[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]



 
                        EXAMINING REGULATORY AND
                       ENFORCEMENT ACTIONS UNDER
                      THE FAIR LABOR STANDARDS ACT

=======================================================================


                                HEARING

                               before the

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                         COMMITTEE ON EDUCATION

                           AND THE WORKFORCE

                     U.S. House of Representatives

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, NOVEMBER 3, 2011

                               __________

                           Serial No. 112-46

                               __________

  Printed for the use of the Committee on Education and the Workforce


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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN KLINE, Minnesota, Chairman

Thomas E. Petri, Wisconsin           George Miller, California,
Howard P. ``Buck'' McKeon,             Senior Democratic Member
    California                       Dale E. Kildee, Michigan
Judy Biggert, Illinois               Donald M. Payne, New Jersey
Todd Russell Platts, Pennsylvania    Robert E. Andrews, New Jersey
Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott, 
Virginia Foxx, North Carolina            Virginia
Bob Goodlatte, Virginia              Lynn C. Woolsey, California
Duncan Hunter, California            Ruben Hinojosa, Texas
David P. Roe, Tennessee              Carolyn McCarthy, New York
Glenn Thompson, Pennsylvania         John F. Tierney, Massachusetts
Tim Walberg, Michigan                Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee          Rush D. Holt, New Jersey
Richard L. Hanna, New York           Susan A. Davis, California
Todd Rokita, Indiana                 Raul M. Grijalva, Arizona
Larry Bucshon, Indiana               Timothy H. Bishop, New York
Trey Gowdy, South Carolina           David Loebsack, Iowa
Lou Barletta, Pennsylvania           Mazie K. Hirono, Hawaii
Kristi L. Noem, South Dakota         Jason Altmire, Pennsylvania
Martha Roby, Alabama
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Mike Kelly, Pennsylvania

                      Barrett Karr, Staff Director
                 Jody Calemine, Minority Staff Director
                                 ------                                

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                    TIM WALBERG, Michigan, Chairman

John Kline, Minnesota                Lynn C. Woolsey, California,
Bob Goodlatte, Virginia                Ranking Member
Todd Rokita, Indiana                 Donald M. Payne, New Jersey
Larry Bucshon, Indiana               Dennis J. Kucinich, Ohio
Trey Gowdy, South Carolina           Timothy H. Bishop, New York
Kristi L. Noem, South Dakota         Mazie K. Hirono, Hawaii
Dennis A. Ross, Florida              George Miller, California
Mike Kelly, Pennsylvania
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on November 3, 2011.................................     1

Statement of Members:
    Walberg, Hon. Tim, Chairman, Subcommittee on Workforce 
      Protections................................................     1
        Prepared statement of....................................     3
    Woolsey, Hon. Lynn C., ranking member, Subcommittee on 
      Workforce Protections......................................     4
        Prepared statement of....................................     6

Statement of Witnesses:
    Bobo, Kim, executive director, Interfaith Worker Justice.....    33
        Prepared statement of....................................    34
    Fortney, David S., Esq., Fortney & Scott, LLC................    37
        Prepared statement of....................................    38
    Leppink, Hon. Nancy J., Deputy Wage and Hour Administrator, 
      Wage and Hour Division, U.S. Department of Labor...........     7
        Prepared statement of....................................     9
    McCutchen, Tammy D., Esq., shareholder, Littler Mendelson, 
      P.C........................................................    22
        Prepared statement of....................................    24

Additional Submissions:
    Chairman Walberg, questions submitted for the record.........    56
    Ms. Woolsey, questions submitted for the record..............    58
    Ms. Lippink, response to questions submitted for the record..    59


                        EXAMINING REGULATORY AND
                       ENFORCEMENT ACTIONS UNDER



                      THE FAIR LABOR STANDARDS ACT

                              ----------                              


                       Thursday, November 3, 2011

                     U.S. House of Representatives

                 Subcommittee on Workforce Protections

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:04 a.m., in 
room 2175, Rayburn House Office Building, Hon. Tim Walberg 
[chairman of the subcommittee] presiding.
    Present: Representatives Walberg, Kline, Bucshon, Gowdy, 
Woolsey, Payne, Kucinich, and Bishop.
    Staff present: Katherine Bathgate, Press Assistant/New 
Media Coordinator; Casey Buboltz, Coalitions and Member 
Services Coordinator; Ed Gilroy, Director of Workforce Policy; 
Benjamin Hoog, Legislative Assistant; Barrett Karr, Staff 
Director; Ryan Kearney, Legislative Assistant; Donald McIntosh, 
Professional Staff Member; Brian Newell, Deputy Communications 
Director; Krisann Pearce, General Counsel; Molly McLaughlin 
Salmi, Deputy Director of Workforce Policy; Linda Stevens, 
Chief Clerk/Assistant to the General Counsel; Alissa 
Strawcutter, Deputy Clerk; Loren Sweatt, Senior Policy Advisor; 
Joseph Wheeler, Professional Staff Member; Kate Ahlgren, 
Minority Investigative Counsel; Aaron Albright, Minority 
Communications Director for Labor; Jody Calemine, Minority 
Staff Director; John D'Elia, Minority Staff Assistant; Celine 
McNicholas, Minority Labor Counsel; Meredith Regine, Minority 
Labor Policy Associate; Michele Varnhagen, Minority Chief 
Policy Advisor/Labor Policy Director; and Michael Zola, 
Minority Senior Counsel.
    Chairman Walberg. Well, good morning. A quorum being--boy, 
this sounds like the voice from on high. If I could of only had 
this back when I was in the pulpit, right?
    Having said that, I understand that this morning is a 
special morning with a birthday? I think I am a good voice 
today--well, no.
    Happy birthday. Happy birthday----
    Ms. Woolsey. Thank you, very much.
    Chairman Walberg [continuing]. And many more.
    Ms. Woolsey. Thank you.
    Chairman Walberg. Yes. I have been trying to keep up with 
you and the 900 feet down in a mine shaft. You are doing very 
well--very well. It doesn't work.
    So, getting back to the point, a quorum being present, the 
subcommittee will come to order. Good morning. I welcome each 
of you. I welcome our guests and express my appreciation to the 
witnesses for being with us today.
    Thank you, Deputy Administrator Leppink, and--Leppink, let 
me get that right--for participating in our hearing this 
morning.
    Today we will examine the Obama administration's regulatory 
and enforcement agenda under the Fair Labor Standards Act. This 
law affects the lives of an estimated 135 million workers and 
the business decisions of at least 6 million private employers. 
Given the law's broad reach, it is critical we have smart 
policies that enforce the law in a responsible manner, a task 
even more important in the midst of the nation's budget crisis.
    For this reason, many have expressed concerns with 
enforcement policies adopted in recent years. Without a doubt, 
the overwhelming majority of employers want to do the right 
thing; they want to run a successful business and they don't 
want to break the law. Federal resources should educate 
employers about their legal obligations, offer assistance to 
promote compliance, and when necessary, hold bad actors 
accountable.
    However, not only has the administration proposed budget 
cuts to important resources that assist and educate employers, 
it has also taken an adversarial approach to enforcement of the 
law. The bureaucracy is growing, with more staff dedicated to 
punitive enforcement activities and drafting burdensome 
regulations, which means employers will have fewer resources to 
help follow the law and face an ever growing bureaucracy ready 
to catch them when they don't.
    The effect of this decision can be seen in the Department 
of Labor's recent launch of a broad investigation into the 
nation's home building industry. Without basis, the department 
sent letters to numerous home builders warning a comprehensive 
investigation was underway. The department is demanding these 
employers--again, without basis--make available documents 
concerning payroll, subcontractors, and projects that have been 
or may be completed, as well as detailed information regarding 
every supplier of materials associated with their business.
    The department concludes by suggesting this may only be the 
beginning of their intrusive request. Imagine you are an 
employer in an industry that has been shattered by the 
recession and you receive this letter. You have no reason to 
believe you have violated the law, but now you must dedicate 
substantial time and resources to meet the demands of this 
unwarranted investigation.
    When we suggest federal action can have a chilling effect 
on job-creators, this is what we mean. Those who support more 
stimulus spending say that our economy simply lacks demand. 
Well, I think our economy lacks sensible policies and practices 
from Washington, and it is time to demand better.
    If an employer is fortunate enough to avoid a baseless 
investigation they may still face the burden of department's 
regulatory efforts. For example, the department is developing a 
regulation that requires employers to create a written legal 
analysis explaining why certain workers are considered exempt 
under the law. This may stimulate demand for lawyers, but it 
will cost businesses time and money.
    The department is also crafting a proposal to eliminate an 
exemption for certain home care workers. These workers provide 
invaluable services to the elderly and infirm at private 
residences, yet this regulatory effort may increase the cost of 
care, forcing some individuals to abandon their homes and enter 
institutional support. I, along with Representative Lee Terry, 
of Nebraska, and other members of Congress, have raised 
significant concerns about this proposal and will continue to 
as long as these concerns are not adequately addressed.
    Finally, in direct contrast to the demands set on 
employers, the department now releases little public 
information about its own activities, denying Congress and the 
American people an opportunity to properly judge the success or 
failure of its actions. As is always the case, federal policies 
lead to real world consequences. Wasted resources on flawed 
enforcement agenda may deny workers the wages and benefits they 
deserve, and job creators--men and women trying to survive in 
this tough economy and provide a livelihood for their 
employees--face greater uncertainty. At a time when millions of 
Americans are searching for work, this is simply unacceptable.
    In closing, let me say that the Congress and this committee 
have a constitutional responsibility to conduct oversight of 
the executive branch. The administration prides itself on 
running the most open and transparent government in modern 
history. However, responses to basic congressional inquiries 
are routinely delivered late, and when they do arrive they are 
largely incomplete.
    I hope the administration will abandon this obstructionist 
course and begin to work with Congress on policies that benefit 
the American people.
    I am dedicated to that work, Administrator Leppink, and I 
am hopeful that you are, too. I look forward to working closely 
with you in the weeks and months ahead.
    With that, now I recognize the senior Democrat member of 
this committee, Ms. Woolsey, for her opening remarks.
    [The statement of Chairman Walberg follows:]

           Prepared Statement of Hon. Tim Walberg, Chairman,
                 Subcommittee on Workforce Protections

    Good morning. I would like to welcome our guests and express my 
appreciation to the witnesses for being with us today. Thank you, 
Deputy Administrator Leppink, for participating in our hearing this 
morning.
    Today, we will examine the Obama administration's regulatory and 
enforcement agenda under the Fair Labor Standards Act. This law affects 
the lives of an estimated 135 million workers and the business 
decisions of at least six million private employers. Given the law's 
broad reach, it is critical we have smart policies that enforce the law 
in a responsible manner--a task even more important in the midst of the 
nation's budget crisis.
    For this reason, many have expressed concerns with enforcement 
policies adopted in recent years. Without a doubt, the overwhelming 
majority of employers want to do the right thing; they want to run a 
successful business and they don't want to break the law. Federal 
resources should educate employers about their legal obligations, offer 
assistance to promote compliance, and when necessary, hold bad actors 
accountable.
    However, not only has the administration proposed budget cuts to 
important resources that assist and educate employers, it has also 
taken an adversarial approach to enforcement of the law. The 
bureaucracy is growing with more staff dedicated to punitive 
enforcement activities and drafting burdensome regulations, which means 
employers will have fewer resources to help follow the law and face an 
ever growing bureaucracy ready to catch them when they don't.
    The effect of this decision can be seen in the Department of 
Labor's recent launch of a broad investigation into the nation's home 
building industry. Without basis, the department sent letters to 
numerous home builders warning a ``comprehensive'' investigation was 
underway. The department is demanding these employers--again, without 
basis--make available documents concerning payroll, subcontractors, and 
projects that have been or may be completed, as well as detailed 
information regarding every supplier of materials associated with their 
business.
    The department concludes by suggesting this may only be the 
beginning of their intrusive request. Imagine you're an employer in an 
industry that has been shattered by the recession, and you receive this 
letter. You have no reason to believe you've violated the law but now 
you must dedicate substantial time and resources to meet the demands of 
this unwarranted investigation.
    When we suggest federal action can have a chilling effect on job-
creators, this is what we mean. Those who support more stimulus 
spending say that our economy simply lacks demand. Well, I think our 
economy lacks sensible policies and practices from Washington, and it 
is time to demand better.
    If an employer is fortunate enough to avoid a baseless 
investigation, they may still face the burden of the department's 
regulatory efforts. For example, the department is developing a 
regulation that requires employers to create a written legal analysis 
explaining why certain workers are considered exempt under the law. 
This may stimulate demand for lawyers, but it will cost businesses time 
and money.
    The department is also crafting a proposal to eliminate an 
exemption for certain home care workers. These workers provide 
invaluable services to the elderly and infirm at private residences, 
yet this regulatory effort may increase the cost of care--forcing some 
individuals to abandon their homes and enter institutional support. I, 
along with Rep. Lee Terry of Nebraska and other members of Congress, 
have raised significant concerns about this proposal and we will 
continue to as long as those concerns are not adequately addressed.
    Finally, in direct contrast to the demands set on employers, the 
department now releases little public information about its own 
activities, denying Congress and the American people an opportunity to 
properly judge the success or failure of its actions.
    As is always the case, federal policies lead to real world 
consequences. Wasted resources on a flawed enforcement agenda may deny 
workers the wages and benefits they deserve. And job creators--men and 
women trying to survive in this tough economy and provide a livelihood 
for their employees--face greater uncertainty. At a time when millions 
of Americans are searching for work, this is simply unacceptable.
    In closing, let me say that the Congress and this committee have a 
constitutional responsibility to conduct oversight of the executive 
branch. The administration prides itself on running the most open and 
transparent government in modern history. However, responses to basic 
congressional inquiries are routinely delivered late and when they do 
arrive, they are largely incomplete.
    I hope the administration will abandon this obstructionist course 
and begin to work with Congress on policies that benefit the American 
people. I am dedicated to that work Administrator Leppink, and I am 
hopeful that you are too. I look forward to working closely with you in 
the weeks and months ahead.
    With that, I will now recognize the senior Democrat member of the 
subcommittee, Ms. Woolsey, for her opening remarks.
                                 ______
                                 
    Ms. Woolsey. Thank you, Mr. Chairman. Mr. Chairman, the 
Fair Labor Standard Act was passed nearly 80 years ago to 
ensure that working people earn a fair day's pay for a fair 
day's work.
    In the decades leading up to this law, working people were 
at the mercy of their employer, with little leverage to improve 
their working conditions, while employers had few limitations 
on treatment of employees. Policies we take for granted today, 
such as the minimum wage, did not exist before Congress passed 
the FLSA. Since then, the rights guaranteed under this 
groundbreaking law--among them, the 40-hour work week, the 
minimum wage, and compensation for overtime--have helped 
millions of Americans improve their standard of living while 
providing the appropriate level of balance between workers' 
rights and the rights of the employer.
    In order for the law to work it has to be enforced. I 
applaud the Department of Labor for stepping up its enforcement 
of the FLSA and I reject the notion that doing so somehow hurts 
employers. As we know, the prior administration decreased the 
ability of the department to enforce these and other basic 
protections for working people. When President Obama came into 
office, for instance, the number of staff at the department's 
Wage and Hour Division was at a record low; the administration 
has since hired 300 investigators to ensure that workers are 
paid fairly and good employers are not put at a competitive 
disadvantage.
    Since many of the workers covered by the FLSA are 
vulnerable to economic upheaval and may depend on unemployment 
compensation it is especially important to enforce the law 
during these difficult economic times.
    Mr. Chairman, imagine losing your job, going to the 
unemployment office, being told you don't qualify because, for 
example, you were considered an independent contractor and your 
employer didn't make payments into the unemployment insurance 
system on your behalf. This happens. Unemployment can be denied 
if an employer has misclassified that employee.
    The consequences of misclassifying an employee go beyond 
unemployment. Workers improperly classified as independent 
contractors aren't covered by workers' compensation, overtime 
protections, family and medical leave, and the right to 
organize and bargain collectively.
    In 2005 a Bureau of Labor Statistics survey found that over 
10 million United States workers--7.4 percent of the 
workforce--had been classified, rightly or wrongly, as 
independent contractors. In the year 2000 a Department of Labor 
study found that 10 to 30 percent of companies nationwide had 
misclassified their employees.
    Misclassification cheats workers and it cheats taxpayers. 
According to a 2009 report by the Government--well, the GAO, 
misclassification costs the federal government $2.7 billion in 
lost revenue because employers do not pay payroll or 
unemployment insurance taxes for these workers.
    Mr. Chairman, I recently reintroduced H.R. 3178, the 
Employee Misclassification Prevention Act, which would be--
would make it a violation of the record-keeping provisions of 
the Fair Labor Standards Act to make an inaccurate 
classification. It would also ensure workers have the 
protections and benefits that they are entitled.
    The misclassification of workers is one of the most odious 
forms of wage theft, and I look forward to working with you to 
correct this. Because the bottom line, Mr. Chairman, is this: 
Responsible employers who comply with the minimum wage and 
overtime laws are placed at a great disadvantage when we allow 
their law-breaking competitors to undercut them on labor costs.
    In closing, I would like to remind my colleagues how 
important the FLSA has been for our economy and our way of life 
as Americans. It has provided the appropriate balance between 
the need to make profits and workers' rights.
    The last thing we want to do is slip backwards to the days 
when we did not have clear rules that protect both employers 
and workers. We should oppose any attempt to undermine the FLSA 
and work together to strengthen it.
    And I thank you, and I look forward to this hearing and the 
testimony from today's witnesses. With that, I yield back.
    [The statement of Ms. Woolsey follows:]

      Prepared Statement of Hon. Lynn C. Woolsey, Ranking Member,
                 Subcommittee on Workforce Protections

    Mr. Chairman, the Fair Labor Standards Act (FLSA) was passed nearly 
80 years ago to ensure that working people [are able to] earn a fair 
day's pay for a fair day's work. In the decades leading up to this law, 
working people were often at the mercy of their employer, with little 
leverage to improve their working conditions. Employers had few 
limitations on treatment of employees.
    Policies we take for granted today, such as the minimum wage, did 
not exist before Congress passed the FLSA. Since then, the rights 
guaranteed under this groundbreaking law--among them the 40 hour 
workweek, the minimum wage, and compensation for overtime--have helped 
millions of Americans improve their standard of living and provide the 
appropriate level of balance between workers' rights and the rights of 
employers.
    In order for the law to work it has to be enforced. I applaud the 
Department of Labor for stepping up its enforcement of the FLSA and 
reject the notion that doing so somehow hurts employers.
    As we know, the prior Administration decreased the ability of the 
Department to enforce these and other basic protections for working 
people. When President Obama came into office, for instance, the number 
of staff at the Department's Wage and Hour Division was at a record 
low. The Administration has since hired 300 investigators to ensure 
that workers are paid fairly and good employers are not put at a 
competitive disadvantage.
    Since many of the workers covered by the FLSA are vulnerable to 
economic upheaval and may depend on unemployment compensation, it is 
especially important to enforce the law during these difficult economic 
times.
    Imagine losing your job and going to the unemployment office and 
being told you don't qualify because for example, you were considered 
an independent contractor and your employer didn't make payments into 
the unemployment insurance system on your behalf. This happens--
unemployment can be denied if an employer has misclassified an 
employee.
    The consequences of misclassifying an employee go beyond 
unemployment. Workers improperly classified as independent contractors 
instead of employees aren't covered by workers' compensation, minimum 
wage and overtime protections, Family and medical leave, and the right 
to organize and bargain collectively.
    In 2005, a Bureau of Labor Statistics survey found that over 10 
million U.S. workers--7.4 percent of the workforce--had been 
classified, rightly or wrongly, as independent contractors. In 2000, a 
Department of Labor study found that 10 to 30 percent of companies 
nationwide had misclassified their employees. Misclassification cheats 
workers and taxpayers. According to a 2009 report by the Government 
Accountability Office, misclassification cost the federal government 
$2.72 billion in lost revenue because employers do not pay payroll or 
unemployment insurance taxes for these workers.
    Mr. Chairman, I recently re-introduced H.R. 3178, the Employee 
Misclassification Prevention Act, which would make it a violation of 
the recordkeeping provisions of the Fair Labor Standards Act to make an 
inaccurate classification. It would also ensure workers have the 
protections and benefits that they are entitled. The misclassification 
of workers is one of the most odious forms of wage theft and I look 
forward to working with the Chairman to correct it.
    The bottom line, Mr. Chairman is this:
    Responsible employers who comply with minimum wage and overtime 
laws are placed at a disadvantage when we allow their law breaking 
competitors to undercut them on labor costs.
    In closing, I'd like to remind my colleagues how important the FLSA 
has been for our economy and our way of life. It has provided the 
appropriate balance between the need to make profits and workers' 
rights. The last thing we want to do is slip backwards to the days when 
we did not have clear rules that protect both employers and workers. We 
should oppose any attempt to undermine the FLSA and work together to 
strengthen it.
    Thank you and I look forward to hearing testimony from today's 
witnesses.
                                 ______
                                 
    Chairman Walberg. I thank the gentlelady.
    Pursuant to Committee Rule 7c, all members will be 
permitted to submit written statements to be included in the 
permanent hearing record, and without objection the hearing 
record will be open for 14 days to allow questions for the 
record, statements, and extraneous material referenced during 
the hearing to be submitted for official hearing record.
    We have two distinguished panels today, and I would like to 
begin by introducing the first panelist, deputy administrator 
of the Wage and Hour Division, Nancy Leppink.
    We appreciate you being here. Before you begin your 
testimony, just go through the process that you are probably 
well aware of--the three lights there. The green light, you 
have 5 minutes to present; the yellow light comes on, a minute 
remaining; when the red light is there, wrap up as quickly as 
you can. We will have 5 minutes of questioning from each of our 
members on the committee, and a lot of information can get out 
then.
    But thank you for being with us this morning. And so I 
recognize Ms. Leppink for her testimony.

