The Department of Labor's New Regulatory & Enforcement Strategy

Mark E. Williams

Mark E. Williams is an associate at McElroy, Deutsch, Mulvaney & Carpenter, LLP. He practices labor and employment law and works with the attorney who successfully argued defendant’s case in Smith v. Johnson & Johnson. This article has been adapted from the firm’s Labor & Employment newsletter.

In April 2010, the Secretary of Labor announced the beginning of a more aggressive regulatory and enforcement strategy called “Plan/Prevent/Protect,” which aims to increase employer compliance obligations and targets misclassification of workers.   One month earlier, the Department of Labor (“DOL”) ended its long-standing practice of providing guidance through fact-specific opinion letters, and issued its first, broader Administrator Interpretation in March 2010.  At the same time, the Wage and Hour Division (“WHD”) has increased its participation in litigation through amicus submissions.  These changes require careful consideration by employers and their counselors when determining how to structure their businesses. 

The DOL’s new strategy, “Plan/Prevent/Protect,” places an affirmative burden on employers to ensure compliance, not on the DOL to “catch” employers violating the law.   Once fully implemented, the tripartite strategy will require employers to take three steps to ensure compliance:

  • Plan.  The DOL will require that employers create a plan for identifying and remediating risks of legal violations, and the plans would be made available to employees so they can fully understand and monitor their implementation. 
  • Prevent. The DOL will require that employers fully implement the plan in a manner that prevents legal violations, rather than simply draft and shelve it.  
  • Protect. The DOL will require that the employers ensure that their plan’s objectives are met on a regular basis.  

Each division of the DOL will also implement “Openness and Transparency” rules.  For example, the WHD will publish a notice of proposed rulemaking designed to prevent misclassification of workers.  This proposal will require employers to provide workers with basic information about their employment, and to perform a classification analysis when classifying workers under the FLSA, disclose it to the worker, and retain a copy for WHD inspection. Congress is also considering legislation amending the FLSA to increase penalties for noncompliance and misclassification.

Additionally, the WHD now provides guidance through Administrator Interpretations (“AI”), and has ended its decades-long practice of issuing fact-specific opinion letters.  AIs are designed to supply general guidance clarifying “the law as it relates to an entire industry, a category of employees, or to all employees.”  The WHD will continue to issue opinion letters, but that guidance will no longer contain an analysis of the law as it applies to a specific factual situation – referencing only statutes, regulations, interpretations, and cases.  Thus, the new policy allows the Division to issue interpretations affecting entire industries or classifications of employees, rather than limited guidance tied to a particular employment scenario.  

The generalized nature of this guidance will likely limit the availability to employers of the good faith defense to liability under the Portal-to-Portal Act (limiting liability for actions taken in reliance on conforming administrative regulations or interpretations with the same facts).  Moreover, the deference AIs receive from the courts may also change.   The WHD has issued three AIs since March 2010, which address exemptions and definitions under the FLSA and FMLA, and reverse prior guidance provided though opinion letters as recently as recently as 2006.  If the WHD’s position continues to fluctuate, AI’s persuasive value to courts could diminish in the future.  

At the same time, the WHD’s interpretation set forth in its amicus submissions has been afforded controlling deference by at least one circuit court. See, e.g., In Re Novartis Wage and Hour Litigation, 611 F.3d 141 (2d Cir.2010).  Despite this ruling, employers can still argue that the WHD’s interpretations in the amicus papers – like the general guidance contained in AIs – are not necessarily controlling.  In Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010), the Third Circuit held that the administrative exemption applied to a pharmaceutical sales representative after examining the employee’s own description of her job duties.  Thus, employers can argue that courts must still examine the facts of the specific case at bar, despite general guidance from the DOL. 

Employers should carefully assess their approach to compliance, with particular attention to the classification of its workforce.  Indeed, accuracy of job descriptions, training materials, compensation policies, and similar documents will become increasingly important, and as they provide key evidence to courts’ analyses in misclassification cases – whether employee/independent contractor, or exempt/non-exempt under the FLSA.

Preemptive action by employers will be essential to limit future liability, and the performance review cycle provides employers with an ideal opportunity to ensure that their classifications are correct.  As the employee and job evolve over time, changes in the position and its responsibilities should be included in the review documents, and job descriptions and other records should be updated.   Importantly, increases in employees’ exercise of judgment and discretion should be reflected in the performance review and job description, as it is a significant issue in misclassification litigation.  During the performance review, management and the employee should agree that the description of the position and its responsibilities is accurate.  This encourages substantive feedback appreciated by employees about their performance and value to the organization, while at the same time creating robust processes to ensure that employees are classified correctly and evaluated fairly. Additionally, management should compare the description of the job with those above and below it to ensure that each properly reflects the nature of the position within the organization.

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