Members of the House Subcommittee on Workforce Protections held a hearing on Wednesday to discuss the exponential rise in Fair Labor Standards Act (FLSA) litigation, and the Department of Labor's employer compliance assistance efforts. According to Subcommittee Chairman Tim Walberg (R-MI), the FLSA and its regulations are "exceptionally complex and outdated . . . promot[ing] the interests of trial lawyers" over employees. Moreover, the "patchwork of conflicting interpretations and a complex regulatory structure have created an environment of legal uncertainty."
Rep. Walberg began the hearing with a focus on a Government Accountability Office (GAO) report released in January 2014 that found that wage and hour litigation under the FLSA has skyrocketed in recent years. Specifically, the report indicates that in fiscal year 2012, "an estimated 97 percent of FLSA lawsuits were filed against private sector employers, often from the accommodations and food services industry, and 95 percent of the lawsuits filed included allegations of overtime violations."
The report states that, since 1991, the number of FLSA lawsuits has increased 514%. In FY 2012, a total of 8,148 such lawsuits were filed.
Turning first to the GAO report, Andrew Sherrill, Director of Education, Workforce, and Income Security with the GAO explained that the recent increase in the number of FLSA lawsuits has been concentrated in three states: Florida, New York, and Alabama. Litigation in these states alone accounts for 53% of all FLSA lawsuits, Sherrill testified.
Among the possible reasons stakeholders have attributed to the rise in FLSA litigation is the financial incentives inherent in wage and hour litigation combined with the "relatively straight-forward" nature of FLSA cases. This combination makes filing FLSA lawsuits – particularly collective actions – attractive to the plaintiffs' bar. Variations in state wage and hour law is another reason cited for the increase. Sherrill noted that in New York, for example, the statute of limitations for filing wage claims is six years.
Sherrill said the GAO recommends that the DOL develop a "routine and systematic" way to determine where FLSA guidance is needed, as well as a data-driven approach to assess the adequacy of its guidance.
Absence of Guidance
Many witnesses and lawmakers decried the lack of compliance assistance from the DOL's Wage and Hour Division, as well as the heavy-handedness of FLSA enforcement. According to one witness, DOL enforcement of its wage and hour laws is not calibrated, punishing equally willful bad actors and those who have made good faith mistakes.
Rep. Walberg emphasized that the "vast majority" of employers want to do the right thing, but as litigation has increased, the number of FLSA guidance documents released by the DOL has "sharply declined." Only seven guidance documents have been released in the past three years, he noted.
One witness explained that the statute itself does not provide useful definitions of key terms, including "employee" and "work." The agency, he said, has "closed its doors" to employers in ending its practice of issuing opinion letters.
Another panelist, testifying on behalf of the Society for Human Resource Management, echoed this complaint, saying that opinions letters are very helpful to employers. For example, she testified that calculating travel time is "not easy," but opinion letters have provided valuable guidance. In addition, making classification decisions is particularly challenging, she explained, as the determination involves both objective and subjective criteria. It is easy, she said, for an employer to make a good faith mistake by misclassifying a non-exempt employee as exempt.
Employers get tripped up in other areas of the statute. A witness explained that many employers have been penalized for not including bonus amounts in an employee's regular rate of pay for overtime calculations. Discretionary bonuses are excluded from the regular rate of pay, while nondiscretionary bonuses are included. The line between the two, however, is not always clear. By way of example, a panelist said an employer was assessed a six-figure penalty for providing discretionary bonuses to employees that the agency argued were nondiscretionary.
Rep. Todd Rokita (R-IN) noted that at least four amendments have been made to House appropriations bills that would debar contractors that have committed FLSA violations within the past five years. Such violations could include a finding of fault and liability in any civil, criminal, or administrative proceeding, including entering into wage and hour conciliation agreements or consent decrees that include a “finding of fault.” Therefore, the employer in the above bonus scenario would be prevented from doing business with the federal government should those amendments be adopted.
Overall, panelists urged the DOL to start treating employers as stakeholders and partners in compliance, and called for a return of Wage and Hour Division opinion letters.
A complete list of panelists and links to their testimony can be found here.