drivers. This means that in this case, deciding whether the certified class performed work within or outside the company’s usual course of business would be determinable on a class basis. Similarly, with regard to part C of the test, the Court found that there would be sufficient commonality on whether the drivers engaged in an independently established trade, occupation, or business, as the class was limited to drivers who performed delivery services only for Dynamex. As a result, the Court upheld the class certification.

California Employers Should Re-examine Independent Contractor Status

The new ABC test will apply to the IWC’s wage orders, meaning that California employers who classify any workers as independent contractors should review whether they meet the new ABC test. If they do not meet all three prongs of the new test, they should be reclassified and treated as employees under the applicable wage orders. At present, this ruling will not change the test for independent contractor status for any purposes other than the wage orders, such as for unemployment or workers’ compensation purposes.

June 27, 2018

SCOTUS Deals Huge Blow to Government Unions

Steven Gutierrez

By Steve Gutierrez

In a 5-to-4 decision, the U.S. Supreme Court ruled that government employees who choose not to join a union cannot be forced to pay agency fees to the union. In so ruling, the Court overturns its 1977 ruling in Abood v. Detroit Board of Education which has permitted public sector unions to charge non-members a fee equivalent to union dues to cover the costs of collective bargaining, contract administration, and grievances. Janus v. AFSCME, 585 U.S. ___ (2018).

Free Speech Violated

Illinois state employee Mark Janus challenged paying agency fees to the union that represents the Illinois government employees. He alleged that he opposes many of the positions taken by the union, including positions advanced through collective bargaining. Janus argued that being forced to pay agency fees, which was authorized by Illinois law and consistent with Abood, violated his First Amendment right to free speech.

Five members of the high court agreed. In a decision written by Justice Alito, the majority ruled that “[t]he State’s extraction of agency fees from nonconsenting public-sector employees violates the First Amendment.” The Court overturned Abood, stating that neither of the two justifications for agency fees can survive First Amendment scrutiny.

First, the Court stated that the justification that agency fees promote labor peace does not pass muster. The majority pointed to the Federal Government and 28 states with laws that prohibit agency fees as evidence that conflict and disruption in represented government workforces is unfounded and “labor peace” can be achieved through less restrictive means than the assessment of agency fees.

Second, the majority dismissed the “free rider” argument that previously supported Abood. Specifically, unions argued, and the Abood Court agreed, employees who choose not to join the union without paying fees become “free riders” because as the exclusive representative for that group of employees, the union is required to represent even the non-members in collective bargaining and enforcing the terms of the collective bargaining agreement. In Janus, the Court stated that the “free rider” concern could not overcome the First Amendment issues. It again pointed to jurisdictions where agency fees are outlawed to state that unions continue to be willing to represent government employees there, despite the lack of agency fees being charged to non-members. The Court concluded that “Abood was wrongly decided and is now overruled.”

Strong Dissent

Justice Kagan wrote a strongly worded dissent, which was joined by Justices Ginsburg, Breyer, and Sotomayor. She wrote that “judicial disruption does not get any greater than what the Court does today.” The dissenting Justices see no justification for reversing Abood and its 41 years of precedent, finding that it has proved workable and is relied upon in at least 20 states that have created statutory schemes built upon its holding. The dissent stated that Abood struck an appropriate balance between public employees’ First Amendment rights and government entities’ interests in operating their workplaces with public employees paying their fair share of the cost of their union negotiating over the terms of their employment.

Practical Effect of Janus Ruling

The Court held that states and public-sector unions may no longer charge agency fees to non-member employees. In addition, it ruled that “neither an agency fee nor any other form of payment to a public-sector union may be deducted from an employee, nor may any other attempt be made to collect such a payment, unless the employee affirmatively consents to pay.” The Court stated that by agreeing to pay through an opt-in, nonmembers are waiving their First Amendment rights and “such a waiver cannot be presumed.” This is a big change in practical terms as it requires that employees who are union members must opt-in to having union fees deducted from their pay, instead of the previously acceptable opt-out option.

The loss of revenue from existing non-members and the potential loss of members who no longer want to pay is a huge blow to public-sector unions. By law, unions must provide fair representation to everyone in a bargaining unit, whether union members or not. Unions now will have to convince employees in their bargaining unit to pay union dues or agency fees voluntarily. The change is sure to affect the resources and viability of public-sector unions in this country.

Private Sector Unions Not Affected – Yet

Because free speech rights under the First Amendment exist to protect citizens from government actions, the Janus decision applies only to public-section unions and non-member employees. Unions representing employees in the private sector will not be subject to this ruling. That said, opponents of unions and mandatory agency fees will likely look for arguments to attack private sector unions in the future. The Court’s positions may be used to promote enactment of right-to-work laws in those states that do not currently have such laws.