 STATEMENT OF NANCY J. LEPPINK, DEPUTY ADMINISTRATOR, WAGE AND 
            HOUR DIVISION, U.S. DEPARTMENT OF LABOR

    Ms. Leppink. Good morning, Chairman Walberg, Ranking Member 
Woolsey, and members of the subcommittee. Thank you for the 
invitation to testify today.
    During these difficult economic times it is important to 
remember that the Fair Labor Standards Act was enacted in 1938, 
in the midst of the Great Depression, when unemployment was at 
19 percent. Congress recognized the critical need to establish 
a minimum wage, overtime compensation, and child labor 
standards for America's workers, and the need to level the 
competitive playing field for employers.
    Together, the minimum wage and overtime compensation 
requirements provide a basic level of economic security to our 
nation's workers. Enforcement of these protections also 
eliminates an unfair competitive advantage unscrupulous 
employers gain from paying workers substandard wages.
    The act's protections are also essential to a healthy 
economy. The overtime compensation requirement spurs job 
creation by encouraging employers to hire additional employees 
instead of working a few employees long hours; the child--the 
act's child labor provisions were also included by Congress 
because Congress recognized that when children work they should 
do so in safe conditions. One child injured or killed while 
working is one too many.
    The Wage and Hour Division is charged with the enforcement 
of the employment laws on its watch for over 130 million 
workers in 7.3 million workplaces. Every year, the division 
receives tens of thousands of complaints. Violations run the 
gamut, from employers paying significantly less than minimum 
wage; not paying overtime for 60, 70, 80 hours or longer work 
weeks; and simply not paying their workers at all.
    Secretary Solis made the rebuilding of the division into a 
modern, effective law enforcement agency a priority. Over the 
last 2 years, the division has hired and trained 300 new 
investigators and we have added and upgraded equipment and 
technology that has increased our effectiveness and efficiency.
    With its directed enforcement actions, the division is 
focusing on industries with a prevalence of low-wage and 
vulnerable workers who often don't file complaints, and 
because--and based on available data and evidence have 
significant levels of noncompliance. Engaging in directed 
enforcement actions is a more efficient use of our resources 
and has a greater impact on compliance.
    In addition, providing compliance assistance to employers 
is an important part of an effective enforcement strategy, and 
the division staff stand ready, willing, and able to provide 
that assistance. In the past year the Wage and Hour Division 
has conducted nearly 900 outreach events, where the target 
audience was employers. Making reliable and acceptable 
information available to employers is critical to ensuring that 
workers receive their proper wages.
    The results of these efforts speak volumes. In fiscal year 
2011, Wage and Hour collected almost $225 million in back wages 
for more than 275,000 of the nation's workers, which is the 
largest amount collected in a single fiscal year in the 
division's history.
    These back wages demonstrate that the division has become a 
stronger, more effective law enforcement agency. Furthermore, 
these back wages represent more than $225 million in the 
pockets of America's workers, a return of their rightfully 
earned wages which they, in turn, will spend on goods and 
services, stimulating our economy and helping to create jobs.
    Our work and its result, however, is more than about 
numbers. It is about the cable installer in Minnesota who was 
being paid less than the minimum wage and facing foreclosure on 
his home. He was able to pay his mortgage when he received the 
$3,000 in back wages he was owed. It is about the construction 
worker from South Dakota who was able to buy back, with the 
$5,500 in back wages he received, his wife's and his wedding 
rings they pawned to pay their rent to avoid eviction.
    Our child labor enforcement also impacts lives--young 
lives. In 2009, Wage and Hour found egregious child labor 
violations in the blueberry fields of New Jersey, North 
Carolina, and Michigan.
    In addition to assessing penalties, division staff met with 
employer associations, farm groups, community organizations, 
and state and local agencies to be sure that employers 
understood their obligations and workers understood their 
rights. When the Wage and Hour Division went back into the 
blueberry fields in 2010 there were no children working 
unlawfully in those fields.
    These workers' stories are a testament to the fact that the 
FLSA stands for how as a nation we value work and the 
responsibility and opportunity that it affords our citizens. It 
is through such laws that societies recognize that value and 
worth of human effort and provide their members with the means 
to support and nurture strong families, and it is an 
affirmation of these American values that the Fair Labor 
Standards Act has stood the test of time even as the workplace 
has changed many times over.
    Thank you for the opportunity to testify today. I am ready 
to answer your questions.
    [The statement of Ms. Leppink follows:]

   Prepared Statement of Hon. Nancy J. Leppink, Deputy Wage and Hour 
    Administrator, Wage and Hour Division, U.S. Department of Labor

    Good morning Chairman Walberg, Ranking Member Woolsey, and Members 
of the Subcommittee. Thank you for the invitation to testify at this 
hearing on the Fair Labor Standards Act, a law of critical importance 
to our nation's workers, businesses, and economy.
    The Fair Labor Standards Act (FLSA) establishes minimum wage, 
overtime compensation, recordkeeping, and child labor standards 
affecting employees in the private sector and in Federal, State, and 
local governments. As the agency charged with administering and 
enforcing the protections afforded by the Act, the Wage and Hour 
Division (WHD) is uniquely situated to attest to the public benefit of 
the Act and the necessity for strong enforcement of its provisions.
    During these difficult economic times, it is important to remember 
what we faced as a nation when the FLSA was enacted in 1938. We were in 
the midst of the Great Depression. Unemployment was at 19 percent. In 
response to those circumstances, far worse than we are experiencing 
now, Congress recognized the critical need to establish minimum wage, 
overtime compensation, and child labor standards for America's workers 
and the need to level the competitive playing field for their 
employers.
    We all know, just as Congress did in 1938, that workers who work 
hard and play by the rules--responsibly fulfilling their roles as 
productive members of society--should earn enough to be able to support 
themselves and their families. The minimum wage helps meet that 
fundamental societal good by providing a wage floor that ensures 
workers receive fair compensation for their labor. Being paid at least 
the minimum wage makes the difference between living with the hope of 
sharing in the American dream or not. Similarly, the overtime 
compensation requirement is in part intended to guarantee that 
employees are fairly compensated for the burdens of working long hours 
for their employers. Together, the minimum wage and overtime 
compensation requirements help provide a basic level of economic 
security to our nation's workers.
    In addition to being necessary for the well-being of workers and 
their families, the FLSA's protections are also essential to a healthy 
economy. The overtime compensation requirement spurs job creation. It 
is intended to spread available employment opportunities by encouraging 
employers to hire more workers instead of working a few employees long 
hours. This is particularly important in a time of 9.1 percent 
unemployment. Further, the FLSA's protections allow workers to earn 
enough to purchase the goods and services necessary to support 
themselves and their families. That purchasing power in turn enables 
other workers to earn enough to purchase goods and services, thus 
sustaining the efficient functioning of our economy. Enforcement of 
these protections also eliminates an unfair competitive advantage 
unscrupulous employers gain from paying workers substandard wages in 
order to increase profits or underbid law-abiding competitors, helping 
to ensure a level playing field throughout the economy.
    The Act's basic requirements of a minimum wage and overtime 
compensation are no less important today than they were in 1938. Every 
year, the WHD receives tens of thousands of complaints about FLSA 
violations and, with our current economic difficulties, the number of 
complaints has increased.\1\ The complainants work in all industries 
and in almost all occupations. The violations run the gamut from 
employers paying significantly less than the minimum wage, to failing 
to pay overtime for hours worked over 40 in a workweek, to paying 
employees only in tips they receive from customers, to failing to make 
payroll or to pay workers at all, to making illegal deductions from 
wages, to misapplying exemptions to the Act's minimum wage and overtime 
protections. The impact these violations have on the welfare of the 
nation's workforce is significant. An employer's failure to pay his 
workers the minimum wage may mean a dishwasher cannot buy food for his 
or her family. An employer's improper classification of her employees 
as exempt from overtime compensation may mean a customer service 
representative is unable to spend time meeting the needs of her family 
because she is working 60 or more hours a week with no overtime pay 
just to keep her job.
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    \1\ In FY 2008, the WHD received 21,558 FLSA complaints. That 
number rose to 26,376 in FY 2009 and 32,916 in FY 2010, and remained 
high at 28,595 in FY 2011.
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    The Act's child labor provisions were included because Congress 
recognized that, when young people work, they should do so in safe 
conditions that do not jeopardize their health, well-being, or 
educational opportunities. Unfortunately, even today there are still 
employers who continue to improperly hire children to work in hazardous 
conditions. The absence of a private right of action to address 
oppressive child labor makes this agency's role in safeguarding young 
workers all the more important. Even with current laws on the books, 
young workers are still killed or injured on the job, and one child 
injured on the job is one too many. In the last two years, WHD has 
investigated cases involving the deaths of three young workers employed 
in two different grain storage facilities. In May 2009, a 17-year-old 
worker was killed at an Omaha meat rendering plant while operating a 
forklift in violation of the FLSA. Increasing compliance with the child 
labor provisions of the FLSA is a cornerstone of the agency's 
responsibilities.
    In addition to the Fair Labor Standards Act, the Division is also 
charged with administering and enforcing a number of other federal 
labor and employment laws, including those covering family and medical 
leave, migrant farm work, the terms and conditions of employment of 
certain temporary non-immigrant workers, and the wages and benefits 
received by construction and service workers fulfilling government 
contracts. These critical protections provided by Congress cannot be 
fully realized in the absence of the effective enforcement of these 
laws by the Department.
    The Division's longstanding mission is to promote and achieve 
compliance with employment standards to protect and enhance the welfare 
of the Nation's workforce. In an effort to rebuild the Division's 
enforcement capacity, WHD hired 300 new investigators beginning in late 
in FY 2009. The WHD now has more than 1,000 investigators, a 40% 
increase after a low of 731 in 2008, who are charged with enforcing 
these protections for over 130 million workers in 7.3 million 
workplaces. Secretary Solis made building the WHD into a modern, 
effective law enforcement agency a priority because of the magnitude of 
this charge--a goal I was happy to take up when I arrived at the 
Department a little over two years ago. In addition to hiring 300 new 
investigators, we have made every effort to upgrade the technology and 
equipment our employees use in order to increase their effectiveness 
and efficiency. Equipment such as Blackberries, laptops, and portable 
printers, for example, have given our investigators the ability to 
access and transmit information remotely and to engage in 
communications necessary to conduct an investigation in the field, 
without having to return to the office. Similarly, an investigator 
equipped with a wand scanner is able to readily copy documents and 
other evidence and to thus reduce the number of times the investigator 
may have to visit an employer's worksite during the course of an 
investigation.
    In addition to ensuring that our investigators are equipped with 
the technology and equipment needed to be an effective and productive 
investigator, we are using all of the enforcement tools available under 
the law to make sure we are doing an effective job of enforcing the 
law. This means, for example, that we are fully utilizing all of the 
remedies provided by Congress. We are also making more transparent the 
results of our enforcement efforts, which will help to further achieve 
compliance both within and across industries by helping employers and 
employees understand their obligations and rights under the law.
    We are increasingly sharing information about our investigations 
with law enforcement agencies, which is particularly important with 
respect to our efforts to combat the violations of our laws that occur 
because of employees who are misclassified as independent contractors 
or other non-employees. This sort of employee misclassification is a 
serious and, according to all available evidence, growing problem. When 
employers improperly classify their workers, it deprives those 
employees of many of the rights and benefits they are legally entitled 
to, including the minimum wage and overtime. Misclassification also has 
a significant negative impact on both federal and state revenues 
because, when employees are misclassified, it often means that 
employers are not meeting their employment tax, including unemployment 
insurance, and workers compensation obligations. Misclassification also 
makes it difficult for law-abiding employers to compete--and no 
employer should have to choose between success and obeying the law.
    For these reasons, the Administration is committed to working to 
end employee misclassification. The Department is a part of a multi-
agency Misclassification Initiative that will strengthen and coordinate 
Federal and State efforts to enforce violations of the law that result 
from employee misclassification. As an important step in this 
Initiative, on September 19 of this year the Secretary signed a 
Memorandum of Understanding (MOU) with the IRS that will allow us to 
share information about our investigations with that agency so that it 
may follow up to make sure that the employers we have found in 
violation of our laws have paid the proper employment taxes. Similarly, 
the WHD also entered into MOUs with several state labor agencies, 
including agencies in Minnesota, Missouri, Utah, Washington, Illinois, 
Connecticut, Montana, Hawaii, Maryland, and Massachusetts. These MOUs 
with the states allow us to share information about our investigations 
and coordinate misclassification enforcement when appropriate. These 
agreements mean that all levels of government are working together to 
solve this critical problem.
    One of the most important enforcement tools we have as an 
enforcement agency is our ability to conduct directed investigations. 
Too many employees are reluctant to complain, afraid that they will 
lose their jobs or suffer other retaliation if they do. Others are 
simply unaware of the law's protections and of their right to be paid 
the minimum wage and overtime compensation. Furthermore, the WHD will 
never have the resources to address every complaint it receives, let 
alone investigate every employer who may not be complying with the law. 
For these reasons, the WHD is putting more of its resources into 
directed national, regional and local enforcement initiatives and, with 
a focus on industries with a prevalence of low wage and vulnerable 
workers, strategically targeting industries when available data and 
evidence tell us that there are significant levels of non-compliance in 
those industries. This is not a new strategy for the WHD, but we have 
certainly increased the share of our resources that we put toward it. 
Engaging in directed enforcement initiatives instead of relying so 
heavily on individual complaints the agency receives is a more 
efficient use of resources and has a greater impact on compliance both 
in general and in targeted industries.
    In addition to its enforcement efforts, the WHD has always 
considered providing information to employers and employees about their 
responsibilities and their rights an important part of an effective 
strategy for achieving compliance. The Division's staff is available to 
provide assistance to employers, whether it is in person, over the 
phone, or by e-mail, to determine whether they are in compliance and 
what steps they should take to achieve compliance. In the past year, 
WHD has conducted nearly 900 outreach seminars, conferences, speeches, 
symposiums, panel discussions, and presentations where the target 
audience is geared to employers, employer representatives, human 
resource professionals, and/or employer associations. The WHD also 
makes guidance in many forms available to all employers and employees 
on our website (www.dol.gov/whd). This guidance includes fact sheets, 
field assistance bulletins, e-laws, and Administrator Interpretations. 
In whatever form the guidance takes, the WHD endeavors to find ways to 
assist employers and employees and to help them understand how the laws 
the Division enforces apply to their situations. Assisting businesses 
in understanding and complying with their obligations under the FLSA is 
a critical strategy for ensuring that workers receive their proper 
wages from the beginning of their employment--a goal I think we all 
share.
    The results of all of these efforts speak volumes. In Fiscal Year 
2011, the WHD collected $224,844,870 in back wages for this nation's 
workers, which is the largest amount collected in a single fiscal year 
in the Division's history, exceeding the Fiscal Year 2003 amount of 
$212 million, which included several very large multi-million dollar 
settlements, and the Fiscal Year 2007 amount of $220 million, which 
included a $32 million settlement with a large retailer. These back 
wages, collected on behalf of 275,472 workers, including almost 90,000 
who had not been paid the minimum wage for all of the hours they had 
worked, demonstrate that the WHD has become a stronger, more effective 
law enforcement agency. These results are just one demonstration of the 
extraordinary capability and commitment of the WHD's employees, who 
endeavor every day to ensure our nation's workers receive the 
protections provided them under the FLSA. Furthermore, these back wages 
represent almost $225 million dollars in the pockets of America's 
workers, a return of their rightfully earned wages that they will 
directly spend on goods and services, stimulating our economy and 
helping to create new jobs.
    Our work, and its results, however, is about more than numbers. It 
is about the people we have helped. Because we focus on low wage and 
vulnerable workers, the amount we collect per individual may seem small 
but it can make all the difference for that worker and his or her 
family. For example, because of one of our investigations, a cable 
installer in Minnesota who had been paid less than minimum wage by his 
employer and was facing foreclosure of his home was finally able to pay 
his mortgage when he received the $3,000 in back wages he was owed. 
Because of one of our investigations in South Dakota, a construction 
worker's $5,500 in back wages received meant that he and his wife were 
able to buy back the wedding rings they had to pawn in order to pay 
their rent to avoid eviction.
    Our child labor enforcement also makes a real difference. In 2009, 
WHD found egregious child labor and other labor-related violations in 
the blueberry fields of New Jersey, North Carolina, and Michigan. In 
addition to assessing penalties, WHD took a comprehensive approach to 
ending the dangerous practices it had uncovered. Our staff met with 
employer associations, farm groups, community organizations, and state 
and local agencies to be sure that employers understood their 
obligations and that workers understood their rights. When WHD went 
back into the blueberry fields in 2010, there were no children working 
unlawfully in those fields. All of us at the Department are proud of 
our work to help American's children remain in safe working conditions.
    These workers are a testament to the fact that the FLSA stands for 
how, as a nation, we value work and the responsibilities and 
opportunities that it affords our citizens. The Act's minimum wage and 
overtime laws codify the value of a fair day's pay for a fair day's 
work. It is through such laws that societies recognize the value and 
worth of human effort, and provide their members the means to support 
and nurture strong families. And it is an affirmation of these American 
values that the FLSA has stood the test of time, despite all of the 
changes that have taken place over the past 73 years. Thank you again 
for the opportunity to testify today. I am happy to answer your 
questions.
                                 ______
                                 
