Former DOL investigator talks about audits: Get her inside story about what you need to know and do

Landscape companies have been a specific target of the U.S. Department of Labor: Wage and Hour Division (DOL WHD) for several years. According to the U.S. DOL Data Enforcement website, landscape companies agreed to pay more than $20 million in back wages to their employees between 2006 and 2012 for violations of the Fair Labor Standards Act - an amount that does not include other charges such as penalties and damages.

Landscape companies are frequently found in violation of labor laws due to a variety of unique pay practices and employment scenarios. In fact, in 2012, according to the DOL Data Enforcement website, landscape companies were the third most commonly investigated sector in Colorado, only behind child care services and full service restaurants. Another reason for increased enforcement is that landscape companies employ a high percentage of what the DOL

refers to as “vulnerable workers” because of their relative high risk of exploitation due to low pay and benefits, ignorance of rights under the law, and/or reluctance to exercise those rights.

A landscape company is subject to the Fair Labor Standards Act (FLSA) if its annual sales volume exceeds $500,000. Even if it does less than $500,000 some of its individual employees may be covered if they engage in interstate commerce activities like swiping credit cards or ordering goods from out of state. The State of Colorado’s labor laws found in the state Wage Order apply to all private sector employers in four main categories including retail/service and
commercial support services.

Be aware of H-2B investigations
The H-2B program allows landscape companies to employ temporary workers from foreign countries if they can prove that U.S. workers are unavailable for the same position. DOL WHD enforces the rules of the H-2B program in addition to the FLSA. If you employ H-2B workers and DOL comes to do an investigation, they will be reviewing your employment practices for compliance with the FLSA and the H-2B program rules. In fact, DOL has specifically targeted
employers who use the H-2B program in the last few years. 

It is difficult to stay in compliance with the H-2B program because:

• Program rules keep changing
• DOL interpretations of these rules change
• Prevailing wage formulas change

In addition to back wages, penalties for violations of H-2B rules can be severe, usually starting at $5,000 per violation per certification.

Wondering: why me?
The first question that most employers ask when they find out they will be investigated by DOL is “why me?” The answer is fairly straightforward: investigations are either complaint- based or action plan-based.

Complaints are almost always from current or former employees of a company. When an employee calls the Wage and Hour office with a complaint, the information is recorded and analyzed to determine whether or not it is likely that the employer is violating one of the labor laws enforced by the agency. If the agency believes that the violation is affecting
more than just the person who filed, they will initiate an investigation. They will not reveal who filed the initial complaint or even that a complaint was filed. The identity of the person who complained will remain confidential.

A growing minority of investigations are initiated through industry wide action plans, not a complaint. Each year DOL develops strategic plans that target certain industries on national, regional and local levels – industries DOL believes are committing widespread violations. For example, in 2013, the Denver District office of DOL WHD targeted daycare facilities, greenhouses, and nurseries along the Front Range of Colorado and restaurants in Aspen, Colo. The WHD attempts to investigate a critical mass of these establishments in a given geographical area to encourage compliance, not only at the businesses being investigated, but in the industry as a whole. 

How the process works
If your company is chosen for a Wage and Hour investigation you will most likely receive a phone call or letter requesting an initial appointment. It’s possible that they will also come directly to your place of business without prior warning. This is done in a minority of cases when the investigator believes that the investigative process will be undermined by giving the employer advance notice.

Throughout the investigation you will be asked to provide a variety of information including: payroll records, time records, employee lists, and proof of annual dollar volume (to assert coverage under the FLSA). Almost all investigations will cover a two year period reaching back from the date your investigation begins. Common sense suggests that you should be respectful and open to working with the investigator but only provide information specifically requested.

Common sense suggests that you should be respectful and open to working with the investigator, but only provide information specifically requested. There is no best way to deal with a Wage and Hour investigation because the personality and investigative process will vary greatly depending on the investigator assigned to your case. While it is not necessary to have legal or other guidance throughout the process you may want to bring in outside help if you feel uncomfortable with the how the investigation is proceeding or you are concerned about the potential liability.

The audit process includes the following steps:
1. Initial Conference: A meeting with representatives of the employer which may include owner, CEO, officers, payroll manager, HR manager, lawyer, etc. The employer may choose who is present at the initial meeting. The investigator will spend 1-3 hours asking several questions about company employment practices, focusing mostly on payroll, time and attendance and HR questions. The investigator will probably ask to take a tour of the establishment during this
initial conference.

2. Employee Interviews: The investigator will conduct interviews with employees at the establishment in a private setting. You are not required to allow this as an employer but it might be a good idea to set the tone for the investigation. If the investigator interviews management employees, you (or a lawyer, officer, etc.) are allowed to sit in on these interviews. The investigator is required to interview a representative sample of employees and will most likely interview them at the establishment in addition to calling several employees outside work hours or returning for more rounds of interviews at the establishment.

3. Records Review: The investigator will usually request a few weeks’ or months’ worth of sample payroll and time records. If violations are found, the investigator will request access to the full two year period of records. 

4. Case Analysis and Calculation of Back Wages: Over the course of several weeks or months the investigator will process all of the information taken from the initial conference, employee interviews, and records review to make a determination regarding violations. If violations occurred in the last two years the investigator will calculate back wages.

5. Final Conference: The investigator will set up a final conference to discuss the violations and request payment of back wages, liquidated damages, and penalties. Penalties under the FLSA are only assessed for child labor violations and repeat violations. If the employer agrees to comply in the future, but refuses to pay, or refuses to comply in the
future, the investigator will submit the case for management review, which will determine whether it goes on to litigation. Employers are encouraged to request copies of all back wage calculations done by the investigator to make sure that they were calculated correctly prior to agreeing to any payment.

This article originally appeared in the November/December 2014 issue of Colorado Green.

Kalen Fraser, CEO, The Labor Brain Inc., is a former US DOL investigator, who founded her company to give employers information needed to succeed. www.laborbrain.com 

Read more in this issue of Colorado Green NOW:
Bee population on the rise
Soils Support Urban Life
Colorado rises high in LEED building stats
Most common DOL violations