Mechanics of a labor investigation

As noted in the September 2010 issue of Long-Term Living (“Old law-New problem,” p. 32), the U.S. Department of Labor Wage and Hour Division has substantially increased enforcement efforts of applicable laws through more personnel, funding, and concentration on certain industries, including healthcare. The Wage and Hour Division enforces several laws, including the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act, among others. This article focuses on the procedure of Wage and Hour Division enforcement actions under the FLSA and provides preparation and response tips for employers.

GENERAL INFORMATION

The Wage and Hour Division will begin an investigation as a result of an employee or competitor complaint, or it will simply initiate one at its discretion. Investigations usually last between two weeks and three months depending on the complexity of the case.

When conducting an FLSA inquiry, investigators focus on employer compliance with minimum wage, overtime, child labor, and recordkeeping requirements, as well as any exemption requirements the employer may claim. Investigators gather information by (1) conducting an initial conference, (2) reviewing records, (3) interviewing employees, (4) calculating back wages, and (5) conducting a final conference.

There are several general guidelines an employer should follow throughout an investigation. First, remain calm and amicable. Investigators who are treated well tend to be more flexible. Second, the law provides 72 hours for employers to gather records, so no one should feel rushed when an investigator drops in unannounced. Third, if an employer has questions as to why certain information is requested, or has concerns relating to the disclosure of proprietary information, they may seek legal counsel. Fourth, employers should not coach employees on how to respond in interviews. Interviews are generally confidential (with the exception of management as described below) to protect the integrity of the investigation and the employees from possible retaliation.

INITIAL CONFERENCE

Investigators will initiate the investigation either by setting up an appointment for an initial conference or stopping in unannounced. During the initial conference, the investigator will meet with the owner or upper-level manager to review basic information to establish that the FLSA applies to the employer. The investigator inquires about the business’s nature, size, gross revenues, and employees. Investigators will also inquire about payment methods, work week, claimed exemptions, and other general information. The initial conference usually does not last more than an hour or two, depending on the investigator and the size and complexity of the company.

RECORDS REVIEW

After the initial conference, the investigator will begin reviewing records or interviewing employees. An employer should provide a quiet, private place for the investigator to work. During records review, the investigator may review, record, or copy relevant records, including payroll records, employee records, employment contracts, and others.

Wise employers know the value of accurate records and this is no exception. Records are the primary means to substantiate legal compliance. An investigator will look for miscalculations of the regular rate, varying payment methods, illegal deductions, or inaccurate reporting. If records are accurate and clear, they can be a strong defense against purported violations.

Employers should also be aware of applicable circuit court rulings on back wage calculations for certain violations.

To ensure that records are accurate, employers may wish to adopt policies such as having employees sign their time cards, initial needed changes, and other similar processes to increase accuracy.

EMPLOYEE INTERVIEWS

Most employers have an employee who wants to disclose any changes or questionable aspects of the employer’s pay practices, whether illegal or not. This employee’s desire to talk enables an investigator to further study particular areas of concern that may have been revealed in the initial conference or records review. If this and other employees’ statements allege violations, records are the best defense.

The Wage and Hour Division will insist that most interviews be conducted without the employer or an employer’s representative present. However, this privacy does not extend to members of management, as managers have the capacity to bind an organization. No wise employer will permit an upper-level manager to be interviewed without the employer or employer’s representative present.

BACK WAGES

After reviewing records and interviewing employees, the investigator’s next step is calculating back wages. The investigator can calculate the back wages or ask the employer to do so. Regardless of who calculates the back wages, employers should always request that the investigator consider vacation time, holidays, and other non-working days that could mitigate the amount of back wages.

Employers should also be aware of applicable circuit court rulings on back wage calculations for certain violations. The Wage and Hour Division and circuit courts diverge on their interpretation of the FLSA in more than one area. Circuit court rulings prevail in these circumstances, which could have a significant effect on the amount of back wages due. Employers should consult with an attorney regarding these issues.

FINAL CONFERENCE

At the end of the investigation, an investigator will meet with management and discuss violations. The investigator will invite the employer to come into compliance. Once the employer agrees to comply, the investigator will discuss back wages in detail, inform the employer whether additional money penalties may be applicable, and provide instructions on the procedure to pay those penalties. An employer may be eligible for a payment plan in some instances.

If, however, the employer refuses to come into compliance-or disagrees with the investigator’s findings on exemptions, back wages, or other issues-the case may be referred to the investigator’s manager. If this occurs, the entire investigation file is reviewed. The manager may determine that the findings are correct, but may negotiate the amount of back wages due. Alternatively, the manager may find that the investigator’s application of the law was incorrect and then he or she will correct the file. If the employer continues to disagree with the findings, then the case may be referred to the solicitor’s office for potential litigation.

CONCLUSION

The Wage and Hour Division is currently engaged in an unprecedented number of investigations. Mistakes are often made. So while employers should amicably cooperate during investigations, they should also remain vigilant to spot errors, seek clarification when needed, and find opportunities to mitigate potential liability. LTL

Richard W. Castleton is a Denver attorney with the national human resources law firm Smith & Downey, where he practices employment law and ERISA and employment litigation. He is also a former U.S. Department of Labor wage and hour investigator. Contact him at

rcastleton@smithdowney.com. Long-Term Living 2011 January;60(1):38-39

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