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Focus Areas of Enforcement for DOL in 2015

January 12, 2015

The U.S. Department of Labor has put employers on notice that there will be a renewed emphasis on enforcement and important changes to key policies in 2015. These include: (1) increased audits and prosecutions of federal and state minimum wage and overtime law violations; (2) intensified scrutiny of the classification of workers as independent contractors; and (3) an overhaul of the Fair Labor Standard Act’s overtime exemption for white collar employees.

The first two priorities were identified in a panel held this past December by the  Center for American Progress Action Fund, “Enforcement Matters: How Workplace Law Enforcement Can Boost Americans’ Wages and Strengthen the Economy,” where Secretary of Labor Thomas E. Perez was the keynote speaker. This panel coincided with a new report prepared for the DOL by Eastern Research Group Inc., “The Social and Economic Effects of Wage Violations: Estimates for California and New York,” which estimated the impact of state and federal minimum wage and overtime pay violations.[1] The third issue was the subject of a presidential memorandum issued in March 2014 directing the DOL to modernize FLSA overtime regulations.[2]

Scope of the Problem

The DOL noted that the recently released report reveals that approximately 3.5 to 6.5 percent of employees covered by the FLSA in New York and California experience minimum wage and overtime pay violations. In general, the leisure and hospitality industries were the biggest perpetrators, though the report found a significant share of violations in the education, health services and wholesale and retail trade industries as well. In terms of lost income, California workers lost about $63 to $86 per week while New York workers lost about $55 to $59. The impact of these minimum wage and overtime pay violations are not only personal to the workers, but also employers who abide by the rules and want a level playing field. The report noted the risk of increased poverty, less tax revenue and more reliance on social assistance due to pay violations.

To combat this problem, the federal government, state governments and industry partners have strengthened enforcement efforts. At the federal level, the Obama administration has expanded the number of Wage and Hour Division investigators from 730 to over 1,000.[3] The DOL’s Wage and Hour Division collected approximately $250 million in back wages from employers this past fiscal year.[4] At the state level, in California, the Division of Labor Standards Enforcement has emphasized doing investigatory work into a particular business before conducting an on-site investigation to be able to identify red flags and conducting investigations during nonregular business hours. In New York, the Attorney General’s Office has focused on criminal enforcement in egregious cases, such as where employers have repeatedly violated wage laws or refused to pay any wages at all to employees. One particular enforcement target is the restaurant industry. In San Francisco, for example, the state government recently recovered a $4 million settlement for a group of 280 restaurant workers who were paid less than minimum wage, not paid for all hours worked and whose tips were taken by management.[5]

Misclassification of Independent Contractors

Another problem identified by the panel was employers’ increased reliance on outsourcing through subcontracting, licensing or third-party management, so that the employer has no responsibility for its workers. As a result of the ever-growing pressure on businesses to remain competitive, businesses have turned to subcontracting as a way to cut costs and focus on the business' core competencies. The result is that these workers, who would have in previous years been classified as employees, are in some cases being misclassified as independent contractors.

To address this issue, the DOL has increased its investigation of worker misclassification and partnered with several states to share information and coordinate enforcement efforts to reduce the incidence of misclassification of employees.[6] Recently, an investigation by the DOL’s Wage and Hour Division found that a Liverpool, New York, employer and its president violated the FLSA by misclassifying more than 300 drywall installers as independent contractors and failed to pay them overtime. The employees, who worked throughout central New York and the Northeast, put in regularly as many as 60 to 70 hours per week and were paid straight time for hours worked beyond 40 in a workweek. The DOL obtained a judgment in the U.S. District Court for the Northern District of New York that required payment of $380,000 in back wages covering a three-year period.[7]

These investigations and prosecutions make clear that an employer must carefully examine the company’s relationship with its workers. In performing an employee-independent contractor determination, the key factors are the degree of control and independence of the worker. The more control the employer has over when, where and how the worker performs, the higher the probability that the worker will be deemed an employee. Given that independent contractor misclassification can result in personal liability for the owners of privately held companies, it is essential that such relationships are carefully and critically analyzed.

