From the business owners I’ve talked to, it seems clear that companies are responding to rising labor costs by embracing automation faster than ever. That’s eliminating thousands of low-paying, unskilled, entry level positions. What will that mean for those people trying to get started in the workforce? My job as an usher was the first rung on a long ladder of work that lead me to where I am today. But what if that rung wasn’t there? If the minimum wage in 1979 had been suddenly raised from $2.90 to $10 an hour, thousands of people would have applied for the same job. What chance would I have had, being seventeen years old with pimples and a big adams apple?
Archive for the ‘Labor Law’ Category.
This week, the NLRB agreed to allow the players on the Northwestern University football team to unionize. This is one of those issues that is simple and straightforward in a free society and a total mess in our less-than-free society. Here are a few thoughts:
- In a free society, this is a no-brainer. The Northwestern players are welcome to create an association among themselves and call it anything they like, including "union". That association is free to try to negotiate with the university for better terms (they are also free to fail at this and make no progress).
- However, it is clear that we are not a free society because the players had to go to the government and ask permission to form this particular type of association. The reason is that associations called "unions" have been granted special powers and privileges under the law not available to other associations. There are also a large body of very particular rules for how such associations may conduct business and how other groups (in this case the University) can or cannot interact with it. It is a very tricky legal and philosophical question whether this package of benefits and privileges should be accorded to a group of college football players
- In a free society, the fact that the players don't get paid cash and that their universities make millions off the football program would be irrelevant. The players freely agreed to the deal (in most cases, playing in exchange for free tuition and perhaps a chance to land an NFL job) so there is nothing inherently unfair about it.
- However, in our society, we have all sorts of government interventions. I consider many of these interventions to be counter-productive, even occasionally insane. But if one is to navigate such a society (rather than, say, go off and live in Galt's Gulch), I think the principle of equal protection is critical. Arbitrary government interventions in free exchange are FAR worse when applied unevenly. From an equal protection standpoint, I think the players may have a good case.
- The law generally does not allow profit-making businesses (and the NCAA and college footfall are certainly those) to accept unpaid labor. Many folks who don't deal with the Fair Labor Standards Act every day will say: "players are paid, they get free tuition." But this is not how the FLSA works. It counts non-cash wages only in very specific circumstances that are enumerated in the law (e.g. lodging). Think of it this way -- McDonald's could not legally just pay all its employees in french fries and claim to be compliant with the law. Also, large numbers of Division 1 football and basketball players never graduate, which shows a fair amount of contempt by players for this supposedly valuable "free tuition" compensation.
- On the other hand, most college athletics are not profit-making. My son plays baseball at Amherst College -- it would be laughable to call this a profit center. I am not sure there are but a handful of women's teams in any sport that generate profits for their school, and even on the men's side money-making is limited to a few score men's football and basketball teams. But the few that do make money make a LOT. University of Texas has its own TV network, as do most major conferences.
- The law generally does not allow any group of enterprises to enter into agreements that restrict employment options. Google et. al. are getting flamed right now, and likely face criminal anti-trust charges and lawsuits, for agreements to restrict hiring employees from each other's firms. The NCAA cuts such deals all the time, both severely restricting moves between schools (transfer provisions in Division I are quite onerous) and preventing poaching at least of younger players by professional leagues like the NBA and NFL. The notion that top players in the NCAA are playing for their education is a joke -- they are playing in college because that is what they have to do in order to eventually be allowed in a league where they can get paid for their skills.
- Actually trying to pay players would be a real mess. In a free society, one might just pay the ones who play the most profitable sports and contribute the most value. But with Title IX, for example, that is impossible. Paying only the most financially valuable players and teams would lead to 99% of the pay going to men, which would lead to Title IX gender discrimination suits before the first paycheck was even delivered. And 99% of college athletes probably don't even want to be paid
- Part of the pay problem is that the NCAA is so moronic in its rules. Even if the university does not pay players, many outsider would if allowed. Boosters love to pay football and basketball players under the table in cash and cars and such, and top athletes could easily get endorsement money or paid for autographs by third parties. But NCAA rules are so strict that athletes can be in violation of the rules for accepting a free plane ticket from a friend to go to his mother's funeral. When I interview students for Princeton admissions, I never buy them even a coffee in case they are a recruited athlete, because doing so would violate the rules.