May 15, 2018

IRS Is Sending ACA Penalty Notices to Employers

Bret Busacker

By Bret Busacker

If you believe your company was subject to the Affordable Care Act (ACA) coverage requirements in 2015 (generally, all employers with 50 full-time or full-time equivalent employees), please take note that the Internal Revenue Service (IRS) is beginning to send out notices of ACA penalties due from employers who failed to satisfy ACA health coverage requirements. Specifically, the IRS is mailing Employer Shared Responsibility Payment (ESRP) notices to employers that it believes failed to comply with the ACA coverage requirements in 2015. Some employers receiving these notices may have actually complied with the ACA requirements in 2015, but the IRS received inaccurate or incomplete information and consequently has incorrectly identified the employer as failing to satisfy the ACA coverage requirements.

Limited Time To Respond To IRS Notice

If an employer receives an ESRP notice, it must dispute the IRS penalty within 30 days of the date of the notice. We have seen employers receiving very large fines for periods in which the employer actually complied with the ACA coverage requirements.

Employers who were subject to the ACA coverage requirements in 2015 should review their 2015 ACA filings (on Form 1094-C) to: (1) determine who at the company will receive the ESRP notice from the IRS, if one should arrive; and (2) make sure the contact address is correct (See Part 1; Lines 1 thru 8 of Form 1094-C). If any of the contact information on the Form 1094-C is inaccurate or if the contact person is no longer employed by the company, the employer should consider updating its contact information with the IRS. Employers with questions about responding to an ESRP notice should contact their legal counsel promptly.

May 14, 2018

DOL Launches “PAID” Program To Resolve Wage Violations

Brad Cave

By Brad Cave

Workers want to get paid, and the U.S. Department of Labor (DOL) is offering a new way to help make sure they do. The DOL’s Wage and Hour Division (WHD) recently launched the Payroll Audit Independent Determination (PAID) program to help resolve potential minimum wage and overtime disputes without litigation. With a healthy bit of skepticism, employers and their counsel may want to explore this new avenue to resolve inadvertent wage violations.

Wage and hour claims are difficult to resolve because the Fair Labor Standards Act (FLSA) states that an employee cannot waive or release his FLSA rights to minimum wages or overtime through an agreement with the employer, unless it is part of a court-approved or DOL-supervised settlement. Most employers are understandably reluctant to involve the DOL in resolving wage and hour errors because the agency may decide to take other enforcement actions, and nobody wants to be sued for trying to informally resolve the problem directly with your employees, only to have them reject your offer and hire a lawyer. The PAID program may give employers a viable third option for getting into compliance and resolving any outstanding liability to employees.

Here’s a look at the pilot program and its potential benefits and pitfalls.

FLSA-Covered Employers May Participate

The PAID program is open to all employers covered by the FLSA that want to attempt to resolve wage issues quickly and without having to defend claims in court. To participate, an employer must review WHD’s compliance materials (available on its website) and conduct a self-audit of its compensation practices. If the employer discovers any issues, it must specify the potential violations to WHD, identify affected employees and the time periods involved, and calculate the amount of back wages it would owe each employee.

The WHD will evaluate the information provided, contact the employer to seek any additional information needed, and confirm any back wages that are due. The agency then will issue a summary of unpaid wages. It also will provide forms describing settlement terms for each affected employee.

The settlement forms will include a release of claims, limited to the potential violations for which the employer will pay back wages. Each employee must sign a settlement form in order to receive any back pay owed. The employer then will pay the back wages directly to each employee no later than the end of the next full pay period after it receives the summary of unpaid wages. The employer must send proof of payment to the WHD.

Wage Violations Covered By PAID Program

The WHD intends that the PAID program will be used to resolve potential FLSA violations related to overtime and minimum wages. For example, the agency suggests that failure to pay overtime at one-and-one-half times the regular rate of pay, “off-the-clock” work, and misclassification of exempt employees may be appropriate topics for resolution through the program.

Importantly, the PAID program cannot be used if an employer is already facing a WHD investigation for payroll practices, the employer has already been sued, or an attorney or union acting on behalf of employees has threatened a lawsuit or demanded a settlement.

Potential Benefits and Pitfalls of Program

The PAID program will require employers with identified wage violations to pay all back wages due, but the WHD will not assess liquidated damages or civil monetary penalties. As a result, the process can help employers avoid costly litigation. The lack of penalties and litigation fees can be a substantial incentive to take advantage of the pilot program.

On the other hand, settlements with employees who are owed back wages will be limited to the wage issues resolved through the PAID program. That suggests that employees are free to assert additional FLSA violations not addressed through the program as well as state-level wage and hour issues at a later date or in a different forum.

In addition, the program requires participating employers to agree to correct their problematic pay practices at issue going forward. That leaves the door open to potential follow-up by the WHD down the road. Moreover, there do not appear to be any assurances that the WHD will not investigate wider payroll issues at participating companies once it has been alerted to potential self-identified noncompliance. That means the wage violations resolved through the PAID program may be used against an employer should any future FLSA violations be discovered or litigated, resulting in potential willful violations.

Approach Program With Caution

The pilot program will be implemented for approximately six months. The WHD then will evaluate the program and consider future options. For most employers, conducting a self-audit of payroll practices can be worthwhile and may help eliminate potential liability for violations going forward. However, because troublesome details of the program remain unknown, employers should use caution when deciding to utilize this WHD-facilitated resolution process.