“That helps like jumping helps get you closer to the sun.” -- Anonymous.

On March 6, 2018, the Wage and Hour Division (“WHD””) of the U.S. Department of Labor announced a new pilot program called the Payroll Audit Independent Determination (“PAID”) program, which is intended to expedite resolution of inadvertent overtime and minimum wage violations under the Fair Labor Standards Act (“FLSA”). See https://www.dol.gov/newsroom/releases/whd/whd20180306.

The PAID program is a formalization of an old concept, whereby the employers are encouraged to self-report wage and hour violations, and DOL will oversee the settlement, supervise the payment, allow the employer to ask for a release of claims from the workers, and DOL will claim credit for the back wages recovered thereunder. I think that the Department of Labor’s Field Operations Handbook has long had a section (albeit perhaps FOIA release privileged) on what to do with employers who wish to self-report. This pilot program just makes the process more formal and transparent. It is a voluntary settlement process where WHD will oversee resolution of the potential FLSA violations by assessing the amount of wages due on a WH-56 form, and supervising their payment to employees, along with a WH-58 receipt form.

What are the advantages to the employer you ask? WHD says it will not impose penalties or liquidated damages to finalize a settlement for employers who choose to participate in the PAID program and proactively work with WHD to fix and resolve their potential compensation errors. Employers can ask for an employee release of claims and get around the “no private waiver” doctrine of FLSA rights. Employers may be able to avoid litigation and assessment of plaintiff lawyer attorney fee awards.  An employer who finds a FLSA error has always faced a conundrum about what to do. If they take voluntary corrective action even retroactively, the employees cannot be asked to waive their rights, nor can the employer be assured that their workers won’t cash their back-wage checks and then engage counsel to sue for liquidated double damages under the FLSA and a three-year limitations period or more if there is a tolling argument. It invokes the cardinal rule of wage and hour law – no good deed goes unpunished.

What is the downside to the pilot PAID program? First of all, your employees don’t have to sign the release or accept the payments. They can just get their own counsel and sue the employer. And the employer then may get exposed to litigation, liquidated damages and legal fees, ostensibly exactly what they wanted to avoid and what motivated them to self-report in the first place. Secondly, the pilot program is limited to the FLSA. It is not on its face being extended to the Service Contract Act, Davis-Bacon Act, Contract Work Hours and Safety Standards Act, Executive Orders, any prevailing wages due under the VISA rules (H-1B, H-2B, or H-2A Visa Programs), or other wage and hour laws. Thus, this program has little utility for government contractors.  Third, the PAID program offers no benefits or protections to additional state law claims, whether longer statute of limitations, or tighter overtime or exemption requirements. You might end up buying a state law suit by the employee who cashed your check, thank you…. Fourth, if you do stir the pot and get a lawsuit, be prepared for the plaintiff's counsel to file a FOIA request to see your PAID program file. The submission is subject to the same FOIA requirements and defenses as any other DOL investigation or audit. That means perhaps DOL's own records are FOIA privileged, but the plaintiff's lawyer will argue that the employer's submissions can be released.  You self-report is turned into evidence of your culpability. Fifth, DOL may end up finding more problems than you report, and DOL may demand larger sums be paid the workers. If you don't comply, DOL can use its enforcement authority to make you comply and recover the wages. Lastly, in any case, DOL will issue a WH-56 form, and record your violations for posterity in their computer system. It memorializes the corrective action in a way that makes it more like an involuntary payment for noncompliance with the law. That may have negative consequences for liquidated damages and willful extension of the statute of limitations in future disputes.

Consistent with the above, DOL says employers are only eligible to participate in the program if the following conditions are met:

·        You are an employer covered by the FLSA.

·        The employees included in your proposed PAID self-audit are not subject to prevailing wage requirements under the H-1B, H-2B, or H-2A Visa Programs, the Davis Bacon Act or Related Acts, the Service Contract Act, or any Executive Order.

·        Neither WHD nor a court of law has found within the last five years that you have violated FLSA minimum wage and/or overtime requirements by engaging in the same compensation practices at issue in this proposed PAID self-audit.

·        You are not currently a party to any litigation (private or with WHD) asserting that the compensation practices at issue in this proposed PAID self-audit violate FLSA minimum wage and/or overtime requirements.

·        WHD is not currently investigating the compensation practices at issue in this proposed PAID self-audit.

·        You are not specifically aware of any recent complaints by your employees or their representatives to you or your representatives, to WHD, or to a state wage enforcement agency asserting that the compensation practices at issue in this proposed PAID self-audit violate FLSA minimum wage and/or overtime requirements.

·        You have not previously participated in the PAID program to resolve potential FLSA minimum wage or overtime violations resulting from the compensation practices at issue in this proposed PAID self-audit.

Accordingly, participation in this pilot program is not mandatory. Unlike some government contractor programs for fraud, employers are not required to turn themselves in. And “WHD maintains its discretion to determine whether to accept employers into the PAID program. If you haven't kept records of hours worked, for example, you can still ask to participate with "reconstructed" time records, but DOL has discretion to refuse your case. Potential participants are examined on a case-by-case basis.” Settlements will be limited in scope to only the potential violations at issue.  The program further requires employers to review the WHD compliance assistance materials, carefully audit their pay practices, and agree to correct the pay practices at issue going forward.  These requirements may ostensibly improve the employers’ compliance with their minimum wage and overtime obligations, which helps ensure employees’ rights are protected, but inevitably when the employer falls down on compliance with these “agreements,” that default shall be fodder to double up damages and extend the limitation period in future disputes.

If you decide to jump in the pool with DOL, here is what you need to have in hand when you contact them:

·        The names, addresses, and phone numbers of all affected employees;

·        Your back wage calculations along with supporting evidence and methodology used to make those calculations;

·        Payroll records and any other relevant evidence;

·        Records demonstrating hours of work of each affected employee during the time frame at issue;

·        Records to show that you have corrected the compensation practices to comply with the FLSA;

·        A concise explanation of the scope of the potential violations for possible inclusion in a release of liability;

·        A certification that the employer reviewed all of the PAID program’s information, terms, and compliance assistance materials; and

·        A certification that the employer meets all eligibility criteria of the PAID program.  

Accordingly, you must be prepared to furnish a concise explanation of the scope of the potential violations. DOL will also want several "certifications" from you including that you have reviewed all their website compliance information, that you are not currently litigating the issue nor have you received any communications from employee representative or counsel, and perhaps most importantly, that you will adjust your practices to avoid the same potential violation in the future. Given these "certifications", query what happens when they are inadvertently breached in the future. Is that perhaps a basis for a False Statement Act/qui tam claim that could triple up the damages the next time around? Stay tune for the unanticipated consequences of these "certifications".

WHD says that it will implement the pilot program nationwide for approximately six months, after which it will evaluate the pilot program and consider future options. WHD “encourages employers to proactively audit their compensation practices to identify potential non-compliant practices.” If you are still interested in this process, take a look at www.dol.gov/whd/paid. It has compliance assistance guidance on how to educate yourself about the FLSA, how to do a self-audit, and how to pay the back wages thereunder. Be sure to go over the extensive if not very informative FAQs. See https://www.dol.gov/whd/paid/paid-faq.htm. On April 10, 2018, DOL did a webinar on the program. See https://www.eventbrite.com/e/payroll-audit-independent-determination-paid-program-tickets-44668591961.  Whether any more guidance gets issued probably depends on the pilot program experience going forward.