The Truth (and Payment of Back Wages) Will Set You Free - Articles

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Posted by: Bradford Harvey & Megan Welton on Aug 6, 2018

The U.S. Department of Labor (“DOL”) has launched a new program to get employers to fess up to their wage and hour mistakes under the Fair Labor Standards Act (“FLSA”). The pilot program, referred to as the Payroll Audit Independent Determination (“PAID”), was launched on April 3, 2018 and will run for a trial period of six months. The program aims to (1) resolve wage and hour claims more expeditiously and without litigation, (2) further employer compliance with the FLSA’s wage and hour obligations, and (3) promote the prompt payment of any owed back wages to employees. 

But, why would any company voluntarily and proactively inform the DOL of a wage and hour violation? The DOL is not so naïve that it expects employers to confess to FLSA sins simply for the sake of being honest. Rather, the DOL recognizes that to get employers to speak the truth – money talks. That is, in return for the employer’s honesty (and payment of any back wages owed to employees), it will not require the payment of liquidated damages or civil monetary penalties that might otherwise be available with the filing of a lawsuit.

The PAID program, however, cannot be used to avoid pending litigation or ongoing DOL investigations concerning the same compensation practices that the employer seeks to redress through the PAID program. Nor are employers eligible if (1) a court has found that the employer has violated FLSA the same minimum wage and/or overtime requirements at issue in the PAID proposal or (2) its employees have made complaints regarding the compensation practices that the employer seeks to resolve through the PAID program. 

Employers who are eligible and interested in partaking in this arrangement must complete a three-step process:

Step 1: Check Yourself.

This step requires that the employer audit its own wage and hour practices for non-compliance. Employers may want to engage counsel to keep the results protected by the attorney/client privilege or work-product doctrine. If there are any wage and hour violations, then employers and their counsel can consider whether to proceed to Step 2 or to resolve the violation through another an alternative method.

Step 2: Confess.

If violations are discovered during the audit, the employer must contact the Wage and Hour Division of the DOL to discuss the issues. At this stage, the employer also must submit a list of employees affected, payroll and time records for the affected employees during the time frame at issue, back wage calculations, and an explanation of the scope of potential violations to include in a potential release. The employer also must certify that it has reviewed the PAID program’s terms and conditions, that it meets the eligibility criteria to participate in the program, and that it has corrected the compensation practices to comply with the FLSA (and also provide documents showing compliance).          

Step 3: Pay Up.

If the DOL accepts the employer into PAID, the Wage and Hour Division will provide the employer with a proposed scope of the release of liability for potential violations and will issue a summary of unpaid wages. After receiving the summary of wages, employers must then pay all back wages due by the end of the next full period and provide proof of payment to the Wage and Hour Division. If an employer pays back wages to its employees prior participating in PAID, and without the supervision of the Wage and Hour Division, it will not be accepted into the program.

Pros and Cons to PAID

The obvious “pro” to participating in PAID is avoiding litigation and the threat of liquidated damages. Also, if an employer already has discovered a violation and wants to rectify the situation by paying back wages, by participating in PAID it can receive a release of the violation. On the other hand, because private out of-of-court settlements do not result in a waiver of employees’ rights to sue under the FLSA, if the employer corrects the payment without the Wage and Hour Division’s supervision, then the employer cannot secure a release of the violation. But, while PAID may be an option for employers who fear that they may have a wage and hour violation lurking at their worksites, there are, of course, risks with pursuing this program. 

First, there is no precedent. As a result, employers and their attorneys have no examples to look to in assessing whether to participate in this program and how it plays out for similarly-situated employers. 

Second, prior to reaching Step 3, there is a waiting period, in which the Wage and Hour Division evaluates the information submitted by the employer and whether it will accept the employer into the PAID program. Yes – the DOL can decline an employer’s request to participate in the program and the employer must confess to its wage and hour violations beforethe DOL actually accepts the employer into the program. As such, employers should be confident in their eligibility to participate in the program before disclosing any non-compliance issues to the DOL.

However, employers can take some comfort in the fact that the Wage and Hour Division states that, if it denies an employer’s request to participate in PAID, the employer’s request will notserve as a basis for a future investigation, unless it has reason to believe that employees’ health or safety is at risk (e.g., child labor violations). 

If the Wage and Hour Division discovers additional minimum wage or overtime violations while reviewing the employer’s records which fall outside the scope of the employer’s proposal, it will “ordinarily” attempt to resolve them as part of the audit. The Wage and Hour Division does not provide any guidance on what circumstances would fall outside of “ordinary.”

Third, and importantly, employees are not required to participate in PAID. That is, employees can either opt to accept the payments offered or may reject them and retain all of their rights (including their right to pursue litigation and seek liquidated damages). Of course, employers are prohibited from retaliating against an employee for refusing to participate in the program. If the employee does accept the payment of back wages, the release secured through the payment of back wages is limited to the violation identified in the employer’s proposal.

Fourth, and lastly, participation in PAID does not provide for a release of state law violations. Some states have signaled that they will not recognize the PAID program as absolving employers from their state law sins. As such, if an employer discovers a violation that is covered by the FLSA and a state wage and hour law, the employer may still be vulnerable to litigation filed under applicable state laws.

Again, the PAID program is available to employers through September 2018. Following the pilot phase, the DOL will evaluate the effectiveness of, participation in, and results of the program, after which it will decide whether to continue the program, modify it, or scrap it altogether. With the available six-month window of redemption, employers should consult with counsel (1) if they are aware of a potential wage and hour violation or (2) have not conducted a recent audit of its wage and hour practices. While PAID may not provide the best option for relief for all employers, honesty may be the policy for others. 


Bradford Harvey is a member of Miller & Martin at its Chattanooga office. Brad received his J.D., Order of the Coif, from Vanderbilt University School of Law in 1995. He concentrates his practice in labor and employment law and class and collective action defense. Brad may be reached at 423-785-8210 or brad.harvey@millermartin.com.

Megan Welton is an associate of Miller & Martin at its Chattanooga office. She focuses her area of practice on Labor & Employment law. Megan received her J.D. from University of Memphis Cecil C. Humphreys School of Law in 2015. She may be reached at 423-785-4326 or megan.welton@millermartin.com.