    Chairman Walberg. Thank you. I appreciate that, and I yield 
myself time for questioning to begin.
    There is no doubt that health care and Medicare and 
Medicaid expenses will likely increase a result of the 
potential to narrow the companionship exemption. For example, 
if this were to go into place, seniors and their families would 
be less able to afford home care, which is typically paid not 
by insurance but by families themselves, caring for their loved 
ones. This trend would require a greater commitment of federal 
spending to cover seniors living in institutions.
    Has the Department of Labor considered any increased 
Medicare or Medicaid expense by the federal government in 
considering this, and have you consulted with the Department of 
Health and Human Services?
    Ms. Leppink. Well, first of all, let me make clear that the 
regulation--the proposed regulation on the department's 
regulatory agenda is still under consideration, and so 
consequently, we are continuing to consider many of the issues 
that you have just mentioned. But yes, in fact, we have 
consulted with a whole variety of stakeholders, including 
Medicare and Medicaid, regarding the impact of any of the 
proposals that we are considering.
    Chairman Walberg. How close are we to concluding that 
discussion, that study?
    Ms. Leppink. I am not really in a position to say because 
it is not always totally in my hands, but the rule was 
submitted to OMB--the Office of Budget and Management--this 
week, so the consideration will be ongoing now in that form.
    Chairman Walberg. Okay.
    Recently, the Wage and Hour Division began an information 
request on large residential construction companies. While 
these industries and their employees are struggling to make a 
living the Wage and Hour Division is hanging the threat of 
subpoenas and lawsuits over their head and demanding 
information on their contractors and subcontractors that, 
frankly, there are really--they aren't required to keep.
    Have you taken into account the record lows the industry is 
facing and the chilling economic effect on these job creators?
    Ms. Leppink. Chairman Walberg, first of all, conducting 
direct investigations is not a new enforcement strategy for the 
Wage and Hour Division. The division has engaged in directed 
investigations for many years.
    I cannot speak to the specifics of an open investigation, 
but I can assure you that the construction industry is an 
industry with violation levels amongst the highest that Wage 
and Hour sees. In fiscal year 2011 the Wage and Hour Division 
collected over $39 million for 3,200 workers in the 
construction industry. In the residential construction industry 
alone the Wage and Hour Division collected over $4 million in 
back wages for nearly 2,500 employees.
    All of our strategic enforcement initiatives are data-
driven and based on evidence that there are significant 
compliance problems in the targeted industry.
    Chairman Walberg. You know, I hear that, and certainly that 
is the responsibility of Wage and Hour----
    Ms. Leppink. Right.
    Chairman Walberg [continuing]. But the question is, the 
requests that are being posed to these companies that are 
asking for material and information that they have not been 
required to keep.
    And I guess the concern is, there, that the largest ones 
may understand, well, we will take that on; we have the lawyers 
to do it, or we have the knowledge of what we are expected and 
what we aren't. There are plenty of others that don't have 
that, and now they are put in the situation where the large and 
strong arm of government has come down and said, ``You must 
supply this,'' when, in fact, they are not required. That is a 
concern.
    Ms. Leppink. Chairman Walberg, employers are required by 
law to maintain payroll records and other employment records. 
And payroll records are often critical to determining whether 
an employer has complied with the minimum wage and overtime.
    It is a regular practice of investigators--Wage and Hour 
investigators--to ask these--request these documents as part of 
a Wage and Hour investigation. And furthermore, the Wage and 
Hour Division has an obligation to request documents that it 
thinks are critical to conducting and effective enforcement 
action.
    Chairman Walberg. In the few remaining moments here, let me 
ask a final question. Can you give this committee detailed 
information on the past 2 years' enforcement data? How many 
cases were examined, how many millions of back wages were won, 
and how many employees benefited from this?
    Ms. Leppink. Yes, I can. Some of them I could give to you 
right now, if you would like, but I can also have my staff 
supply them for you.
    Chairman Walberg. I appreciate that. Try to keep to my own 
rules. I won't violate them.
    Ms. Leppink. Okay.
    Chairman Walberg. And I will turn the--recognize the 
ranking member of this committee for her questions.
    Ms. Woolsey. So, just to be clear, all employers--every 
employer--is required by law to keep wage and hour records?
    Ms. Leppink. All employers who are covered by the Fair 
Labor Standards Act. Not all employers are covered by the Fair 
Labor Standards Act, but those that are are required to 
maintain payroll records.
    Ms. Woolsey. Okay. Who wouldn't be covered by the Fair 
Labor Standards Act?
    Ms. Leppink. Well, there is a whole variety of--some of it 
is based on just the amount of money that they make, you know, 
what is their income. Some of it is based on, so, it is size. 
Some of it is based on whether their employees are actually 
engaged in interstate commerce.
    Ms. Woolsey. So once they reach that threshold----
    Ms. Leppink. Right. Yes.
    Ms. Woolsey [continuing]. They know they are required to do 
this.
    Ms. Leppink. Yes.
    Ms. Woolsey. So it should not be a surprise. Actually, they 
would be breaking the law by not keeping records.
    Ms. Leppink. Correct.
    Ms. Woolsey. All right.
    Okay, ask I mentioned in my--I am changing the subject now, 
thank you--in my opening statement, I am very concerned about 
the misclassification of workers. I know that the Department of 
Labor recently signed a memorandum of understanding with the 
IRS and several states, actually, that are aimed at improving 
enforcement efforts surrounding misclassification. Tell us, if 
you can, more about what you hope to accomplish with these 
agreements, and, you know, what does this mean to state and 
local government budgets when employees are misclassified?
    Ms. Leppink. Well, misclassification is a serious and 
growing issue. It is an issue both for the federal government 
and for state governments. I dealt with and worked with the 
issue of misclassification as general counsel for the 
Department of Labor and Industry in Minnesota, and have worked 
with it here with the Department of Labor.
    The seriousness of misclassification of workers or of 
employees as independent contractors is felt by businesses who 
comply with the law who are confronted with competitors who can 
illegally reduce their labor costs by up to 30 percent by 
misclassifying their workers. It is a cost to workers because 
it denies them benefits, such as minimum wage and overtime, 
workers' compensation, unemployment insurance, and also, of 
course, obligates them to carry the payroll tax burden that 
would otherwise be carried by their employer. And of course, it 
is a difficult problem for state and federal revenues because, 
of course, if people are not paying their payroll taxes then 
those revenues are not going in to state coffers.
    These MOUs are actually a recognition that in order to 
tackle this issue we need to be working collaboratively with 
our state partners because their issues are our issues; our 
issues are their issues. And so consequently, the MOUs allow 
for us to share information and to have conversations about 
collaborating on various enforcement actions that we would be 
taking that would affect their particular state. It is a very 
important step, particularly with the idea that, you know, we 
will be having ongoing conversations about how we are going to 
tackle this issue.
    Ms. Woolsey. So basically, everybody loses when employees 
are misclassified, particularly the taxpayers who have to make 
up the difference?
    Ms. Leppink. Correct.
    Ms. Woolsey. Okay. As our chair has worried, and worried to 
a degree that we need to answer this--the Wage and Hour 
Division, he worries, has adopted a more punitive agenda. And 
we need you to tell us one more time to ask--would you walk us 
through what kind of assistance the department actually 
provides to assist employers with their compliance? It is just 
not one-sided.
    Ms. Leppink. Oh, compliance assistance for employers is 
absolutely critical to effectively enforcing the law. We have 
an obligation to provide employers with compliance assistance. 
We do so in any number of ways.
    We have a very robust website that provides information in 
all kinds of forms, whether their field assistance bulletins, 
facts sheets, we have an e-law provision that literally is sort 
of an iterative process that walks employers through some of 
our more knotty provisions. We also, of course, are available. 
We have district offices--52 district offices across the 
country that are available to deal with, you know, the person 
face to face, if necessary, if not on the telephone.
    Plus the fact, we--as I indicated, in this fiscal year 2011 
we did over 900 presentations for employers on the issues that 
they wanted to hear about. And that doesn't include the 
conversations that we had when we were dealing with violations 
in the blueberry fields. So we have ongoing relationships with 
employers.
    Ms. Woolsey. So if the chairman and I, or I, invited you to 
our district, somebody--would you present--give one of these 
presentations to our employers?
    Ms. Leppink. Absolutely.
    Ms. Woolsey. Thank you.
    Chairman Walberg. I recognize the chairman of the full 
committee, the gentleman from Minnesota, Mr. Kline.
    Mr. Kline. Thank you, Mr. Chairman.
    And thank you, Ms. Leppink, for being here. I am always 
astonished when somebody voluntarily chooses to leave the great 
state of Minnesota for any reason. [Laughter.]
    Ms. Leppink. Particularly when I lived in your district.
    Mr. Kline. But here you are. Here you are. And nobody 
should ever want to leave that district.
    Chairman Walberg. Was that the reason? [Laughter.]
    Ms. Leppink. Of course not.
    Chairman Walberg. Only kidding.
    Mr. Kline. Thank you for that vote of confidence. As the 
former chair of the subcommittee, that is----
    [Laughter.]
    Mr. Kline. I heard you say, and I had noticed in some 
preparatory material here that you have increased the size of 
the department by some 300 investigators, and you underscored 
that very proudly. And perhaps that is necessary, but I would 
argue that at a time when we are running huge, huge deficits 
you have added 300 more government employees and we are having 
to borrow 40 cents of that of every dollar to pay them. So I am 
not sure that is really what we need to be doing as we are 
trying to get Americans back to work, just hiring more people 
here in Washington, but that is part of the larger discussion 
we are having about what to do to get the economy growing and 
putting people back to work.
    And part of that discussion has been about the number of 
regulations and their impact. And so in January of this year 
President Obama noted that, quote--``Sometimes government rules 
have gotten out of balance, placing unreasonable burdens on 
business--burdens that have stifled innovation and have had a 
chilling effect on growth and jobs.'' His words exactly.
    Then he ordered a government-wide review of the rules 
already on the books to, quote--``remove outdated regulations 
that stifle job creation and make our economy less 
competitive.'' How many such rules have you discovered within 
your jurisdiction?
    Ms. Leppink. Well, actually, we just having had the 
privilege of meeting with Chairman Walberg yesterday evening, 
and we were talking about how critical it is for the Fair Labor 
Standards Act and the guidance that the department puts out to 
stay current with the times and to be updated when--as the 
workforces change--as the workplace and the workforce changes. 
And so in particular, the three regulations that are on the 
agency's regulatory agenda are there in part because of a 
concern by the department that those regulations--several of 
them that are--all three of them--the right to know regulation, 
companionship, and the child labor regulation--are 30 and 40 
years old and have not been updated.
    So consequently, we take very seriously the charge of the 
president to look at our regulations, to ensure that they are 
responsive to current day conditions and that, obviously that 
they are clear and result in the least burden on employers 
possible.
    Mr. Kline. So you haven't actually removed any?
    Ms. Leppink. I am sorry?
    Mr. Kline. You haven't removed any outdated regulations? 
You are just reviewing them and thinking about rewriting them, 
and so forth?
    Ms. Leppink. Well, every regulation, whether you promulgate 
them, modify them, or remove them, needs to go through the 
rulemaking process. And so----
    Mr. Kline. But it is not part of the 500 or so that the 
president announced are these old rules and regulations that we 
need to get rid of? No.
    Okay. I want to come back to the subject that was touched 
on a couple of times here. You mentioned it. You announced that 
the Wage and Hour Division, the IRS, and 11 states are 
coordinating investigations and audits.
    In some industry there has been a great deal of concern 
that has been expressed--the home building industry, for one, 
which is the whole industry model is built on a system of 
contractors and subcontractors. So before you launched the 
investigation into the home building industry did you consider 
in this time of economy and unemployment--did you consider the 
builders would have to devote and divert all the time and 
energy to gather the resources of responding to this 
investigation and the uncertainty that that put into everybody 
in the industry? Did you assess the economic impact and the 
impact on job creation?
    Ms. Leppink. Well, first of all, I can't speak specifically 
about any open investigation, but I can assure you that we----
    Mr. Kline. Well, you could address whether or not you 
considered that before you started.
    Ms. Leppink. We have the responsibility to enforce the law 
to protect workers in all industries, even in difficult times. 
Even in difficult economic times workers still need to put food 
on the table. They still need to pay the rent.
    Mr. Kline. And so if their employers are put out of 
business and go out of business because of this effort, well, 
that doesn't help them with the food on the table. The question 
was, did you look at it beforehand, and the answer was no. And 
frankly, that is what I thought. I yield back.
    Ms. Leppink. No. The answer was not no.
    Chairman Walberg. I recognize Representative Kucinich, the 
gentleman from Ohio.
    Mr. Kucinich. Thank you very much, members of the 
committee, gentlelady. We want to get America back to work, but 
guess what? America gets back to work, we ought to make sure 
people are paid. There is this connection between working and 
getting paid that we shouldn't lose sight of, and the Fair 
Labor Standards Act is set up to make sure that when people 
work they get paid--that they get paid minimum wage, that they 
get paid for overtime, and there is a whole range of other 
issues that come up.
    So let's talk about these 300 investigators. Have they been 
hired?
    Ms. Leppink. Yes. We began hiring--we received the 
appropriation in March of 2009; we engaged in ambitious hiring 
and recruiting over the summer of 2009; and we brought on the 
first group of new investigators in the fall of 2009. We 
brought on, then, sequential groups of investigators over the 
fiscal year----
    Mr. Kucinich. Asking an obvious question, why were they 
needed? Explain to this committee, why were these investigators 
needed? And who needed them?
    Ms. Leppink. At the end of the prior administration the 
staffing levels, particularly of investigators, was at its 
lowest point in history; 731, I believe, investigators.
    Mr. Kucinich. If you don't have enough investigators what 
happens?
    Ms. Leppink. We can't investigate----
    Mr. Kucinich. Okay. But what can't you investigate? Who 
gets hurt?
    Ms. Leppink. People who come to us for help.
    Mr. Kucinich. Who are those people----
    Ms. Leppink. How many?
    Mr. Kucinich. Who are they?
    Ms. Leppink. They are low-wage and vulnerable workers, sir. 
So those are the people who we cannot--we were not in a 
position to help at the end of--at the beginning of this term.
    Mr. Kucinich. So I just want everyone to be very clear on 
who we are talking about here. We are talking about having 
enough investigators who can investigate violations that have 
been committed against low-wage workers.
    You know, I fail to understand how in the world we are 
helping our economy by ignoring the fact that low-wage workers 
aren't being paid for work that they are doing. So tell me 
about your enforcement. What do you do?
    Ms. Leppink. Well, the Wage and Hour Division engages in--
responds first to complaints that it receives. It is contacted 
up to 35,000 times in a year by individuals who are seeking 
assistance--25,000 times a year with people who are seeking 
assistance with their Fair Labor Standards Act complaints or 
Family Medical Leave Act complaints.
    We also put a significant portion of our resources into 
directed investigations because we have found that directed 
investigations one, go into places where people are too afraid 
to complain, and they also are directed at the----
    Mr. Kucinich. They are too afraid to complain because they 
might be exposed because of immigration status, or some other--
--
    Ms. Leppink. They are too afraid to complain because they 
are afraid they are going to lose their jobs.
    Mr. Kucinich. All right.
    Ms. Leppink. So part of the purpose of the directed 
enforcement initiatives are to get into industries where we 
know there are violations based on our own experience and based 
on our data, but they are not--we are not receiving complaints 
from those industries. Our directed investigations this past 
year, 70 percent of them found violations when we went in; 80 
percent of our complaint--80 percent of our investigations of a 
complaint found violations.
    Mr. Kucinich. Violations meaning that people weren't being 
paid?
    Ms. Leppink. People were not being paid.
    Mr. Kucinich. I mean, think about this economy. You get 
poor people who aren't being paid for work they are doing. It 
is bad enough that people can't get jobs, but people who are 
getting jobs aren't getting paid for what they are doing and we 
are attacking an act that is designed to make sure they get 
paid. Sometimes this place is a little bit hard to understand.
    I yield back.
    Chairman Walberg. I thank the gentleman.
    I now recognize Representative Bucshon, from Indiana.
    Mr. Bucshon. Thank you, Mr. Chairman.
    First of all, I would like to challenge the fact that we 
are attacking an act--the Fair Labor Standards Act. We are 
serving in our oversight role as Congress, getting information, 
which you are kindly giving us, to make sure that the federal 
government is being effective and efficient in its role 
enforcing the Fair Labor Standards Act, which I think everyone 
in this room would agree is in federal law and needs to be 
enforced.
    That said, I am going to focus my attention on the level of 
manpower within your division. And from 2005 to 2009, the data 
that I have, the average was $141 million in back wages, 
affecting 254,000 employees. You reported some new data that I 
didn't have here on fiscal year 2001, I guess, but in 2010 it 
was $130 million in back wages, 219,000 workers in fiscal year 
2010, which is actually a slight drop from the average between 
2005 and 2009.
    So could you go over the--you presented data that said $225 
million in back wages for 275,000 workers, and that--is that in 
fiscal year 2011?
    Ms. Leppink. At the end of--for fiscal year 2011.
    Mr. Bucshon. Okay. Great.
    And so, of the workers that were added--and I am not 
denying the fact that maybe they needed to be, I just, again, 
in our oversight role we want to make sure we are being as 
effective and efficient as we can be----
    Ms. Leppink. Absolutely.
    Mr. Bucshon [continuing]. To do the job. How many of those 
people are Washington, D.C.-based, versus people that are 
based, for example, in district or regional offices around the 
country? Do you have any idea?
    Ms. Leppink. All 300 are in--out in the field.
    Mr. Bucshon. Great. That is good information, because I was 
hoping that would be your answer.
    Ms. Leppink. Absolutely. No, that is where they need to be.
    Mr. Bucshon. Because I think that that would be the 
important place to have them. And----
    Ms. Leppink. In fact--sorry.
    Mr. Bucshon. No, go ahead.
    Ms. Leppink. In fact, we have worked very hard, and one of 
the things that adding these staff has allowed is allowed us to 
get into particularly rural parts of the country where we have 
not had a--did not have a presence in the prior years.
    Mr. Bucshon. Can you just maybe inform me, what is--what 
type of person do you look for when you look for an 
investigator for this? I mean, do they have a--what, I mean--
say, for example, a person wanted a career in the--in this 
area. I mean, is there a particular type of person that you 
look for--experience, background, familiarity with the law, and 
that type of thing?
    Ms. Leppink. We look for a wide variety of things. One of 
the things is that currently at the Wage and Hour Division, 60 
percent of our investigators speak a language other than 
English. We feel it is critical that we are able to communicate 
with employers and with employees in their language that they 
are most comfortable.
    We have an incredibly diverse workforce. We recruit--we 
have a significant number of veterans, former military members; 
we have a certain number of Peace Corps volunteers; we have 
people who come in from--who have done human resources work. We 
have folks that come from other federal agencies, from state 
agencies, from community organizations. So there is----
    Mr. Bucshon. They are really a diverse group of people----
    Ms. Leppink. It is very diverse, and it makes for a very 
strong organization.
    Mr. Bucshon. Good. I would agree, diversity is good.
    So once they are hired by the Department of--by your 
department, what is their training? What training do they 
undergo so that they understand their job?
    Ms. Leppink. That is a good question, because the Wage and 
Hour Division enforces more than just the Fair Labor Standards 
Act. We enforce the Fair Labor Standards Act, the Family 
Medical Leave Act, the Davis-Bacon Act, the Service Contract 
Act, Child Labor, we enforce the Migrant and Seasonal 
Farmworker Protection Act. So we have quite a heavy load.
    Mr. Bucshon. Sounds like you are overworked.
    Ms. Leppink. We are challenged.
    Mr. Bucshon. I think the point of the question is I think--
I am interested in how a person might be trained because I 
think that is critical to properly enforcing the laws that the 
people that are investigating are well trained.
    Ms. Leppink. So it is actually a 2-year training process, 
which is part of the reason when you look at our 2009 and 2010 
numbers we were in a rebuilding. You know, when we brought on 
those investigators we needed to train them to be certain that 
they could do their jobs.
    So we have the--in the first year they have a whole 
coursework book work that they do. We bring them in, then, to 
do intensive training, particularly on investigation skills, 
how to conduct an effective investigation. We have to train 
them, of course, on our technology and our data collection 
systems.
    But we primarily focus on the Fair Labor Standards Act in 
the first year that an investigator is being trained. They do, 
then, they do a lot of team investigations where they shadow an 
experienced investigator, so through that year.
    Then in the second year we do another round of intensive 
coursework that they do over a period of time, then we do 
another round of classroom work, and then we do--then they are 
then trained to enforce the rest of the laws on our watch.
    Mr. Bucshon. Okay, thank you.
    I yield back.
    Chairman Walberg. Thank the gentleman, and I recognize the 
gentleman from New York, Mr. Bishop.
    Mr. Bishop. Thank you very much, Mr. Chairman.
    And thank you for being here and----
    Ms. Leppink. My pleasure.
    Mr. Bishop [continuing]. Your testimony has been very 
helpful. I want to read to you the opening couple of sentences 
of a GAO report that was released in June of 2009 that, as I 
understand it, reflected the results of an investigation 
conducted by the GAO in 2006 and 2007. There has been a great 
deal of concern expressed by my colleagues about the 300 people 
that have been added.
    Let me just read this opening sentence, what the GAO found: 
The GAO found that Wage and Hour division frequently responded 
inadequately to complaints, leaving low-wage workers vulnerable 
to wage theft and other labor law violations. Posing as 
fictitious complaintants, GAO filed 10 common complaints with 
Wage and Hour Division district offices across the country. 
These tests found that WHD staff deterred fictitious callers 
from filing a complaint by encouraging employees to resolve the 
issues themselves, directing most calls to voicemail, not 
returning phone calls to both employees and employers, and 
providing conflicting or misleading information about how to 
file a complaint.
    Now, I would ask, was it information such as that that 
stood behind the department's request to increase its staff so 
that it could begin to do A, a better enforcement job; and B, 
do a better job of assisting low-wage workers who were being 
taken advantage of by unscrupulous employers?
    Ms. Leppink. Absolutely.
    Mr. Bishop. Okay. And I know we are early into it, but are 
you finding that the efforts of these additional staff are 
succeeding as the department hoped that they would?
    Ms. Leppink. Yes. Between our low point at the end of 
fiscal year 2009, where we completed 24,000 compliance actions, 
this year we completed over 33,000 compliance actions, and that 
is within the time period where we were still engaging in the 
training that I was talking about earlier of these new 
investigators. So they are not even fully productive yet.
    Mr. Bishop. I want to go to the subject that both the 
chairman and Chairman Kline spoke about, and this is this new 
investigation of large residential home builders.
    Ms. Leppink. Yes, sir.
    Mr. Bishop. I represent the eastern end of Long Island, 
which is a resort area, and as a consequence, the second home 
industry is a huge part of our economy, and large residential 
construction is a huge part of our economy. If I had a dollar 
for every time a legitimate home builder came to me and said, 
``You have got to do something about our competition, which is 
undercutting us when they bid for jobs because they are not 
paying minimum wage, they are hiring undocumented workers, they 
are not paying overtime''--if I had a dollar for every time 
one--a legitimate worker--builder complained to me about that I 
could retire.
    So is it fair for me to assume that the investigation that 
is in its early stages is designed to level the playing field 
between the illegitimate employer and the legitimate employer 
who is trying to comply with existing law?
    Ms. Leppink. Yes, particularly in the residential 
construction industry, where 80 percent of the--it is estimated 
that 80 percent of the home builders subcontract the work that 
they do, that this is a place where we are particularly 
concerned about leveling the playing field for employers so 
that they can not faced with the untenuous position of having 
to choose to comply with the law or to go out of business.
    Mr. Bishop. But just to be clear, if an employer--a 
legitimate employer--complies with the law but his business 
advantage is undercut or eliminated because he is competing 
against an unscrupulous employer, your investigation would be 
of benefit to that legitimate employer, the people we call the 
job creators. Is that correct?
    Ms. Leppink. Absolutely.
    Mr. Bishop. Okay.
    Ms. Leppink. Because their practices would be supported 
because now they aren't going to have--they can comply with the 
law and still be able to compete. And the focus we will have is 
on the employer who hasn't been paying their workers properly 
and insist that that employer does so.
    Mr. Bishop. I know Chairman Kline raised the specter of an 
employer being put out of work by virtue of having to comply 
with these onerous requests--I am putting onerous in quotes--
that are coming from the department. I would think it would be 
an equal tragedy if a legitimate employer were put out of work 
because he couldn't compete with an illegitimate employer. 
Would you agree with that?
    Ms. Leppink. Absolutely.
    Mr. Bishop. Okay.
    Thank you, Mr. Chairman. I yield back. Thank you.
    Chairman Walberg. I thank the gentleman.
    And just following up on that, if I could ask, Ms. Leppink, 
if you could supply us with any changes that Wage and Hour 
Division implemented to address the GAO concerns, the 
deficiencies that they----
    Ms. Leppink. Or I can answer them now, or I can--we would 
be happy to provide them----
    Chairman Walberg. If you would provide that just for the 
record so we could have that.
    Ms. Leppink. Absolutely.
    Chairman Walberg. Thank you. And I thank you for spending 
your time with us this morning and addressing questions as well 
as giving updated information. I appreciate that.
    Ms. Leppink. I very much have enjoyed it. Thank you.
    Chairman Walberg. I would ask at this time the second panel 
to come to the table as we begin our second round here.
    It is now my pleasure to introduce the second panel of 
distinguished witnesses. Joining us this morning is Tammy 
McCutchen, shareholder, Littler Mendelson; Kim Bobo, executive 
director, Interfaith Worker Justice; and David Fortney, 
cofounder, Fortney and Scott.
    Thank you for agreeing to spend your time with us this 
morning on our search for answers in dealing with the issues 
addressed today with Wage and Hour. Again, before I recognize 
you for your testimony I will just go through reminding you--
you heard already about the lights. They are simple, traffic 
light format. And I think the way it was handled so far with 
the first panel, that is an example of how we want to continue 
this morning.
    I recognize Tammy McCutchen for your testimony. And again, 
thank you.

             STATEMENT OF HON. TAMMY D. MCCUTCHEN,
              SHAREHOLDER, LITTLER MENDELSON, P.C.

    Ms. McCutchen. Thank you, Chairman Walberg, and Ranking 
Member Woolsey, members of the subcommittee, for allowing me to 
come and speak to you today. As you may recall, I am a former 
administrator at the Wage and Hour Division and remain a close 
observer of the agency.
    The last 3 years have seen significant changes in the Wage 
and Hour Division's approach to its most important mission: 
increasing employer compliance with the FLSA. I want to spend 
my time today discussing some of these changes--changes from 
policies that have been in place at the division for decades--
and the impact that I believe they are having on the 
department's effectiveness.
    The division's approach to enforcement has become 
increasingly punitive over the last 3 years, regardless of 
whether the agency is investigating a legitimate employer with 
no history of violations or an illegitimate employer with a 
long history of violations. Let me provide some examples.
    Recently, the division sent four investigators unannounced 
into a fast food restaurant with no prior violations, 
effectively shutting down the business while the investigators 
were there. Additionally, they put a small, minority-owned 
business out of business by stopping FCA contract payments even 
when the business owner agreed to pay back wages but needed 
some installment payments in order to do that. The division 
declined to give him an installment plan.
    The division has threatened to bring subpoena actions in 
federal court against employers who fail to respond to large 
document requests within 72 hours, and those document requests 
are requesting documents that are not required to be maintained 
under the regulations, such as lists of suppliers, lists of 
subcontractors, and the basis for claimed exemptions, which 
they have not yet issued regulations on.
    They have mandated that field staff impose civil money 
penalties in almost every case, rather than allowing those 
field career employees to exercise their own expert discretion 
regarding the appropriate remedy. And they have increasingly 
refused to issue the WH-58 waiver forms even when an employer 
has agreed to pay 100 percent of back wages.
    At the same time, the division has closed its door to 
employers who are seeking guidance regarding what the FLSA 
actually requires. After withdrawing about 20 opinion letters 
the prior year for no other reason than that they were not put 
in the mail before Inauguration Day, in March 2010 the division 
announced that it would stop issuing opinion letters 
altogether. Opinion letters are the primary means for employers 
to learn what the Department of Labor believes is required by 
the FLSA.
    The division now also refuses to supervise the payment of 
back wages for employers who want to voluntarily disclose and 
correct violations, and in its 2012 budget request, which seeks 
an increase of $13.3 million and 95 additional investigators 
over 2011 levels, the division also proposes to decrease 
funding for compliance assistance by over $2 million and 12 
FTEs.
    Although officials from the Labor Department might claim 
that these changes strengthen enforcement and better protect 
workers, in my opinion, the changes have negatively impacted 
the division's productivity. For example, in 2010, the first 
full year under the current administration, with a budget of 
over $227 million and 1,582 FTEs, the division recovered only 
$130 million in back wages.
    In contrast, during the Bush administration's first full 
fiscal year, 2002, we recovered $175.6 million in back wages 
with a budget of over $155 million and 1,480 FTEs. Thus, in 
2010, the division collected $45 million less in back wages 
although they had 102 additional employees and $72.4 million.
    Now, in her testimony today Deputy Administrator revealed 
that they collected $224 million in back wages during the 
fiscal year 2011, and that is certainly an improvement. But it 
does not change my assessment of the division's performance.
    In her written testimony the deputy administrator compares 
2011 with 2007, when the division recovered $220 million in 
back wages--almost the same amount. However, in 2007 the 
division's budget was $54.5--$55.4 million less than it is 
today, with 382 fewer employees. Thus, today the division is 
spending 23.5 percent more than it did during the Bush 
administration to collect the same amount of back wages.
    In my opinion, this significant decrease in the division's 
effectiveness can be tied to the changes I have discussed. 
Because of the division's punitive approach, investigations are 
taking longer to conduct and are increasingly difficult to 
settle, and at the same time there is no path for a good faith 
employer to voluntarily correct violations.
    There are three immediate actions the division could take 
to reverse this which would not require rulemaking, statutory 
amendments, or any more resources. One, they could begin 
issuing opinion letters again to help employers understand what 
is required; two, they could begin issuing WH-58 forms to 
employers who have agreed to pay 100 percent of back wages; and 
three, they could implement a voluntary correction program like 
that which the IRS has in its misclassification initiative 
where employers who disclose a violation and pay 100 percent of 
back wages for 2 years can get the certainty of the WH-58 
waiver form as an incentive for doing so.
    Thank you, and I look forward to your questions.
    [The statement of Ms. McCutchen follows:]

            Prepared Statement of Tammy D. McCutchen, Esq.,
                  Shareholder, Littler Mendelson, P.C.

