If you are an employer in the private and third-party logistics (3PL) warehouse industry, you now have a target on your back pinned there by a new Department of Labor (DOL) wage enforcement initiative which coincides with a renewed union organizing campaign aimed at retail giant Amazon.
The DOL Wage and Hour Division (WHD) recently announced the hiring of 100 additional investigators that it intends to deploy for mounting a “vigorous” enforcement campaign regarding adherence to federal wage and hour laws in the warehouse and logistics industries.
“The resulting equation is simple: More WHD investigators + “Vigorous” enforcement = More WHD investigations,” as Mitchell J. Rhein, an attorney with the law firm of Spilman Thomas & Battle, pithily puts it.
One thing also clear is that the division will have to proceed without a chief. The nomination of David Weil, a dean and economics professor at Brandeis University who served as the head of WHD in the Obama administration, was declared dead after Senators Joe Manchin (D-W.Va.), Mark Kelly and Kyrsten Sinema (both D-Ariz.) voted against advancing his nomination.
Weil had become notorious during his earlier reign for declaring that there are no real independent contractors, only misclassified employees. Chris Meagher, President Biden’s deputy press secretary, reportedly declared, “We’ll continue to evaluate this nomination and how we move forward, but remain proud of the administration’s pro-worker policies and work being done.”
Under the Biden administration, all employers should expect more WHD enforcement of the Fair Labor Standards Act (FLSA), especially in regard to possible minimum wage violations, Rhein warns. He also points out that these investigations often turn out to be costly for employers. In 2021, the vast majority—about 80%—resulted in the WHD finding the employer had violated the FLSA, and those employees who received back wages as a result were paid, on average, nearly $1,000.
“You cannot avoid a WHD investigation, but you can mitigate the chances and burden of an investigation,” Rhein says.
The WHD is targeting all employees of private or 3PL warehouse companies that have a gross annual dollar sales volume or are doing business amounting to $500,000 or more and are covered by the FLSA. However, the division also notes that even if a wholesale or warehouse business is not considered a covered enterprise under the law, most employees will be covered by the FLSA on an individual basis.
“It has been the experience of the Wage and Hour Division that virtually all employees of wholesale and warehouse businesses are covered by the [FLSA’s] provisions,” the WHD stated. These include those regulations that set both the minimum wage and overtime standards.
How to Protect Yourself
Rhein describes several ways that a warehouse employer can mitigate the risk and burden imposed by a WHD investigation:
• Keep the required payroll records. Rhein is unequivocal on this point: “You will not fare well if you tell a WHD investigator that you do not have records that employers are required by law to maintain.”
The most frequent—and problematic—records missing are accurate records of the hours worked by employees. “While the WHD will not impose civil money penalties for this violation, it will presume that the records would support violations of the minimum wage and overtime pay requirements of the FLSA, and the cost of the investigation will increase as will the likely amount of back pay owed to employees,” he stresses.
• Create or save electronic versions of your payroll records. Even if you keep all the required payroll records, they are not useful if the records exist only in unorganized boxes in a remote storage unit. Employers must be able to produce the records required by the FLSA within 72 hours.
Because of the pandemic, WHD investigators cannot review records in person. As a result, employers must send records electronically to the investigator to review and transcribe. Many employers may find it difficult to organize and scan two years of paper records within 72 hours, which is the standard request from the WHD at the beginning of every investigation.
“Employers also incorrectly assume these records will be easy to obtain from a third-party payroll company,” Rhein observes. “If you do not maintain the required records in an electronic format, then you should start doing so now.”
• Know what you don’t know. Many WHD investigations begin with small issues. These issues are usually easy to identify in payroll records and can be corrected in a couple days. But once an investigation begins, the same small issues and the investigation’s geographic reach can grow into larger, more expensive issues.
Once an investigator finds a violation, he or she will exhaustively scrutinize the employer’s compliance with the FLSA and may expand the investigation to other locations based on the assumption that the violation exists at all locations, Rhein explains.
Another good reason to prepare ahead of time is that the average WHD investigation lasts more than two months, he says. “Employers can avoid or mitigate the burden of an investigation by regularly auditing their compliance with the FLSA to identify problems and, if necessary, resolve them before the WHD begins an investigation.”