Category Archives: Audits

LOCAL PAINTING CONTRACTOR TO PAY NEARLY $200K IN BACK WAGES, DAMAGES AND PENALTIES FOLLOWING US LABOR DEPARTMENT INVESTIGATION

The US Department of Labor (DOL) announced last Thursday that it investigated an Arizona painting contractor and found Fair Labor Standards Act (FLSA) violations resulting in nearly $200,000 in damages.  This is yet another reminder for Arizona businesses that the DOL is aggressively on the hunt for employers who misclassify employees, fail to properly record workers’ time, and do not pay overtime.

Let’s review the facts of Arizona Painting Company case so that your company will not find itself in a $200,000 (or more) bind.

DEPARTMENT OF LABOR PAINTS AN UGLY PICTURE OF ARIZONA CONTRACTOR’S PAYMENT PRACTICES

Arizona Painting Company is a painting contractor located in the Phoenix suburb of Chandler.

A DOL investigation found that the company failed to pay their employees the federal minimum wage and overtime in violation of the FLSA.

Employees legally-entitled to minimum wage and overtime were paid flat weekly salaries that, when divided by the number of hours they actually worked, fell short of the federal minimum wage, currently $7.25 per hour. These employees routinely worked between 50-55 hours per week, yet the employer also failed to keep an accurate record of hours worked and failed to pay them overtime for hours worked beyond 40 per week, as required by the FLSA.

Other employees, who were paid on a commission basis without regard to how many hours they had worked, were also paid less than the minimum wage and were denied overtime.

Arizona Painting Company agreed to comply with the FLSA and will pay $165,638 in back wages and damages to 79 workers. The commercial and residential painting contractor will also pay an additional $29,546 in civil money penalties. As part of the settlement, the employer notified employees about the case and agreed to provide them with training on their rights under the FLSA.

THE DOL VOICES ITS COMMITMENT TO PROTECTING EMPLOYEES AND TARGETING BUSINESSES

“Workers in [the contracting] industry are among the most vulnerable that we see,” said Eric Murray, director of the Wage and Hour Division’s district office in Phoenix. “As the back wages, damages and penalties paid in this case illustrate, we are committed to ensuring that workers receive every penny they have rightfully earned.”

“Other employers should take note of this investigation, and ensure that they are in compliance with the law. Other employees being paid in this manner should give us a call. Our services are free, and confidential.”

COMPLY WITH THE FLSA AND SLEEP WELL AT NIGHT

How can your business avoid the painting contractor’s mistakes?  Here’s how:

  • Make sure you have a solid and defensible recordkeeping system that accurately records all time worked
  • For FLSA recordkeeping requirements, read this previous HR Law Insider article
  • Pay non-exempt employees on an hourly, not salary, basis; this way it is much easier to accurately determine any overtime due and much less likely you will miscategorize employees
  • Conduct an annual internal audit with counsel; this should neither be difficult nor expensive — few employees fall into a grey area when it comes to classifying and properly paying employees

CONCLUSION

The tips listed above are but several of many measures that go into an effective FLSA compliance program.  Put the proper systems in place, execute consistently, and your business needn’t fear the “dreaded” DOL audit.

Art Bourque has guided businesses and individuals in various FLSA and DOL audits and investigations.  He has defended and brought claims under the FLSA and other DOL and EEOC regulated laws.  Contact Mr. Bourque with any questions regarding these or other employment or human resource issues.

EPILOGUE:  THE TREES

As explained in a previous article, the most effective way to avoid a DOL audit is to treat your employees well —  because the number one cause of audits is employee complaints.

So, while pondering the state of your employees’ morale, enjoy The Trees by Rush.  This Neal Peart creation brilliantly captures what happens when those above (the Oaks) and those below (the Maples) do not get along.  Namely, “hatchet, axe, and saw” intervene (the Government).  At least this has always been my interpretation of the song — one of my favorites.  The lyrics appear below the video:

There is unrest in the Forest
There is trouble with the trees
For the Maples want more sunlight
And the Oaks ignore their pleas.

The trouble with the Maples
(And they’re quite convinced they’re right)
They say the Oaks are just too lofty
And they grab up all the light
But the Oaks can’t help their feelings
If they like the way they’re made
And they wonder why the Maples
Can’t be happy in their shade?

There is trouble in the Forest
And the creatures all have fled
As the Maples scream ‘Oppression!’
And the Oaks, just shake their heads

So the Maples formed a Union
And demanded equal rights
‘The Oaks are just too greedy
We will make them give us light’
Now there’s no more Oak oppression
For they passed a noble law
And the trees are all kept equal
By hatchet,
Axe,
And saw…

TOP TEN WAYS TO SUCCESSFULLY DEFEND A DEPARTMENT OF LABOR AUDIT OF YOUR BUSINESS

United States Department of Labor (DOL) business audits are rising due to stepped-up enforcement of wage, hour, and recordkeeping laws by the DOL and Obama administration.

The thought of a government audit is painful for most; however, the actual process itself and the result — whether your business will face fines and penalties for non-compliance — need not be painful.

Yesterday morning I walked out of a DOL “closing conference” — a meeting the DOL calls with business management/ownership at the end of an audit to announce its findings — with a deep sense of satisfaction.  The closing conference was a complete success:  no fines or penalties.  Why?  I am convinced that my client “got it right” by following the guidelines discussed in this article.

1.  TREAT EMPLOYEES WELL

The number one cause of DOL audits is employee/ex-employee complaints of alleged unlawful conduct.  Complaints almost always relate to (a) unpaid wages, including overtime, (b) misclassification of employees as exempt from overtime requirements, (c) misclassification of workers as independent contractors, and (d) recordkeeping violations.

