During a hearing on the Fair Labor Standards Act (FLSA) conducted by the House’s Subcommittee on Workforce Protections, former administrator of the DOL’s Wage and Hour Division (WHD) and current Littler Shareholder Tammy McCutchen outlined how the agency’s shift in regulatory and enforcement tactics have made complying with the FLSA increasingly difficult for employers, and suggested changes. Overall, McCutchen explained that the WHD has become more punitive during this Administration, is upending practices that have been in place “for decades,” and has focused its resources on extensive and often unnecessary enforcement actions instead of helping good faith employers comply with the law.

During her testimony, (pdf) McCutchen stated that the WHD has taken a more combative stance towards employers, regardless of whether these businesses have a history of FLSA violations. Such examples include the fact that the agency has been conducting more unannounced investigations of employers with clean wage and hour records, sometimes even sending multiple investigators to conduct an investigation of a single facility. As listed in her testimony, other examples of punitive behavior by the WHD include:

  • Demanding that employers produce documents that they are not currently obligated to maintain under the recordkeeping regulations – such as the basis for an employer’s claimed exemptions – and threatening to bring subpoena actions in federal court against employers that fail to respond to broad document requests within 72 hours;
  • Prohibiting field career staff from using the “self-audit” investigation method, “which is the most efficient way of determining back wages due in large cases where an employer has already agreed to pay 100% of back wages, and instead requiring investigators to conduct ‘full’ investigations in almost every case”;
  • Mandating that the career field staff impose civil money penalties and liquidated damages in almost every case; and
  • Refusing to issue WH-58 waiver forms, or issuing only limited waiver forms, even when the employer agrees to pay 100% of back wages as calculated by the WHD.

During the hearing, McCutchen explained that the WH-58 forms – which inform employees that they waive their right to bring a private lawsuit if they accept the payment of back wages as calculated by the WHD – provide employers with a strong incentive to voluntarily come forward and report their often honest mistakes. By refusing to issue these forms, the WHD is discouraging employers from self-reporting, and has created an environment in which “there is no path for a good faith employer to voluntarily correct violations.” According to McCutchen, the lack of WH-58 receipts has created “legal uncertainty” for employers, as without them agreeing to pay 100% back wages as calculated by WHD does not guarantee that the employee will not file a lawsuit or join a class action after receiving the payment in order to claim additional back wages or liquidated damages.

Moreover, McCutchen emphasized that the goal of the WHD is to “punish bad actors” while ensuring that there are “all possible resources for good faith employers” to understand and comply with the law. As she testified, the WHD “cannot do so through enforcement only.”

Notably, McCutchen criticized the WHD’s decision to reduce its compliance efforts, claiming it has “closed its doors to employers that are seeking guidance on what the FLSA actually requires.” According to McCutchen, the agency has taken a number of steps that have left well-intentioned employers without a means for determining whether they are in violation of the law. Such measures include the withdrawal of nearly 20 Opinion Letters, for the sole reason they were not put in the mail before inauguration day, and the decision to stop issuing new opinion letters. These letters respond to fact-specific employer questions, thereby fleshing out and explaining the complexities of the FLSA and how the law applies to particular fact patterns. According to McCutchen, opinion letters are the “primary means for employers to learn what the Department of Labor believes what is required by the FLSA.”

In addition, McCutchen asserted that the WHD has refused to enter into compliance partnerships with employers or otherwise assist employers with the calculation of back wages once mistakes have been discovered. McCutchen explained that the WHD has more manpower and funding to enforce the FLSA than it did nearly a decade ago, but is recovering less in back wages, therefore “doing less with more.”

Other panelists and lawmakers agreed with McCutchen, particularly with the need for more guidance from the WHD on what constitutes an employee versus an independent contractor. While WHD Deputy Administrator Nancy J. Leppink touted the Memorandum of Understanding (MOU) and other cooperative efforts between the DOL and IRS to ferret out misclassification violations, a hearing witness pointed out potential problems with this arrangement. Specifically, the IRS uses a 20-factor test to determine whether a worker should be treated as an employee for tax purposes, while the DOL uses an “economic realities” test under the FLSA. As stated by one hearing panelist, the application of those legal tests in determining whether a worker is an employee is a very complicated analysis. Rep. Lynn Woolsey (D-CA) stated that the agencies are currently working together to create a more uniform standard of making this assessment.

Another difference between the two agencies’ handling of the misclassification issue is the fact that the IRS has implemented a limited amnesty program for employers that voluntary come forward with their worker classification mistakes, while the DOL does not offer an analogous program. During her testimony, McCutchen recommended that the DOL implement such a voluntary correction program whereby “employers who disclose a violation and pay 100% of back wages for two years can get the certainty of a WH-58 waiver form as an incentive for doing so.”

Others at the hearing criticized the WHD’s Bridge to Justice program, whereby the DOL refers complainants to private sector attorneys. One attorney witness explained that this program rewards lawyers only, and “has turned compliance upside down, because the referral by DOL to private attorneys for enforcement follow-up should be a last resort—after an employer has had an opportunity to respond and to undertake any necessary corrective actions.”

In addition, Subcommittee Chairman Tim Walberg (R-MI) opened the hearing by criticizing the WHD’s recent investigatory focus on the home building industry, as well as its development of a “Right to Know” regulation that will require employers to create written explanations as to why certain workers are classified as independent contractor or other non-employees. According to Walberg, “This may stimulate demand for lawyers, but it will cost businesses time and money.” Walberg also found fault with the agency’s intended proposal to eliminate the exemption for certain home care workers: “These workers provide invaluable services to the elderly and infirm at private residences, yet this regulatory effort may increase the cost of care – forcing some individuals to abandon their homes and enter institutional support.”

A few members at the hearing, however, argued in favor of the WHD doing more to combat wage theft. One panelist, although acknowledging that the majority of employers want to do the right thing, claimed that there are certain employment sectors – such as the restaurant and home construction industries – where violating the FLSA is the norm.

A complete list of the panel members, links to their testimony, and access to an archived webcast of the hearing can be found here.