By Tammy Binford, Contributing Editor

The U.S. Department of Labor’s (DOL) announcement of a pilot program aimed at getting employers to voluntarily work with the department to resolve “inadvertent” overtime and minimum wage violations represents an opportunity for employers to fix mistakes without litigation, but attorneys who work with employers on wage issues urge caution.

The DOL’s Wage and Hour Division (WHD) announced the Payroll Audit Independent Determination (PAID) program on March 6, explaining that the Division will oversee the resolution of violations by assessing the amount of wages due and supervising payment to employees.

No penalties or liquidated damages will be assessed on participating employers that “proactively work with the Division to fix and resolve their potential compensation errors,” the DOL’s announcement states. The program will enable employees to receive 100% of the back wages they are found to be owed without having to pay litigation expenses, attorneys’ fees, or other costs.

Benefit for Employers?

Although details are not yet available, attorneys learning of the program say it may be advantageous for employers needing to correct mistakes related to the Fair Labor Standards Act (FLSA).

“I do see this as a potential benefit for employers in the right situations,” says Richard Rainey, an editor of North Carolina Employment Law Letter and attorney with Womble Bond Dickinson (US) LLP in Charlotte, North Carolina. “I expect that employers will still approach this program cautiously as there are advantages and disadvantages to participation.”

Rainey says the program seems like a good solution for employers with wage issues that affect just a few employees and result in relatively small monetary amounts. Inadvertent FLSA violations are common, he says, since the law is complex and highly technical. “There are also ‘gray areas’ that are created, and employers can make judgment calls that turned out to be wrong or at least subject to second-guessing,” he says.

Paul J. Sweeney, an editor of New York Employment Law Letter and attorney with Coughlin & Gerhart, LLP, in Binghamton, New York, agrees that the program could benefit employers by giving them the chance to resolve FLSA claims before they progress into a federal lawsuit.

“It appears that [the] DOL will be prepared to expedite and streamline approval of a FLSA settlement based on the employer’s application, and th[e] settlement, if accepted by the employee, includes the employee’s release of the underpayment at issue for FLSA purposes,” Sweeney says. “While there are many details on process yet to come and there is natural uncertainty as to the scope of the employee’s release, this new PAID program could help many employers avoid needless and expensive FLSA litigation.”

Sweeney also says inadvertent violations are common because the FLSA can be difficult to understand and follow. “For example, base wage and overtime determinations may hinge on the exact business of the employer, the type of labor being performed, and whether the affected employee receives tips, bonuses, or wage supplements, among other factors,” he says. “Also, it can be very difficult for any employer—even with new electronic software—to accurately track and validate the hours claimed to have been worked by an employee.”

But employers should carefully evaluate whether to participate, according to Catherine E. Walters, an attorney with Saul Ewing Arnstein & Lehr LLP in Harrisburg, Pennsylvania.

“My review of publicly available information about the PAID program gives me some pause because the DOL does not address the future impact of [the] resolution of violations under the PAID program,” Walters says. “Unless the DOL is willing to confirm that violations resolved under the PAID program will not be used against employers in future audits to find ‘repeat violations,’ which could result in penalties or findings of willfulness, I am not fully convinced of the benefit to employers.”

Walters says instead of participating in the voluntary program, employers could just perform a self-audit and make payments to employees without including the DOL in the process. “Although employers may not be able to obtain enforceable releases in these situations because the FLSA does not allow for them, payment of back wages and correction of unlawful practices should obviate the need for releases in most cases,” she says.

Deciding Whether to Participate

Rainey says employers need to look at a variety of factors in deciding whether to participate in the program such as the number of employees involved, the amount of money involved, the anticipated response from employees, confidence that the issues are limited, and whether they will create additional issues by resorting to the program.

Sweeney says employers need to understand that once an application to the program is made, “there is no guarantee that the DOL will not further audit and investigate.” He also says it isn’t clear if employees will release state wage and hour claims in addition to FLSA claims.

“Some would ask about the wisdom of settling the FLSA claim while leaving the company exposed to a state law claim,” Sweeney says. “As such, it is difficult to ‘un-ring the bell.’” He suggests employers consult with qualified counsel on whether they are eligible for the PAID program and the risks and benefits.

Walters suggests that employers considering applying for the program assess whether they have been audited in the past and the outcome of those audits. She also says employers should assess whether employees have already complained to the DOL and whether they “can simply audit [themselves], identify and correct practices and pay employees without involving the DOL and subjecting [themselves] to supervision.”

Program Requirements

The DOL’s announcement says employers may not participate if they are in litigation or currently under investigation. It also says employers can’t use the program repeatedly to resolve the same potential violations, and settlements will be limited in scope to only the potential violations at issue.

The DOL says the program also requires employers to review Wage and Hour Division compliance assistance materials, carefully audit their pay practices, and agree to correct the pay practices at issue going forward.