Over the last several years, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) has become much more aggressive in how it investigates and prosecutes worker misclassification, Service Contract Act (“SCA”), Davis-Bacon Act (“DBA”), and Fair Labor Standards Act (“FLSA”) issues. Government contractors, as well as private sector employers without government contracts, should take note of three important trends.
First, the WHD has shifted to what it calls an “enterprise-wide” enforcement scheme. In the past, if WHD received a worker complaint about an alleged violation at one facility, WHD routinely confined its investigation to that facility. Today, applying the mantra “where there’s smoke, there’s fire,” if the WHD receives a SCA/DBA/FLSA complaint about an employer at one work site, WHD will investigate all other work sites operated by the same employer for similar SCA/DBA/FLSA issues, as well as all other issues under WHD’s jurisdiction. In addition, WHD will – on its own accord – call in other Department of Labor agencies, such as the Office of Federal Contract Compliance Programs or the Occupational Safety and Health Administration to investigate alongside WHD’s investigators.
Second, the WHD has steadily increased the number of its cooperative agreements, or Memoranda of Understanding (“MOU”), in an effort to expand its enforcement reach and place a greater emphasis on worker misclassification. Today, the WHD has MOUs with fourteen states (Iowa and Louisiana are the latest additions), enabling it to share information and to coordinate enforcement efforts on worker misclassification. According to the WHD, “Employers that misclassify their employees may not be paying the proper overtime compensation, FICA and Unemployment Insurances taxes, or workers’ compensation premiums.” Given state budget shortfalls, states have an increased interest in ensuring that unemployment and workers compensation taxes/premiums are paid. As with its internal “enterprise-wide” enforcement, the WHD is working closely with state and local jurisdictions on joint investigations, thereby attempting to take advantage of some states’ more aggressive enforcement provisions (e.g. injunctions) in situations where federal law lacks them.
Finally, the WHD has noticeably increased its use of press releases and other communications in an attempt to shame government contractors into submission. Not only is the WHD announcing “substantial” settlements and enforcement actions, but it is also announcing relatively trivial settlements. For instance, a recent WHD press release announced a $37,000 SCA settlement involving seven employees at a military facility and named the government contractor with which it settled. These are hardly groundbreaking settlements, but it appears that WHD is attempting to make examples of government contractors as a way of discouraging others to violate the law. It is unclear what impact, if any, this public shaming will have other than to foster a more antagonistic relationship between the government and private employers.
It is expected that sequestration will somewhat scale back WHD’s investigative ability given the budget cuts all agencies are now required to make, along with the predictable staff cuts and/or furloughs. But how much of an impact and whether the impact in any way blunts the new investigative priorities and cooperative relationships remains to be seen. The bottom line is that employers should be prepared for more aggressive and expansive investigations of worker misclassification, SCA, DBA, FLSA issues by the WHD, as well as ever increasing coordination between the WHD and the various states.
Michael Schrier is the attorney responsible for the content of this article.