    Mr. Chairman and members of the Subcommittee: Thank you for the 
opportunity to speak with you today regarding the Department of Labor's 
Wage and Hour Division and the Fair Labor Standards Act. As you may 
recall, I served as Administrator of the Wage and Hour Division from 
2002 to 2004. I remain an interested and close observer of the Wage and 
Hour Division.
    Currently, I am a shareholder in the Washington D.C. office of 
Littler Mendelson, P.C. where my practice focuses on assisting 
employers to comply with the Fair Labor Standards Act. In addition, I 
often represent employers during investigations by the Wage and Hour 
Division, and serve as an expert witness in FLSA collective actions. I 
am also a member of the National Federation of Independent Business's 
(NFIB) Small Business Advisory Board.
    My testimony today is based on my own personal views and does not 
necessarily reflect the views of Littler, its attorneys, or of any 
other organization or client. Mr. Chairman, I request that the entirety 
of my written testimony be entered into the record of this hearing.
I. Executive summary
    The last three years have seen significant changes in the Wage and 
Hour Division's approach to its most important mission--increasing 
employer compliance with the Fair Labor Standards Act and ensuring that 
employees are paid in compliance with the Act. I want to spend my time 
today discussing some of these changes with you, and the impact they 
are having on the Division's effectiveness. Before I begin, however, 
let me be clear that these changes are not just changes from Bush 
Administration policies; these are changes from historic policies and 
practices of the Division which long pre-date the Bush Administration.
    The Wage and Hour Division's approach to enforcement has become 
increasingly punitive over the last three years--regardless of whether 
the Division is investigating an employer with a long history of 
violations, or an employer with no prior violations; and regardless of 
whether the violation is obvious and serious, or an error on an issue 
where the law is unclear and reasonable minds can differ. Examples of 
changes at the Wage and Hour Division which demonstrate this punitive 
approach include:
     Conducting unannounced investigations of employers without 
a prior history of violations, and sending multiple investigators to 
conduct an investigation of a single facility;
     Demanding that employers produce documents which they are 
not required to maintain under the recordkeeping regulations, and 
threatening to bring subpoena actions in federal court against 
employers who fail to respond to broad document requests within 72 
hours;
     Prohibiting field career staff from using the ``self-
audit'' investigation method, which is the most efficient way of 
determining back wages due in large cases where an employer has already 
agreed to pay 100% of back wages, and instead requiring investigators 
to conduct ``full'' investigations in almost every case;
     Mandating that the career field staff impose draconian 
penalties--civil money penalties, liquidated damages--in almost every 
case, rather than allowing these experts to exercise their own 
discretion regarding the appropriate remedy; and
     Refusing to issue WH-58 waiver forms, or issuing only 
limited waiver forms, even when the employer agrees to pay 100% of back 
wages as calculated by the Division.
    At the same time, the Division has closed its doors to employers 
seeking guidance regarding what the FLSA requires. In other words, the 
Wage and Hour Division has stopped efforts to inform employers how to 
comply with the law, preferring only to impose draconian punishments 
when an employer guesses wrong about what the law requires. Examples of 
changes at the Wage and Hour Division which demonstrate this ``gotcha'' 
approach include:
     Withdrawal, without replacement of nearly 20 Opinion 
Letters, and refusal to issue any additional Opinion Letters--or even 
provide informal guidance to employers who inquire regarding whether 
their pay practices comply with the FLSA;
     Announcing changes to enforcement policies through amicus 
briefs, which are publicized only through an email subscription service 
and an obscure web posting;
     Refusing to enter into compliance partnerships with 
employers;
     Refusing to assist employers who, after discovering FLSA 
violations, request that the Division supervise the payment of back 
wages; and
     Proposing in their FY 2012 budget to decrease funding for 
compliance assistance and the Division's call center by over $2 million 
and 12 FTEs.
    Although officials from the Labor Department might claim that these 
changes have been implemented to strengthen enforcement and better 
protect workers, enforcement of the FLSA by the Wage and Hour Division 
has actually declined. Included in my testimony is are charts comparing 
the Division's budget, full-time equivalent employees (FTEs) and back 
wages collected from FY 2001 through FY 2010. Perhaps the fairest 
measure of performance is to compare the first full fiscal year of the 
Bush Administration (FY 2002) with that of the Obama Administration (FY 
2010). In FY 2002, with a budget of $155.2 million and 1480 FTEs, we 
recovered $175.6 million in back wages. In FY 2010, with a budget of 
$227.6 million and 1582 FTEs, the Division recovered only $130 million 
in back wages. Thus, in FY 2010, with 102 more employees, the Division 
spent $72.4 million more to recover $45 million less in back wages.
    In my opinion, this significant decrease in the Division's 
effectiveness is caused by the changes I have discussed. Investigations 
are taking longer to conduct because investigators can no longer use 
the ``self-audit'' investigation method. It is increasingly difficult 
to resolve investigations at agency level as employers are much less 
likely to settle when the Division insists on civil money penalties and 
liquidated damages, in addition to back wages, while at the same time 
depriving those employers of the opportunity to obtain waivers of FLSA 
claims. Finally, there is no path for a good faith employer to 
voluntarily correct violations under the oversight of the Wage & Hour 
Division or to effectively seek compliance assistance from the 
Division.
    To summarize, the current Administration is doing less with more. 
The Wage and Hour Division's new ``gotcha'' approach towards 
employers--carrying a larger stick while refusing to pass out any 
carrots--is not working to ensure our nation's employees are paid in 
compliance with the Fair Labor Standards Act.
II. Investigations
    The last three years have seen significant, and for the most part, 
unannounced, changes in the Wage and Hour Division's approach to 
conducting investigations. The Division has become increasingly 
aggressive and punitive toward employers--failing to distinguish 
between good faith employers with no prior violations and bad faith 
employers with a long history of violations; and failing to distinguish 
between serious and obvious violations of the FLSA and situations where 
the law, and DOL's policy, is unclear and reasonable minds can differ. 
The Division should be aggressive and punitive towards bad faith 
employers who willfully and repeatedly violate the FLSA. However, such 
an approach is counter-productive for good faith employers without a 
history of violations and who have taken steps to comply.
    In the past, many investigations could be resolved quickly when 
good faith employers working cooperatively with Wage and Hour Division 
investigators. However, today, more and more often, the Division's 
initial contact with an employer is aggressive and adversarial, 
regardless of the employer's enforcement history. Further, more and 
more often, the Division refuses to settle investigations for 100% of 
back wages, instead insisting upon civil money penalties and liquidated 
damages. More and more often, the Division also refuses to issue its 
WH-56 receipt forms--the form which informs employees that they waive 
their right to bring a private lawsuit if they accept the payment of 
back wages as calculated by the agency. In short, from the beginning to 
the end of an investigation, even good faith employers face punitive 
treatment. This adversarial approach has made it increasingly difficult 
to resolve investigations quickly as even good faith employers have 
little incentive to settle an investigation at the agency level.
    Examples of changes at the Wage and Hour Division which demonstrate 
this punitive approach are set forth below:
            A. Unannounced Visits
    The Wage & Hour Division can begin an investigation in one of three 
ways: (1) a telephone call announcing the investigation and asking to 
schedule an on-site visit; (2) a scheduling letter which requests an 
on-site visit on a specific date and includes an information request; 
or (3) an unannounced visit by an investigator at a facility.
    In the past, the investigator was given the discretion to determine 
which of these three approaches was appropriate in light of the 
employer's violation history, industry, and the type of violations 
alleged by the complaining employee. Unannounced visits were used 
rarely, and only for investigations involving employers or industries 
with a history of violations (e.g., garment, agriculture), or when the 
investigator believed it likely that the employer, if provided advance 
notice of the investigation, would destroy time and pay records.
    Today, the Division increasingly requires investigators to begin an 
investigation with an unannounced visit, taking discretion away from 
experienced field staff. Further, the decision to make an unannounced 
visit no longer seems tied to the employer's enforcement history, the 
industry, the type of alleged violation, or the possibility that the 
employer would destroy records. For example, recently, the Division 
began an investigation of a hotel owned by a large, national hotel 
chain by sending four investigators to the hotel for an unannounced 
visit. The hotel employer did not have a history of violations, and has 
knowledgeable in-house employment lawyers and HR staff. The Division 
had absolutely no basis to believe that the hotel employer would have 
destroyed documents or otherwise fail to cooperate with the 
investigation. Although this investigation remains open, thus far, the 
Division has found no violations of the FLSA.
            B. Information Requests
    The last three years has also seen significant changes in the 
requests for information which the Division typically makes to 
employers at the beginning of an investigation.
    In the past, an investigation would begin with a single facility of 
an employer, and the investigator would request information relating 
only to that single facility. The investigator would require the 
employer to produce time records and payroll data for its last payroll 
or for a sampling of two or three payrolls. Investigators generally 
would give employers between 14 and 30 days to produce these documents. 
If the investigator found violations after reviewing those records, the 
investigator would request time records and payroll data for a full two 
years at the single facility, and also could recommend to the District 
Director that the investigation be expanded to other facilities of the 
employer. This approach ensures that investigators use their time 
efficiently, rather than reviewing mountains of documents for employers 
who, it is evident, have not violated the FLSA.
    Recently, however, the Division has required the field staff to 
begin with national investigations, requiring employers to produce, 
within 72 hours, a full two years of time records and payroll data for 
all employees nation-wide. This is the Division's approach in the 
recent directed investigations in the homebuilding industry, as 
reported in the Wall Street Journal, even though the homebuilding 
employers under investigation did not have a history of violations and 
no employee had filed a complaint. Further, when the employers informed 
the Division that producing this data within 72 hours was not feasible, 
the Division threatened to issue and enforce subpoenas in federal 
court. In other words, the Division began investigations on a nation-
wide basis demanding production of thousands of pages of documents--and 
giving employers only 72 hours to produce these document--all without 
any basis for believing that the homebuilding employers were violating 
the FLSA. Although the homebuilder investigations began in August, the 
Division has yet to cite a single homebuilder for violating the FLSA.
    Further, the Division has changed its standard information requests 
to seek documents that employers are not required to maintain under the 
FLSA recordkeeping regulations. For example, the Division has issued 
information requests requiring employers to produce lists of 
subcontractors, independent contractors, vendors and even customers--
with a contact name and telephone number. I also have seen information 
requests requiring employer to provide the Division with:
    ``Names of occupations of those employees whom the employer claims 
to be exempt, the specific exemptions that apply to those claimed to be 
exempt, and the basis for applying those exemptions.''
    Of course, employers are required to maintain records showing the 
employees classified as exempt. However, the FLSA regulations to not 
require employers to keep records of the specific exemptions claimed or 
the ``basis for applying those exemptions.'' The Division has stated 
its intention to propose new ``Right to Know Regulations'' which would 
require employers to maintain such information. But, until such 
regulations are proposed and finalized after the legally required 
notice and comment rulemaking, this information request is 
inappropriate.
            C. Investigation Methods
    In the past, investigators have been trained to conduct the 
following five different types of FLSA investigations, and were given 
discretion regarding which investigation method was appropriate in a 
given case:
    1. Full Investigation: A complete investigation of all FLSA 
issues--off-the-clock work, misclassification, proper calculation of 
the regular rate.
    2. Limited Investigation: An investigation of only those issues 
raised by an employee complaint.
    3. Office Audit: A review of documents produced by the employer at 
the investigator's office.
    4. Self Audit: After an investigator identifies a potential 
violation and the employer agrees to pay back wages, the investigator 
requests that the employer conduct a self-audit of the issue and 
compute back wages due. The investigator then conducts due diligence to 
confirm the back wage calculations.
    5. Conciliation: Employer is contacted by telephone and asked to 
correct minor violations.
    Today, in my experience, the Division requires investigator to 
conduct a full investigation--which, of course, is the most resource 
intensive investigation method. Although conciliation is still used to 
quickly correct minor violations, in the last three years, I have not 
seen an office audit and limited investigations are increasingly rare. 
Further, the Division has prohibited the field staff from using the 
``self-audit'' investigation method, perhaps based on a mistaken belief 
that no employer can be trusted to self-report and accurately calculate 
back wages. The result should not be surprising: Investigators have to 
spend more time per investigations and investigations take longer to 
complete. In my opinion, failing to conduct limited investigations or 
allow self-audits in appropriate cases results in the inefficient use 
of the Division's limited resources.
            D. Mandatory Civil Money Penalties
    Another important area where the Division has taken discretion away 
from the expert field staff is in determining the appropriate remedy 
for an FLSA violation. Under the FLSA, an employer who violates the 
minimum wage or overtime requirements is liable for: two years of back 
wages; an additional third year of back wages for willful violations; 
liquidated damages in an amount equal to the back wages, unless the 
employer acted in good faith; and attorneys' fees. In addition, the 
Division has discretion to impose civil money penalties (CMPs) of up to 
$1,100 per violation for repeat or willful violations. Unlike civil 
money penalties for child labor violations which go into the Treasury's 
general fund, civil money penalties for minimum wage and overtime 
violations go back to the Division to fund additional enforcement 
efforts.
    In the past, the Division generally required employers to pay 100% 
of back wages for a two-year period. The Division did not assess civil 
money penalties for minimum wage and overtime violations unless an 
employer had a significant history of serious violations (e.g., a 
sweatshop employer or bad faith agricultural labor contractors). 
Further, the Division rarely requested liquidated damages.
    Today, as reported to me by District Directors, the Division is 
requiring the field staff to assess civil money penalties against every 
employer with even one prior violation recording in the agency's 
enforcement database--regardless of the type of violation or when the 
violation occurred. For example, in an investigation that I was 
involved in, the Division assessed civil money penalties based on a 
$500 violation which was on a completely different issue and occurred a 
decade before at a different corporate subsidiary. The investigator 
conceded that the new violation was not willful, and I questioned how a 
decade-old violation on a totally different issue could be ``repeat'' 
violation. Unfortunately, there are virtually no standards, and few 
limits on the Division, for determining when a violation is repeat or 
willful. More recently, although I have not yet seen this myself, a 
District Director reported that the national office of the Wage and 
Hour Division issued a directive requiring mandatory assessment of 
liquidated damages.
    In my experience, most employers are willing to pay 100% of back 
wages found due by the Division for a two-year period. However, 
employers are much less likely to settle when the Division seeks civil 
money penalties, and certainly will be more likely to litigate with the 
Division in order to challenge an assessment of liquidated damages. 
Thus, the Division's approach, used even against good faith employers, 
delays the resolution of investigations and payment of back wages to 
employees. Finally, I am concerned that, because civil money penalties 
for minimum wage and overtime violations go back to the Division, 
rather than to Treasury, this provides incentives for ``bounty 
hunting'' behavior by the Division.
            E. The WH-58 Receipt Form
    An employer and employee cannot privately agree to waive the 
employee's FLSA rights. Under the FLSA, there are only two mechanisms 
for waiver of claims: Through a court in private litigation, or through 
the Department of Labor after an investigation. Because FLSA litigation 
can take years to resolve, the quick settlement of investigations and 
payment of back wages through the Wage and Hour Division is important 
to both employers and employees.
    Accordingly, as part of the 1947 Portal-to-Portal Act amendments to 
the FLSA, Congress enacted Section 16(c) which authorizes the Secretary 
of Labor to supervise the payment of back wages and provides that 
employees who decide to accept back wages as supervised by the agency 
waive the right to bring a private lawsuit under the FLSA:
    ``The Secretary is authorized to supervise the payment of the 
unpaid minimum wages or the unpaid overtime compensation owing to any 
employee or employees under section 206 or section 207 of this title, 
and the agreement of any employee to accept such payment shall upon 
payment in full constitute a waiver by such employee of any right he 
may have under subsection (b) of this section to such unpaid minimum 
wages or unpaid overtime compensation and an additional equal amount as 
liquidated damages.''
    Section 16(c) was enacted by Congress to address the Labor 
Department's concern that the absence of a waiver mechanism outside of 
litigation was hampering its ability to quickly settle FLSA violations.
    For decades, the Wage and Hour Division form WH-58 has been the 
mechanism for implementation of the Section 16(c) supervision of back 
wages and waiver process. In the past, when an employer paid back wages 
to resolve an FLSA investigation, the Division would issue a WH-58 
receipt form for each employee receiving back wages to sign as proof of 
the employer's payment of the back wages. The WH-58 form also explained 
to employees:
    ``Your acceptance of back wages due under the Fair Labor Standards 
Act means that you have given up any right you may have to bring suit 
for such back wages under Section 16(b) of the Act. Section 16(b) 
provides that an employee may bring suit on his/her own behalf for 
unpaid minimum wages and/or overtime compensation and an equal amount 
as liquidated damages, plus attorney's fees and court costs. Generally, 
a 2-year statute of limitations applies to the recovery of back wages. 
Do not sign this receipt unless you have actually received payment of 
the back wages due.''
    The FLSA recordkeeping regulations at 29 C.F.R. Sec.  516.2, 
require employers to deliver WH-58 receipt forms to employees, provide 
the Division with the originals signed by employees, and preserve a 
copy in their records:
    (b) Records of retroactive payment of wages. Every employer who 
makes retroactive payment of wages or compensation under the 
supervision of the Administrator of the Wage and Hour Division pursuant 
to section 16(c) and/or section 17 of the Act, shall:
    (1) Record and preserve, as an entry on the pay records, the amount 
of such payment to each employee, the period covered by such payment, 
and the date of payment.
    (2) Prepare a report of each such payment on a receipt form 
provided by or authorized by the Wage and Hour Division, and (i) 
preserve a copy as part of the records, (ii) deliver a copy to the 
employee, and (iii) file the original, as evidence of payment by the 
employer and receipt by the employee, with the Administrator or an 
authorized representative within 10 days after payment is made.
    Nonetheless, over the last three years, the Division has often 
refused to issue the WH-58 receipt forms. Although not publicly 
announced, it is my understanding that the Division has prohibited the 
field staff from issuing WH-58 receipt forms unless an investigator has 
conducted a full investigation. In one case I handled, the Division 
refused to issue WH-58s after a limited investigation, referring to 
this new directive. In response to my invitation for the investigator 
to conduct a full investigation so that she could issue WH-58s, the 
Division stated that they did not have sufficient resources to complete 
a full investigation. Further, even when the Division agrees to issue 
WH-58s, the agency often uses the new WH-58L form which purports to 
limit the scope of the waiver to specific issues or time periods for 
which back wages were found due--even when the Division conducted a 
full investigation and found no other violations. The Division has also 
refused to issue WH-58 receipt forms to employers who discover FLSA 
violations and voluntarily approach the agency for assistance to 
calculate and pay back wages.
    The Division's refusal to issue WH-58 receipt forms, and use of the 
WH-58L form, raises serious questions regarding whether and the extent 
to which an employee's acceptance of back wages is a waiver of claims 
under Section 16(c). If an employer pays 100% of back wages as 
calculated by the Wage & Hour Division, and employees accept those 
payments, but the Division refuses to issue a WH-58, have the employees 
nonetheless waived their FLSA claims under Section 16(c)? If the 
Division determined that only two-years of back wages are due because 
the violation was not willful and the employer acted in good faith, but 
the form WH-58L purports only to cover two years, can the employees 
still bring a private lawsuit for an additional third-year of back 
wages and liquidated damages? This legal uncertainty has undermined a 
significant incentive for employers to quickly resolve investigations 
and pay back wages as calculated by the Wage and Hour Division.
III. Compliance assistance
    To serve the public in an objective manner, the Division's new, 
more punitive approach to investigations should be combined with a 
vigorous program to assist employers in understanding what the FLSA 
requires. But, the opposite is happening: The Division has closed its 
doors to employers seeking guidance regarding what the FLSA requires. 
In fact, the Division's FY 2012 budget request--which seeks an increase 
of $13.3 million and 95 investigators over 2011 levels--proposes to 
decrease funding for compliance assistance and the Division's call 
center by over $2 million and 12 FTEs.
            A. Opinion Letters
    The first indication that the Wage & Hour Division was no longer 
interested in providing compliance assistance came in March 2009 when 
the Division withdrew almost 20 Opinion Letters because: ``Some of the 
posted opinion letters, as designated by asterisk, were not mailed 
before January 21, 2009.'' No other reason was provided. The Division 
did not state that the enforcement positions expressed in the Opinion 
Letters were wrong, and the Division has not since replaced those 
Opinion Letters with other guidance expressing different views. This, 
of course, creates significant legal uncertainty for employees, 
employers, attorneys and judges trying to determine the Division's 
current views on the issues addressed in the withdrawn letter.
    A year later, the Division announced that it would stop issuing 
Opinion Letters addressing fact-specific interpretations of the FLSA. 
Instead, as reported by Thompson publications on March 24, 2010, the 
Division would issue ``Administrators Interpretations'' (AIs) providing 
more general interpretations when the Wage and Hour Administrator 
determines that ``additional clarification is appropriate with respect 
to `the proper interpretation of a statutory or regulatory issue.' ''
    The U.S. Department of Labor's Wage and Hour Division will not be 
issuing new opinion letters addressing fact-specific interpretations of 
employment laws.
    In their place, the WHD Administrator is issuing ``administrator 
interpretations'' that, in contrast to opinion letters, provide general 
interpretation of the laws and regulations applicable to all those who 
are affected by the legislative or regulative provision at issue.
    The purpose of the administrator interpretations is to ``provide 
meaningful and comprehensive guidance and compliance assistance to the 
broadest number of employers and employees,'' wrote DOL. ``Guidance in 
this form will be useful in clarifying the law as it relates to an 
entire industry, a category of employees, or to all employees.''
    The administrator interpretations are to be released when the WHD 
Administrator determines, at his or her discretion, that additional 
clarification is appropriate with respect to ``the proper 
interpretation of a statutory or regulatory issue.''
    Added DOL, ``The Administrator believes that this will be a much 
more efficient and productive use of resources than attempting to 
provide definitive opinion letters in response to fact-specific 
requests submitted by individuals and organizations, where a slight 
difference in the assumed facts may result in a different outcome.''
    Apparently, over the last three years such ``clarification'' of the 
Division's interpretation of the FLSA has been necessary only twice, as 
the agency has issued only two Administrator's Interpretation on the 
FLSA: first, on the application of the administrative exemption to 
mortgage loan officers; and second, on the definition of the term 
``clothes'' in Section 3(o) of the FLSA. Both of these AIs only served 
to create additional legal uncertainty by reversing enforcement 
policies announced by the Division just a few days earlier. Federal 
courts are often hesitant to grant deference to such agency flip-flops. 
The Division is facing an Administrative Procedures Act challenge to 
the mortgage loan officer AI claiming that the AI is contrary to the 
2004 Final Part 541 regulations. Finally, in March of this year, a jury 
found that Quicken Loans had correctly classified its mortgage loan 
officers as exempt.
    In my experience over the last three years, it is extremely 
difficult to obtain even informal guidance from the Division regarding 
whether a particular pay practice complies with the FLSA. Employer 
questions regarding whether a particular employee is properly 
classified as exempt, whether a particular activity is compensable work 
time, and whether a particular bonus payment must be included in the 
regular rate are met with silence from the agency. As quoted by 
Thompson publications, apparently the Division believes that responding 
to fact-specific inquiries from employer is a waste of its time. On the 
contrary, in my opinion, it is the Division's statutory responsibility 
to answer fact-specific questions from employers--especially, in light 
of the Division's new punitive approach to enforcement.
            B. Amicus Briefs
    Today, then, an employer often can only determine the Division's 
views on an issue through an enforcement action--or by reading amicus 
briefs filed by the Solicitor of Labor. The Labor Department does not 
have an open or transparent process regarding its decisions to file 
amicus briefs in litigation pending between an employer and employees. 
Rather, one of the parties to litigation will request that the 
Department file an amicus by letter, and the Department will review the 
pleadings and issues before making a decision. To the best of my 
knowledge, the Solicitor rarely gives notice to the opposing party that 
they are considering an amicus, or the opportunity for the opposing 
party to express its views.
    Further, the filing of amicus briefs are barely publicized. Members 
of the public who have signed up to receive notices from the 
Departments email subscription service receive an email when a new 
amicus brief is posted on DOL's website. However, if you do not receive 
these emails, finding the web site on which the amicus briefs are 
posted is difficult, and that web site does not include any summary 
regarding the topic of the brief or the position taken by the 
Department--it contains only a list of case names categorized by 
statute.
    Nonetheless, the Department has used amicus briefs to announce 
major enforcement policy changes. For example, the public learned for 
the first time in an amicus brief that the Division views 
pharmaceutical sales representatives as non-exempt. Employers also 
learned for the first time in an amicus brief that employers who pay 
tipped employees at or above minimum wage, and do not take a tip 
credit, nonetheless must comply with the FLSA tip pooling rules (a 
position, by the way, rejected by the Ninth Circuit Court of Appeal, 
but adopted in the April 2011 Final FLSA regulations).
            C. Compliance Partnerships
    In the past, both as Administrator of the Wage and Hour Division 
and in my private practice, I have worked with large, national 
employers to establish compliance partnerships with the Division 
designed to provide compliance assistance to the employer and to 
quickly resolve any violations revealed by employee complaints. I think 
most District Directors would agree that establishing a close 
relationship between a national employer and the District Office is one 
of the best tools for ensuring that employees are paid in compliance 
with the FLSA. Under such partnerships, an employer was assigned an 
investigator or Assistant District Director to call with questions 
regarding the FLSA--from programming for a new timekeeping systems or 
the appropriate exempt status for a new job. Under these partnerships, 
the employer would agree to provide training on the FLSA to key 
managers; to provide additional disclosures and information about the 
requirements of the FLSA to non-exempt employees; and/or establish and 
publish a process for employees to make internal complaints regarding 
their pay. If an employee filed an internal complaint with the company 
regarding his pay, the Division would assist the employer in 
determining whether a violation had occurred and in calculating and 
paying back wages. In an employee filed a complaint with the Division, 
often the investigation could be resolved and back wages paid after a 
quick telephone call to the manager at the company responsible for wage 
and hour compliance.
    The Division has a number of new programs to cooperate with the 
IRS, state agencies, unions, plaintiffs' lawyers and employee advocacy 
groups. Unfortunately, it is my understanding that a directive has been 
issued prohibiting the field staff from entering compliance 
partnerships with employers. Such partnerships only increase employer 
compliance with the FLSA, and should be encouraged by the Division--not 
prohibited.
            D. Voluntary Correction
    Finally, it is my understanding that the Division has issued a 
directive prohibiting the field staff from assisting employers who, 
after self-discovering FLSA violations, request that the Division 
supervise the payment of back wages.
    Even good faith employers sometimes make mistakes because the law 
on so many FLSA issues remains unclear and the subject of litigation. 
But the best of employers, when they discover a practice that may 
violate the FLSA, want to correct the practice and pay back wages to 
employees. Over 75% of my practice is assisting employers to conduct 
internal wage and hour audits, and helping those employers to correct 
any violations which I uncover during those audits. Employers, in my 
experience, have no difficulty and, in fact, are anxious to quickly 
correct going forward any pay practices that might violate the FLSA.
    Whether to pay employees back wages is a more difficult issue 
because, as discussed above, outside of private litigation, the only 
available mechanism for an employee to waive FLSA claims is through the 
Wage and Hour Division. Without a waiver, an employee can accept a 
large back-wage payment, and then turn around and file a collective 
action the next day--claiming additional hours worked, a third-year of 
back wages, and liquidated damages. In other words, the payment of back 
wages can never protect an employer against a subsequent lawsuit unless 
the Division supervises the payment of the back wages under Section 
16(c) of the Act. Employees benefit from this process as the Division 
can ensure that the employer has correctly calculated the back wages 
due.
    In the past, I would often advise employers to voluntarily disclose 
FLSA violations to the Wage and Hour Division and work with the 
Division to pay back wages. All parties benefit from such voluntary 
correction: In just months, rather than waiting years for litigation, 
employees receive 100% of back wages due for non-willful violations (2 
years) as reviewed and approved by the Division. Employers are able to 
obtain waivers from employees receiving back wages and can thus be 
assured that the issue has been finally resolved. The Division, in 
turn, efficiently leverages its scares resources to collect millions in 
additional back wages for employees.
    Today, it is my experience that the Division will not work with 
good faith employers to voluntarily correct violations. Even if the 
Division were willing to work with employers, given the current 
punitive focus of the agency, I doubt that the Division would be 
willing to provide employers with any incentives to voluntarily audit 
and correct. Rather, most likely, DOL would insist on three-years of 
back wages, civil money penalties and liquidated damages--while 
refusing to issue WH-58 waiver forms.
    Many federal enforcement agencies have voluntary corrections 
programs, even agencies within the Department of Labor (for example, 
EBSA's Voluntary Fiduciary Correction Program and Delinquent Filer 
Voluntary Compliance Program). Compliance with the FLSA is often 
difficult. The Wage and Hour Division should continue to provide a path 
which provides incentives for employers to voluntarily correct 
violations.
IV. Agency effectiveness
    Although officials from the Labor Department might claim that these 
changes have been implemented to strengthen enforcement and better 
protect workers, enforcement of the FLSA by the Wage and Hour Division 
has actually declined--especially given the Division's increased budget 
and FTEs. The chart below compares the Division's budget versus back 
wages collected from FY 2001 through FY 2010:


    The following chart shows the number of full-time equivalent 
employees working for the Wage & Hour Division each fiscal year from 
2001 to 2010:


    Perhaps the fairest measure of performance is to compare the first 
full fiscal year of the Bush Administration (FY 2002) with that of the 
Obama Administration (FY 2010). In FY 2002, with a budget of $155.2 
million and 1480 FTEs, we recovered $175.6 million in back wages. In FY 
2010, with a budget of $227.6 million and 1582 FTEs, the Division 
recovered only $130 million in back wages. Thus, in FY 2010, with 102 
more employees, the Division spent $72.4 million more to recover $45 
million less in back wages.
    In my opinion, this significant decrease in the Division's 
effectiveness is caused by the changes I have discussed. Investigations 
are taking longer to conduct because investigators can no longer use 
the ``self-audit'' investigation method. It is increasingly difficult 
to resolve investigations at agency level as employers are much less 
likely to settle when the Division insists on civil money penalties and 
liquidated damages, in addition to back wages, while at the same time 
depriving those employers of the opportunity to obtain waivers of FLSA 
claims. Finally, there is no path for a good faith employer to 
voluntarily correct violations under the oversight of the Wage & Hour 
Division.
    To summarize, the current Administration is doing less with more. 
The Wage and Hour Division's new ``gotcha'' approach towards 
employers--carrying a larger stick while refusing to pass out any 
carrots--is not working to ensure our nation's employees are paid in 
compliance with the Fair Labor Standards Act.
                                 ______
                                 
    Chairman Walberg. Thank you.
    I now recognize Ms. Bobo for your testimony.

