Hunton Employment & Labor Perspectives

Under a new DOL pilot program, employers can self-report wage violations and potentially avoid costly litigation.

Last week, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) launched a six-month pilot program to resolve FLSA violations.  Under the Payroll Audit Independent Determination (PAID) program, employers may self-report potential overtime or minimum wage violations to the WHD, which will then resolve the matter by supervising payments to employees if the employees accept the settlement.  Importantly, the WHD will not impose penalties or liquidated damages on employers that participate in the program and proactively work with the WHD to resolve the compensation errors.  Further, if an employee accepts a supervised settlement through PAID, s/he waives his or her right to file an action to recover damages and fees for the violations and time period identified by the employer.  To participate in the PAID program, an employer must identify: (1) the wage violation(s); (2) the impacted employee(s); (3) the time period(s) in which the violation(s) occurred; and (4) the amount of back wages owed to the impacted employee(s).  However, employers may not participate if they are in litigation or under investigation by the WHD for the practices at issue, or to repeatedly resolve the same potential violations.

For employers, the PAID program should be a welcomed initiative, particularly after Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016) severely dampened employers’ use of the “pick off” strategy in FLSA class action litigation, by which employers would make an offer of judgment for full relief to the named plaintiff prior to class certification, often resulting in the mooting and dismissal of the case.  The PAID program, however, may be even more useful to employers than the pick off strategy, considering the pick off strategy only permits resolution after a lawsuit has been filed, while the PAID program potentially allows employers to preclude the filing of a lawsuit altogether through a settlement vehicle specifically established by the DOL.  Moreover, besides class and collective action litigation, employers with one-off violations representing only small amounts of damages could also benefit from the program, considering that employers sued under the FLSA for even small amounts (i.e. less than $1,000) often end up owing much more due to the FLSA’s employee-friendly fee provisions.

Ultimately, employers may realize a substantial benefit by proactively auditing their payroll practices and using the pilot program to self-report.  On the other hand, since the pilot program excludes active litigation matters, it remains to be seen whether plaintiffs’ attorneys will forgo the usual pre-litigation demand letter in an attempt to file litigation before the employer self-reports to the DOL.