Labor Department Announces FLSA Self-Audit Program

Self-Audit for FLSA Violations

On March 6, 2018, the U.S. Department of Labor (DOL) announced that it would soon be implementing its Payroll Audit Independent Determination (PAID) program. The PAID program will permit employers to self-report potential Fair Labor Standards Act (FLSA) violations without fear of exposure to liquidated damages. According to the DOL news release, the PAID program seeks to expedite resolution of minimum wage and overtime violations by limiting potential damages to solely the back wages owed. The DOL’s Wage and Hour Division (WHD) intends to employ the PAID program nationwide for 6 months, at which time it will evaluate the effectiveness of the program and its future options.

How the PAID Program Works

To participate in PAID, employers must first review information about PAID and compliance assistance materials on the WHD portion of the DOL website. Employers must then self-audit their pay practices for potential non-compliance. If the employer discovers a non-compliant practice, or believes its pay practices may be compliant but wishes to proactively resolve any potential claims, the employer must take four steps: 1) Identify the specific potential violations, 2) Identify affected employees, 3) Identify the timeframes in which each employee was affected, and 4) Calculate the back wages the employer believes are owed to each affected employee.

Upon receiving such a report from an employer, the DOL will request 1) the calculations conducted during the self-audit, 2) the scope of potential violations to be included in a release, and 3) a variety of certifications regarding due diligence and pay practice adjustments to avoid the same violations in the future. The DOL will assess back wages due and will prepare releases for affected employees, tailored to waive claims only for the identified violations for the time period during which back wages are paid.

Benefits to Employers and Employees

According to the DOL, the program is designed to appeal to both employers and employees. While employee participation in any settlement under the program remains voluntary, employees will receive 100 percent of the back wages paid, without paying litigation expenses, attorneys’ fees and other costs.
Employers may be enticed because the program does not impose penalties or liquidated damages. Employers who participate in the program are expected to correct pay practices going forward; employers who resolve an FLSA violation through the PAID program are ineligible to use the PAID program a second time to resolve the same issue in the future. Also, the PAID program is unavailable for employers currently under DOL investigation or in ongoing litigation concerning the reported FLSA violations.

California Employment Law

flsa violation

 

It will remain to be seen if the pilot program provides employers with an effective method to resolve FLSA wage claims that also avoids the cost of litigation and risk of being required to pay double the wages owed. Further, additional questions remain, to include:

1) Will the DOL’s expedition of outstanding back wage payments to employees nullify the employer’s liability for the same violations?, and

2) Is PAID limited only to the federal FLSA violations or will it ever encompass state wage and hour claims?

The California employment lawyers at Kingsley & Kingsley can answer your questions about state and federal wage and hour laws and we will continue to monitor the DOL’s updates regarding the PAID program. Should you have immediate questions about your rights as an employee, call and speak to an experienced California lawyer toll-free at (888) 500-8469 or click here to contact us via email.

Kingsley & Kingsley

16133 Ventura Boulevard, Suite 1200
Encino, California 91436
Phone: 888-500-8469
Local: 818-990-8300 (Los Angeles Co.)

 

Grubhub Independent Contractors

Judge Rules Grubhub Drivers Independent Contractors Not Employees

In a significant court decision on the status of gig-economy workers, U.S. Magistrate Judge Jacqueline Scott Corley concluded on February 8, 2018, that drivers for Grubhub Inc. are independent contractors and not employees under California law. The ruling may have implications for other sharing economy companies, including Uber and Lyft, whose business models are built on pairing customers with products and services through apps while avoiding the personnel costs of traditional employment.

Lawson v. Grubhub Inc.
The case against Grubhub was brought by Raef Lawson, who worked as a food-delivery driver for less than six months while pursuing a career as an actor and writer. In 2015, Lawson sued Grubhub claiming the company violated California labor laws by not reimbursing his expenses, paying him less than minimum wage and failing to pay overtime. Lawson claimed he should have been classified as an employee, not a contractor.