           STATEMENT OF KIM BOBO, EXECUTIVE DIRECTOR,
                INTERFAITH WORKER JUSTICE (IWJ)

    Ms. Bobo. Last year over Labor Day weekend staff members of 
the IWJ-affiliated worker center in Syracuse New York got a 
call from an emergency room worker concerning New York State 
Fair workers who had cooking burns, bedbug and flea bites, and 
they were malnourished because their employer wasn't paying 
them. They worked 16 to 18 hours a day and they weren't paid 
for it.
    They were housed in subhuman conditions, and despite 
serving food for long hours they were hungry. Community leaders 
immediately called a DOL supervisor who assigned staff to 
pursue this case, and then this past spring the employer was 
fined $50,000 and told to repay the workers $115,000 in back 
wages.
    And then this summer the DOL and community and religious 
leaders collaborated to make sure that this didn't happen 
again. They met with state fair leadership and they reached out 
to workers during the season.
    Enforcing the fair Labor Standards Act, curbing and 
deterring wage theft, is critical for the Department of Labor. 
Wage theft is not a minor problem; it is a national crime 
epidemic. Billions of dollars are stolen annually from low-wage 
workers. It is documented in my recent book on wage theft in 
America, and I would be happy to share copies with members 
here.
    Stopping and deterring wage theft is possible to do and it 
makes sense. It puts dollars back in the hands of low-wage 
workers; it helps ethical businesses who are undercut by 
unscrupulous employers; it helps put monies into public 
coffers; and it is a great way to stimulate the economy.
    Now, the Wage and Hour Division, I believe has been laying 
some important groundwork over the last few years but it needs 
to do much more if we are going to really end wage theft. And 
unfortunately, wage theft is not a small problem of a few 
isolated employers.
    Now, my colleagues here today, I think, believe that most 
employers want to do the right thing. And I agree with them 
that probably most employers do want to do the right thing. 
Unfortunately, there is a whole set of employers out there, 
particularly in sectors like residential construction, retail, 
restaurants, janitorial services, poultry, meatpacking, 
landscaping, farm labor, and fair workers, where wage theft is 
a normal practice for many employers; not all, but many.
    So let's talk quickly, what is wage theft? It is not paying 
the minimum wage, it is not paying overtime, it is withholding 
a final paycheck, it is not paying workers at all, it is 
committing payroll fraud by lying about having employees and 
calling them independent contractors. Again, huge problem: 26 
percent of low-wage workers don't get paid the minimum wage; 76 
percent of low-wage workers who work overtime aren't actually 
paid for it.
    Now, the Department of Labor has done a lot of good new 
programs, and I am excited about those, but I think we need to 
do more. So let me quickly go through five things that I think 
need to be done more to stop wage theft.
    One, engage ethical business leaders in sectors that are 
rife with wage theft. I have a new chapter in my book on 
ethical employers, like Stan Marek, from Houston, Texas, a 
Republic residential construction employer who is getting beat 
up by employers who are cheating their workers.
    He is getting undercut and he is mad about it. He talks 
about wage theft as the dirty little secret in the residential 
construction industry, and he says it is not a little problem 
and frankly, it is not secret. We all know about it. And so in 
sectors like that we need to be supporting these ethical 
businesses.
    Secondly, we need to increase the penalties for violating 
the law. If employers know that all they have to do is pay the 
back wages that they should have paid in the first place it is 
not enough of a disincentive. And it is not only that people 
should pay a penalty, but these penalties deter others from 
knowingly stealing wages or being careless about payroll 
records.
    Thirdly, we need to put more cops on the job. A thousand 
Wage and Hour investigators to protect the 130 million workers 
in the country is simply not enough.
    Fourth, we have got to get the proposed regulations out the 
door. I am excited about the right to know one because it would 
really help low-wage workers if they had a payroll stub that 
told them how they were paid and what it was for.
    And finally, we have got to expand and deepen these 
community partnerships with community groups, with worker 
centers, with the religious community, and with ethical 
businesses to make sure that workers get paid.
    Stopping wage theft is good for workers, it is good for 
ethical businesses, it is good for public treasury, and it is 
good for stimulating the economy. Thank you.
    [The statement of Ms. Bobo follows:]

          Prepared Statement of Kim Bobo, Executive Director,
                       Interfaith Worker Justice

    Last year over Labor Day weekend, staff members of the Interfaith 
Worker Justice affiliated workers center in Syracuse, New York, got a 
call from an emergency room worker concerning NY State fair workers who 
had cooking burns, bed bug and flea bites, and were malnourished, 
because their employer wasn't giving them enough money for food.
    Community leaders went to the hospital and then convened community 
and religious leaders in a fair poultry barn to hear the workers' 
stories. They were working 16 to 18 hours a day, but not being paid for 
it. They were housed in subhuman conditions and despite serving food 
for long hours, they were hungry.
    These community leaders immediately called a DOL supervisor who 
quickly assigned staff to pursue this case. This past spring, the 
employer was fined $50,000 and told to repay the workers $115,000 in 
back wages.
    Then this summer, the DOL and community and religious leaders 
collaborated to make sure that similar abuses didn't occur at the state 
fair by reaching out ahead of time to the fair leadership and regularly 
reaching out to workers about their rights during the season.
    Enforcing the Fair Labor Standards Act and curbing and deterring 
wage theft are critical tasks for the Department of Labor. Wage theft 
is a national crime epidemic. Billions of dollars are stolen regularly 
from workers. The recent update of my book, Wage Theft in America: Why 
Millions of Working Americans are not Getting Paid and What We can Do 
about It, documents the pervasive nature of the problem and why we must 
collectively make sure the Fair Labor Standards Act is enforced and the 
crisis of wage theft addressed.
    Stopping and deterring wage theft is possible and makes sense. 
Stopping wage theft puts hard-earned dollars back into the hands of 
working families--reducing the need to visit soup kitchens, shelters or 
to work extra jobs when parents should be at home with kids. Stopping 
wage theft supports ethical employers by leveling the playing field, 
making sure that unscrupulous employers don't prosper by stealing wages 
from workers. Stopping wage theft supports state and federal treasuries 
by ensuring employers pay their fair share of employer taxes, workers' 
compensation, unemployment insurance and other payroll related costs. 
And finally, stopping wage theft is a clear and direct way to stimulate 
the economy. If you put money back into the hands of working families, 
they will spend it in their communities.
    The Department of Labor's Wage and Hour Division has begun laying 
important ground work, but needs to do much more to end wage theft. 
Unfortunately, wage theft is a not a small problem of a few isolated 
employers who don't understand the law. In large and significant 
sectors of the economy, such as residential construction, retail, 
restaurants, janitorial services, poultry and meatpacking, landscaping, 
farm labor and fair workers, wage theft is a normal practice for many 
employers.
    What exactly is wage theft? Wage theft is when an employer 
illegally underpays workers for their work. It is not paying workers 
the minimum wage, not paying overtime premiums when required by law, 
stealing workers tips, withholding a final paycheck, not paying workers 
at all, billing the government for prevailing wages but only paying 
workers a portion, or committing payroll fraud by lying about having 
employees by calling them independent contractors.
    In 2008, the Center for Urban Economic Development, UIC, National 
Employment Law Project and the UCLA Institute for Research on Labor and 
Employment released results from the largest survey ever of low-wage 
workers--4387 workers in the three largest U.S. cities, New York, Los 
Angeles and Chicago. The results were shocking. In the survey sample, 
26 percent of low-wage workers were paid less than the minimum wage and 
76 percent of those who worked more than 40 hours were not paid legally 
required overtime. The report estimated that low-wage workers are 
short-changed more than $2600 annually due to wage and hour 
violations.\1\
---------------------------------------------------------------------------
    \1\ Center for Urban Economic Development, UIC, National Employment 
Law Project, UCLA Institute for Research on Labor and Employment, 
Broken Laws, Unprotected Workers: Violations of Employment and Labor 
Laws in America's Cities, 2008. Download a copy free at 
www.unprotectedworkers.org.
---------------------------------------------------------------------------
    I believe that the situation has gotten worse rather than better 
since 2008, given how vulnerable many workers are in this economic 
environment. Interfaith Worker Justice supports a network of 26 workers 
centers. Last year the centers saw more than16,000 low-wage workers and 
88 percent of them were victims of wage theft.\2\
---------------------------------------------------------------------------
    \2\ Interfaith Worker Justice, Workers Center Census, 2011. For 
more information about IWJ-affiliated workers centers, visit 
www.iwj.org.
---------------------------------------------------------------------------
    This is the context from which I come to the question of Examining 
Regulatory and Enforcement Action under the Fair Labor Standards Act 
(FLSA).
    First, let me review a few of the areas in which the Wage and Hour 
Division has laid strong ground work for strengthening enforcement, 
regulation and partnerships over the last two-plus years. The We Can 
Help program has made it clear that the agency wants to help all 
workers and is committed to informing people of their rights and of 
DOL's services. The creation of worker focused phone applications will 
help reach younger workers. Putting information on the DOL website 
about employers who steal wages offers needed information to workers 
and consumers. The industries that have been targeted for 
investigations are ones that everyone working with low-wage workers 
knows routinely violate the law. The Bridge to Justice program is an 
excellent example of a private-public partnership whereby workers whose 
claims cannot be pursued by DOL can get an 800 number and call a local 
ABA-approved bar association to find an attorney who may be able to 
assist them. The hiring and training of 250 new investigators and the 
commitment to strengthening partnerships with community organizations 
that have direct connections with workers is all for the good. The 
collaboration with the Internal Revenue Service (IRS) and state 
agencies to share data and jointly investigate employers who commit 
payroll fraud adds significant potential deterrent to such fraud. And, 
the IRS plan to allow businesses to voluntarily come forward and 
reclassify employees without IRS penalties is a common sense, business-
friendly approach to a widespread problem. These are all important 
approaches and lay the groundwork for even stronger work.
    But, these steps are not nearly enough to stop and deter wage 
theft. Let me recommend five more things the Education & the Workforce 
Committee, the Department of Labor and its Wage and Hour Division 
should do to strengthen regulatory, enforcement and partnership 
actions.
    1. Engage ethical business leaders in sectors rife with wage theft. 
In the new 2011 version of my book, Wage Theft in America, I've added a 
new chapter on ethical employers who work in sectors like residential 
construction and restaurants. These employers are paying their workers 
fairly and legally. Consider Stan Marek of Marek Construction in 
Houston Texas. His company is routinely undercut by employers who mis-
classify workers as independent contractors, thus cheating workers and 
taxpayers of about 30 percent of payroll costs. Ethical employers, like 
Stan Marek, believe there needs to be stronger and more consistent 
enforcement to level the playing field.\3\ This committee should hold a 
hearing on how ethical employers are undercut by those who commit wage 
theft.
---------------------------------------------------------------------------
    \3\ Kim Bobo, Wage Theft in America: Why Millions of Working 
Americans are Not Getting Paid and What We Can Do about It (New York: 
The New Press), 2011, page 117.
---------------------------------------------------------------------------
    2. Increase the penalties for violating the law. If employers know 
that their chances of being caught engaging in wage theft are slim and 
that if they are caught they will only have to pay the back wages they 
should have paid in the first place, there is little incentive to 
follow the law. And with only one Wage and Hour investigators for every 
135,000 workers, very few employers who commit wage theft are actually 
investigated.
    Years ago, I messed up on my payroll taxes. It was an honest 
mistake, but the IRS didn't care. It slapped a heavy penalty on the 
mistake. Believe me, I've been extremely careful and never paid another 
IRS fine. Most of us fear the IRS. Few employers fear the Department of 
Labor, but workers and ethical employers would be better off if they 
did. The Wage and Hour Division should continue to expand its efforts 
to create meaningful and significant consequences for those who violate 
wage laws--not only because it punishes those who steal wages, but more 
importantly because it deters others from knowingly stealing wages or 
from being careless in calculating workers' wages.
    In my book I list many ways to increase the costs of violating the 
law.\4\ The Wage and Hour Division has begun implementing many of them. 
The Division should continue these initiatives, but this Committee 
should look at other ways to increase the costs of violating the law as 
a means of making sure workers are paid fairly and unlawful activity is 
deterred.
---------------------------------------------------------------------------
    \4\ Ibid., pages 172-182.
---------------------------------------------------------------------------
    3. Put more cops on the job with a confirmed leader. Wage theft is 
a national crisis and there are only 1000 cops on the job. This 
committee should lead the way in advocating for more resources to 
recover unpaid wages. This is a cost effective way to increase money in 
the hands of workers, support ethical businesses, increase monies to 
public treasuries and stimulate the economy. What better way to 
stimulate the economy than making sure workers receive all their wages?
    And in addition to making sure the Wage and Hour Division has 
adequate staff, this Committee should insist that the White House 
proposes a permanent Wage and Hour Administrator and that Congress not 
delay the nomination with frivolous objections or partisan 
divisiveness. Ms. Leppink is doing an excellent job as an Acting 
Administrator, but a Division as critical to workers as the Wage and 
Hour Division, deserves a permanent, confirmed leader.
    4. Get the proposed regulations out the door. There are a lot of 
proposed regulations being talked about, but many haven't yet seen the 
light of day. Interfaith Worker Justice is particularly excited about 
the proposed regulation around transparency and paystubs. This could 
help workers know exactly what they are being paid for and would 
encourage employers to think twice before cheating them.
    Let's look at all the regulations, debate them and move on. There 
are regulations everyone should be able to agree with. Others may be 
more controversial, but let's get them out the door for review.
    5. Expand and deepen community partnerships. When police officers 
want to change criminal behavior, they engage the community in 
identifying law breakers and putting in place structures to change the 
environment. Community policing is an effective tool that police 
officers use. Community partnerships with workers centers, 
congregations and ethical business groups should be deepened and 
expanded to broaden the reach and effectiveness of the Wage and Hour 
Division. The story of the state fair workers demonstrates this. 
Together they not only stopped wage theft and recovered pay for 
workers, but they put in place a community plan to make sure it didn't 
happen again. Community partnerships work and deserve more serious 
support from the Department and this Committee.
    Stopping wage theft is good for workers, good for ethical 
businesses who aren't placed at a competitive disadvantage by those who 
cheat workers, good for public treasuries by ensuring employers are 
paying their share of taxes and good for stimulating the economy. 
Stopping wage theft is the right thing to do and I thank the Committee 
for addressing this important issue.
                                 ______
                                 
    Chairman Walberg. Thank you, as well.
    I now recognize Mr. Fortney for your testimony.

                 STATEMENT OF DAVID S. FORTNEY,
                     FORTNEY AND SCOTT, LLC

    Mr. Fortney. And thank you, and good morning, Chairman 
Walberg, and Ranking Member Woolsey, and distinguished members 
of the subcommittee. What I would like to do is briefly comment 
on a number of recent changes that the Wage Hour Division has 
undertaken, focusing both on the enforcement strategies as well 
as some of the key regulatory issues. And on some points I 
think you will find there is actually some agreement on the 
points that Ms. Bobo has made, so let's see if we can get into 
that.
    First of all, the Wage and Hour Division has adopted what I 
believe is a flawed approach that assumes that employers are 
deliberately violating the Wage Hour law, indeed, pursuing what 
the department has characterized as a ``catch me if you can.'' 
With all due respect, that is not my experience in dealing with 
hundreds and hundreds of employers, and I would submit that the 
department itself has developed more of a ``gotcha'' type of 
approach. And let me see if I can give some specifics that talk 
about that.
    They proudly announced about a year ago, in December of 
2010, a so-called Bridge to Justice program. This is a program 
where essentially the department is outsourcing to trial 
lawyers their duty to investigate and resolve claims.
    Instead of the Bridge to Justice program I think it 
actually should be the Reward to Lawyers program, because that 
is how it is working. A critical component that is missing in 
this program that occurs when Wage Hour investigates is 
advising the employer of a claim, having an opportunity to try 
to reconcile the claim. That affords an opportunity for the 
parties, if back pay is owed, to receive the back pay promptly. 
That benefits the employees; it benefits the employer because 
it is done in a very efficient administrative proceeding as 
opposed to protracted litigation.
    There has been a lot of discussion about the use of 
independent contractors, and the department has two major 
initiatives on that. First is the MOU that has been discussed 
with the IRS. On its face, a perfectly reasonable program, and 
frankly, coordination between the Labor Department and IRS is 
welcomed.
    What it does underscore, if you contrast how the IRS 
approaches compliance and enforcement versus what the 
Department of Labor does. The IRS offers written guidance to 
folks on whether a worker should be classified as a contractor 
or an employee. Indeed, there is a process by which the parties 
can submit a written questionnaire and receive written guidance 
back so that they are guided so that they can understand what--
whether the person--how they should be classified.
    As has already been mentioned, the Labor Department has a 
process for doing that--issuing opinion letters--that it has 
elected to stop doing. That should be resumed immediately.
    Second, the IRS program includes carrots, if you will--
incentives for employers to step forward and pay the taxes. It 
includes a discount on the taxes, and so forth. In the Wage 
Hour context, all employers are looking for isn't a discount. 
My experience is they are willing to pay the wages 100 cents on 
the dollar; what they want is the certainty that goes with 
that, and that is lacking in the current environment.
    Turning to the focus on the building industry--home 
construction industry. Targeting an industry is not unusual. 
What is unusual is that we would take the top tier--those that 
are the most compliant employers. That is unusual.
    The department typically would do a statistical sampling. 
They might take representative--because we know the problems 
are more likely than not--and their enforcement evidence would 
bear this out--with the lower end smaller employer in that 
industry. There is a disproportionate impact both in scope and 
focus in how that is being conducted.
    Finally, with regard to the so-called right to know 
regulations, Ms. Bobo is in favor of those; I am worried about 
them. They hang like a 500-pound anvil over this whole 
discussion.
    There currently is no obligation on the part of an employer 
to reduce to writing whether a worker is or is not a contractor 
or an employee. Indeed, the IRS employs a 20-factor test. The 
Labor Department employs a so-called economic realities test.
    The application of those legal tests are very complicated 
and more often than not will require an employer to consult 
with counsel. That is one of the reasons why there is 
confusion, because the legal tests both differ, and the Labor 
Department has acknowledged you can be a contractor for one law 
and an employee for another. But at the moment, the Labor 
Department, as I mentioned earlier, could address that by 
providing clarity and a process for prompt resolution.
    Finally, I would just like to underscore the approaches 
that Ms. McCutchen identified, which I think will get us a long 
way down the line. Written opinion letters--they were there 
before, they should be resumed, costs the department nothing 
more in resources to do that; specific resolutions of back pay 
using the Labor Department release forms, and it specifies that 
workers know what they are getting paid; and finally, specific 
compliance with a written process similar to what the IRS 
offers on the question of whether a worker is a contractor or 
an employee.
    So with that, I would be pleased to answer questions you 
have. Thank you.
    [The statement of Mr. Fortney follows:]

             Prepared Statement of David S. Fortney, Esq.,
                          Fortney & Scott, LLC