- Much of this is based on an outdated fetish for amateurism, that somehow money taints athletic achievement. It is hilarious to see good progressive college presidents spout this kind of thing, because in fact this notion of amateurism was actually an aristocratic invention to keep the commoners out of sports (since commoners would not have the means to dedicate much of their life to training without a source of income). The amateur ideal is actually an exclusionist aristocratic tool that has for some reason now been adopted as a progressive ideal. Note that nowhere else in college do we require that students not earn money with their skills -- business majors can make money in business over the summer, artists can sell their art, musicians can be paid to perform. When Brooke Shields was at Princeton, she appeared in the school amateur play despite making millions simultaneously as a professional actress. Only athletes can't trade their skill for money in their free time.
I am not sure where this is all going, but as a minimum I think the NCAA is going to be forced to allow athletes to earn outside income and accept outside benefits without losing their eligibility.
1. On the lighter side, a customer came into our establishment in California the other day with a horse. Claimed it was a "therapy animal" and therefore it would be a violation of the ADA to not allow the horse in. Not knowing the law but with some experience with California, my managers rightly let the animal in, then researched it later. It appears that we are safe denying entry to animals that are not licensed service animals, but this is an evolving part of the law, apparently. Since it costs us about $25,000 a pop to get even the craziest suits dismissed in California, we will continue to err on the side of caution.
2. Perhaps even crazier, we recently were forced to institute an HR policy in California that working through lunch is a firing offense. One warning, then you are gone. Why? California has a crazy law that allows employees to collect substantial ex post facto compensation if they claim they were denied a 10 minute break every four hours or a thirty minute unpaid lunch break after five. Suffice it to say we have spent years honestly trying to comply with this law. The 10-minute break portion is less of a compliance hurdle, but the lunch break portion has caused us no end of trouble. Theoretically, under the law, the employee has a choice - work through lunch paid, eating at the job post (e.g. in a gatehouse of a campground) or leave the job post for 30 minutes for an unpaid lunch break. As background, every one of our employees have always begged to have the paid lunch because they are from a poorer area and need the extra 30 minutes of pay.
Unfortunately, it does not matter what preferences the employee expressed on the job site. In the future, the employee can go to the labor department and claim he or she did not get their break, and even if they did not want it at the time, and never complained to the employer about not getting it, the employer always, always, always loses a he-said-she-said disagreement in a California Court or review board. Always. Sure, it takes someone utterly without honor to make this claim in Court, but there seems to be no shortage of those. So, we took a series of approaches to getting people on-paper, on-the-record as having asked to work through lunch. Unfortunately, one court case after another has demolished each safe harbor we thought we had.
A few weeks ago I was advised by a senior case-worker at the California Department of Labor that the only safe harbor left for employers is to FORCE employees to take an unpaid lunch. This means they clock in and back out, this means they have to leave the job site (because if a customer happens to ask them a question, then they are "working"), and this means we have to ruthlessly enforce it. Or we are liable for scads of penalties. So, we find ourselves at the bizarre crossroads of making working through lunch a firing offense, and employees who generally want to work an extra thirty minutes each day to earn more money are not allowed to do so. Yet another example of laws that are supposed to be "empowering" to employees actually ending up limiting their choices.
Here is a portion of Kevin Drum's argument against lowering the minimum wage to stimulate employment
Is this really what we've come to? That we should provide a (probably very small) boost to the job market by allowing businesses to hire people for $9,500 per year instead of $14,500? Seriously? I mean, this is the ultimate safety net program, aimed squarely at working people at the very bottom of the income ladder. If we're willing to throw them under the bus, who aren't we willing to throw under the bus?
Part of the problem is that Drum is absolutely convinced that our intuition (and, oh, 200 years of experience) that demand curves slope downward is flawed in the case of low-skill labor. He has read the two studies out of a zillion that, contrary to all the others, suggests that minimum wage increases may not affect employment and has convinced himself that these are the last word in the science. As an employer who has laid people off and made larger and larger investments in automation with each successive minimum wage increase, I will continue to trust my intuition that higher minimum wages makes hiring less desirable.