The case was originally filed as a proposed class-action lawsuit, but the judge never granted that status, so it was only limited to him and his claimed $600 in damages–consisting of back wages, overtime, and expense reimbursement. Both sides had agreed that Judge Corley, rather than a jury, would decide the case in her San Francisco federal courtroom. Closing arguments were heard in late October 2017.

Borello Test
A key element of the case centered around the Borello test, which is used to determine whether a worker is a 1099 contractor or a W-2 employee. The Borello test considers workplace circumstances like whether the work performed is part of the company’s regular business, the skills required to do the job, payment methods, and whether the work is done under the supervision of a manager.

Elements of the case in Lawson’s FavorGrubhub Independent Contractors “Grubhub did control some aspects of Mr. Lawson’s work,” Judge Corley commented. “Grubhub determined the rates Mr. Lawson would be paid and the fee customers would pay for delivery services. While the Agreement states that a driver may negotiate his own rate, this right is hypothetical rather than real. The Court finds that Mr. Lawson could not negotiate his pay in any meaningful way and therefore this fact weighs in favor of an employment relationship.”

Elements of the case in Grubhub’s Favor
In Judge Corley’s estimation, in addition to working for other gig economy companies while simultaneously working for Grubhub, Lawson was fundamentally “not credible.” By his own admission, Lawson “gamed the app” by scheduling himself for a work shift (a “block” in company parlance) but received few, if any, actual delivery orders by putting his phone in airplane mode, among other tactics.

“Mr. Lawson’s claimed ignorance of his dishonest conduct is not credible,” Judge Corley wrote. “Mr. Lawson would remember if after he filed this lawsuit against Grubhub he cheated Grubhub. If he had not moved his smart phone to airplane mode, intentionally toggled available late, or deliberately engaged in other conduct to get paid for doing nothing he would have denied doing so at trial. But he did not.”

Other aspects that were not in Lawson’s favor of being treated as an employee included 1) he could set his own schedule, 2) largely wear whatever clothes he wanted, and 3) he could choose his own route.

The Decision
Under California law, whether an individual performing services for another is an employee or an independent contractor is an all-or-nothing proposition,” Judge Corley concluded.

“If Mr. Lawson is an employee, he has rights to minimum wage, overtime, expense reimbursement, and workers compensation benefits. If he is not, he gets none. With the advent of the gig economy and the creation of a low-wage workforce performing low skill but highly flexible episodic jobs, the legislature may want to address this stark dichotomy. In the meantime the Court must answer the question one way or the other. Based on what the Court observed at trial and the facts found, and after applying the Borello test, the Court finds that during the four months Mr. Lawson performed delivery services for Grubhub he was an independent contractor.”

Reaction
Shannon Liss-Riordan, Lawson’s lawyer, said she plans to appeal the ruling. “Among other issues, the California Supreme Court is considering adopting a more protective test for employee status, so I was surprised the decision was issued before the Supreme Court has issued that decision…we should have prevailed even under the Borello standard,” Liss-Riordan said. 

Matt Maloney, chief executive officer of Grubhub, said the company is pleased with the ruling, “which validates the freedom our delivery partners enjoy from deciding when, where and how frequently to perform deliveries…We will continue to ensure that delivery partners can take advantage of the flexibility that they value from working with Grubhub,” Maloney said.

Conclusion
People who work as 1099 contractors can set their own schedules, and decide when, where and how much they want to work. Employers utilizing 1099 contractors avoid paying taxes, overtime pay, benefits and workers’ compensation. However, some companies have recognized that some people don’t want to be independent contractors, and prefer the benefits that come with employee status. 

Additional Resources: Daily Journal article by Eric B. Kingsley: Let’s talk about a ‘hybrid’ worker. 

Employers are advised to review independent contractor relationships and evaluate agreements with third parties, and contact an employment lawyer with questions. To discuss these laws, or a potential claim on your behalf, feel free to call us toll-free at (888) 500-8469 or click here to contact us via email.

Kingsley & Kingsley

16133 Ventura Boulevard, Suite 1200
Encino, California 91436
Phone: 888-500-8469
Local: 818-990-8300 (Los Angeles Co.)