Attorney, Constangy, Brooks, Smith, and Prophete, LLP
The Wage and Hour Division of the U.S. Department of Labor recently announced that it will soon implement the “Payroll Audit Independent Determination,” or PAID, program. The purpose of the new program is to present employers with an opportunity to correct minimum wage and overtime errors under the Fair Labor Standards Act with a level of finality, at least as to the FLSA, as to those that accept the back wage payment. Previously, obtaining enforceable waivers of FLSA rights in exchange for back wage payments were limited to active wage and hour investigations in which agreements were reached with the WHD to pay back wages to the employees covered by the investigation.
If an employer conducts an internal audit and determines that it has violated the minimum wage or overtime requirements of the FLSA, the employer will be able to request participation in the PAID program. The employer can pay all back wages due, presumably for a two-year period (but no liquidated damages or civil money penalties).
In announcing the program, the WHD said, “The PAID program provides a framework for proactive resolution of potential overtime and minimum wage violations under the FLSA. The program’s primary objectives are to resolves such claims expeditiously and without litigation, to improve employers’ compliance with overtime and minimum wage obligations, and to ensure that more employees receive the back wages they are owed – faster.”
WHD Answers Questions About PAID Program
The WHD has created a page on its website that briefly describes the program and provides answers to 12 questions on the PAID program. It is important to note that the program is not available where a wage and hour investigation has already begun, the employer is already in litigation or arbitration over FLSA compliance, or the employer has already been contacted by counsel for an employee or employees seeking to litigate or resolve FLSA claims. The WHD also makes it clear that the PAID program is not to be used repeatedly by the same employer, and that participation in the PAID program does not grant an employer immunity from future investigations for FLSA compliance.
In answering the question, “Why should employers participate in this program?” the WHD states, “This program enables employers to expeditiously resolve inadvertent minimum wage and overtime violations without litigation. Additionally, although the WHD will require payment of all back wages due, the WHD will not require additional payment of liquidated damages or civil monetary penalties when employers choose to participate in the program and proactively work with the WHD to fix and resolve the compensation practices at issue.”
Employers might ask themselves, “Why do I need to go to the WHD and request to participate in this program when I can just perform my own internal audit and pay whatever additional wages I conclude are appropriate?” The answer is that a purely internal back wage distribution cannot generally give rise to a valid and enforceable waiver of FLSA rights, regardless of what the employee may sign in connection with receiving the back wages. The FLSA is relatively unique in requiring either “supervision” by the WHD of the distribution of back wages, or approval by a court, when an employer attempts to “settle” FLSA rights with finality. The PAID program offers employers the ability to obtain WHD “supervision” and the finality of resolving potential mistakes under the FLSA that come with that “supervision” when employees accept the back wage payment. What is less clear at this time is the impact, if any , that participation in the PAID program might have on state or local law claims for minimum wage or overtime, and whether the waiver of FLSA rights in exchange for a back wage payment will result in any form of waiver or claim preclusion under any other wage and hour laws.
To be clear, employees and former employees cannot be forced to accept back wage payments and are always free to reject the offer regardless of the WHD “supervision” that comes with participation in the PAID program. In such cases, there is no waiver of FLSA rights, and employees and former employees that decline the payment remain free to pursue litigation if they believe FLSA violations have occurred.
And speaking of the issue of former employees, employers might also ask whether participation in the PAID program requires them to include former employees in their back wage calculations. While the WHD has not specifically addressed this issue, it is not likely that employers granted permission to participate in the PAID program will be allowed to offer back wage payments only to current employees. When the WHD conducts an FLSA compliance investigation and concludes that violations have occurred, it usually seeks a voluntary agreement from the employer that includes a commitment of prospective compliance, i.e., correct the FLSA violations going forward, and pay back wages to all affected employees and former employees that the WHD believes were improperly paid. Whether the WHD might approach the issue of former employees differently under the PAID program remains to be seen.
This also raises the question that if former employees must be included under the PAID program, what happens to the back wage payments for those that cannot be located? While this specific question has also not yet been addressed, if the WHD takes the same approach it takes in back wage distributions made in the context of investigations, the back wages computed for former employees that cannot be located must be paid over to the WHD, which in turn, will make further efforts to locate the former employees, and failing that, will pay the money over to the U.S. Treasury Department.
At this time, there may actually be more questions than answers about the PAID program. It may well be a valuable program that employers will want to consider in the right circumstances. It is simply too soon to know. The PAID program has not yet been officially launched and more details on the program are promised. Those details will obviously be very important to any analysis of the pros and cons of seeking to participate in the PAID program. As of now, the WHD is saying it contemplates an initial six-month pilot program to determine its usefulness, and whether to continue, modify, or terminate the program.
Employers will want to give careful consideration to whether the benefits of the PAID program outweigh the negatives associated with having to turn themselves in to the WHD. It appears clear that employers seeking to participate in the program are not guaranteed the right to participate. It also remains to be seen whether the WHD might use denied applications for the PAID program as a basis for selecting employers to be targeted for future investigations.
This article was originally published on Law360.com. It is republished here with permission from Constangy, Brooks, Smith, and Prophete, LLP.