Last week, the U.S. Department of Labor (DOL) announced a six-month extension of its Payroll Audit Independent Determination (PAID) pilot program.
PAID encourages employers to audit their pay practices, self-report any violations of the Fair Labor Standards Act (FLSA), and then work with the DOL’s Wage and Hour Division (WHD) to correct the errors and get workers their back pay as quickly as possible.
But how is it working out in practice? HR Dive spoke with two employment lawyers — both former WHD administrators — who had starkly different views of the program. DOL did not respond to a request for comment.
Good in theory but risky in practice?
"The PAID program is a good way to address the challenges that workers and employers face when the law prevents private enforcement of FLSA settlements," said Paul DeCamp, a member of the firm in the Washington, D.C., office of Epstein Becker & Green, PC. DeCamp also served as WHD administrator under President George W. Bush.
DeCamp said PAID represents essentially the same practice that was in place for decades, before the Obama administration, but now is, in some ways, even more protective of workers’ rights.
He noted that the biggest challenge is that 11 states have voiced strong opposition to the PAID program and have all but threatened employers that if they participate in the program, there will be retaliation.
"Employers with operations in these 11 states are somewhat nervous about participating in this program — the basic concern is that an employer that had settled a matter via PAID would face a FOIA request by either a state agency or private plaintiff’s lawyer or union," he said.
And that fear may not be completely misplaced. The day after DOL announced the extension, Politico reported that at least nine employers, collectively owing more than $508,000, participated in the program in the first six months, and published their names.
As a result of that concern, a lot of employers and employers’ counsel have adopted a "wait and see" approach to PAID to get a better read on whether employers that participate in the program later get hit with state actions or private litigation, he said.
So why are states so upset? Those that object, DeCamp said, have claimed that PAID shortchanges workers by not requiring liquidated damages or interest on any of the back wages, by not collecting penalties, and by not advising employees of potentially greater remedies available under state law.
"The response to that, of course, is that it’s not DOL’s job to enforce state law — and the remedies that employees are getting through the PAID program are the same remedies that employees traditionally got when they would settle matters through the DOL," he said. "In addition, settlements under the PAID program are entirely voluntary — no worker is required to give up rights and accept the money; that’s only if the worker chooses to."
DeCamp noted that many employees could likely achieve greater recovery in court than under the PAID program, but that litigation "typically involves a lot of delay and a fair amount of risk." PAID is designed to "get to the resolution quickly, get the workers their money promptly, and avoid the delay and uncertainty inherent in litigation. It’s essentially a bird in the hand."
But DeCamp feels the program remains unacceptably risky for employers. "So far I have not advised a single client to participate in the PAID program, and I don’t think that I will, unless and until it becomes clear that the risk of follow-on state enforcement action or private litigation is minimal. In this environment, I think that having a client participate in PAID is inviting more risk than it solves. Which is unfortunate, because I think that the program is potentially good for everybody — except lawyers."
Nothing to fear?
Many of the fears surrounding PAID are unfounded, according to Tammy McCutchen, a principal in the Washington, D.C., office of Littler Mendelson, PC. McCutchen is also a former WHD administrator and also served during the Bush administration.
"A lot of employers continue to be scared to use [PAID]. They were beat up by the DOL during the Obama administration and are hesitant to believe, 'We're from DOL and we’re here to help you,'" she said. "Fear is keeping participation low."
Additionally, she noted, a six-month pilot program is simply not long enough for many companies to do what’s required by PAID: conduct an audit, calculate back wages, get approval by executives, and so forth.
McCutchen said she’s very happy that the program has been extended and is disappointed that it has not been made permanent. She believes the pilot has been extended because DOL is looking for more participation. "If you [employers] want this program to continue, you must seriously consider participating," she said.
McCutchen cited employer and employee testimonials published by DOL and said she has not heard about any participating employers unhappy with the PAID results, or feeling they were treated unfairly by DOL.
"Employers shouldn’t fear it," she said. It’s a way to "get rid of liability much cheaper."
The issues regarding the objecting states, she said, have been overblown. "There are a lot of state DOLs working with the federal DOL." Additionally, even some of the 11 objecting states have been cooperating to get back wages to their citizens, she said, though not California and New York, two states with exceptionally employee-friendly laws. "But even California and New York haven’t been turning away employers who want to pay 100% of wages owed."
McCutchen advised concerned employers to consult with their attorneys and see if a separate settlement agreement with employees is possible under state law. This is a key difference between state and federal law, she said: "In order to get a waiver of claims under the federal FLSA, you have to go through a court or the DOL. But under state law, most states do allow private settlement of claims, even California and New York."
She also recommended calling the federal DOL and asking if the states you’re looking to do PAID for "have been cooperating and are willing to do a simultaneous settlement."
"I’m still very bullish on the program," she stated. "I’ve seen nothing to make me cautious. I think it’s a great program, and I’m using it."