We talk regularly about the DOL’s focus on misclassifications or the potential liability for unpaid overtime, but these are all civil penalties. Although they are somewhat rare, the FLSA and other wage and hour statutes provide opportunities for criminal charges against employers.
In recent years, the DOL’s Wage and Hour Division has issued press releases trumpeting criminal charges brought against employers. For instance, in 2013, WHD issued a press release about criminal charges it had levied against a Texas-based rope manufacturer. Not only did the company face criminal charges, but ultimately the “owner, plant manager and office manager were also convicted on separate felony counts” as well. Last year, the Boston WHD office issued a press release highlighting that the owner and foreman of a company were sentenced to 6- and 4-year prison sentences, respectively, for violating prevailing wage rules, underpaying workers, and misreporting wages on certified payrolls.
We recently got another reminder in November with the indictment of an electrical contractor. The contractor faces individual jail time and heavy fines for allegedly making false certifications regarding just $126,514 in Davis-Bacon Act wages on three federally-funded multi-family housing projects. The indictment goes into some detail about the contractor overstating the wages and benefits actually paid to workers by $126,514.80 and charges him with 61 criminal complaints (one for each certified payroll on DOL Form WH-347). For the sake of employers everywhere, I certainly hope that the contractor did more than make a clerical error and that there were some additional aggravating factors and that this is not simply a rote application of the new Justice Department liability policy set forth in the Yates Memorandum on Individual Accountability for Corporate Wrongdoing. The indictment doesn’t mention why the government contends that the contractor “knew” that employees were paid less than what was reported on the forms.
The FLSA and Other Wage And Hour Laws Permit Criminal Prosecutions
While the majority of FLSA cases involve back-wage payments and various civil penalties, the statute gives the DOL power to levy criminal sanctions, too. Section 16(a) of the FLSA authorizes criminal sanctions against any person who is shown to have violated the FLSA intentionally, deliberately, and voluntarily, or with reckless indifference to or disregard for the law’s requirements. These criminal provisions apply to any “employer,” which is often defined more broadly than just a corporate entity. Other than a criminal record, which is punishment enough, the potential penalties under the FLSA include a fine of up to $10,000, imprisonment for up to six months, or both. Penalties for federal or state contractors can be even higher. The contractor in the case above was charged with False Statements to a Government Agency (18 U.S.C. Section 1001 and 1002), which carries hefty fines and up to five years imprisonment.
Violations of other federal minimum wage statutes, like the Service Contract Act (SCA), can lead to similar violations.
Don’t Forget State “Wage Theft” and Wage and Hour Statutes
Even where the DOL doesn’t seek civil or criminal sanctions, or can’t, that does not mean employers and their supervisory employees are necessarily free from scrutiny. The DOL frequently touts in its weekly newsletters that the Wage and Hour Division and other DOL divisions constantly work to improve “interagency communications around worker protections” that can help DOL investigators “identify violations and refer complaints to the agency with proper jurisdiction” as well as “combine resources” with state agencies when targeting vulnerable worker populations. Criminal prosecutions under the FLSA, Davis-Bacon, the SCA and other statutes are still rare, but the Yates Memorandum and interagency cooperation may mean an upswing in 2016 and beyond. Regardless of how rare these prosecutions are, it only takes one. If you are the target, I guarantee that you won’t find the rarity of prosecutions comforting.
Upshot for Employers
Either way, now is the right time for employers–and federal and state contractors in particular–to review and update payroll and HR policies and practices. Confirm that employees are properly classified and that they are paid the appropriate wages and fringe benefits for the hours they work. Audit job classifications and payroll records, particularly certified payrolls submitted to federal and state agencies. The DOL and its companion state agencies are clearly not afraid to seek criminal sanctions when they believe that the circumstances warrant. You already need a labor and employment lawyer. Don’t create a need for a criminal one.