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How to Handle a Department of Labor Audit

Recently, I have had the experience of working with a client on handling a Department of Labor (DOL) audit. In this particular case, one of my client's ex-employees chose to cause some damage to my client's company as a result of being terminated and decided to file a complaint with the DOL as well as commence a case before the MCAD for discrimination. As a result, my client received a letter from the DOL looking to review my client's employment and payroll records over the last couple of years. Although my client was nervous about the process, we employed several of the following steps to proactively prepare and defend its  practices:

A. Your company must react to the notice from the DOL requesting an audit that is undertaken pursuant to the Fair Labor Standards Act and to take is to contact your attorney and accountant for immediate advice and assistance. In our case, I had instructed my client to go on record with the DOL to get a convenient date for the requested audit and to get a date several weeks out in order for my client to be able to fully comply with the audit request.

B. Make sure that you read the audit request carefully. Generally speaking, the DOL investigators are usually very specific as to the documents they are requesting to be audited. However, there are situations when the requests are not altogether clear. In those cases, have your attorney and/or accountant make an inquiry of the DOL investigator for further clarification of any unclear audit requests. Keep in mind, the burden is on the DOL to make its requests clear and precise. Moreover, as an employer, you are never to provide documents other than those specifically requested by the DOL. In my recent case, my client was ready to produce records from 2016 when only documents from 2017 were requested as part of the audit. Never offer more documents that are otherwise requested and make sure that you know exactly which documents were produced. This can be achieved by stamping each document and making a copy of the same or creating a separate log of all documents produced.

Before each audit, make sure that your employee rights posters are properly displayed, including Family and Medical Leave Act rights ( if, for example, this applies to your business). Although the DOL is conducting an audit of your payroll books and records, in many cases, if an investigator sees that your company has not displayed the various and necessary employment posters in a conspicuous area then the DOL investigator can report the same as an infraction and a fine or penalty can be issued for violating federal law.

D. You can expect that employees will be interviewed. Many workforces today have employees who have trouble speaking English. If that is the case, you can make arrangements with the DOL in advance to have appropriate translators at your place of employment on the day of the audit to assist in the interview effort. Additionally, in some cases, my clients have procured the services of a stenographer in order to preserve a transcript of the interview. If this is the route that you want to take, you are best advised to notify the DOL in advance to request either a stenographer or translator.

E. The interview process can be broad and time consuming depending on the nature of the particular audit. Auditors are free to ask employees regarding a number of issues, including, but not limited to, exempt/ nonexempt status, overtime pay, payroll schedule, cash payments, child labor, travel time, on-call time, training time, volunteer time, wage deductions, and family leaves matters. The interview is one where the investigator is most interested in getting a sense of the employee's regular daily duties and then evaluating whether the surrounding employment information provided fits the employee's own job description. If the documents do not otherwise fit the employee's job description then red flags will begin to appear and further evaluation may be in order. Again, this is why having a translator particularly for those employees who have issues with speaking English becomes so important.

As an employer, you do not want your employees unintentionally to provide the DOL with information because they failed to comprehend the interview question in the first instance. During the interview, employees' own description of his or her work responsibilities is generally outcome-determinative insofar as the DOL finding any breaches of the Fair Labor Standards Act. If the audit is conducted during normal business hours, try to find an area at your corporate office that can be designated to handle the audit. It would be wise to take the audit away from your company's mainstream day to day business and to have suitable space designated specifically for this audit. Counsel can be present during the audit process but cannot participate in the audit process itself.

F. The DOL is not entitled to any protected health information of your employees. Please make sure that all medical and health information of each employee to be interviewed is segregated from any payroll and/or general personnel files. If there are any FMLA documentation as it relates to any employee subject to a DOL interview then those documents must be produced as part of the audit process.

G. The DOL is not entitled to commercial and/or proprietary information as it relates to your company. Trade secrets and/or confidential and or proprietary information is not something that your company is required to furnish to be in compliance with the audit process. If any documents are removed from an employment file prior to the audit it is wise to mark those documents removed as "Trade Secret" or business confidential.

H. Once the documentation is furnished and the specific employees interviewed, the DOL may conduct a debriefing discussion with the employer regarding any ongoing legal issues found and/or whether any penalties or back wages may be due. As an employer, you must comply with any such requests by the DOL.

As with any investigation or inspection, it is always wise to make sure you are well prepared and organized. At the Katz Law Group, we have counseled numerous companies in this process and have assisted them in DOL audits. In fact, we have developed a special checklist for employers to follow when faced with this situation. The checklist provides greater detail and covers all actions an employer must take both during the audit process and then during the post-audit phase of the matter.  Please call us at 508-480-8202 if your company is faced with a DOL audit in the future.

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