    Good morning, Chairman Walberg, Ranking Member Woolsey, and 
distinguished members of the Subcommittee. My name is David Fortney, 
and I am pleased to provide this testimony to address the recent 
regulatory and enforcement actions by the Department of Labor under the 
Fair Labor Standards Act. I am a co-founder of Fortney & Scott, LLC, a 
Washington, DC-based law firm that counsels and advises employers on 
compliance with the wage and hour laws as well as on the full spectrum 
of workplace-related matters. We have advised numerous employers on 
wage and hour compliance issues, and we regularly represent companies 
facing wage and hour audits by the U.S. Department of Labor. We also 
have conducted a great many workplace pay practice and overtime 
exemption job classification compliance assessments for our clients.
Background and Experience
    I have practiced in the areas of employment counseling and 
litigation defense for more than 31 years in Washington, DC and 
Philadelphia, Pennsylvania, and for the last twenty years a significant 
part of my practice has included wage and hour compliance matters. I am 
a member in good standing of both the Washington, DC and Commonwealth 
of Pennsylvania bars.
    My firm, Fortney & Scott, LLC (``FortneyScott''), has been 
recognized as a leading management employment law firm, Tier 2, in the 
highly prestigious ``Best Law Firms'' survey for 2011--2012 by U.S. 
News & World Report and Best Lawyers for Washington, DC. One of 
FortneyScott's key practice areas focuses on wage and hour compliance 
matters.
    Before co-founding FortneyScott, I served at the U.S. Department of 
Labor from 1989 to 1992 as the Deputy and Acting Solicitor of Labor. 
Today, a significant part of my practice includes counseling and 
representing employers on wage and hour compliance matters nationwide, 
including audits and enforcement matters by the U.S. Department of 
Labor's Wage and Hour Division.
    I have represented a wide range of employers on wage and hour 
matters, ranging from large Fortune 50 companies to small employers and 
also a wide range of federal contractors subject to the prevailing wage 
laws. Additionally, I have served as an advisor to Workplace 
Flexibility 2010, which is a public policy initiative that is part of 
the Alfred P. Sloan Foundation's National Initiative on Workplace 
Flexibility and is based at Georgetown University Law Center. I also 
have worked closely with the Society for Human Resource Management on 
addressing workplace flexibility issues. Finally, I co-chair the 
Practicing Law Institute's annual seminar on managing wage and hour 
risks, at which updates are provided by the Solicitor of Labor and the 
leading wage and hour attorneys from across the country. This seminar 
is widely attended by counsel representing employees as well as counsel 
representing private and public sector employers.
DOL Wage and Hour Division's Recent Initiatives and Regulatory 
        Changes--Introduction
    The U.S. Department of Labor (``DOL)'s Wage and Hour Division has 
undertaken a number of changes in how the Fair Labor Standards Act 
(``FLSA'') is enforced. These changes have resulted in increased 
uncertainty and difficulty for employers attempting to comply with the 
FLSA's minimum wage and overtime obligations. I will address the Wage 
and Hour Division's recent initiatives and regulatory reforms, and Ms. 
Tammy McCutchen's statement and testimony will focus on some of the 
major changes in DOL's FLSA investigations and compliance assistance 
efforts.
    The central question for today's hearing is whether the Wage and 
Hour Division is enforcing the FLSA in a manner that is most effective 
in the 21st Century workplace. There was detailed testimony about the 
shortcomings of the FLSA in meeting the needs of employers and 
employees in the 21st Century business environment during this 
Subcommittee's recent hearing in July 2011, ``The Fair Labor Standards 
Act: Is it Meeting he Needs of the Twenty-First Century Workplace?'' 
\1\ Greater clarity on how the FLSA's requirements can be effectively 
employed today will result in increased opportunities for expanded 
employment and flexible work arrangements that meet the needs of 
employers and employees, while maintaining the FLSA's minimum wage and 
overtime protections.
    The short answer, unfortunately, is that DOL is not striving to 
effectively implement the FLSA in today's workplaces. Indeed, just the 
opposite result is being achieved. The Wage and Hour Division has 
charted an FLSA enforcement course that fails to provide for the most 
positive outcome for employers and employees; instead the DOL focus has 
been on implementing changes that restrict flexible employment 
opportunities and that primarily focus on punishing employers.
    As a result of the increased risks employers face, many employers 
are restructuring their workforce to adopt the most restrictive working 
arrangements in order to minimize risks and costs resulting from DOL 
audits and litigation challenges. These changes diminish the ability to 
provide working arrangements that best meet the needs of the employees 
and employers. For example, a recent survey by HR Policy\2\ found that:
     Over half the member companies face increased FLSA 
litigation, primarily over the vague and inconsistent rules and 
exemptions governing overtime coverage ``that are increasingly out of 
step with the modern workplace.''
     Nearly half the litigation claims involve higher paid 
employees earning more than $50,000, rather than the low-paid and low 
skill workers the FLSA was intended to protect.
     To minimize legal risks, employers are imposing 
restrictions on popular practices such as telecommuting, flexible 
working hours and use of state-of-the art information technology such 
as smartphones outside the workplace.
    A review of DOL's new initiatives and regulations under the FLSA 
establishes a clear pattern of the Wage and Hour Division frustrating 
efforts to implement modern work practices that would benefit both 
employees and employers.
DOL's New Initiatives
    The DOL has introduced a number of new initiatives focusing solely 
on employer compliance, which seek to maximize the number of employers 
that are pursued for wage and hour violations. Certainly, we all 
recognize and agree that an important focus in promoting FLSA 
compliance and protecting workers' interests is enforcement. The 
question posed by the current program, however, is why the agency is 
not pursuing efforts to promote compliance through the issuing of clear 
rules and enforcement policies. Typically, effective compliance 
programs include clear guidance on what is expected of employers and 
takes into account the realities of the workplace and the statutory 
requirements. Enforcement then has an important role in reinforcing 
these clearly articulated compliance expectations.
    In its current efforts, the Wage and Hour Division's focus is on 
maximizing the enforcement efforts without offering meaningful 
compliance guidance to employers.
    The Wage and Hour Division has introduced a number of initiatives 
that are designed to promote the reporting of potential violations to 
either DOL or to private attorneys for follow-up enforcement actions. 
The Wage and Hour Division's approach assumes that employers generally 
are deliberately violating the wage and hour laws, and that if DOL 
simply can catch more employers, the result will be greater compliance. 
In announcing the new shift in DOL's programs in 2010, Deputy Secretary 
of Labor Seth Harris said DOL wanted to foster a culture of compliance 
among employers to replace what he described as a ``catch me if you 
can'' system in which too many companies violated employment laws.\3\ 
Although Mr. Harris acknowledged that many companies had a culture of 
compliance, he posited that too many others flouted wage and safety 
laws after weighing the costs of compliance against the benefits of 
breaking the law and the risks of getting caught. Thus, the resulting 
Wage and Hour Division programs have been cast under the presumption 
that many employers operate outside the law, with this ``catch me if 
you can'' attitude.
    With due respect to DOL, my experience is that employers are eager 
to understand and to comply with the wage and hour laws, and seek 
greater clarity on how the antiquated FLSA requirements are to be 
applied in today's workplace. This attitude among employers reflects 
not only the fact that most employers seek to act ethically, but also 
the fact that it is good business to do so. The DOL's response of 
encouraging claims against employers is not effective.
The Bridge to Justice Program for Referral of Employees to Attorneys
    The DOL announced in December 2010 the ``Bridge to Justice'' 
program under which the Wage and Hour Division connects workers to a 
new American Bar Association-approved attorney referral system.\4\ In 
essence, the program effectively outsources to private attorneys one of 
the Wage and Hour Division's most important functions--to investigate 
and respond to complaints of employees who have had the courage to come 
to DOL. According to DOL's announcement, ``* * * the Wage and Hour 
Division will now connect these workers [whose claims DOL did not 
investigate] to a local referral service that will, in turn, provide 
the workers with access to attorneys who may be able to help. This 
collaboration will both provide workers a better opportunity to seek 
redress for FLSA and FMLA violations and help level the playing field 
for employers who want to do the right thing.''
    One of the significant deficiencies with the Bridge to Justice 
program is that it fails to include the employers--there is no 
notification of employee complaints or opportunity for employers to be 
involved, nor is the employer afforded notice when complaining 
employees are referred to private attorneys. As a result, common 
situations in which an employee's complaint is in error or simply based 
on a mistaken time entry by the employee or a payroll entry mistake by 
the employer's payroll department are not promptly identified with an 
opportunity for a prompt and efficient resolution. Instead, the 
complaint--whether bona fide or mistaken--simply is turned over to 
private attorneys, who typically pursue the claims through litigation 
and related processes. The outcome inevitably is that the payment of 
any additional wages that might be owed to employees is delayed, and 
the employer then faces the additional--and typically significant--
costs of having also to pay attorneys' fees for the employee and the 
company, as well as litigation costs.
    The Bridge to Justice program has turned compliance upside down, 
because the referral by DOL to private attorneys for enforcement 
follow-up should be a last resort--after an employer has had an 
opportunity to respond and to undertake any necessary corrective 
actions. The Bridge to Justice is a ``gotcha'' program that mistakenly 
presumes that employers, on a widespread basis are flouting the wage 
and hour laws and actively embracing a ``catch me if you can'' business 
model. In my experience, that simply is not how the vast majority of 
employers operate. Instead of focusing on affording prompt remedial 
actions and compliance, the Bridge to Justice program--which more aptly 
should be designated as the Reward to Lawyers program--outsources DOL's 
responsibilities to investigate complaints and primarily benefits the 
lawyers, delays any wages that might be owed to employees, and 
increases employers' costs. None of these results promote expanded 
employment opportunities or the implementation of efficient work 
opportunities that employers and employees desire.
DOL's New ``Apps'' Result in Increased Economic Pressures on Employers
    The Wage and Hour Division has introduced two new applications 
(``apps'') to be loaded onto smart devices (iPhones, iPads, etc.) to 
encourage employees and the general public to file complaints with DOL 
about alleged wage and hour violations. Again, these programs leave out 
the employers and fail to provide an employer with any notice or 
opportunity to respond if there are complaints and to effect prompt 
remedial actions, if appropriate.
The Eat Shop and Sleep App
    The DOL announced last week that the ``informAction app'' challenge 
had resulted in a new app called Eat Shop Sleep, which is designed to 
``empower consumer choices about the hotel, motel, restaurant and 
retail industries.'' \5\ The app combines enforcement data from the 
Wage and Hour Division and the Occupational Safety and Health 
Administration with consumer ratings websites, such as Yelp and other 
tools, such as Google Maps.
    When one of our attorneys downloaded Eat Shop Sleep on her iPhone 
and then did a search in our local area, she got a map of Washington, 
DC that pinpointed various establishments. When she clicked on one of 
the points, she learned that, for example, according to DOL, BLT Steak 
is ``in violation.'' When she clicked further, she was shown 161 
reviews of the restaurant on Yelp (overall rating of 4 out of 5 stars), 
but was also told that according to the Wage and Hour Division of DOL, 
the restaurant has ``27 Fair Labor violations'' and that ``26 employees 
are due $6647.41 in back wages.'' The entry also asks the question, 
``Not a Fair or Safe Business?'' and invites users to submit 
information to the Labor Department. It also provides contact 
information for DOL and a notification of worker rights.\6\
    It is important to note what is not provided in this newest app--
there is neither notification to the employer nor an opportunity for 
the employer to respond and to address the claims. The app gives the 
appearance that the violations exist, that the violations have been 
investigated, and that the employer is actually guilty of these 
violations. The app does not indicate whether these alleged violations 
and alleged resulting back wages are the result of a final adjudication 
or are they simply the results of an initial investigation or, even 
worse, are they simply that an employee has filed a complaint against 
the employer? Again, the DOL's focus here is to encourage employee 
litigation and other complaints based on information that may not be 
accurate or complete.
The DOL-Timesheet App
    In May 2011, DOL announced the launch of its first application for 
smartphones, a timesheet to help employees independently track the 
hours they work and determine the wages they are owed.\7\ Available in 
English and Spanish, users can track regular work hours, break time and 
any overtime hours for one or more employers.
    The free app initially was compatible with the iPhone and iPod 
Touch. The Labor Department stated that it was exploring updates that 
could enable similar versions for other smartphone platforms, such as 
Android and BlackBerry. It also announced that it was exploring updates 
that would include the ability to track other pay features not 
currently provided for, such as tips, commissions, bonuses, deductions, 
holiday pay, pay for weekends, shift differentials and pay for regular 
days of rest.
    According to DOL's announcement ``[t]his new technology is 
significant because, instead of relying on their employers' records, 
workers now can keep their own records. This information could prove 
invaluable during a Wage and Hour Division investigation when an 
employer has failed to maintain accurate employment records.'' The app 
allows employees to submit the information directly to DOL for 
investigation, if the employee suspects violations.\8\
    Again, what is missing from DOL's Timesheet app is any notice to 
the employer. Also, the app fails to recognize that, in the first 
instance, both employees and employers would be best served by having 
employees first raise their concerns directly with their employers, in 
an effort to resolve potential issues in a timely and effective fashion 
without costly litigation and the inevitable delay in remediation.
    The Timesheet app, combined with the Eat Shop and Sleep app, will 
clearly result in additional referrals for private attorneys under the 
Bridge to Justice program. These new DOL programs are providing an 
integrated system that promotes a ``gotcha'' approach that fosters 
litigation, but that does not benefit employees or employers who are 
interested in prompt compliance.
Targeting Worker Misclassification--the Misuse of Independent 
        Contractors
    Recently, on September 19, 2011, the DOL announced a Memorandum of 
Understanding (``MOU'') with the Internal Revenue Service (``IRS'').\9\ 
Under the MOU, DOL and the IRS will coordinate efforts to address the 
misclassification of workers as independent contractors. Also, seven 
state agencies have already signed onto the MOU: \10\ The MOU will 
enable ``the DOL to share information and coordinate law enforcement 
with the IRS and participating states in order to level the playing 
field for law-abiding employers and ensure that employees receive the 
protections to which they are entitled under federal and state law.'' 
Additionally, DOL agencies now will share information.\11\
    Following the DOL-IRS MOU, the IRS announced its Voluntary 
Classification Settlement Program (``VCSP''), which is a new program 
that will allow employers to resolve prior misclassification issues by 
voluntarily reclassifying workers as employees for future tax periods 
and paying a reduced amount in employment taxes.\12\ To be eligible to 
participate in the VCSP, the employer must: 1) consistently have 
classified the workers as independent contractors or non-employees; 2) 
have filed all required Form 1099s for the prior three years; and 3) 
not currently be under an audit by the DOL, IRS or a state agency 
concerning the classification of the workers at issue.
    In exchange for agreeing to re-classify its workers, the employer 
will: 1) pay a reduced amount that effectively equals just over one 
percent of the wages paid to the workers for the most recent tax year 
(instead of the typical 10 percent tax due on wages); 2) not be liable 
for any interest and/or penalties on that amount; and 3) not be subject 
to an audit by the IRS as to the previous misclassification for the 
workers being reclassified under the VCSP. Employers are not required 
to reclassify all workers--they may choose those to reclassify under 
the program.
    Employers who wish to participate in the program must submit a VCSP 
application at least 60 days before it reclassifies the workers.\13\ 
The IRS will then review the application and determine whether to 
accept the employer into the VCSP.
    The IRS offers guidance on the factors it applies to determine 
worker status.\14\ Additionally, the IRS will provide either workers or 
employers with a determination for tax withholding purposes of whether 
a worker can be classified as in independent contractor.\15\
    In stark contrast to the IRS procedures to review and to advise on 
whether an employment relationship properly is classified as an 
independent contractor, DOL does not provide any comparable services. 
Previously, the Wage and Hour Division issued Opinion Letters by the 
Administrator that provided guidance on compliance matters, but the 
current administration has refused to issue Opinion Letters.
    In the context of determining whether the independent contractor 
requirements are met, employers face complex legal questions that often 
pose legal uncertainties. For tax purposes, the IRS applies a 20-factor 
test, whereas for determining whether the FLSA is applicable based on 
an employee relationship, DOL assesses the ``economic realities.'' \16\ 
DOL has recognized that ``[t]he plethora of tests defining independent 
contractor status applied across federal and state laws makes it 
possible for a worker to be classified as an independent contractor 
under one law, but as an employee under another.'' \17\ These differing 
worker classification criteria present a major compliance challenge for 
employers.
    The MOU between DOL and the IRS does not address the differing 
criteri, nor afford employers clear guidance by DOL. As a result, if a 
worker is found by the IRS to be properly classified as an independent 
contractor for tax purposes, an employer still may face a challenge by 
DOL based on the economic realities test. Alternatively, if a worker is 
reclassified as an employee under the IRS program, there remains legal 
uncertainty as to whether DOL will agree with the amount of back pay 
and whether DOL will claim that additional liquidated damages must be 
paid under the FLSA. Because of these uncertainties and the lack of 
transparency on the part of DOL's Wage and Hour Division as compared to 
the clear guidance and procedures offered by the IRS, voluntary 
compliance under the DOL-IRS MOU remains another example of the 
``gotcha'' approach that DOL has adopted in addressing employer 
compliance concerns.
Enforcement Directed at Independent Contractor Compliance
    In implementing its independent contractor enforcement strategies, 
DOL is focusing on specific industries, including home building, 
hospitality, janitorial services, agriculture, day care, health care 
and restaurants. Published reports describe the recent enforcement 
efforts targeting the five largest builders in the home building 
industry unfocused and overly broad, as the DOL seeks pay and 
employment records and the names of all contractors hired in the past 
year on a nationwide basis. The Wage and Hour Department does not 
allege any specific violations of laws. Instead, DOL has explained 
that, ``We are actively looking at those industries that employ the 
most vulnerable workers and that engage in business practices--such as 
misclassifying employees as independent contractors--that result in 
violations of minimum wage and overtime laws.'' \18\
    It appears that industry sweeps addressing worker classification 
issues are not calibrated or focused on employers that are most likely 
to have potential misclassification issues. Instead, Wage and Hour has 
launched a broadside attack against an entire industry, irrespective of 
the compliance efforts and success of specific employers. Builder 
advocates have responded that the probe represents another example of 
``regulatory intrusion'' by the Labor Department, at a time when 
unwarranted investigation is particularly challenging, given the 
current economic climate and the economically hobbled residential 
construction industry. Typically, in my experience, when the Wage and 
Hour Division or other DOL enforcement agencies focus on an industry, 
such as agriculture or the garment industry for FLSA compliance, the 
agency will randomly select employers and then use enforcement data to 
further refine and sharpen the focused compliance. This type of focused 
approach has not been followed by Wage and Hour for the home building 
industry; instead, all of the largest employers have been targeted on a 
corporate-wide basis.
    In published reports,\19\ the Labor Department said it was looking 
at industries in addition to home building, including hospitality, 
janitorial services, agriculture, day care, health care and 
restaurants. It remains to be seen whether the approach followed in the 
home building industry will be repeated.
    Let me now turn to the Wage and Hour Division's significant 
regulatory changes, and the impact those changes are having:
Regulations
    On April 5, 2011, the Department of Labor issued final regulations 
interpreting a number of provisions of the FLSA.\20\ The proposed 
regulations were issued in the waning days of the Administration of 
President George W. Bush. The regulatory changes, as well as upcoming 
regulations, impose significant burdens on employers and inhibit job 
growth. In addition, they are significantly impeding the implementation 
of flexible work arrangements that are highly desired by both employers 
and employees.
Fluctuating Workweek Changes
    In a fluctuating workweek, an employee works fluctuating hours from 
week-to-week and receives, pursuant to an understanding with the 
employer, a fixed salary as straight-time compensation for whatever 
hours the employee is called upon to work. The employee's regular rate 
of pay is determined by dividing the fixed salary by the number of 
hours worked in each workweek.
    Thus, in those weeks in which the employee works many hours, his or 
her regular rate is lower than in those weeks in which the employee 
works fewer hours. In such cases, the employer satisfies the overtime 
pay requirements of the FLSA if it compensates the employee, in 
addition to the salary amount, by paying at least one-half of the 
regular rate of pay for the hours worked in excess of 40 hours in each 
workweek. The half-time method of calculating overtime recognizes the 
fact that the employee has already been compensated at the straight-
time regular rate for all hours, including those over 40.
    In the notice of proposed rulemaking issued on July 28, 2008, DOL 
stated, ``The payment of additional bonus supplements and premium 
payments to employees compensated under the fluctuating workweek method 
has presented challenges to both employers and the courts in applying 
the current regulations.'' \21\ The Department proposed to clarify the 
regulation at 29 C.F.R. Sec.  778.114 to permit employers to pay 
bonuses and other incentives without jeopardizing the employer's 
ability to use a half-time method of overtime calculation for employees 
working a fluctuating workweek. As the proposal recognized, ``Paying 
employees bonus or premium payments for certain activities such as 
working undesirable hours is a common and beneficial practice for 
employees.'' Id. (emphasis added.) Under the proposal, such payments 
would be included in the calculation of the regular rate, unless they 
were explicitly excluded under the FLSA.
    In a surprising development, DOL ultimately decided to reject its 
own proposed clarification. The Labor Department stated in the preamble 
to the final regulation that ``the proposed regulation could have had 
the unintended effect of permitting employers to pay a greatly reduced 
fixed salary and shift a large portion of employees' compensation into 
bonus and premium payments, potentially resulting in wide disparities 
in employees' weekly pay depending on the particular hours worked. It 
is just this type of wide disparity in weekly pay that the fluctuating 
workweek method was intended to avoid by requiring the payment of a 
fixed amount as straight time pay for all hours in the workweek, 
whether few or many.'' \22\
    In adopting the final regulation, DOL has undermined what the 
Department had earlier recognized as a ``common and beneficial practice 
for employees.'' This is a clear about-face by DOL, and the final 
regulation discourages employers from either (1) offering flexible 
workweek arrangements for employees that receive bonuses and premium 
payments or (2) paying employees bonuses if they are on a flexible 
workweeks. Neither result is a positive outcome or justified by FLSA 
compliance.
Comp Time Changes
    In the same rulemaking, DOL also announced an interpretation of the 
rules governing the use of compensatory time off (``comp time'') in 
lieu of overtime pay for public-sector employees. These new regulations 
significantly reduce the flexibility for public sector employers to 
offer comp time in a cost-effective manner, and increase these costs at 
a time when public sector budgets are severely strained.
    The FLSA permits states, local governments and interstate agencies 
to grant employees compensatory time off in lieu of cash overtime 
compensation pursuant to an agreement with the employees or their 
representatives, and the law provides a detailed scheme for the accrual 
and use of compensatory time off. The law provides that a public-sector 
employee must be permitted by the employer to use accrued compensatory 
time ``within a reasonable period after making the request if the use 
of the compensatory time does not unduly disrupt the operations of the 
public agency.''
    DOL had always taken the position that an employee's request to use 
compensatory time on a specific date must be granted unless doing so 
would unduly disrupt the agency's operations. The Courts of Appeals for 
the Fifth and Ninth Circuits, however, both declined to defer to DOL's 
regulations because they found the plain language of the statute to 
require only that an employee be allowed to use compensatory time off 
within a reasonable period of the date requested unless doing so would 
unduly disrupt the agency.
    The proposed regulation would have stated that the law does not 
require a public agency to allow the use of compensatory time off on 
the day specifically requested, but instead only requires that the 
agency permit the use of the time within a reasonable period after the 
employee makes the request, unless the use would unduly disrupt the 
agency's operations. Many comments were received on both sides of the 
issue. After the publication of the proposal, the Court of Appeals for 
the Seventh Circuit disagreed with the Fifth and Ninth Circuit 
decisions, ruling that the FLSA was not clear on the issue, since 
``reasonable'' and ``undue'' are very open-ended terms, and the Seventh 
Circuit held that DOL's interpretation was reasonable and entitled to 
deference.
    In light of the split among the courts, DOL again decided to reject 
its own proposed revision to the regulation, and instead to maintain 
the more restrictive regulation that requires public sector employers 
to allow employees to use compensatory time off on the date requested 
absent undue disruption to the agency. DOL also stated that the fact 
that overtime may be required of one employee in order to permit 
another employee to use compensatory time off is not a sufficient 
reason for the employer to claim that the compensatory time off request 
is unduly disruptive.
Tip Credit Changes and Notification Requirements
    The FLSA provides that an employer may utilize a limited amount of 
its employees' tips as a credit against the employer's minimum wage 
obligations. An employer can take a tip credit if the employee has been 
informed of the provisions of the law and if all tips received by the 
employee have been retained by the employee, although the employer is 
permitted to have a tip pooling arrangement among employees who 
customarily and regularly receive tips.
    In 2008, DOL had proposed an interpretation of the FLSA that did 
not impose a maximum tip pool contribution percentage, but that stated 
that an employer must notify its tipped employees of any required tip 
pool contribution amount. In response to comments received on both 
sides of the issue, DOL's final regulation provides that the statutes 
do not impose a maximum contribution percentage on valid mandatory tip 
pools, which can only include those employees who customarily and 
regularly receive tips. However, under the new regulations an employer 
now must notify its employees of any required tip pool contribution 
amount, may only take a tip credit for the amount of tips each employee 
ultimately receives, and may not retain any of the employees' tips for 
any other purpose.
    DOL reviewed comments regarding the ownership of employee tips, and 
concluded that tips are the property of the employee and that the only 
permitted uses of an employee's tips is through a tip credit or a valid 
tip pool among only those employees who customarily and regularly 
receive tips. DOL rejected a recent decision from the Court of appeals 
for the Ninth Circuit in Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th 
Cir. 2010). In that case, tipped employees were required to turn over 
the majority of their tips to a tip pool that included employees, such 
as cooks and dishwashers, who are not customarily and regularly tipped 
employees. The court held that the limitation on mandatory tip pools to 
those employees who customarily and regularly receive tips does not 
apply when the employer does not claim a tip credit toward the payment 
of the minimum wage.
    DOL also addressed the issue of whether there was a limitation of 
the amount of tips that an employee could be required to contribute to 
a tip pool. In opinion letters and in litigation, DOL had stated that a 
tip pooling arrangement cannot require employees to contribute more 
than 15 percent of the employee's tips or two per cent of daily gross 
sales. Several courts have rejected the agency's maximum contribution 
percentages, however because neither the statute nor the regulations 
mentioned this requirement and because the opinion letters did not 
explain the statutory source for the limitation.
Right to Know--New Regulations
    In the Labor Department's Spring 2011 regulatory agenda, the 
Department announced its intention to issue new regulations that will 
expand employer's record keeping obligations under 29 CFR Sec. 516, and 
significantly increase the costs for compliance and the risks of non-
compliance. The pending ``Right to Know'' regulations are described in 
the regulatory agenda at DOL proposing to ``to update the recordkeeping 
regulations under the Fair Labor Standards Act in order to enhance the 
transparency and disclosure to workers of their status as the 
employer's employee or some other status, such as an independent 
contractor, and if an employee, how their pay is computed.'' The notice 
of proposed regulations was due to be published in October 2011, but 
has not yet issued.
    The proposed regulation poses significant concerns for employers. 
Employers apparently will be required to identify and to provide the 
reasons why a worker is classified as an independent contractor which, 
as described above, often is a legally complex determination under the 
FLSA's economic realties. To comply, employers necessarily will have to 
incur the costs of retaining experienced employment counsel to advise 
on these determinations. Additionally, employers will be required to 
justify why an employee may be classified as exempt from overtime, 
which again often requires the assessment of how to properly apply the 
antiquated FLSA requirements to today's workplace. And what are the 
consequences if an employer's efforts are second guessed by DOL and 
deemed to be in error? The potential is that in addition to the record 
keeping violations, the DOL may cite the improper classification or 
notification of workers as evidence of a willful violation of the FLSA, 
which increases the back pay limitation period from two to three years, 
and correspondingly increases the resulting liquidated damages. 
Although styled as a ``record keeping'' change, this proposed rule will 
provide another ``gotcha'' requirement that DOL, in turn, can use to 
impose greater sanctions against employers. Based on the recent 
regulatory changes and positions adopted by DOL in the most recent 
rulemakings, the business community should be very concerned about how 
its interests may be adversely affected by the pending Right to Know 
regulations.
    Chairman Walberg, Ranking Member Woolsey, I thank you again for 
inviting me to testify. I am happy to answer any questions you may 
have.
                                endnotes
    \1\ See the statements for the July 14, 2011, Subcommittee hearing 
submitted by (1) J. Randall MacDonald, Senior Vice President, Human 
Resources, IBM Corporation and Chairman, HR Policy Association; (2) 
Nobumichi Hara, Senior Vice President of Human Capital for Goodwill 
Industries of Central Arizona on behalf of the Society for Human 
Resource Management (SHRM); and (3) Richard L. Alfred, Esq., Seyfarth 
Shaw LLP. The statements and information from the July 14, 2011 hearing 
are available on the Subcommittee's website at http://
edworkforce.house.gov/Calendar/EventSingle.aspx?EventID=250290 (as of 
November 1, 2011).
    \2\ The HR Policy Association has just released a detailed survey 
showing that the industrial era wage and hour laws inhibit workplace 
flexibility policies. Information is available at www.hrpolicy.org.
    \3\ Quoted in New York Times article, U.S. Outlines Plan to Curb 
Violations of Labor Law (April 29, 2010) available at http://
www.nytimes.com/2010/04/30/business/30comply.html.
    \4\ See DOL's announcement and Frequently Asked Questions 
describing the Bridge to Justice program posted on DOL's website at 
http://www.dol.gov/whd/resources/ABAReferralPolicy.htm.
    \5\ See DOL's press release issued October 27, 2011, posted on 
DOL's website at http://www.dol.gov/opa/media/press/opa/
OPA20111568.htm.
    \6\ For a report on the experience using the Eat Shop Sleep app, 
see the Workplace FYI blog, at http://www.workplacefyi.com/dol/new-dol-
app-dishes-information-about-violations-by-restaurants-hotels-and-
motels/.
    \7\ The DOL's announcement of the smartphone Time Sheet app issued 
May 9, 2011 is available at http://www.dol.gov/whd/media/press/
whdpressVB3.asp?pressdoc=national/20110509--1.xml.
    \8\ More information about the time sheet app is available at the 
Workplace FYI blog, at http://www.workplacefyi.com/dol/wage-hour-
compliance/.
    \9\ DOL's press announcement is available at http://www.dol.gov/
opa/media/press/whd/WHD20111373.htm.
    \10\ The seven states which, as of the date of the MOU announcement 
have agreements with DOL, are Connecticut, Maryland, Massachusetts, 
Minnesota, Missouri, Utah and Washington. The Wage and Hour Division 
also announced it will enter into memorandums of understanding with the 
state labor agencies of Hawaii, Illinois and Montana, as well as with 
New York's attorney general.
    \11\ DOL's Wage and Hour Division and, in some cases, its Employee 
Benefits Security Administration, Occupational Safety and Health 
Administration, Office of Federal Contract Compliance Programs and 
Office of the Solicitor may share information with states that have 
agreements in place.
    \12\ The IRS description of the VCSP is available at http://
www.irs.gov/pub/irs-drop/a-11-64.pdf.
    \13\ The VCSP application known as IRS Form 8952 (rev. September 
2011) is available at http://www.irs.gov/pub/irs-pdf/f8952.pdf.
    \14\ The IRS guidance is available at http://www.irs.gov/
businesses/small/article/0,,id=99921,00.html.
    \15\ Employers or employees can submit Form SS-8 (rev. August 2011) 
for the determination of worker status for purposes of federal 
employment taxes and income tax withholding. Form SS-8 is available on 
the IRS website at http://www.irs.gov/pub/irs-pdf/fss8.pdf.
    \16\ The economic realities test focuses on five factors to assess 
whether the worker's relationship with the employer is that of an 
independent contractor or employee, including degree of control, 
opportunity for profit or loss, investment in facilities, permanency of 
the relationship, and required skill. See generally Goldberg v. 
Whitaker House Cooperative, 366 U.S. 28 (1966); Rutherford Food Corp. 
v. McComb, 331 U.S. 722 (1947), United States v. Silk, 331 U.S. 704 
(1947) and their progeny.
    \17\ DOL's report on Flexible Staffing Arrangements (August 1999) 
available on DOL's website at http://www.dol.gov/oasam/programs/
history/herman/reports/futurework/conference/staffing/9.1--
contractors.htm noting ``Whether or not a worker is covered by a 
particular employment, labor, or tax law hinges on the definition of an 
employee. Yet, statutes usually fail to clearly define the term 
`employee', and no single standard to distinguish between employee and 
independent contractor has emerged.''
    \18\ As quoted in the article in the Wall Street Journal, States, 
IRS to Join Probe of Home-Builder Pay Practices, Business Section 
(September 17, 2011), available on line at http://online.wsj.com/
article/SB10001424053111903927204576574892314453196.html.
    \19\ See, Wall Street Journal article, cited in preceding footnote.
    \20\ See, 76 F.R. 18832-18860 (April 5, 2011).
    \21\ 73 F.R. 43654, 43662 (July 28, 2008).
    \22\ 76 F.R. 18850 (April 5, 2011).
                                 ______
                                 