I will say, though, that there are a number of reasons why a change in the minimum wage may have a smaller overall effect nowadays than one might expect. That is because the minimum wage vastly understates the cost of taking on an unskilled worker. Even with a lower minimum wage, these government costs will remain:
- Soon, the employer will have to pay for the employees health care, a very expensive proposition
- Workers comp and other labor taxes add as much as 20% to the cost of labor
- In states like California, bad employees have an increasing number of avenues to prevent employers from firing them, from appeal to an ADA law stretched out of recognition to any number of other legal presumptions that employers have to just live with hiring mistakes
Hiring employees used to be a joyous occasion. Now I cringe and wonder what kind of liabilities I am taking on.
But back to Drum's statement, how sick is it that allowing people off the dole to actually get a job is called "throwing them under the bus?" Drum, for someone so fired up to make decisions based on academic work, sure is willing to put on blinders to all the academic work that actually characterizes who works for minimum wage and how long they stay on it. He who argues against making policy based on flawed intuition is operating here entirely from a flawed perception of who minimum wage workers are. He seems to want to picture families of eight supported for decades by someone trapped in the same minimum wage job, for whom a raise only comes when Congress grants it, but that is simply not the reality.
Just as one metric, for example, the percentage of all wage and salaried workers making minimum wage or less fell from 8.8% in 1980 to 1.7% in 2008. In fact, the actual absolute number of people making the minimum wage fell by over 2/3 during these years. I would argue that this number is probably too low. A dynamic labor market needs to bring people in at the bottom, and raising the minimum wage makes this harder, and so traps people into unemployment. In fact, the number of unemployed in this country is at least 6 times larger than the number of minimum wage workers.
If we dropped the minimum wage, only a fraction of the 2 million or so who make the minimum wage would see their wages go down, but lets assume a quarter of them would. We are therefore trying to prop up wages for 500,000 but at the same time creating barriers for 13.9 million people who are unemployed and are looking for work. And it is low-skilled workers who we are most particularly throwing under the bus by keeping minimum wages high.
So a bunch of bloggers agree to write for the HuffPo, a profit-seeking venture, for free. The HuffPo gets bought by another profit-seeking company, though this one is less successful in shrouding its financial goals in a cloud of feel-good progressivism. So the bloggers get mad. But instead of just quitting, they are actually suing the HuffPo for back wages under the Fair Labor Standards Act.
A few observations:
- I blog for free at Forbes. It's not like the arrangement was hard to figure out. They get some free content, I get some exposure and a bit of cache from being associated with Forbes. Seemed like a good deal to me. When it ceases to be so, I will quit.
- The fact that everyone agreed to the deal in advance and it was completed by both parties to their mutual self-interest is NOT a defense under the Fair Labor Standards Act (FLSA). I have employees who beg to work for free all the time (e.g. they have a disability arrangement that allows no outside income). I have to tell them no. Any defense from the HuffPo will come through convincing a court that the writers were somehow exempt or not actually employees.
- This same problem arises with internships as well as in my work. In short, people sometimes value non-monetary aspects of jobs that are not given any credit in the FLSA. My son would love to have a good summer job and for the right one would work under minimum wage for the experience. Even the experience of showing up on time, functioning in an organization, working in a hierarchy, etc. are important skills those outside of the work force gain from obtaining. (In an interesting parallel to this, probably the most important skill I am gaining at Forbes is simply writing to a regular weekly deadline. It's harder than it seems from the outside).
In short, I would say that these folks are utterly without personal honor for filing the suit, but in the current state of labor law they potentially have a case. How sad that would be. And what would be next? A class action suit by product reviewers at Amazon for back wages?
People often think of the minimum wage as a restriction on employers "” that they cannot pay less than a certain number for a job. But it is also equally a restriction on job seekers "” my son cannot legally offer to take a job for less than $7.25, even though he would probably gladly do so. For teenagers, just gaining the experience of working and building basic skills (like showing up on time, following procedures, interacting with customers and fellow employees) has enormous value, such that even a nominal payment of a few dollars an hour would more than compensate him for his labor.
