Having just capped off another fiscal year of increased enforcement activity, the Department of Labor (the “Department”) has released its Strategic Plan for fiscal years 2011 through 2016. Although it is not binding, the Plan offers employers valuable insight as to where the Department will likely focus its regulatory and enforcement efforts in the years to come. This Alert hones in on the first of five strategic goals announced in the Plan, which is to “ensure fair compensation” by achieving outcomes such as secured wages and overtime through “enforcement activities, litigation strategies, and penalty assessments.” To meet this goal, the Department will focus its enforcement and outreach efforts largely upon employee misclassifications and “vulnerable workers.”
The Department plans to work jointly with the Department of Treasury to “detect and deter” employers who misclassify employees as independent contractors. The Department describes the problem as one that impacts between 10 and 30 percent of employers, deprives the Department of Treasury of billions of dollars, and causes “substantial losses” to Social Security, Medicare, and unemployment insurance trust funds. More specifically, and in a theme echoed throughout the Plan, the Department makes known its heightened suspicion of issues in the following “high-risk” industries: janitorial work; home health care; child care; transportation and warehousing; meat and poultry processing; other professional and personnel service industries; and, most of all, construction. To employers in these industries, the Plan assures the Wage and Hour Division’s increased investigation level and overall presence.
In the same vein as its efforts to combat misclassification issues, the Plan describes the Department’s intent to implement a “Plan/Prevent/Protect” regulatory strategy. In what may be the most significant development of all, the Plan forecasts the 2011 publication of proposed new FLSA recordkeeping regulations as part of this strategy. This area of focus was first announced by the Department last April in its semi-annual regulatory agenda and accompanying fact sheet. While the Department’s approach to the anticipated rule-making remains vague in the Strategic Plan, the Department continues to express its intention to impose an affirmative duty on employers to “notify each of their workers of their rights under the FLSA, and provide employees with information regarding their hours worked and wage computations.” This would be a dramatic shift from existing recordkeeping requirements, which generally do not require individualized disclosures of information regarding employment or exemption status, and would saddle employers with substantial new burdens. We are watching developments on this subject closely and will publish further Alerts as developments occur.
The Plan conveys the Department’s intent to reach out to and protect the growing proportion of “vulnerable workers,” a group mentioned 45 times throughout the Plan. Such workers include the young, the disabled, those unlikely to file complaints, and those working in what the Department describes as “fissured industries.” According to the Department, fissured industries are those that rely on what it describes as “splintered” employment relationships that distance the worker from the beneficiary of the work or impose obstacles on the Department to target a single corporate office to achieve brand-wide compliance. The Department identifies the use of independent contractors, franchise relationships, and subcontractors as organizational methods that “redefine” employment relationships. Examples of “high risk” industries singled out by the Department include agricultural, janitorial, construction, and hotel/motel industries. The Department intends to concentrate investigation efforts in these industries based on its conviction that they abound with misclassification issues.
The Plan also focuses on prevailing wage compliance efforts through the Davis-Bacon and Related Acts and the Service Contract Act compliance. The Department articulates its goal in this area as providing “protections to local middle-class workers who may be disadvantaged by competition from outside labor offering their services at wages lower than those in the locality, and the enforcement of the Immigration and Nationality Act foreign labor programs protections for American workers who may be displaced by a temporary non-immigrant workforce.” To accomplish this, the Wage and Hour Division intends to promote efficiencies in its Davis-Bacon wage survey program “to increase the percentage of Davis-Bacon wage rates that are three years old or less.”
As a final note, the Plan explains that the Department’s effort to “secure” wages and overtime for workers is not simply a matter of collecting back pay. Instead, the Department’s expressed goal is one that it expects to realize through “enforcement activities, litigation strategies, and penalty assessments.”1 With that, employers throughout the country, especially those dealing with potential misclassification issues or “vulnerable” employees, should consider themselves forewarned of the Department’s intended enforcement efforts, at least during the current administration. Such efforts may well present in various forms, from more frequent directed investigations to the Department’s increased presence in private litigation through amicus involvement.