    Chairman Walberg. Thank you, Mr. Fortney, for your 
testimony.
    I now recognize myself for 5 minutes of questioning.
    And, Ms. McCutchen, let me go back to that whole idea of 
opinion letters that you alleged that Wage and Hour has stopped 
issuing. You have discussed the importance of Wage and Hour 
opinion letters to giving clarity to employers who are 
volunteering their desire to comply for the expressing 
uncertainty. How has the current policy on this--these opinion 
letters changed from when you were running Wage and Hour 
Division--and not simply that you were doing them, but the 
outcomes?
    Ms. McCutchen. The outcome is--and when the division 
decided to stop issuing opinion letters what they stated was 
they did not feel that providing answers to employers' fact-
specific questions was an efficient use of resources. And they 
did state they gave 900 presentations last year. I will point 
out that that is less than one presentation per year per 
investigator, by the way. But you can give a presentation and 
explain an administrative exempt employee must exercise 
discretion and independent judgment, but how does the--without 
a fact-specific answer from the agency, how is an employer 
supposed to know whether a particular employee actually 
exercises discretion and independent judgment?
    So their compliance assistance today is all just basically 
repeating what the statute says, repeating what the regulations 
say, repeating what is in their fact sheets. But without fact-
specific information an employer cannot determine whether or 
not they are complying with the law when they are giving an 
employee a bonus and whether it has be included regular rate or 
classifying an employee. So fact-specific answers from the 
Department of Labor is absolutely necessary to a good faith 
employer who wants to comply, and they are not getting that 
today.
    Chairman Walberg. So in many ways, thinking through it 
myself, dealing with the issue that Ms. Bobo brought up of 
1,000 cops on the job to do this amazing--this huge job--
whether or not you put more or not, a voluntary opinion or 
opinion letter to a company seeking clarification on what they 
are supposed to do would at least go a ways toward supplying 
what 1,000 more cops could do in getting information out.
    Ms. McCutchen. Absolutely, because you help those--to use 
other people's term--ethical, legitimate employers who just 
want to know what they are supposed to do----
    Chairman Walberg. Why wouldn't they offer opinion letters, 
then? What is the hold up? What is the hindrance? What is the 
concern about offering opinion letters?
    Is it concern that they are not certain themselves about 
the law, or----
    Ms. McCutchen. Well, frankly, I think it is because they 
are no longer interested in helping employers like that. Now, 
they are issuing administrator's interpretations, which are 
supposed to be more general discussion of a law, but this 
administration has issued only two administrator's 
interpretations on FLSA and both of those were simply reversals 
of positions taken in the Bush administration just a few years 
earlier. So they are not helping with the confusion.
    They say it is an inefficient use of resources. I think 
having a staff of five to 10 people responding to opinion 
letters would go a long way towards increasing employer 
compliance, which is their most important mission.
    Chairman Walberg. Thank you.
    Mr. Fortney, we have recently heard the IRS and the 
Department of Labor announce the two agencies will be 
collaborating on misclassification issues to allow employers 
who may have misclassified workers to pay reduced rates 
resulting from those misclassifications. In theory it sounds 
like a good idea--a good partnership. What pitfalls might you 
see in that decision, that relationship?
    Mr. Fortney. There are several issues that fall into that. 
First of all, the legal tests for under the two statutes are 
different. That is how the law exists.
    There are 20 factors that the IRS supplies or follows to 
determine whether a worker is a contractor or an employee. The 
results of that do not necessarily dictate whether a worker 
should be treated as an employee under the FLSA. It seems 
bizarre, but that is the current law. So it can provide a, if 
you will, a false positive or a false negative if you go to the 
IRS alone.
    Second, when you go to the--as I mentioned, the IRS does 
have a much more robust compliance process, whereby people 
don't have to wonder or wait until an enforcer shows up. They 
can go get--they fill out a form. It is a very simple--it is 
sort of like a streamlined opinion letter process. You fill out 
a form; you get the information back from the IRS where they 
give you a written opinion whether those--fact-specifically, 
whether those workers are or are not contractors.
    That is of huge assistance. The Labor Department can and 
should adopt a similar approach to answer the FLSA questions. 
It has not.
    Finally, at this point, when you go to the Labor 
Department, if you would approach them to pay back pay, not 
only will they not supervise or verify the amount that is being 
paid, but more often than not, in our experience, the Labor 
Department will also say in addition, liquidated damages, which 
is a doubling--a double amount--must also be paid. That, 
historically, for many decades and many different 
administrations, was not the rule that the department followed, 
and it provides a disincentive for employers to come forward 
and take advantage of--otherwise the good offices of the 
department to supervise those resolutions.
    Chairman Walberg. Thank you. My time is expired.
    I now recognize the gentlelady from California, Ranking 
Member Woolsey.
    Ms. Woolsey. So, Mr. Fortney, wouldn't you be very critical 
of the department if they weren't working with the IRS with 
this memorandum of understanding to work out the differences 
between the two agencies? That is what they are doing right 
now. This is, I believe, a huge step forward, I mean, so that 
next year, or once we are through with this, you won't be 
worried about having two sets of standards for who is and who 
is not a contract employee.
    Mr. Fortney. Yes. I would indicate, the coordination--the 
initiation of coordinated efforts between the service and the 
Labor Department is a very positive step. As they say, the 
devil is in the detail, and I think there is still--the 
department----
    Ms. Woolsey. Well, we are working out the detail. That is 
the point, and that what----
    Mr. Fortney. That would be welcome.
    Ms. Woolsey [continuing]. The chairman of the full 
committee said, you know, why aren't we going forward with 
activities that will make this better and more efficient? So 
hopefully that is the intent.
    Ms. Bobo, Mr. Fortney stated in his testimony that the 
Bridge to Justice program is turning compliance upside down. He 
argues that the referral by DOL to private attorneys would 
resort in actually a program where it is rewards to lawyers. 
Would you tell me what you think--I mean, isn't it true that we 
already allow the complaintant--the individual to go to a 
private attorney if they choose?
    Ms. Bobo. Absolutely. And clearly, the system is set up 
right now where part of enforcement is really done by the bar, 
by the legal community. And that is just, you know, one of the 
reasons there are so few staff at the Wage and Hour Division is 
because you have the private bar allowed to participate in help 
enforcing the law. So that is kind of a given.
    What is new in this program is it is really telling low-
wage--primarily low-wage workers that they have this 
opportunity and it is simply a referral program. This is, like, 
not a big deal. It is not different from what is already out 
there, and it is a small referral program to tell low-wage 
workers that you have the right to do this, and it is going 
through established procedures, right, the ABA. So this seems 
like a no-brainer. This is a simple program that is not 
controversial.
    Ms. Woolsey. So, Ms. McCutchen's statement in her testimony 
is--and actually, she argued that there is no path for a good 
faith employer to voluntarily correct violations under the Wage 
and Hour Division, or actually to seek compliance assistance 
from the division.
    Do you see it that way? Do you agree with her statement? Do 
you know, in your experience, how the Wage and Hour Division 
has ever--has failed to provide compliance assistance to 
employers?
    Ms. Bobo. Well, in my experience--again, I don't deal a lot 
with high road employers. I deal with a lot of employers in the 
low-wage sectors that are really rife with wage theft. And in 
my experience, when a restaurant worker or--there was a car 
repair employer in Chicago who some of his workers came into 
our worker center in Chicago and he wasn't paying them 
overtime, and we called the employer, and he was, frankly, 
surprised to learn that that is what the law was.
    We put him in touch with the Department of Labor; the 
Department of Labor helped. And now he is turning in his 
competition around the community for not paying overtime 
because again, if he is going to do it right he wants everybody 
to do it right.
    So in my experience, with particularly these low-wage 
employers, the department has been very willing to help, and I 
suspect they are willing to help with the larger employers, as 
well.
    Ms. Woolsey. So, do you think there should be an incentive, 
a discount for that failing employer once they are caught to 
pay----
    Ms. Bobo. You know, I said in my written testimony that I 
turned in I once messed up my employer payroll taxes, and I got 
hit with--not only did I have to pay the taxes but I got hit 
with a huge fine that I, frankly, thought was a little unfair 
because it was an honest mistake. On the other hand, I have 
never paid one again because it really taught me a lesson that, 
you know, it is--you have got to be super careful on this 
stuff, and especially when we are talking about workers' wages, 
right? We need to create an environment where not only will 
workers get their back money, but employers, frankly, feel a 
little terrified and a little worried that they are doing it 
right so that they are super careful because it matters to 
families.
    Ms. Woolsey. And I would suggest that it has cost the 
federal government some money in order to----
    Ms. Bobo. Absolutely. You know, and I do want to say this, 
on this employer misclassification, calling people independent 
contractors when they are really employees, now, I recognize 
that there are probably some cases that are complicated and 
confusing, but a lot of this stuff is really straightforward. 
We see, in our worker centers around the country--we run 26 
worker centers--we routinely see cooks and dishwashers from 
restaurants that are paid as independent contractors and paid 
salaries of $300 a week, no payroll taxes taken out of it. I 
mean, there is no question this is wrong and they are stealing 
from workers and stealing from the public coffers.
    So I think most of this stuff is really not all that 
confusing.
    Ms. Woolsey. Thank you.
    Chairman Walberg. I thank the gentlelady, and her time 
expired.
    I will turn to the gentleman from Indiana, Dr. Bucshon?
    Mr. Bucshon. Thank you, Mr. Chairman.
    Again, I want to comment on the fact that we are having 
this hearing today to make sure that everything that this 
agency is doing is consistent with the law. No one would deny 
that we want to make sure that federal law is enforced 
properly. But I also want to make sure that we have an 
efficient and effective government, and programs in the 
government.
    And with that, Ms. McCutchen, when you came to the Wage and 
Hour Division in 2001 what were your goals for the department?
    Ms. McCutchen. Two things, and I think this should still be 
the goal: Punish those bad employers. Do not let them get away 
with anything, as Ms. Bobo describes. But for good faith 
employers, make sure that there are all possible available 
resources to help them understand what the law allows because 
it is confusing. You know how many wage and hour lawyers there 
are in this country making a good living because these laws are 
not clear? You know, thousands and thousands. So it is not 
clear.
    So you need to punish the bad actors and you need to 
provide incentives to those good faith employers who want to 
comply but have made an honest mistake without punishing them 
for them when they voluntarily come forward rather than waiting 
to be investigated or sued. So it is that combination. The 
goal, the mission of the agency is to increase compliance by 
employers overall, and you cannot do that through enforcement 
only.
    Mr. Bucshon. And in your opinion, currently the Wage and 
Hour Division, where do you see that the goals that you had 
when you came to the division are misdirected, so to speak?
    Ms. McCutchen. I stand by my statement in my testimony that 
the door is closed to employers. I cannot even get an answer 
when I ask a question.
    And I know the wage and hour law pretty well, and sometimes 
I don't know what the answer is. I personally, for example, 
asked the deputy administrator a particularly difficult 
question a year and a half ago and have not gotten an answer. 
So it is really impossible for an employer to call up the DOL 
and find an answer.
    Mr. Bucshon. So again, one of the--what--can you just 
reiterate again for me personally what the most important steps 
you think they could take right now to get back in line with 
what the goals of--in your view, of the division should be?
    Ms. McCutchen. Number one, start issuing opinion letters 
again which do respond to fact-specific inquiries from 
employers who are trying to understand what the requirements 
are. Number two, start, again, to issue on a regular basis the 
WH-58 waiver form; that is a form an employee who receives back 
wages signs that waives their FLSA rights. Unlike other 
implement law statutes, there are only two ways to waive you 
claims under the FLSA--through litigation or through the 
Department of Labor. If you allow employers to get these waiver 
forms after they agree to pay 100 percent of back wages then it 
gives--provides a really strong incentives for voluntary 
compliance.
    And the third is to start, again, a voluntary compliance 
program that allows employers without fear of being punished 
with civil money penalties and liquidated damages to come 
forward voluntarily to the department, say, ``I have made a 
mistake; I want to pay back wages. Can you help me calculate 
and pay those back wages and in exchange get that wavier of 
claims,'' so that they know that their issue has been completed 
and employees who receive back wages can't turn around the next 
day and start a major class action litigation for more.
    Mr. Bucshon. Okay.
    Mr. Fortney, with all of what Ms. McCutchen just said, in 
your opinion, what could possibly be the motivation of the Wage 
and Hour Division's changes in their--in--recently in all of 
these areas? I mean, what possible--I mean, I guess that is 
more, maybe, of a political question. But, I mean, what could 
be the motivating factor behind the way that it seems to be 
managed now compared to what appeared to be an effective way it 
was being managed before?
    Ms. McCutchen. I was just thinking about this last night. I 
do not know.
    In her written testimony Deputy Administrator, for example, 
referred to a case in 2007 where an employer voluntarily came 
to the Department of Labor to get help and paid a total of $32 
million in back wages. Today, that employer would be turned 
away from the door.
    And I just don't understand why the agency would not want 
to collect $33 million more in back wages when an employer 
wants to do that voluntarily.
    Mr. Bucshon. Mr. Fortney?
    Mr. Fortney. The department has made a fundamental shift--
and they have announced this--indicating that the philosophy is 
a--they believe the employer community operates on a ``catch me 
if you can'' approach. I think Ms. Bobo's comments reflect, my 
comments would reflect, Ms. McCutchen's, that that is not the 
general trend, that there are many, many employers out there 
that do not.
    The ethical business leaders that Ms. Bobo referenced, that 
certainly is what we see and what people want is the certainty. 
On the other hand, if you are looking to sort of tote up 
numbers and so forth--I mean, it is very frustrating. We have 
had a number of instances where significant employers have 
wanted to, over the last 2 years, come forward and have all the 
benefits of the department's supervised release and have been 
told repeatedly by the department, ``No. Go figure it out on 
your own. Do it on your own.''
    Mr. Bucshon. I think my time is expired, so with that I 
will yield back.
    Chairman Walberg. I thank the gentleman.
    I now recognize the gentleman from New Jersey, Mr. Payne?
    Mr. Payne. Thank you very much. I understand that the 
blueberry investigation in our state has already been discussed 
in the previous panel, so I won't go into that. Of course, many 
of you may or may not know that New Jersey, believe it or not, 
called the Garden State, really had most of the egregious labor 
problems in the country, especially in the agricultural 
industry.
    I don't know if any of you remember Senator Harrison 
Williams, who was on the Senate Labor Committee and had to 
conduct very extensive investigations in New Jersey and the 
treatment of migrant workers in the southern part of our state. 
So although New Jersey may not be a state that comes to mind as 
it relates to some abuses in labor, of course in agriculture in 
particular, we have really been, in the past, in the forefront. 
Many remedies have, of course, occurred since his tenure 30 
years ago, but we are certainly aware of it.
    I just wonder, the--maybe, actually, Ms. Bobo or--anyone 
can chime in--I see that there is a tremendous amount of so-
called misclassification. According to the record in 2005, 
found that 10.3 million workers, 7.4 percent of the workforce, 
had been classified, rightly or wrongly, as independent 
contractors. Of course, we know that independent contractors 
lose all rights linked to employee status, such as workers' 
compensation, minimum wage, overtime protection, family medical 
leave, right to organize, collective bargaining.
    Now, I have always had a very high opinion of employers. 
They are people who are bright, and have a lot of initiative, 
and, you know, really--American spirit. How do we find so many 
of them making simple mistakes like not classifying people 
properly? Could you kind of--and is this rightly or wrongly 
done rightly or wrongly by choice? It just seems to me that 
these are basic things that a person would know whether someone 
is a so-called contractor. You know, when I think of a 
contractor it is the guy that comes out and builds a house, you 
know?
    Can you kind of clarify that to me or make some comment on 
it?
    Ms. Bobo. I think we have a number of sectors in the 
society where it has become standard practice to break the law. 
And one of the main ways that people do that is by payroll 
fraud--lying about actually having employees.
    And so you see it in restaurants, in the back of the house, 
where people are called independent contractors. Of course they 
are not independent contractors. You see it with janitors all 
the time.
    Residential construction is notorious. One time a couple 
years ago in Phoenix we did a number of just dropping in on 
work sites of one of the nation's largest home builders. So 
this is not a small mom and pop that didn't understand the law.
    We dropped in on work sites. Every single worker we talked 
to was paid as an independent contractor and they were clearly 
controlled--the work was controlled by the contractor there. 
But everybody was paid as an independent contractor and most of 
them were getting less than minimum wage.
    So again, we have got these huge sectors where it is common 
practice to pay people poorly, which is why I think this whole 
issue--I mean, clearly what we have done for the last decade--
you know, how you do it, and what are the incentives and 
disincentives, you know, I think we can argue about that, but 
clearly what we have been doing is not working. There is a 
crisis of workers not getting paid.
    When the largest survey of low-wage workers--these are 
workers making $10 an hour and less--shows that one out of four 
workers isn't paid the minimum wage and three-fourths aren't--
who work overtime aren't paid it. We have a crisis and what we 
are doing is not working.
    And, sir, I think the administration--again, the folks I 
know at the Department of Labor would never say that everything 
they are doing is the best, right? But they are really trying 
to figure out what is the mix, and how do we strengthen 
enforcement, how do we make it clear that breaking the law is 
wrong and that there is going to be some consequences for 
that--meaningful consequences?
    So again, I think the big picture here is that we have got 
a crisis of wage theft and it is not yet being addressed. My 
sense is that, you know, I am glad there are 1,000 
investigators, but frankly, it is still not enough, given the 
crisis that we see every day. Eighty-eight percent of the 
workers that came into our worker centers came in with wage 
theft problems. Huge problem.
    Mr. Buschon. Thank you.
    Chairman Walberg. The gentleman's time is expired.
    We appreciate the panel, your attention to details and 
getting information to us that will certainly be helpful.
    I now turn to the gentlelady from California for any 
closing comments she might have.
    Ms. Woolsey. Well, thank you, Mr. Chairman.
    And thank you to the panel. This has been very interesting.
    I hope that what comes out of this committee--our 
subcommittee--will be action that actually strengthens this 
important FLSA law and protects workers by setting very clear 
rules for employers and making it possible for the employee to 
challenge their employer and at the same time providing the 
employer with the help and support that they, as taxpayers, are 
counting on.
    I would like to work with you to crack down on 
misclassification because we know it hurts employees, it drains 
the government of much-needed revenue while putting employers 
who are in compliance at a severe disadvantage. So I would love 
it if you could have a hearing on my bill and add it to the 
committee agenda this year. I think that would be a good full 
committee hearing for us.
    I want to be clear that enforcing the law does not hurt the 
economy. There is a lot of talk about excessive government 
regulation and how it costs jobs, but it is also very clear 
that it could be a convenient excuse to do away with the hard-
fought protections of the FLSA.
    But even more important than that, in a time of a bad 
economy, like we are in right now, we have to remember that 
FLSA and similar laws were passed at the height of the Great 
Depression when people needed this help the most, and that is 
exactly where we are today. We know we need jobs in this 
country but we don't want to put jobs out there that don't pay 
a fair wage, that break the law, that put our workers at a 
disadvantage, because nobody is going to benefit from that.
    So let's do everything possible to ensure that the working 
Americans get a fair shake. And thanks for this committee for 
all their opinions in that regard.
    And thank you, Mr. Chairman.
    Chairman Walberg. I thank the gentlelady and appreciate the 
lobbying for your bill to be taken up, especially on your 
birthday today. That is a good choice to bring it up at this 
time. And we are certainly interested in looking further into 
this.
    That is why we have had this hearing today and we have had 
a prior hearing on FLSA. We continue to build our 
understanding, frankly, even if it is only for the chairman's 
purposes, understanding in a full-blown capacity of what we are 
dealing with here. This is a 1938 law. I think it ought to be 
very clear from both sides of the aisle that this is not an 
attack on FLSA--it is not meant to be an attack on FLSA--and 
that we don't believe that enforcing this law or any law is 
necessarily in itself an effort to hurt the economy. Not at 
all.
    But we certainly want to understand that since 1938 things 
have changed, and creativity has taken place. And Henry Ford 
may have been able to work under this law very adequately, but 
today Henry Ford, if he were around, might have some challenges 
in dealing with this law, as others have. And so we are looking 
for mechanisms by which we may--we can make this law work to 
encourage employees, employers, and the taxpayer in the 
process.
    We do not want wage theft. It is an ugly term and it is an 
ugly outcome if that takes place and we neglect it. But on the 
other side of the ledger, we want to make sure that the 
people's government that they expect, that comes from these 
halls as well as at the local and state levels, are service-
motivated--service-motivated to make sure that people are cared 
for, to get no more than what they need as far as compliance 
activities, but they also get compliance assistance.
    And I appreciate the panelists in, I believe, coming down 
unified on that fact that if there are ways that we can 
motivate voluntary compliance and encourage that, and not stand 
in the way of it or give disincentive for it, even if it is 
only perceived, that is a good path to take. To even entertain 
the fact that there may be no perceived path to voluntary 
compliance today for good actors--not talking about the bad 
actors; we are going to have to continue looking for them--but 
if there is no perceive path to voluntary compliance under this 
bill or under this law, but under present application of this 
law, then I think we have a problem we have to address.
    If there is an incentive to litigation--if there is an 
incentive to that--and I am not saying that there is, but 
hearing testimony, whether it is Bridge to Justice or whatever 
reason--if there is an incentive to litigation that goes beyond 
what is really the problem and adds unnecessary and burdensome 
costs and, in the outcome, impacts the number of jobs that are 
available for employees who want to function well on the job 
site, and want to have those jobs, and want to be paired up 
with employers who will treat them right, we want to address 
that concern.
    And then, moving from those aspects in what I have heard 
today, as well, there is an efficiencies, there is an economic 
issue that must be our concern as well. We want the taxpayer, 
the employee, the employer to be well served and efficiently 
served.
    When we hear today figures, frankly, we will check into 
further that it costs 23 cents--23 percent more to collect the 
same back wages as a few years ago. When we see figures that 
indicate that in 2010 the Department of Labor collected $130 
million in back wages for almost 219,000 workers and realize at 
least if the figures are accurate that this is a decrease 
compared to the 2005 to 2009 average collection of $141 million 
for nearly 254,000 workers, yet Wage and Hour Division has 
increased its workforce by more than--its effort by $30 million 
and nearly 300 positions. That is a question in my mind about 
the efficiency that is there as well, not simply just the 
outcome.
    So those are issues we will look at, and I commit to my 
ranking member that we will do this with due diligence, that 
this is not the first of the hearings, but we want to move 
forward so that in this time of economic challenge, whether it 
is in my state, in my district, or any of ours, that the law 
well serves the people who come under it. And ultimately, our 
economy grows, but probably more importantly, our people grow 
in this process, as well.
    So I appreciate the hearing today. I appreciate all who 
have taken part in it. And seeing that there are no other 
action or issues to be taken care of at this time, the 
committee stands adjourned.
    [Questions submitted for the record and their responses 
follow:]






                                ------                                


           Questions Submitted for the Record by Ms. Woolsey

                     questions for nancy j. leppink
    1. How does the Wage and Hour Division make decisions about its 
directed enforcement actions?
    2. Is the Fair Labor Standards Act flexible enough to meet the 
needs of the modern workforce?
    3. Can you tell us more about the types of individuals who are 
performing companionship services?
    4. Do you have policies on when live-in domestic workers have to be 
paid for overnight work?
    5. It has been asserted that since the Wage and Hour Division no 
longer issues opinion letters that the Department is no longer 
providing compliance assistance to employers. Can you tell us more 
about your compliance assistance efforts? Additionally, can you provide 
information on what happens when an employer comes to the Wage and Hour 
Division for compliance assistance?
    6. Unlike the practice under the previous administration, it is my 
understanding that the Wage and Hour Division no longer includes the 
results of employer initiated compliance reviews in the agency's annual 
enforcement numbers. Can you explain why not?
                              Lynn Woolsey, Ranking Member,
                             Subcommittee on Workforce Protections.
                                 ______
                                 

      Ms. Lippink's Response to Questions Submitted for the Record

    1. We received testimony during the hearing's second panel noting 
that the Wage and Hour Division (WHD) has withdrawn a number of so-
called ``Opinion Letters,'' which provide fact-specific guidance on 
wage and hour issues. Not only have the Opinion Letters been withdrawn, 
but we understand they have not been replaced and WHD has ceased 
issuing Opinion Letters altogether. WHD is now issuing more general 
``Administrator Interpretations,'' and it has only issued two since 
early last year. First, why has WHD stopped issuing fact-specific 
Opinion Letters? And second, why would WHD withdraw such important 
direction and guidance, changing the rules for job creators during this 
time of economic uncertainty?

