An employer’s preparedness for DOL audits could significantly mitigate exposure for wage and hour violations

November 15, 202117 min

By John Skousen, Partner, Fisher Phillips

The U.S. Department of Labor (DOL) has the authority, through the Wage-Hour Division (WHD), to conduct inspections of workplaces and wage-hour audits.  DOL audits can lead to enforcement actions against employers found to be in violation of the Fair Labor Standards Act (FLSA), and related statutes governing wage payments.  The FLSA provides the WHD, through record audits and related inspections, to engage in “discovery” used to establish liability in its litigation activities, which can catch employers off guard if not prepared.  The opening web link for the DOL-WHD is https://www.dol.gov/agencies/whd.

It makes sense to be prepared for these audits by proactive employment policies and training.  Employers therefore should establish internal practices that enable them to be in a perpetual state of preparedness for responding to, and defending if necessary, demands for payment and/or litigation brought by the DOL-WHD.  State labor agencies, including Texas, have similar investigatory and enforcement authority under state wage-and-hour laws.

Stages of a DOL-WHD Audit

Although this article does not address these stages in detail, a typical DOL audit generally involves an onsite inspection, opening conference, employee interviews, document production, back-wage findings (if any), closing conference, and follow-up issues.   Certain legal consequences can attach to each of these stages, which requires the involvement of legal counsel.

At the onsite inspection, team coordination is critical since there are multiple employer interests at stake, including privacy, maintaining control of the schedule, and limiting the scope of the audit and potential liability. Much can be accomplished at this stage and during the opening conference to establish protocols, narrow the issues, identify or limit witnesses, and clarify document production.  Employees should be prepared to the extent possible to address any questions during DOL interviews and to make sure they understand that they are to make truthful statements regarding the subject matter. This is a delicate process. The DOL generally will assert its right to interview the non-managerial witnesses without the employer being present.  If any provisional back-wage findings are made, the employer generally will be able to dispute those findings, and the DOL may reduce or drop such findings if warranted.

Preparing for a DOL-WHD Investigation: Manager Training

Managers in the hospital/healthcare industry need to know the essential elements of wage-and-hour law.  Understanding wage-and-hour laws are equally as important as understanding the equal opportunity, harassment, and discrimination laws.  Managers are, or should be, in charge of timekeeping and employee compensation.

During audits, the WHD investigator may interview managers to determine what they know about wage and hour law and to what extent they can effectively train their subordinates.  If their knowledge comes short in material ways, courts may make reasonable inferences that employees were mispaid.  The WHD investigator may make similar assumptions and findings.

Examples:

  • Deductions generally cannot be made for breaks of less than 20 minutes duration (e.g., bona fide meal period).
  • “Hours worked” is defined as all time during which an employee is suffered or permitted to work, whether or not required to do so.
  • Supervisors with employees on call should know the difference between “waiting to be engaged,” and “engaged to be waiting.”
  • An employer, or any of its managers, cannot agree – in writing or otherwise – to anything that pays less than what the FLSA requires (e.g., overtime, minimum wage).
  • Exception: An agreement pursuant to a lawful exemption from minimum wage and overtime.
  • In addition to the law itself, managers need to understand the basics regarding how to handle an investigatory audit by the DOL (or state agency for that matter).

Although exceptions can be granted, the hospital/healthcare provider technically is not required to allow a DOL-WHD investigator on the worksite without a search warrant.  If a DOL official is allowed on premises without a warrant, any information obtained could be the basis for probable cause to obtain a search warrant.  There can be, and often is, some give and take on both sides.  On the formal side, the hospital/healthcare provider has the right to request 72 hours to comply with any demands by a DOL-WHD investigator. Most WHD investigators provide additional time, and if handled effectively by the employer, there often can be a cooperative effort to facilitate a smooth audit process.

To that end, the hospital/healthcare provider has the right to request that DOL-WHD interviews and on-site inspections take place at reasonable times and in a reasonable manner.   The employer organization has the right to request and participate in an opening conference, which can provide the employer with valuable information regarding the audit.

Preparing for a DOL-WHD Investigation: Employee Training

Employees of the hospital/healthcare provider should understand the basics of timekeeping and what constitutes “hours worked”; otherwise, they will be unable to record accurate time although the duty of timekeeping may be assigned to them.

