United States: One Less Option For Employers Managing FLSA Risk

Amid the flurry of executive actions taken in the first weeks of the Biden administration, the Department of Labor rescinded the Trump era Payroll Audit Independent Determination (PAID) program. While it lasted, the PAID program gave employer's a chance to self-report and settle violations of the Fair Labor Standards Act (FLSA) without paying enhanced penalties typically associated with the FLSA. With this option off the table, and stepped up FLSA enforcement likely, it is worth briefly reviewing the significant penalties associated with FLSA violations, the unique limitations on employer's ability to settle FLSA claims, and the options that remain for mitigating FLSA liability.

FLSA penalties

An employer that violates the FLSA is automatically liable for twice the amount owed in under-paid wages. But courts may reduce the penalty if the employer proves that the violations occurred despite its good-faith efforts to comply with the law. The lookback period for which an employee may recover the unpaid wages (and associated penalties) is generally two years. But in cases of willful conduct that manifests a reckless disregard for the law, an employee can recover unpaid wages for three years, instead of two. The FLSA also allows employees to join in pursuing a collective action-meaning one employee's lawsuit may blossom into a larger suit involving other employees (or former employees) whose rights were also affected by the FLSA compliance issue. Finally, employees who succeed on an FLSA claim will recover reasonable attorney fees against the employer. The reverse is not true. Employers cannot recover attorney fees, even if they prevail in their defense.

Private settlement generally not enforceable

Courts interpreting the FLSA have generally held that an employee is not bound by terms of a private settlement that purports to waive or release claims for unpaid wages. Courts reason that if an employer could privately settle an employee's wage claim, it would allow employers a backdoor opportunity to pay employees less than the statutory minimum wage. Under these cases, an FLSA settlement is effective only if it receives approval from a court or the Department of Labor.

Limiting potential FLSA liability

With significant penalties and limits on private resolution, it is particularly important for employers to be proactive about FLSA compliance, including staying apprised of new rules and guidance from the Department of Labor. It also means a steady diet of quality training for employees and managers as well as regular internal compliance audits.

What should employers do if they discover an FLSA compliance issue? Although there are painless solutions, here, too, prompt and proactive action can limit an employer's exposure. First, given the potential legal exposure and significant penalties, a little advice from your trusted in-house or outside counsel may go a long way in determining the scope of the problem. Early advice from an attorney can be especially important if an employer discovered the problem through an employee complaint-which portends a higher likelihood the issue may end up in court.

Although the law generally does not allow employees to compromise or waive their rights under the FLSA, courts have shown a little more deference when the settlement involves a genuine dispute over a hard-to-prove factual circumstance. For example, in a dispute over whether and how much an employee worked off the clock, reaching an agreement with the employee on the number of hours the employee worked is more likely to have value than an agreement limited to the amount of compensation owed. Even this type of agreement is subject to renewed scrutiny by a court, if the employee later sues-but it stands a better chance of judicial acceptance.

If a matter does go to court, employers should be aware of a novel approach currently employed by several judges in Florida's federal courts. The Florida court has recognized the value to both employer and employee of working towards a quick resolution of FLSA claims. This approach benefits employees through quicker payment and helps employers reduce the cost of attorney fees. To aid the parties' efforts, the Florida court requires that employees specifically identify the amount of unpaid wages; the calculation for arriving at that amount; the amount of attorney fees incurred to date; and the documents supporting their wage claim. Although this information is eventually disclosed in all cases, the Florida Court requires it as early as 14 days after the case is filed. Other courts may or may not be willing to employ the Florida court's approach, but it is an important option to consider presenting to the court as a way to facilitate quicker resolution to a litigated FLSA claim.

Originally published 13 April 2021.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.