    WHD Response: The Wage and Hour Division (WHD) has not stopped 
responding to requests for guidance on the laws that it enforces. The 
agency responds to incoming requests for opinion letters by providing 
references to statutes, regulations, interpretations and cases that are 
relevant to the specific request but without a detailed analysis of the 
specific facts presented as was the agency's practice in the past. Such 
a detailed analysis is a very labor intensive task and the resulting 
opinion letter frequently was bound by its very particular facts and 
applicable only to the circumstances presented by the requester. In 
addition, requests for opinion letters will be retained for purposes of 
the Administrator's ongoing assessment of what issues might need 
further interpretive guidance. Individuals with questions about the 
application of wage and hour laws to their particular situation may 
also talk to a Wage and Hour Division representative by contacting the 
office nearest them listed at http://www.dol.gov/whd/america2.htm or by 
calling the Division's toll-free help line at 1-866-4USWAGE (1-866-487-
9243) Monday-Friday 8 a.m. to 8 p.m. Eastern Time or by accessing the 
wealth of materials on the agency's website at www.wagehour.dol.gov.
    In order to provide meaningful and comprehensive guidance and 
compliance assistance to the broadest number of employers and 
employees, the Wage and Hour Administrator issues Administrator 
Interpretations when it is determined, in the Administrator's 
discretion, that further clarity regarding the proper interpretation of 
a statutory or regulatory issue is appropriate. Administrator 
Interpretations set forth a general interpretation of the law and 
regulations, applicable across-the-board to all those affected by the 
provision in issue. Guidance in this form is useful in clarifying the 
law as it relates to an entire industry, a category of employees, or to 
all employees. WHD believes that this is a much more efficient and 
productive use of resources than attempting to provide definitive 
opinion letters in response to fact-specific requests submitted by 
individuals and organizations, where a slight difference in the assumed 
facts may result in a different outcome.
    WHD has a number of other tools through which it provides guidance 
to the regulated community and to the public. For example, the agency 
disseminates compliance guides, fact sheets, compliance checklists, 
educational pamphlets, new and small business guides, self-audit 
packages, posters, bookmarks, videos both in hard copy and 
electronically through the agency's Web site. WHD's Internet site also 
hosts several program specific electronic interactive programs, i.e., 
elaws, that enable employers and employees to get customized responses 
to their questions.
    WHD has also engaged in rulemakings in which it allows the public, 
the regulated community, employers, and employees to weigh in with 
their views on the proposed change during the comment period.

    2. In fiscal years (FY) 2008, 2009, 2010, and 2011, what percentage 
of WHD's investigations were internally directed as opposed to 
complaint-driven?

    WHD Response: The following chart provides the requested 
percentages. Please note that percentages are based on ``all 
investigations'' as opposed to ``all cases.'' Cases include both 
investigations as well as conciliations. Conciliations are those non-
investigative customer service activities that the agency takes 
primarily on behalf of one employee to address one issue, typically the 
failure to pay a last paycheck.


----------------------------------------------------------------------------------------------------------------
                                                      Directed investigations as a   Complaint investigations as
                     Fiscal year                             percent of all               a percent of all
                                                             investigations                investigations
----------------------------------------------------------------------------------------------------------------
2008................................................                       36.51%                        63.49%
2009................................................                       35.21%                        64.79%
2010................................................                       26.72%                        73.28%
2011................................................                       29.21%                        70.79%
----------------------------------------------------------------------------------------------------------------


    3. What are WHD's bases for determining if a directed investigation 
is warranted for a specific industry or corporation? How does WHD 
initiate such directed investigations? Are directed investigations 
initiated and ordered primarily from the national office?

    WHD Response: The WHD conducts investigations for a number of 
reasons, all dealing with enforcement of the laws and ensuring an 
employer's compliance. WHD does not disclose the reason for an 
investigation. Most are initiated by complaints.
    WHD uses a data-driven approach in developing both its national and 
local directed enforcement initiatives. WHD concentrates its directed 
investigations in industries with a high likelihood of minimum wage and 
overtime violations, in industries with a history of violations, and 
where vulnerable workers are typically employed. Occasionally, a number 
of businesses in a specific geographic area will be examined.
    The vast majority of directed investigations are initiated by WHD 
field offices based on the particular compliance issues that may exist 
within their geographic area. The agency's directed enforcement, 
however, includes both national and local/regional initiatives. The 
planning process is shaped by a hybrid approach of top-down and bottom-
up planning. Investigations that result from a national initiative are 
typically conducted to establish national baselines of compliance. 
Targeted establishments are most often randomly selected.
    The objective of targeted or directed investigations is to improve 
compliance with the laws in those businesses, industries, or 
localities. Regardless of the particular reason that prompted the 
investigation, all investigations are conducted in accordance with 
established policies and procedures.

    4. WHD has stated its intention to devote resources toward 
deterring ``persistent violators.'' How does WHD administratively 
define ``persistent violator,'' and how does WHD determine if a company 
is a ``persistent violator?'' Does this enforcement strategy assume a 
company without violations is a ``persistent violator'' if it 
participates in an industry with a higher propensity for violations? If 
WHD cites a company more than once in an operating year, does WHD 
consider the company a ``persistent violator?''

    WHD Response: Whether a company persistently violates wage and hour 
laws is a fact-based determination rather than a numerical formula, WHD 
analyzes whether a company--either at the corporate level or the 
establishment level--has a history of repeated and systemic wage and 
hour violations. WHD does not characterize companies as persistent 
violators solely based on the company's industry.

    5. Your testimony cited WHD's FY 2011 enforcement numbers. Previous 
administrations posted DOL's enforcement information for all agencies 
and fiscal years online. However, enforcement data has not been updated 
since Secretary Solis took office. Please submit WHD's enforcement 
figures for FYs 2009, 2010, and 2011, using the same statistics and 
tables reported on the FY 2008 and prior years' annual enforcement fact 
sheets, as posted on WHD's website.

    WHD Response: See attached chart.

    6. For FY 2012, WHD has promised to ``pursue corporate-wide 
compliance strategies designed to ensure that employers take 
responsibility for their compliance behavior.'' How is WHD pursuing, or 
how does WHD intend to pursue, these strategies?

    WHD Response: WHD has a long history of working with large or 
multi-establishment corporations to ensure that corporate policies are 
consistent with wage and hour laws and that corporations monitor 
compliance across business units or establishments. In the past, WHD 
has entered into various corporate-wide settlement agreements that 
contain elements of monitoring, training, outreach, and self-auditing 
that increase the likelihood that individual entities within the 
corporations will be compliant with the law. WHD has also pursued 
corporate-wide injunctions, where appropriate. These are not new 
strategies, and it remains the responsibility of all covered employers 
at every level to comply with the applicable laws of this country.

    7. WHD, IRS, and a number of states recently announced agreements 
to engage in concerted industry-wide investigations and audits. Please 
submit for the record any economic burden or regulatory burden analyses 
undertaken by WHD concerning this new audit program and its potential 
economic impact? If WHD did not conduct any such analyses, please 
explain why not.

    WHD Response: The Memorandums of Understanding (MOUs) with the 
state agencies provide for the possibility of coordinated enforcement 
between the state agencies and the Wage and Hour Division. They do not, 
however, contemplate or discuss any coordinated enforcement actions 
against any specific industry or employer. Moreover, neither the IRS 
MOU nor the state MOUs contemplate or provide for audits, and thus no 
economic or regulatory burden was required.
    There are significant economic benefits to be gained by addressing 
the problem of employee misclassification, including through 
coordinated enforcement. When employees are misclassified as 
independent contractors or something else, it often leads to those 
employees being denied important rights and benefits, law-abiding 
employers being unable to compete against those who do not play by the 
rules, and states facing critical revenue shortfalls. Worker 
misclassification also generates substantial losses to the Treasury and 
the Social Security, Medicare and Unemployment Insurance Trust Funds. 
In its last comprehensive estimate of the scope of the 
misclassification problem for tax year 1984, the Internal Revenue 
Service estimated that 15 percent of all employers misclassified a 
total of 3.4 million employees as independent contractors, resulting in 
an estimated annual revenue loss of $1.6 billion (in 1984 dollars). A 
1994 Coopers & Lybrand study estimated that misclassification would 
cost the Federal government $34.7 billion between 1996 and 2004.\1\ In 
a 2009 report, the GAO highlighted these problems and recommended that 
the Department do a better job of working with both the IRS and state 
governments to solve them. This is why, as part of the Administration-
wide Misclassification Initiative that was launched under the auspices 
of the Vice President's Middle Class Task Force, the Department of 
Labor and the Internal Revenue Service recently took the important step 
of signing an MOU to allow for increased information-sharing on 
misclassification.
---------------------------------------------------------------------------
    \1\ Projection of the Loss in Federal Tax Revenues Due to 
Misclassification of Workers, Coopers & Lybrand (June 1994).
---------------------------------------------------------------------------
    Specifically, the Department has agreed to share information with 
the IRS about the misclassification it finds in its enforcement 
actions, helping to ensure compliance with tax laws. The IRS has agreed 
to share aggregate information, consistent with disclosure laws, about 
the misclassification it finds, which will help the Department better 
target its efforts to combat misclassification. Similarly, the Wage and 
Hour Division has entered into similar MOUs with 10 state government 
agencies. Under these MOUs, the Wage and Hour Division has agreed to 
share information about its misclassification enforcement with its 
state agency partners, thus increasing their ability to ensure 
compliance with state workers' compensation, unemployment insurance, 
and other state laws.
    The MOUs with the state agencies also provide for the possibility 
of coordinated enforcement between the state agencies and the Wage and 
Hour Division. They do not, however, contemplate or discuss any 
coordinated enforcement actions (or ``audits'') against any specific 
industry or employer.

    8. [FROM THE HEARING] ``[i]f I could ask, Ms. Leppink, if you could 
supply us with any changes that Wage and Hour Division implemented to 
address the GAO concerns,''.

    WHD Response: The Wage and Hour Division has implemented all of the 
recommendations from the March 2009 GAO report in which GAO made a 
series of recommendations for improving Wage and Hour's investigative 
and complaint intake processes.
    Recommendation 1: The Administrator should reassess current 
policies and processes and revise them as appropriate to better ensure 
that relevant case information is recorded in WHD's database, including 
all complaints alleging applicable labor law violations, regardless of 
whether the complaint was substantiated, and all investigative work 
performed on conciliations, regardless of whether the conciliation was 
successful.
    In response to this recommendation, WHD reassessed its policies and 
procedures. As WHD committed in its response to GAO, the Field 
Operations Handbook (FOH) was revised to strengthen WHD's complaint 
handling procedures. All WHD staff were then trained in customer 
service.
    Recommendation 2: To provide assurance that WHD personnel 
interacting with complainants and employers appropriately capture and 
investigate allegations of labor law violations, and provide 
appropriate customer service, the Administrator should conduct an 
assessment of WHD's complaint intake and resolutions processes and 
revise them as appropriate.
    As noted above, WHD completed an internal evaluation of its 
complaint intake and customer service policies and procedures. This 
review resulted in many of the proposed changes set forth in the 
revised FOH chapters. WHD has also reintroduced customer service goals 
and measures in its annual operating plan.
    Recommendation 3: To improve the efficiency and effectiveness of 
WHD personnel handling wage theft complaints, the Administrator should 
explore providing more automated research tools to WHD personnel that 
would allow them to identify key information used in investigating 
complaints such as bankruptcy filings, annual sales estimates for 
businesses, and information on additional names and locations of 
businesses and individuals under investigation.
    WHD has provided every district office with access to PACER (Public 
Access to Court Electronic Record) as suggested by GAO. In addition, 
WHD regional offices have access to LexisNexis to assist in research on 
behalf of district office staff. WHD also strengthened the FOH chapter 
on bankruptcy procedures to ensure that investigators and managers are 
diligent about obtaining information on bankruptcies through these 
traditional means.
    Recommendation 4: To assist in the verification of information 
provided by employers under investigation, the Administrator should 
explore gaining access to information maintained by IRS and other 
agencies as needed through voluntary consent from business being 
investigated.
    With the implementation of an MOU with the IRS, the agency is 
exploring a number of opportunities for sharing information consistent 
with privacy and confidentiality concerns.
    Recommendation 5: To provide assurance that WHD has adequate human 
capital and resources available to investigate wage theft complaints, 
the Administrator should monitor the extent to which new investigators 
and existing staff are able to handle the volume of wage theft 
complaints, and if not, what additional resources may be needed.
    WHD has hired over 300 new investigators to ensure timely responses 
to complainants. Throughout FY 2010, WHD field offices worked to reduce 
complaint backlogs as the new staff began to contribute to the agency's 
investigation outputs.
                 questions from representative woolsey
    1. How does the Wage and Hour Division make decisions about its 
directed enforcement actions?

    WHD Response: WHD uses a data-driven approach in developing both 
its national and local directed enforcement initiatives. Decisions on 
which industries to target are based on empirical data and research. 
WHD concentrates its directed investigations in industries with a high 
likelihood of minimum wage and overtime violations, in industries The 
vast majority of directed investigations are initiated by WHD field 
offices based on the particular compliance issues that may exist within 
their geographic area. The agency's directed enforcement, however, 
includes both national and local/regional initiatives. The planning 
process is shaped by a hybrid approach of top-down and bottom-up 
planning. Investigations that result from a national initiative are 
typically conducted to establish national baselines of compliance. 
Targeted establishments are most often randomly selected.
    The objective of targeted or directed investigations is to improve 
compliance with the laws in those businesses, industries, or 
localities. Regardless of the particular reason that prompted the 
investigation, all investigations are conducted in accordance with 
established policies and procedures.

    2. Is the Fair Labor Standards Act flexible enough to meet the 
needs of the modern workforce?

    WHD Response: The FLSA has needed relatively few changes over the 
years because its language is general enough, and its principles broad 
enough, to apply to the new occupations and job duties that result from 
rapidly changing industries and technologies. This is why, for 
instance, WHD has emphasized job duties over job titles, and provided 
illustrative, rather than exclusive, lists of what types of job duties 
may or may not qualify for the administrative, executive and 
professional exemption. For example, WHD's regulation defining and 
delimiting the exemption for computer professionals specifically 
rejects the notion that job titles are dispositive--despite the 
specific mention of several job titles in the statute--because of the 
fact that ``job titles vary widely and change quickly in the computer 
industry.'' Further, the current computer professional exemption 
provides a primary duties test that, although narrowly tailored to 
exempt only those employees who are truly computer professionals and 
not employees whose jobs simply involve the use or application of 
computers or computer programs, is broad enough to adapt to the changes 
in a computer professional's duties as technology advances.
    Although some of the Act's or related statutory or regulatory 
provisions may use language or examples involving traditional notions 
of manual labor, their concepts apply equally to modern service- or 
technology-related industries. For example, the fundamental premise of 
the FLSA is that an employee must be paid for all hours the employer 
suffers or permits her to work, which includes all the time during 
which she is required or allowed to perform work for an employer, 
regardless of where the work is done. If an employee is engaged to 
wait, as long as the time waiting is primarily for the benefit of the 
employer, the waiting counts as hours worked. This is true regardless 
of whether it is a firefighter waiting at the station for the alarm to 
signal a fire or a call center representative waiting at a computer for 
a call to come through.
    Furthermore, the fact is that the FLSA as it exists today allows 
for a significant amount of flexibility for both employees and 
employers, yet this existing flexibility is not currently extended by 
employers to, or used by, the vast majority of workers. For example, 
nothing in the FLSA prevents an employee from telecommuting on a 
regular or ad hoc basis, or from having employees that only work 
remotely in a virtual office. Likewise shift flexibility, whether it 
involves a compressed workweek or a split shift, is compliant with the 
Act and allows employees the ability to spend more time with their 
families or take their children to doctors' appointments.

    3. Can you tell us more about the types of individuals who are 
performing companionship services?

    WHD Response: Of the 1.79 million home care workers, 1.59 million 
are employed by staffing agencies of which over 92% are women, nearly 
30% are African American, 12% are Hispanic and close to 40% rely on 
public benefits such as Medicaid and food stamps.

    4. Do you have policies on when live-in domestic workers have to be 
paid for overnight work?

    WHD Response: Yes. Domestic service employees who reside in the 
household (live-in) where they are employed are entitled to minimum 
wage pay. However, section 13(b)(21) of the Fair Labor Standards Act 
provides an overtime pay exemption for live-in domestic service 
employees. In determining the number of hours worked by a live-in 
worker, the employee and the employer may exclude, by agreement, the 
amount of sleeping time, meal time and other periods of complete 
freedom from all duties when the employee may either leave the premises 
or stay on the premises for purely personal pursuits. If the sleeping 
time, meal periods, or other periods of free time are interrupted by a 
call to duty the interruption must be counted as hours worked. The 
regulations allow an employer and employee who have such an agreement 
to establish the employee's hours of work in lieu of maintaining 
precise records of the hours actually worked. The employer is to 
maintain a copy of the agreement and indicate that the employee's work 
time generally coincides with the agreement. If there is a significant 
deviation from the agreement, a separate record should be kept or a new 
agreement should be reached. See 29 CFR 552.102.
    However, given the Department's concerns that such agreements may 
not reflect all hours worked by live-in domestic workers, the 
Department recently proposed to revise the regulations to no longer 
allow the employer of a live-in domestic employee to use the agreement 
as the basis to establish the actual hours of work in lieu of 
maintaining an actual record of such hours. Instead, under the 
proposal, the employer will be required to keep a record of the actual 
hours worked.

    5. It has been asserted that since the Wage and Hour Division no 
longer issues opinion letters that the Department is no longer 
providing compliance assistance Additionally, can you provide 
information on what happens when an employer comes to the Wage and Hour 
Division for compliance assistance?

    WHD Response: The Department of Labor is committed to providing the 
public--America's employers, workers, job seekers and retirees--with 
clear and easy-to-access information on how to comply with federal 
employment laws. WHD provides a wide variety of educational materials, 
such as formal interpretive bulletins, compliance guides, fact sheets, 
checklists, pamphlets, new and small business guides, self-audit 
packages, posters, bookmarks, videos, and an electronic interactive 
program through the WHD website.
    Compliance assistance to employers is provided daily through a 
myriad of methods. Our offices are open to the public and employers and 
employees alike routinely visit for assistance. We encourage employers 
to call WHD at our toll free number (1-8664USWAGE (1-866-487-9243)) for 
assistance with their WHD issues. In these individual calls, WHD staff 
respond to questions ranging from what is the minimum wage to more 
complex inquiries about how to pay overtime for a particular situation 
or industry. These calls are confidential and separate from 
investigations. Assistance is also provided to employers on how to 
obtain Wage Determination information or how to use the optional forms 
for the Family Medical Leave Act. Staff members not only mail 
publications to employers for future guidance but will guide them on 
how to access the information on the WHD website. Employers may also 
email the WHD directly (from our website) with their questions and 
receive a prompt response.
    In order to provide meaningful and comprehensive guidance and 
compliance assistance to the broadest number of employers and 
employees, the Wage and Hour Administrator issues Administrator 
Interpretations when it is determined, in the Administrator's 
discretion, that further clarity regarding the proper interpretation of 
a statutory or regulatory issue is appropriate. Administrator 
Interpretations set forth a general interpretation of the law and 
regulations, applicable across-the-board to all those affected by the 
provision at issue. Guidance in this form is useful in clarifying the 
law as it relates to an entire industry, a category of employees, or to 
all employees. WHD believes that this is a much more efficient and 
productive use of resources than attempting to provide definitive 
opinion letters in response to fact-specific requests submitted by 
individuals and organizations, where a slight difference in the assumed 
facts may result in a different outcome.
    Compliance assistance is a mandatory requirement in every 
investigation. Educating an employer on how to obtain, maintain, and 
sustain compliance is an essential part of our work with employers. 
Investigators will review sections of the law that are applicable to 
the employer's circumstances and provide them with the appropriate 
publications and other available resources prior to the conclusion of 
the investigation.
    Lastly, in the past year, WHD conducted nearly 900 outreach 
seminars, conferences, speeches, symposiums, panel discussions, and 
presentations where the target audience is geared to employers, 
employer representatives, human resource professionals, and/or employer 
associations. These events allow WHD staff to educate employers and 
employees about the laws enforced by WHD and give attendees the 
opportunity to ask questions directly to WHD staff.

    6. Unlike the practice under the previous administration, it is my 
understanding that the Wage and Hour Division no longer includes the 
results of employer initiated compliance reviews in the agency's annual 
enforcement numbers. Can you explain why not?

    WHD Response: In fiscal years prior to 2010, the WHD's enforcement 
statistics were comprised of several types of investigative data, 
including data from employer initiated self-audits. Employer initiated 
self-audits were circumstances in which employers, who had determined 
on their own that their payroll practices were not in compliance with 
the law and that they owed back wages to their employees, would contact 
the WHD requesting that the WHD supervise the payment of the back wages 
they owed their employees so that upon the employees' acceptance of the 
back wages the employees would waive their private right to sue for 
liquidated damages in addition to the back wages. In these cases, the 
WHD generally would not conduct an independent investigation and would 
engage in a limited review of employers' back wage calculations. While 
WHD provides technical assistance to any employer that wishes to ensure 
that it is in compliance with WHD laws, WHD no longer supervises the 
payment of back wages solely based on an employer's self-identified 
violations and, as a result, no longer provides a de facto waiver of an 
employee's private right to sue his or her employer absent independent 
investigative activity by an agency official. Rather than committing 
investigator resources for an activity already undertaken by the 
employer, WHD expects the employer to compensate its employees for any 
wage shortages that it has identified.
    The ``total back wages collected'' reported in fiscal years 2003 
and 2007 included several large employer self-audit cases. In FY 2003, 
the ``total back wages collected'' included self-audits by Wachovia 
with $22 million in back wages, a self-audit by First Union with $8.5 
million, and a self-audit by IBM at $7 million. These employer self-
audits comprised $37.5 million of the FY 2003 total of $212,537,554.
    The FY 2007 total for back wages collected included the 
Department's settlement with Wal-Mart in which more than 86,800 
employees received more than $33 million in back wages. This case was 
also an employer self-audit case in which the employer approached the 
Department and asked for assistance in correcting several errors it had 
identified in an internal review of its method for calculating 
employees' ``regular rates'' of pay, on which time and one half rates 
must be paid for overtime. Consequently, this employer self-audit 
comprised $33 million of the $220,613,703 million collected in FY 2007.
    As of FY 2010 and, in particular, the FY 2011 total of $224,844,870 
million in back wages collected, the largest amount collected in the 
WHD's history, the ``total back wages collected'' does not include back 
wages collected as a result of employer self-audits.
                                 ______
                                 
    [Whereupon, at 11:43 a.m., the subcommittee was adjourned.]