Ann Althouse has found the Fair Labor Standards Act (FLSA), which contains the minimum wage, also can lead to restrictions on employee behavior:
Everyone at The University of Wisconsin will have their pay cut by about 3% and will be "furloughed""”told they do not have to work"”for a corresponding period of time. But it turns out that we not only don't have to work, we are being told we cannot work. The guidelines ban any kind of work during furloughs, anywhere. This means that even if you are at home you are not supposed to read professional material, get and send emails, make calls, use a smart phone, etc. Employees who violate the work ban can be disciplined.
She goes on to describe her voyage of discovery as to why so irrational-sounding a policy might exist, but I alredy knew. To furlough exempt (meaning exempt from hourly bookkeeping) workers, they must become non-exempt. And non-exempt workers have to be paid for time worked, even if the time worked was not ordered by the employer and even if the time worked was against the wishes of the employer.
We face this situation all the time. We have hourly workers in campgrounds. Unlike in a factory (for which the FLSA was written and where there are fairly strict controls on how people work), my campground workers have a lot of leeway to set their own schedule and determine their work patterns. But I have to set very clear guidelines - "at the end of the day you have to get x and y and z done and you are not authorized to work more than t hours doing it."
But we nearly always have folks who want to go do whatever they want to do. I had an employee who loved to arrange river rocks around camp sites as borders after he had finished his other work. His work looked really nice. But I could not afford to pay him to arrange river rocks around camp sites. His manager told him to stop. He kept doing it. You know what? I still had to pay him for his time to arrange river rocks, despite the fact the company had specifically told him not to and despite the fact that this time exceeded the guidelines I gave him (once his work exceeds X hours, he has to get management permission to work more in a certain time period). In fact, the only way I eventually was able to stop paying him to arrange river rocks at work was to fire him.
Megan McArdle has a good post and excerpts from Adam Shepard, who set out with $25 to see how hard it was to escape from poverty. I won't re-quote that post here, you should see her site, but I wanted to comment on one thing Shepard says about his early days trying to convince supervisors they should hire a homeless guy:
So, he gave me the secret. To paraphrase, he told me to go to these
managers and tell them who you are, that you are the greatest worker on
the planet and that it would be a mistake not to hire you. If they take
you on, great. If not, move on down the line. By day's end, you're
gonna have a job.
So I did. The next day, I went to see Curtis at Fast Company, a
moving company where I'd already applied. "Curt!" I said. "I'm Adam
Shepard, and I'm the greatest mover on the planet. It would be a
mistake for you not to hire me." He looked at me across the table and
smiled, knowing I was lying like hell to him. But he liked my attitude
"“ especially after I offered to work a day for free "“ so he hired me on
This is very normal -- if you want someone to take a risk, you try to reduce the cost for him. Not sure you want to try our product? We'll give you a free sample. In this case, he agreed to work for free to convince the manager he was a good worker. This makes sense -- to emerge from homelessness and to get a job with no skills and no work history, one needs to be willing to give a bit of a discount on your labor, at least at first, to get someone to give you a chance.
But here is the interesting part -- the arrangement Curtis and Adam Shepard made is ILLEGAL. The Fair Labor Standards Act, which includes Federal minimum wage law, does not allow Curtis to accept unpaid labor and does not even allow Mr. Shepard to offer it. The fact that the deal makes so much sense and it so clearly is in the mutual best interest of both parties is absolutely irrelevant under the law. Fast Company could be busted, should the DOL choose to focus its attention their way.
When people argue that the minimum wage is most harmful to the poor, because it prices the first rung of the labor ladder beyond what their minimal skills can justify, this is what they mean.
Today, Kevin Drum quotes Obsidian Wings as saying:
The men in my family of my father's generation returned home after serving
their country and got jobs in the local steel mills, as had their fathers and
their grandfathers. In exchange for their brawn, sweat, and expertise, the steel
mills promised these men certain benefits. In exchange for Social Security taxes
withheld from their already modest paychecks, the government promised these men
certain benefits as well.
