President Obama just celebrated his first year in office and his Administration has been busy! From the U.S. Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC) to the Department of Homeland Security (DHS) and the National Labor Relations Board (NLRB), employers of all sizes are starting to see the effects of the Obama Administration's workplace agenda. The watchword for all employers in 2010 is "compliance." Each of these agencies is slated to receive a substantial budget increase this year and all of these agencies are planning hiring sprees to increase the number investigators and enforcement personnel.


The DOL's agenda includes increased audit and enforcement proceedings related to "off-the-clock" work and the misclassification of employees as "exempt" under the Fair Labor Standards Act (FLSA). In addition, the DOL (in cooperation with the IRS) will focus its audit and enforcement proceedings on employers who misclassify individuals as independent contractors. In order to crack down on the employment of unauthorized workers, DHS announced that it will focus on worksite enforcement by conducting more I-9 audits and criminal prosecutions of management employees.


Not to be left out of this compliance frenzy, the EEOC announced that it will aggressively investigate charges of harassment and discrimination (focusing on disability and equal pay issues) and pursue more litigation, including class action lawsuits (especially where it believes that there is a "pattern and practice" of discrimination or harassment). Meanwhile, President Obama and the DOL are pressing forward with the Employee Free Choice Act—which will give organized labor a boost in its organizing and negotiating activities.


Now, more than ever, employers must have programs in place to ensure compliance with all workplace laws and implement a clear strategy for handling government audits and enforcement actions. While the thought of conducting a comprehensive personnel and payroll compliance audit can be daunting, employers can efficiently conduct "spot" audits of particular areas where they may be vulnerable.

As an initial matter, employers should determine who will conduct the audits. Utilizing internal resources such as the Human Resources and/or Payroll Departments and/or the company's General Counsel will help keep the costs down. However, using internal resources may not guarantee that the results will be protected by the attorney-client privilege should the company become involved in litigation regarding the subject matter of the audit. As such, employers may wish to seek assistance of outside counsel to conduct the audit and analyze the results.

The purposes of these "spot" audits are to:

1) identify areas of non-compliance;

2) identify policies, procedures and/or practices that can be improved;

3) develop a plan for improvement; and

4) implement the plan.

The areas where most employers are vulnerable to government actions and employee claims are:

  • Payroll practices (overtime, "hours worked" and "donning and doffing")
  • Classification of employees (exempt v. non-exempt)
  • Personnel policies and procedures (leave of absence and paid time off)
  • Consistent handling of discipline and terminations
  • Paperwork and recordkeeping (time keeping and I-9s)
  • Proper classification of independent contractors

In planning a "spot" audit, employers should determine:

1) the scope and depth of the audit;

2) what data need to be collected;

3) what documents need to be reviewed;

4) which managers should be interviewed to obtain relevant information; and

5) whether the employees should be surveyed for relevant information.

On a cautionary note: if the employer believes that too many "skeletons in the closet" might be exposed in an audit, then consideration should be given to retaining outside counsel to assist in the audit so that the process and the results can be protected by the attorney-client privilege.

Finally, employers must decide what to do with the results of the audit. Some things to consider are:

1) who will be apprised of the results and how (written or verbal);

2) will the person who conducted the audit make recommendations regarding problem areas;

3) what, if anything, is going to be done about any problems;

4) how should any changes be implemented (a "spin doctor" may be needed; and

5) how is the employer going to address employee questions and challenges.

In the short-term the exercise of conducting internal audits may be viewed as a distraction from an employer's business purpose. In the long-run, however, getting the company's "house in order" before a government agency knocks on the door, will save time, attorneys' fees and the intangible costs of being embroiled in administrative or civil litigation. Remember the adage: "An ounce of prevention is worth a pound of cure."