Million-dollar payouts: Feds target wage violations

The U.S. Department of Labor (DOL) is serious about enforcing federal labor laws, as shown by three recent cases that resulted in million-dollar payouts by alleged offenders.

The DOL’s Wage and Hour Division is responsible for enforcing federal Fair Labor Standards Act (FLSA) provisions relating to a variety of employment requirements, including those related to minimum wage, overtime and recordkeeping.

The department’s enforcement efforts sometimes lead to hefty payouts, and that is exactly what happened in three recent cases involving different labor law issues.

In the first case, the department alleged that a national auto parts distributor and an Arizona logistics firm wrongfully misclassified nearly 1,400 drivers as independent contractors instead of employees.

The department’s investigation and subsequent litigation spanned a period of almost eight years beginning in April 2012.

Million-dollar payout

Following an investigation, it concluded that Diligent Delivery Systems – which consists of joint employers Parts Authority Arizona LLC and Arizona Logistics Inc. — misclassified 1,398 employees. As a result, the department said, the company did not meet minimum wage requirements.

It also paid straight time for all hours worked instead of the required time and a half for hours worked beyond 40 in a workweek, the department added. It did not keep required timekeeping records, the department said, and it required drivers to use their own vehicles without compensating them for doing so.

The payout for the alleged violations is steep: $2.8 million in back wages and an equal amount in liquidated damages, together with $150,000 in civil penalties.

In October of last year, the DOL announced plans to make it harder for employers to classify workers as independent contractors under the federal FLSA.

The DOL announced a pending proposed rule on classifying workers as independent contractors or employees that would rely heavily on six factors to make the call on whether a particular worker is an independent contractor or an employee.

6 key factors

Those factors are:

• Whether the worker has an opportunity to make a profit or sustain a loss
• The investments made by the employer and the worker
• The degree of permanence of the work relationship between the parties
• The nature as well as the degree of control exercised by the employer over the worker
• The extent to which the work is integral to the employer’s business, and
• The level of skill and initiative that is involved with the work.

The ultimate inquiry, the DOL explains, is whether the worker is economically dependent on the employer or is in business for themself.

The proposed federal rule seeks a return to a more worker-friendly test that the Trump administration tried to usher out.

Biden’s DOL considered adopting an even more worker-friendly test that has now been put into place in California, saying in this new proposal that doing so might “establish a simpler and clearer standard.” But its hands are tied, it explains in the proposal: “[T]he Department believes it is legally constrained from adopting [the California] test because the [U.S.] Supreme Court has held that the economic reality test is the applicable standard for determining workers’ classification under the FLSA as an employee or independent contractor.”

$1.6 million recovered

In the second case, the department recovered $1.6 million in back wages and damages from the owner of seven restaurants in Los Angeles.

In that case, the department alleged that the restaurant owner denied overtime wages to 83 employees. It further alleged that the owner maintained false employment records in an attempt to hide its alleged theft of wages from the employees.

The owner did not pay employees the required overtime rate when they worked more than 40 hours in a workweek, the department said.

The $1.6 million consists of $825,775 in overtime back wages, an equal amount in damages, and civil money penalties of $62,167.

Violations of wage and hour requirements are relatively common in the food service sector. In fact, the DOL says that in fiscal year 2021 alone, it recovered more than $34.7 million for more than 29,000 affected workers in the industry.

In the third case, a Virginia home healthcare company was forced to pay more than $1.5 million to 194 employees.

In a complaint, the DOL alleged that together with its owners, the company, Kynd Hearts Home Health Care LLC, did not pay all non-exempt employees proper overtime wages. It accused the company of developing a scheme that reduced hourly rates based on hours worked and then paid an overtime rate that was improperly based on the reduced rates.

The total amount paid consisted of $759,698 in back wages, an equal amount in liquidated damages, and a civil money penalty of $226,512.