....These were church-attending, flag-waving, football-loving, honest family
men. They are rightfully proud of providing homes and educations for their
children and instilling the sorts of values and manners that serve them well as
adults. And if I have to move heaven and earth, now that they've retired, the
Republican party is NOT going to redefine them as welfare
First, I agree, whether I like the program or not, that people who contributed for years and were promised certain benefits should receive them. The benefits the average retiree gets today were certainly paid for - in fact, over-paid-for given the implied rate of return they got for their forced "savings". So I won't argue that these retirees are getting financial welfare.
BUT, I would argue that they are getting intellectual welfare. Advocates for keeping forced savings programs like Social Security in place as-is by necesity argue that the average American is too stupid, too short-sighted, and/or too lazy to save for retirement without the government forcing them. Basically the argument is that we are smarter than you, and we are going to take control of aspects of your life that we think we can manage better than you can. You are too stupid to save for retirement, too stupid to stop eating fatty foods, too stupid to wear a seat belt, and/or too stupid to accept employment on the right terms -- so we will take control of these decisions for you, whether you like it or not. For lack of a better word, I call this intellectual welfare.
By the way, this is as good an answer as any to Mr. Drum's earlier question why liberals don't push the privacy issue harder. He opines:
Whenever I talk about the underlying principles that should guide liberals, as
I did a couple of days ago, one of the ideas that always pops up is privacy
rights. In fact, it comes up so often that it strikes me that we're missing a
bet by not making a bigger deal out of it.
I am all for a general and strong privacy right. I would love to see it Constitutionally enshrined. But liberals (like conservatives, but I am answering Drum's question) don't want it. They want to allow women to choose abortions, but not choose breast implants. They want the government to allow marijuana use but squelch fatty foods. They don't want police checking for terrorists but do want them checking for people not wearing their seat belts. They want freedom of speech, until it criticizes groups to whom they are sympathetic. They want to allow topless dancers but regulate the hell out of how much they make. Liberals, in sum, are at least as bad about wanting to control private, non-coerced individual decision-making as conservatives -- they just want to control other aspects of our lives than do conservatives.
A true privacy right would allow us complete freedom over who we sleep with, what we do with our bodies, where we work, and what we pay for goods. And, not incidentally, how we choose to invest for our retirement. Both parties want the government to control parts of our lives, so don't expect either conservatices or liberals to be pushing the privacy issue very hard.
Update: William Mellor of the Institute of Justice has some thoughts related to this topic in The American Lawyer:
Without realizing it, liberals and conservatives are
working from opposite ends of the political spectrum, under opposing
rationales, to reach the same end: expanded government power...
The Framers envisioned a system in which individuals enjoyed
rights equally, and the rights they enjoyed were treated with equal
respect under the Constitution. But in 1938 the U.S. Supreme Court's
ruling in United States v. Carolene Products Co. (upholding a
Congressional ban on interstate shipment of milk that contained added
fat or oil) created an artificial dichotomy under the Constitution.
Some rights, notably free speech, were elevated to a preferred tier and
now rightly receive vigorous constitutional protection. Rights demoted
to the second tier, specifically economic liberty and property rights,
wrongly receive far less protection....
Liberals, however, tend to reject the notion that the courts
have any role in seriously protecting economic liberty or property
rights. This is remarkable in light of the fact that many liberals
strongly advocate court protection for various rights-such as welfare
or abortion-whose constitutional pedigree is far more questionable than
rights to private property and economic liberties.
Yesterday I mentioned employment at will in this post about police officers who were fired for assaulting a handcuffed man and who successfully sued for wrongful termination.
Here's where things get tricky. In between employment at will and the law is a whole mess of claims, counterclaims, lawsuits, disputations and confusion. It's enough to make anybody scratch their head.
We have had several instances where employees have threatened legal action over termination. I have observed at least three reasons for this:
Employees sometimes have a skewed view of the termination process, thinking that a company must hold to some kind of courtroom "beyond a reasonable doubt" standard in amassing reasons for termination.
The most inept employees never seem to know that they are inept
Some employees are far more adept at working the system than they are at their jobs.
We do several things to help make things go smoother:
Unless the violation was outrageous, where we fire on the spot, we try to give employees written warnings and coaching before they get terminated
Every new employee signs a 60/90 day probationary period letter. If there are problems, they almost always occur in the probation period -- ie they turn up quickly -- and the probationary period gives us more leeway to quickly terminate. Update: This article says why this policy can be a mistake, or at least you have to be careful with it. This is less of a problem for us since most of our employees only work a 5 month season anyway.