The best way to deal with a potential problem is to avoid it in the first instance.  Avoid DOL audits by hiring good people, managing them well, and treating them fairly.

2.  MAKE SURE YOUR HOUSE IS IN ORDER

Most audits go well because the subject business complied with the law.  Previous HR Law Insider editions explain what it takes to do so.  Whether it comes to paying overtime or properly classifying employees, follow the law and avoid white-knuckling it on audit day.

3.  HAVE A PLAN WHEN YOU RECEIVE THE DOL AUDIT CALL

Typically the DOL will call the company’s main office and send a letter to announce its audit.  From there things move very fast — the auditor may say that she/he wants to inspect company records at the company’s business that day or the next day.  This is often very unsettling to unprepared businesses.

Here is a plan:  First, assign one owner or manager to handle a DOL audit if it occurs; have a backup person available if the owner or manager is on vacation or otherwise unavailable.  Second, call legal counsel immediately, meet as soon as possible, and, as a team, develop a specific strategy to defend the audit.  This strategy will include how to deal with any, issues (i.e. potential violations) you anticipate may surface.

4.  BE COOPERATIVE WITH THE AUDITOR AND, IF NECESSARY, OBTAIN ADDITIONAL TIME  TO PRODUCE RECORDS AND SUBJECT MANAGEMENT TO INTERVIEWS

Being nice to an auditor goes a long way.  Conversely, an uncooperative or rude attitude toward an audit or auditor increases the chance of an adverse result.

Being nice does not mean caving in on unreasonable requests, which do occur; nor does it mean accepting DOL findings that may not be supported by the facts or law.  It means working cooperatively with the DOL agent while protecting your company’s interests.

Virtually every auditor I have worked with has allowed my client and me more time (than a day or two) to prepare for the initial meeting (opening conference) with the auditor.  Do not rush into that initial meeting and document production if more time will allow you to be better organized and prepared.

5.  PREPARE FOR MANAGEMENT AND EMPLOYEE INTERVIEWS 

The DOL agent will likely interview managers and employees immediately after the initial conference.  This will likely occur at the employer’s place of business.  The “process” can seem very invasive and intimidating at times.

Discuss interview preparation with legal counsel.  Counsel will advise you what types of questions to anticipate and how those questions relate to wage and recordkeeping laws (and potential violations).  This preparation significantly increases the odds of achieving a positive result for the employer.

Counsel can — and should — be present at all manager and supervisor interviews.  Counsel cannot be present at employee interviews; this is another reason to treat employees well and follow the law:  they will not be motivated to throw your business under the bus in their interviews.

6.  PRODUCE REQUESTED DOCUMENTS AND NOTHING MORE 

The DOL presents a list of documents to be produced with its initial letter commencing the audit.  The list is often onerous — particularly if the employer’s records are not well kept, scattered, or unorganized.

Assign one person to assemble the documents.  Then review the documents — category by category — with counsel to ensure compliance with the requests and that there are no extraneous documents.  Including documents and information that were not requested will lead to wasted time and, possibly, additional issues.

7.  DO NOT LIE OR HIDE THE TRUTH

There are three reasons not to lie or hide the truth: (1) it is unlawful; (2) it is unethical; and (3) those inclined not to care about nos. 1 and 2 should know that it is quite possible that, based on a complaint, the DOL already has specific knowledge of an unlawful practice;  lying about the practice or hiding it may cause the DOL to determine you wilfully violated the law and are obstructing their investigation, resulting in an unhappy auditor and potentially significant fines and penalties.

8.  LISTEN CAREFULLY TO THE DOL AUDITOR

Audits have an upside for attentive businesses.  By listening to an auditor’s advice and comments, businesses (and their counsel) can better understand what is important to the DOL, any enforcement trends or priorities, and how to stay off the DOL’s proverbial radar going forward.

9.  USE THE AUDIT AS A WAY TO “CLEAN HOUSE” OF ANY RELATED ISSUES

The self-examination which results from a DOL audit often allows employers to identify related business problems or areas of non-compliance.  For example, your business might discover that its handbook is out of date,  that management is doing a poor job of supervising and training employees, that morale is poor, that there is no consistent and identifiable method of disciplining and terminating employees, or that it may be a joint employer with a related or affiliated business.

Just as you would use a physical exam to clean-up your diet, physical training, and lifestyle, use a DOL audit to clean-up aspects of your business identified as unhealthy.  In other words, kill two birds with one stone.

10.  CORRECT ANY ISSUES IDENTIFIED BY THE AUDITOR OR BY COUNSEL

The most heavily penalized businesses are the ones that the DOL determines knowingly fail to comply  wage and hour laws.  Failing to correct issues identified in a DOL audit can bring significant penalties.  So too can employer “tricks” to evade the payment of overtime (e.g. “finessing” records to make it appear a worker who worked overtime did not; keeping time off the books; intentionally misclassifying workers to avoid paying overtime or providing other required benefits).

Do not tempt fate:  correct any items noted by the DOL, who may just decide to re-visit your company to ensure compliance with the law.

CONCLUSION

With preparation, “game day” — the day of the audit — should go well.  Football coach and legend Vince Lombardi put it well, “The will to win is not nearly so important as the will to prepare to win.”

Speaking of the man himself, I am on my fourth reading of a Lombardi book — “What it Takes to be #1.”  The book is less about football than it is about how to build and sustain a top-notch organization (and there are some excellent football vignettes in the book for any fellow gridiron junkies).

Contact me if you would a courtesy copy of the book.  I believe in spreading Lombardi’s “gospel” that much, and thoroughly enjoy comparing notes with similarly inclined leaders.  Are you a leader?  Undoubtedly.  Lombardi observed that we are all leaders in one way, shape or form (family, business, friend, counsel, etc.).  I could not agree more.