The U.S. Department of Labor Wage and Hour Division is piloting a new program under the Fair Labor Standards Act aimed ostensibly at resolving wage disputes without litigation. This new program, named P.A.I.D (Payroll Audit Independent Determination), will be in effect for a short time and then go under review.
Under P.A.I.D., companies may self-report FLSA wage law violations and work directly with WHD to reach enforceable settlement agreements before the matter gets to court. Typically, absent WHD involvement in a settlement negotiation, employers must get court approval of FLSA settlements.
While this sounds like a win for employers, especially those who’re facing potential wage claims and don’t want to face the costs and negative publicity of a court case, there are risks to employers who self-report violations.
One significant risk is that an employer’s self-report of one wage issue could result in the government inquiring into, and prosecuting, other pay and employment practices. So, before self-reporting anything to DOL, employers should consider hiring an employment lawyer to conduct a privileged internal audit of their payroll and employment practices. Should the audit process reveal other law violations, a lawyer can advise the business on how to mitigate liabilities and get ahead of any potential additional audits and investigations by agencies including the EEOC, NLRB, OSHA and ICE – all agencies with whom the DOL shares information.
Another risk employers face is assuming (wrongly) that they can wait until workers complain about unpaid wages before making a self-report. This could be a gross tactical error. The DOL has announced it will not allow employers to use P.A.I.D. to address violations that are already in litigation or facing the threat of litigation. After the initial application, the employer must certify that it is not litigating the compensation practices at issue in court, arbitration, or otherwise, and likewise has not received any communications from an employee’s representative or counsel expressing interest in litigating or settling the same issues. That last bit is key, as it likely require a careful, privileged investigation by the company’s lawyer to determine if such communications already have been received.
The DOL’s program does provide a window for respite from costly, time-consuming, morale-sinking lawsuits, and it could be a worthwhile experiment for companies, especially if they’ve already identified they may have a problem, but approach it with experienced, employment counsel on the team!