Posts tagged ‘DOL’

Government Contractors: Get Out of California

Apparently there is yet another executive order with far reaching consequences for government contractors, Executive Order 13673  (does it bother anyone else that we are up in the 13 thousands on these?  Did they start numbering at 1?)  Hans Bader has the details:

A July 31 executive order by President Obama will make it very costly for employers to challenge dubious allegations of wrongdoing against them, if they are government contractors (which employ a quarter of the American workforce). Executive Order 13,673 will allow trial lawyers to extort larger settlements from companies, and enable bureaucratic agencies to extract costly settlements over conduct that may have been perfectly legal. That’s the conclusion of The Wall Street Journal and prominent labor lawyer Eugene Scalia.

This “Fair Pay and Safe Workplaces” order allows government officials to cut off the contracts of contractors and subcontractors that do not “consistently adhere” to a wide array of complex labor, antidiscrimination, harassment, workplace-safety and disabilities-rights laws. Never mind that every large national business, no matter how conscientious, has at least one successful lawsuit against it under federal labor and employment laws, which is inevitable when a company has thousands of employees who can sue it in hundreds of different courts that often have differing interpretations of the law. The order also bans using perfectly legal arbitration agreements, overstepping the President’s legal authority.

I can say as someone who absolutely bends over backwards to be in compliance, it just is not possible to be totally clean.  We have won most all of the lawsuits and actions against us over the years vis a vis labor laws and related charges.  A lot of these are pro forma discrimination charges that some employees in protected groups file automatically when terminated, usually without any evidence of specific discrimination.  We have, to date, won all of these "was he a Hispanic that was terminated rather than he was terminated because he was Hispanic" suits.  We have only lost one case.  To give you an idea of how hard it can be to be 100% in compliance, let me describe it:

We had a government contract governed by the Service Contract Act, which sets out minimum wages to be paid for different types of jobs.  These wages typically are in two parts - a base wage and, if the company does not have benefits, a fringe payment in lieu of such benefits.  For example, it might say that a day laborer must be paid (I will use round numbers for simplicity) $12 an hour base wages plus $4 an hour for fringes.  So we paid the worker $16 and hour and felt ourselves in compliance.  

Then we had a Department of Labor audit.  The investigator insisted that the law required that we break these two payments into two lines on the paycheck.  So instead of having  a paycheck that said 40 hours times $16, it needed to say 40 hours times $12 and 40 hours times $4.  Thus we were found to be in violation and issued a huge fine.  I protested that the law said no such thing -- the law said I had to have a clear paper trail of what I paid people.  It did not say the labor and fringes had to be shown separately on the paycheck, nor did any DOL published regulation require this  (and of course I also pointed out that the intent of the law that someone get paid a minimum amount had been fulfilled).  

Apparently, the DOL had an internal handbook that suggested this as a correct practice, but this had never been tested in court nor embodied in a published regulation.  To impose the fine, my attorney said they had to take me to court.  I said go for it.  The DOL chose not to press the case, and we adjusted our paycheck practices to avoid the issue in the future.  I was happy to comply with this, as stupid as it was, but it was impossible to know it was an actual requirement until I got busted for violating this double-secret practice.  But there it is on my record - VIOLATION!

I will leave it to Bader's article to explore some of the implications of this order, but I want to add some unintended(?) consequences of my own:

  • Government contractors would be insane to operate in California (and perhaps other regulatory hell-holes, but I am familiar with California).  California has a myriad of arcane labor laws (like break laws and heat stress laws) that are difficult to comply with, combined with a legislature that shifts the laws every year to make it hard to keep up, combined with a regulatory and judicial culture that assumes businesses are guilty until proven innocent.  If state labor violations or suits lead to loss of business at the national level, why the hell would a contractor ever want to have employees in California?
  • I have a couple of smaller competitors who have sent employees into the parks we operate who then filed extensive, manufactured complaints to the government about our service, timed to make it difficult on us when we bid against them for the contract renewal.  How tempting will it be for companies to place employees in their rival who then file serial labor complaints to undermine that rival in future contract awards?
  • Companies that do government contracting as a sideline are going to be driven out of the business, reducing the choice and competition among contractors.   Earlier I discussed how 41 CFR 60-2.1  and 41 CFR 60-4.1, also the result of an Obama executive order, drove our company out of our last incidental contracting business (though we deal with the government all the time, it is generally through concession contracts where we get paid by the public, not by the government, so a lot of government contracting law does not apply to these contracts).

Not Sure Why I Found This Compelling...

Been doing research on grain elevators for my model railroad.  Ran across this video that I thought was pretty interesting.  I liked seeing the guy trying to keep the old technology working, and it was interesting to me to see this one guy do everything.  In the city, OSHA and the DOL would probably require 6 different guys on the shift.  The best part was seeing this older dude shoving a boxcar around by hand to position it for loading (around 8:40).

The Record-Keeping Tax

I offer as the irritating story of the day, this one on sales tax audits of restaurants in New York.