Narrowing the Overtime Exemption Under the FLSA

Lastly, the DOL plans to address the FLSA “white collar” overtime exemption regulations in 2015. President Obama has directed the Secretary of Labor to modernize the FLSA overtime regulations and consider how the regulations could be revised to: (1) update existing protections in keeping with the intention of the FLSA; (2) address the changing nature of the American workplace; and (3) simplify the overtime rules to make them easier for both workers and businesses to understand and apply.[8]

Currently, most workers covered under the FLSA must receive overtime pay of at least 1.5 times their regular pay rate for hours worked in excess of 40 hours per week. Under the FLSA, only certain employees are exempt from the overtime pay provisions, such as executives, administrative employees, professional employees, certain computer specialists, outside salespersons and highly compensated workers (often referred to as the white collar exemption). To qualify for the white collar exemption, employees generally must meet certain tests regarding their job duties, such as having managerial or supervisory responsibility or requiring advanced knowledge or the exercise of discretion, and be paid on a salary or fee basis of at least $455 per week. The $455 per week threshold was set back in 2004, and has not kept up with rising wages and inflation.[9] Although the DOL's goal for publishing a proposed rule was November 2014, the department has now said that it plans to propose a rule in early 2015.[10] Given the broad implications of revisions to the FLSA, employers should review and consider submitting comments on the forthcoming proposed rule to express concerns over the scope and cost burden associated with the proposed changes.

In light of the DOL’s increased enforcement efforts, employers must ensure that they are properly classifying employees as exempt under the FLSA. Employers should closely check the terms and conditions of an exemption in light of the employee’s actual job duties and not just rely on the job title before assuming that the exemption applies to the employee. The ultimate burden of supporting the application of an exemption rests on the employer.

2015 is an ideal time to self-audit worker classifications and exemptions with outside counsel so that the audit results are protected under the attorney-client privilege. In the words of Secretary of Labor Perez, the DOL is “back in the enforcement business, putting more cops on the beat and giving them more resources”[11] to ensure that workers are properly classified and paid the correct wages.

[1] Eastern Research Group Inc., The Social and Economic Effects of Wage Violations: Estimates for California and New York (2014),

[2] Updating and Modernizing Overtime Regulations, 79 Fed. Reg. 15211, 15211 (March 18, 2014).

[3] Remarks by U.S. Secretary of Labor Thomas E. Perez, “Enforcement Matters: How Workplace Law Enforcement Can Boost Americans’ Wages and Strengthen the Economy,” Center for American Progress, Washington, D.C., Dec. 4, 2014, U.S. Dep’t of Labor (Dec. 4, 2014),

[4] Fiscal Year Statistics for WHD, U.S. Dep’t of Labor,

[5] News Release, State of California Department of Industrial Relations, Labor Commissioner Obtains $4 Million in Back Pay for San Francisco Restaurant Workers,

[6] The DOL has entered into memoranda of understanding with state agencies in Alabama, California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Utah, Washington and Wyoming. See Employee Misclassification as Independent Contractors, U.S. Dep’t of Labor,

[7] Press Release, U.S. Dep’t of Labor, General Interior Systems Inc. to pay $380,000 in back wages to more than 300 employees misclassified as independent contractors,

[8] Press Release, White House, Fact Sheet: Opportunity for All: Rewarding Hard Work by Strengthening Overtime Protections,; see also Updating and Modernizing Overtime Regulations, 79 Fed. Reg. 15211, 15211 (Mar. 18, 2014).

[9] Id.

[10] View Rule: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, Office of Info. and Regulatory Affairs,

[11] Remarks by U.S. Secretary of Labor Thomas E. Perez, “Enforcement Matters: How Workplace Law Enforcement Can Boost Americans’ Wages and Strengthen the Economy,” Center for American Progress, Washington, D.C., Dec. 4, 2014, U.S. Dep’t of Labor (Dec. 4, 2014),