Department of Labor Audit, Now What?
The U.S. Department of Labor (“DOL”) has jurisdiction to audit employers to ensure compliance with overtime and federal minimum wage laws. An audit can be stressful and expensive. Generally, an auditor will come to the company’s place of business and inspect all of their employment and payroll records. The DOL will ask about and review payment policies and pay records. If the DOL determines there have been violations, they will generally issue a detailed spreadsheet showing what they contend are the amounts owed.
There is a two-year statute of limitations on overtime and minimum wage claims, so the auditor will always go back at least two years. And, it could be longer. The Fair Labor Standards Act (“FLSA”) allows the DOL to extend the statute of limitations to three years if they consider the employer’s conduct to be “willful.” The standard for proving whether conduct is “willful” is not difficult to prove. As a result, the DOL will almost always seek three years of unpaid overtime and minimum wages. The DOL will also assess fines, penalties, and interest in an amount that they determine is appropriate.
If the employer wants to challenge the DOL findings, they have a right to request a hearing. One strategy is to tell the DOL that the company is unwilling to pay anything and force them to sue. Sometimes the DOL will sue, or if not, they will issue all of the affected employees a letter advising them of their right to sue. This can result in multiple lawsuits or a class action. At the least, it may create hostility within the workforce. During the audit, employers need to be careful what they say to employees. If an employer threatens an employee if they disclose certain information to the DOL, they can end up in serious trouble for unlawful retaliation.
Frequently, it is best to negotiate with the DOL to reduce the amount owed by asserting all applicable defenses. This can include doing an independent investigation into pay records and finding any errors in the DOL’s calculations. It is fairly common for the DOL to make incorrect assumptions. If the employer is asserting an advice of counsel defense, the DOL will generally want to see that the company relied on advice from an experienced employment attorney.
DOL audits can be tricky and expensive. Employers should have experienced counsel representing them in the process. Attorneys can help try to negotiate a better deal and ensure that the employer doesn’t say or do anything to make things worse during the audit.
Employers should also get advice from an experienced employment attorney as to their pay policies and practices before facing an audit. The FLSA is a complex statute, and the best way to defend against an audit is to ensure your policies and practices have been vetted by experienced employment counsel.
About the Author: Jeffrey Silence is a partner at the Phoenix law firm of Jaburg Wilk. He has represented employers facing audits from the DOL and the Arizona Industrial Commission. He has also helped employers draft policies and handbooks that ensure compliance with overtime and minimum wage laws.