Even as the national and state economies recover, we continue to see states search for untapped sources of revenue from employers, and we expect this trend to grow.
Take Massachusetts for example. In 2008, Governor Patrick created the Joint Task Force on the Underground Economy and Employee Misclassification (“JTF”). The JTF represents an unprecedented level of cooperation between numerous Massachusetts executive agencies, including the Department of Labor, the Department of Revenue (DOR), the Department of Industrial Accidents (DIA), the Attorney General’s Office (AG), and the Division of Unemployment Assistance (DUA).
The JTF’s recently released 2012 Annual Report [here] corroborates our own anecdotal experiences that agencies (state and federal) are sharing data on a more frequent and substantive basis, and that a relatively “straightforward” complaint regarding a discrete issue can quickly evolve into full-blown audits on numerous wage and hour issues conducted by several different agencies.
In addition to conducting cross-agency compliance checks (17,000 conducted in 2012), the JTF also responds to complaints made through its referral phone line, online referral service, and complaints made directly to member agencies. Last year, the JTF received and investigated 237 such complaints. Once a complaint is made or referred to the JTF, member agencies review the complaint to determine if there are any potential violations that fall within their jurisdiction.
The JTF is not just relying on old-fashioned complaints. The DUA, in conjunction with the JTF, has implemented a fraud detection technology called AWARE, which is a database that can “run cross matches between several different agencies’ data.” According to the Report, the technology is used to compile possible audit targets and is “greatly improving audit targeting strategies for the DUA.”
The JTF’s efforts are paying off for Massachusetts. According to the Report, between July 2011 and December 2012, Massachusetts recovered more than $21 million in wage restitution, state taxes, unemployment contributions, fines and penalties from employers—more than the total amount recovered by the JTF during the prior 40 months combined. This recovery represents money “above and beyond what member agencies collect through their ordinary enforcement efforts.”
For employers who are in compliance with all the state and federal laws, efforts like the JTF may be a welcome opportunity to ensure that other employers do not gain a competitive advantage by illegally reducing the money spent on wages, insurance, payroll taxes, licenses, and other employee benefits.
On the other hand, employers who unintentionally violate a law may quickly find themselves subject to scrutiny on numerous issues by several different agencies. In addition to being subject to potential fines and penalties, Massachusetts employers face automatic treble damages and attorneys’ fees if their employees or former employees prevail in civil wage and hour lawsuits.
Regardless of location, employers that receive any complaints of potential wage and hour violations, or find themselves the subject of an audit from a state agency, are advised to immediately consult with counsel.