The state also recently started using desk audits, in which they use third-party information to scrutinize whether businesses may be making more money than they're reporting. For example, the state can look at how many pizza boxes a vendor has sold to a pizzeria and if the number of boxes is more than the number of pizzas the company said it sold, the state can look closer to find whether tax evasion is the source of the discrepancy.

"If the state went through a normal audit process and determined that we owed money, we wouldn't fight it. We're not opposed to paying taxes," said Panaro.

Instead, he said he was told all of his paperwork checked out, but he didn't meet the state's standards for keeping "adequate records." The restaurant had failed to keep every paper copy of each guest's order receipt for the entire three-year period. That opened the door for the auditor to use "indirect audit methods" to estimate what he thought the restaurant owed.

The method of estimation the state used was to observe the restaurant's sales for a day, then compare it with the same date on a previous year. The previous year's reported sales were 25 percent lower, so the auditor took that percentage and multiplied it over each day's sales of the three-year period, deciding the restaurant did enough unreported business to owe an additional $330,000 in sales tax....

Joe Giafaglione, owner of Bar Bill Tavern in East Aurora, has been audited twice in the past four years. His purchase of ground hamburger raised suspicion when it was found there were no hamburgers on the menu (it was being used as an ingredient in chili).

"It's totally ridiculous the way they come up with figures without any evidence," said Giafaglione. "They say they need 20 [documents], so you give them 19 and they say, "Ah, you don't have that? Well, now we'll have to estimate.'"š"

A similar situation occurred with our company a number of years ago on a contract where some of the work had to be done using Davis-Bacon type mandated wage rates.  These rates, for those who have never seen them, come in two parts.  They might say, for example, that the minimum for such and such a job is $12.10 per hour plus $3.07 per hour cash instead of fringe benefits for a total of $15.17.

Using these figures, we gave folks an offer letter saying you will be paid $12.10 base pay plus $3.07 fringe for a total of $15.17 an hour.  Then on the paycheck, they just got one line for their total hours times $15.17.  Well, said the Department of Labor in an audit, you are not paying them the fringe, you are just paying the base pay -- we only see one number on the pay check.  So you owe $3.07 times 20,000 or so hours, pay up.

Well, I was pretty surprised.  I said it was pretty clear I was paying the fringe - why in the heck else would I pay someone an oddball wage like $15.17 that just so happened to be equal to the sum of base plus fringe.  You can see the calculation in each offer letter.  No dice, they said, the law requires that the payments have to be broken out on the pay stub.

This was back in my younger, naive days, when I thought the "expert" auditors actually knew the law.  Now I know they are sometimes just making stuff up, but I was smart enough at the time to ask them to show me the legal requirement that these two payments be broken out on the pay stub -- show me something in writing.  Nothing was forthcoming.   My attorney later educated me that there is hierarchy of quality to what might be in writing:

This is where I began to learn about the hierarchy of labor law. As I understand it (and remember, I am not a lawyer) it is something like this, from strongest to weakest:

  1. The actual statute as written by Congress, e.g. the Fair Labor Standards Act
  2. Court rulings and precedents
  3. Approved regulations what have been through the public comment and approval process
  4. Formal DOL rulings
  5. Internal DOL guidelines and manuals
  6. Informal DOL rules of thumb

Numbers 1, 2, and 3 have a lot of legal force. Five and six may or may not "“ they represent the DOL's opinion, but that opinion has not been vetted by a regulatory hearing or court decision. These get overturned by courts all the time.

When the DOL tells you can or can't do something, they likely will say it with equal authority if it comes from 1 or 6. For example, in this case, the DOL said with total authority that the wage and fringe have to be split on the paycheck.

Anyway, I read the actual law myself.  The only mention of anything even related to this was the need for adequate record-keeping to prove we had foll0wed the rules.  I searched as far as I could through labor department regulations online and found no more detail.  So I argued that unless they could produce something different, my position was that the offer letter plus the pay stub was adequate record keeping.

Eventually, the DOL let the issue drop - petulantly, they never actually dropped the claim, just told me they were choosing not to go to court against me at that time.  Of course I am only a glutton for so much punishment, so in the future we split the payments out on the pay stub.  It creates more work doing payroll, but what is government for, after all?

PS, if its helpful, I have a three part series on my interactions with the Department of Labor beginning here.

Standing in the Way of Success

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
the spot.

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.

 

Working with the Department of Labor: Part 3

This is part 3 in a series of my real-world experience in dealing with the Department of Labor (DOL). If you have not already, you should also check out part 1 and part 2 for background.

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.

Continue reading ‘Working with the Department of Labor: Part 3’ »

Working with the Department of Labor: Part 2

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.

Continue reading ‘Working with the Department of Labor: Part 2’ »

Is the Department of Labor "Fair"? Part 1 of a series

Note that this is part 1 of a three-part series. Here are part 2 and part3.

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.

The next part of this series will discuss further some examples and lessons learned in making your case to the DOL. Part 3 of the series will include a specific example.

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.