We don't give references. I have said that this makes me feel guilty, but negative references about fired employees are a big source of litigation, and frankly, I am sorry to admit, the treat of wrongful termination suit is greatly reduced if the ex-employee finds a good job somewhere else. Kind of the business version of hot potato.
Being a seasonal business saves us. For many employee problems, we limp along until the end of the season when we can terminate the person for lack of work, then we make sure not to rehire them in the spring.
But the Clifton, N.J., instructor never got over it. Instead, he has filed 15 lawsuits in Manhattan federal court and three others in Brooklyn and New Jersey courts, seeking reinstatement and millions of dollars in damages.
Each lawsuit has been tossed out as meritless. But a defiant Malley hasn't gotten the message or doesn't care.
As with any labor law or legal liability issue, there are probably more ways to trip up than you ever imagined. This article at Faegre.com, which I found via George's Employment Blawg, has a nice summary of key issues in five categories.
Because the vast majority of our employees are over 70, and a number of them have disabilities, we have to be very careful in hiring. Many of our jobs can be physically challenging, and dangerous to perform with some disabilities, so we have to take care to make sure an employee understands the work and that we mutually agree they can do it safely.
One related area that I am not sure has been tested regards our corporate insurers. Increasingly, insurers, particularly for our corporate vehicle policies, are refusing to insure over-70 drivers without some kind of letter from a doctor that they are capable of driving safely. As you can imagine, doctors face liability if they put in writing the employee can drive safely (so the doctor might be liable if there is an accident) or if they write that the employee can't drive safely (so the doctor might be liable for effectively denying the employee insurance, or even a job). As a result, doctors are reluctant to produce such letters.
It has not come up yet, but what happens if one of my employees is uninsurable for driving, and driving the company vehicle is an essential part of their job? Do I face an ADA case for discharging them? What choice would I have in that case?
We also have very severe challenges with off-duty behavior. Most all of our employees live on the job site (i.e. the campground managers live in the campground). So, off-duty behavior occurs on the job site. Until I had this company, I always said that I did not care what an employee did on her own hours at home - but now, what happens on the employee's own time occurs in front of my customers.
We continue to walk a fine line on this. To date, we have told employees that even if they are not on the clock, if they are wearing our uniform or verbally representing themself as a company employee, they are subject to on-the-job behavior rules. Once the uniform is off and they are just "Joe", and not "the manager", they are free to do as they please, though they are still bound both by federal and state laws as well as campground rules.
Well, just when you think you have seen every way to screw up in a small business, there comes this story.
The owner of a shaved ice business was arrested after two employees claimed he spanked them for making mistakes at work.
One of the women told police that on her first day at the Tasty Flavors Sno Biz, Levengood made her sign a statement that said: "I give Gene permission to bust my behind any way he sees fit."
Hat tip to Jim Rome, as I first heard this on his radio show, and to the Mises Institute, of all places, where I found the link. This story has been out and about for a while, but I wanted to give it a few days to make sure it was not a hoax.
Just added George's Employment Blawg to my blogroll. As a small business, the biggest shock has been dealing with employment related issues (working for large corporations, this stuff was all invisible to the average general manager - huge departments of HR people just sortof took care of it).
I like what I have seen of this site, and its got some other useful links in the blog roll. It is written from the perspective of the employer (which is actually unusual for labor law sites - most are run by lawyers who represent workers and are mostly instruction manuals on extracting more money from businesses).
As background, state unemployment offices generally give employers a chance to dispute new unemployment claims from ex-employees. In most states, if the employee voluntarily quit or was fired for cause, they are either not eligible or at least the employers experience account is not hit (for each employer, the state keeps a running tally of claims paid to their employees - if the sum is high enough in a given year, the employers rates go up for the next year).
