The Fair Labor Standards Act (FLSA) and the Service Contract Act (SCA) are enforced by the United States Department of Labor, Wage and Hour Division.
An investigation or even a more limited form of enforcement may cause the employer a considerable investment in time and aggravation, and the end result is usually an assertion that back wages are owed and/or that minors have been illegally employed. In most cases, the alleged liability or child labor determinations are completely unexpected by the employer.
Since 1947, the usual period of investigation has been the most recent 104 workweeks. In 2013, the Wage and Hour Division appears to have shifted to a "standard" three-year period of investigation. The agency has not made an announcement of a change, but an investigator recently informed one of my clients "We now go back three years." This is a waste of time for the employer and unnecessary expenditure of taxpayer money (resources of the agency), as any alleged back wages owed during the third year back are only recoverable in the event of willful violations. It appears that the agency, or at least some of the District Offices, now feel that it is acceptable for willfulness to be routinely asserted administratively rather than seeking a court's authorization to collect back wages for a three-year period.
If unpaid wages are found to be owed, voluntary payment (under DOL supervision) is expected. Refusal to voluntarily pay the back wages may result in DOL litigation or some other additional enforcement action. Under FLSA, notification to employees of their independent litigation rights is standard procedure when DOL neither recovers back wages nor files suit.
Virtually any employer is subject to investigation for FLSA compliance. The first objective of the investigator is to establish "coverage." If coverage is not applicable (this is rare), the investigation will not proceed. If there is FLSA coverage, the investigator will then examine exemption potential and evaluate compliance status.
How an employer deals with the investigator may drastically influence the outcome of an investigation, either avoiding or creating complications. It is advantageous for an employer to be prepared. It is vital that your thorough understanding of each claimed exemption enables you to clearly explain to the investigator how your scenario fits within the exemption; otherwise, you are setting the stage for an expensive and time-consuming ordeal. If your pay plans are legal but complex, failure to correctly explain the methodology to the investigator can result in erroneous violation assertions. Essentially, what you don't know can hurt you, and what you say "can and will be used against you."
Please note that "investigation" is not the only type of enforcement action; the investigator might say "This will not be an investigation, it will only be a conciliation," or "I am asking you to perform a self-audit," or some similar limitation may be expressed. These "informal" procedures may be converted, at the investigator's option, to an investigation. The results of limited enforcement actions become a part of the Wage and Hour Division database (as do investigation findings, of course), so even a limited or "informal" procedure must not be taken lightly.
If you are a federal service contractor, the investigation will include a determination of compliance with the Service Contract Act. This type of enforcement is typically much more involved and complex than an investigation that is limited to FLSA, and violation findings are potentially more serious in view of the debarment potential. See Service Contract Act.
Whether the enforcement action is FLSA or SCA, full investigation or limited action, employers will benefit from expert guidance.
Be Aware of Your Rights
There are numerous articles about how to deal with a Wage and Hour Division investigator. Some of them are very useful, while others will cause you to just irritate the investigator, resulting in a more exhaustive investigation. Being prepared is the key. The more you know prior to contact by the Wage and Hour Division (WHD), the more effectively you can participate in management of the investigation.
I recommend that you display a cooperative attitude. I do not recommend that you allow the WHD to "walk all over you."
Investigators are not required to visit your establishment by appointment only. In the event of a "walk-in" visit, judgment comes into play. If you are fully prepared and the designated representative (e.g., owner, CEO, HR Director, or general counsel) is available, some time can be saved by at least allowing the investigation to begin. On the other hand, it is often desirable to avoid answering questions at this stage; set up an appointment, and confer with your attorney or FLSA advisor in the meantime.
You are not obligated to present records without seventy-two hours notice, according to the FLSA record keeping regulations, if the records are maintained elsewhere (e.g., a central record keeping office). Even if the records are at your establishment, the investigator will typically work with you to set up a convenient appointment. If that is not the case, and you are averse to immediate presentation of records, simply refuse and call your attorney (but keep in mind that forcing the investigator to obtain an administrative subpoena will complicate matters).
The FLSA states that the WHD investigator may "inspect" and "transcribe" records. If you have printed records, I generally recommend that you make them available only at your establishment, rather than electronically. If the investigator is insistent on receiving records electronically, you should confer with legal counsel. The circumstances might warrant such release of records, but it should be a last resort.
Failure to know how to deal with the investigator, and mistakes that are made early on, can be very costly to an employer. Rather than wait until an investigation has begun, it will be worth your while to confer with me and/or your attorney long before you ever hear from the WHD.
Services are available nationally (via telephone conferences and email), including FLSA,Service Contract Act, and Davis-Bacon Act consultation, compliance assistance, DOL investigation guidance, self-audit coordination, and litigation support as a consulting expert.