Although timekeeping may be assigned to an employee, under the FLSA, the duty of timekeeping is non-delegable.  Many errors occur when relying on employees to do the timekeeping, such as employees working off the clock and thinking it’s no big deal until a WHD investigator interviews them and concludes that the employee’s non-recorded time should be paid.  In that interview, the employee may state that the employee was never instructed regarding the need to record off-the-clock work, therefore giving rise to a potential company-wide investigation on this issue that results in payment of back wages and liquidated damages.

In essence, the hospital/healthcare provider is ultimately responsible for complying with the FLSA and related state laws.  That responsibility includes employee training.  Employee training means employee education.  Employees need to understand how the FLSA applies to their jobs and the extent of protection provided by federal law and regulations.  To that end, the DOL-WHD requires employers to post in areas frequented by employees their rights under the FLSA, including minimum wage, overtime, and COVID-related paid leave rights (in addition to other federal entitlements). This is the web link for mandatory FLSA posting: https://www.dol.gov/general/topics/posters.

Employee education includes their need to understand how to comply with an employer’s internal policies and procedures that address wage-and-hour laws, including their duties for accurate and truthful record-keeping obligations (noted above), and other procedures such as recording meal periods accurately.  The hospital/healthcare provider may have a policy of automatic deduction for meal period times that do not reflect actual meal period times or skipped meal periods, which can lead to liability for unpaid wages and overtime.

During DOL interviews, health care workers may claim they are not aware of the most basic FLSA standards. Although legal postings may help dispel these claims, don’t count on it – it’s wise to provide formal training and proof of such training regarding these laws.

Preparing for a DOL-WHD Investigation: Internal Audits!

Because DOL audits can happen anytime for a variety of reasons, internal audits should be performed regularly to maintain preparedness.  The internal audit should be conducted under the direction of legal counsel (internal counsel or outside counsel) to protect the audit findings and recommendations under the attorney-client confidentiality privilege.  If the DOL has conducted prior government audits, be ready to confirm that DOL concerns have been addressed and resolved.

If any new problems come to light in an internal audit, the hospital/healthcare provider should be sure to address and resolve them.

Creating and Maintaining a Company DOL Audit Response Team

It makes sense to create and implement a team of employees in the healthcare industry who are responsible for responding to a DOL audit and helping make the process smooth, avoiding duplication of effort, inconsistent positions on important compliance issues, and demonstrating a professional, proactive approach to wage and hour compliance.  A designated employee, legal counsel, and a trusted response team should be notified immediately of any onsite visits or letters from the DOL.  Ideally, the team leader should be legal counsel, or a high-level manager, who works closely with legal counsel.

Individuals on a response team should be appointed and trained to handle all of the critical components of responding to a DOL audit, including handling the DOL walkthrough, identifying responsive documents, employee contact list, investigating a complaint, narrowing the audit scope, and seeking extensions of time to respond.

If the DOL investigator comes on-site, there should be a team leader in place to handle such a situation.  If a team leader is not available, a reasonable delay generally is permitted, as the hospital/healthcare provider has a right to have an employer representative on-site during an audit.  From the onset, it’s important to verify the credentials of an investigator, as they may be an imposter trying to fish out confidential information.  It’s also critical to clarify the scope of the inquiry.  Any demand for a subpoena, although warranted, may be viewed as obstruction, hiding something, and lead to expedited enforcement activity.   In any event, consenting to an investigation as opposed to demanding a subpoena could facilitate DOL accommodations and cooperation, but the hospital/healthcare provider is often wise to seek its own quid pro quos (limit scope of the audit, etc.).  If information is provided informally or as pursuant to a subpoena, it’s important to limit the response to the scope of information and documents requested.

Conclusion

Now is the time for the hospital/healthcare provider to get prepared for responding to DOL audits which can be unexpected and disruptive to normal operations and could lead to back-wage findings and liquidated damages.  The effort taken to develop accountable leadership to prepare for an audit should have positive consequences since such preparation will include, among other things, heightened wage and hour compliance through employee and managerial training.  Such preparation also may improve internal communication processes in the hospital/healthcare organization during DOL audits, provide health care management with tools to communicate effectively with the WHD investigator and reduce back-wage findings.

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