This is all in theory. I don't know what other employer's experiences are, but I almost NEVER win one of these disputes. Most unemployment offices are stacked with people who's bias is always toward the employee. For example, in a recent case, I had documented evidence that an employee was fired for physically attacking a customer! The state unemployment office denied my protest as not sufficient, and to this day I am paying that person's unemployment. Today, I got notice that California had denied my most recent protest. I had sent evidence that an employee was repeatedly warned and eventually fired for constantly being late - day after day an hour or more late for weeks. Nope, not good enough says California. So, instead of paying this person for showing up late, I am paying them, via the unemployment system, for not showing up at all.
Does anyone know if there are any tricks or techniques to be more successful at this?
In this post, I will show you how we defended ourselves in a case where the DOL was extremely reluctant to grant us a legal exemption to the Fair Labor Standards Act (FLSA). It is highly unlikely that this exemption is relevant to you - it is narrowly directed at seasonal recreation businesses, but I think the process and what we learned from it may help you out in your own interactions with the DOL.
In part 1, we discussed general expectations you should have as a business owner in working with the Department of Labor. In this installment, I will discuss a typical audit and some of the things we did to protect ourselves. In part 3, I will discuss a specific example of how it is possible to win your case with the DOL, but it may take a LOT of effort.
Over the past several years, we have been audited a couple of times by the Department of Labor (DOL). One of the audits was standard procedure (as a concessionaire to the US Forest Service, audits are sometimes required on certain contracts) and one was based on employee complaints. It never ceases to amaze me that some folks never even bother to call our HQ to complain and try to get it paycheck mistakes fixed -- they go straight to the government rather than our labor department if something looks wrong on their check.
Many times I have heard other small business owners say that the DOL is not "fair". If you were to ask me if I think they are fair, I would answer "yes" and "no". If you want to know if DOL employees are generally honest, well-intentioned, and law-abiding, my experience is that they are. However, if you expect, as a business owner, that the DOL will act as some kind of neutral court of law, in which you and your workers have equal status and equal rules of evidence, then you are in for a surprise. The DOL is not on the employers side and doesn't really pretend to be.
This should not come as a surprise to you. Young lawyers out of school generally don't seek out lower government pay scales with a vision of helping businesses manage their cost structures. They join the DOL because they are interested in defending downtrodden workers against rapacious capitalists who seek to exploit them (etc. etc.) The main mission of the DOL is to enforce labor laws like the Fair Labor Standards Act (FLSA). However, overlaying this mission is a strong institutional culture that mission 1A is to defend workers against employers. This culture will have a number of implications in any dealings you, as an owner or employer, have with the DOL:
1. Workers claims will almost always be believed by the DOL, and the DOL will generally not require much documentary evidence to back up workers claims. The flip side of this is that employers claims that contradict workers will always require extensive documentary evidence. For example, we had several weeks of time sheets burn up in an office fire. In cases like this, the DOL will generally always side with the worker's recollection of time worked rather than the employers, even if the time claimed is completely inconsistent with hours worked in all other documented weeks. The burden of proof, in almost any dispute, will be on the employer.
2. The DOL's first answer to any employer's claims of an exemption under FLSA or other labor laws will be "NO". Congress has granted a number of exemptions to labor laws for certain business situations. For example, one that applies to our business in some cases is the FLSA has relaxed standards for overtime for "seasonal recreation businesses". From my experience, the DOL hates to admit that these exceptions apply to your particular situation. Back to the fairness point, they CAN be convinced, but sometimes it takes a lot of work to do so. In part 2 and part 3 of this series, I will give more specific examples of how to do this.
3. The DOL will never point out to you an exemption or saving that you are missing. I know that many people get frustrated with the IRS, but I have actually had experiences where the IRS found a mistake where I had overpaid. I have never had this experience with the DOL. The DOL does not really have very good staff or tools to help employers comply with the law in the most efficient manner. They have LOTS of tools and people dedicated to making sure workers get every bit of what the law guarantees them.
If you recognize this culture and context, and put any frustration that you might have as a tax-paying citizen and business owner aside, you can get a fair shake from the DOL. You just have to be prepared in advance to argue your case and bring lots of evidence to bear. And, if worst comes to worse, and you are willing to pay the attorney fees, you can always refuse the DOL's finding and take the case to a court of law, where there are much more neutral evidence standards.
Note: These are my observations as a business owner and are not specific recommendations. I am not a lawyer, and, even if I were, I am not your lawyer.