Wage Theft Prevention and Wage Recovery Act, H.R. 4763 and S. 2697

Companies doing business with independent contractors would be exposed to heightened civil and criminal sanctions if determined to be the employer of such contractors under the Wage Theft Prevention and Wage Recovery Act, introduced in the U.S. House of Representatives by Representative Rosa L. DeLauro (D-Conn), H.R. 4763, and in the U.S. Senate by Senator Patty Murray (D-Wash), S. 2697.

Both bills were introduced on March 16, 2016, which is the same day that U.S. Department of Labor (“DOL”) Secretary Thomas Perez testified before the U.S. House of Representatives Committee on Education and the Workforce concerning his plans for increasing DOL’s enforcement efforts to target worker misclassification and other forms of what he calls “wage theft.”

The bills would make substantial changes to the Fair Labor Standards Act (“FLSA”) and create a new Wage Theft Prevention and Wage Recovery Grant Program. The bills appear to be aimed principally at regulating an employer’s relationship with its employees, and increasing the financial consequences to the employer for violating the FLSA. But the bills’ provisions – including their enhanced civil and criminal sanctions – would apply equally to a company determined to have misclassified individuals as independent contractors.  In this regard, the bills would significantly increase the financial consequences of misclassification to a company doing business with independent contractor.

H.R. 4763 has 29 initial co-sponsors, all of whom are Democrats. Similarly, S. 2697 was cosponsored by nine Democrats and one Independent – Senator Bernie Sanders (I-VT).  The principal features of the bills are outlined below.

Amendments to the FLSA

New Information Reporting Duties

  • Require an employer to provide employees no later than 15 days after the employee’s date of hire (or after the date of any change in the underlying information) with a notice setting forth an employee’s rate of pay and formula for calculating the pay, the employee’s classification as exempt or nonexempt for purposes of overtime, and the employer’s contact information.
  • Require an employer to provide each employee with a paystub containing detailed information for each pay period.
  • Impose new prescriptive rules governing an employer’s final payment to an employee whose employment is terminated, and new financial sanctions for a violation.

New Right to “Full Compensation”

  • Expand the FLSA to require an employer to pay its employee the greater of the compensation required by the FLSA or the compensation that the employer contractually agreed to pay the employee.
    • One consequence of this provision would be to extend the FLSA’s attorney-fee-shift provision to any claims by employees alleging nonpayment of promised compensation.

Civil and Criminal Enforcement

  • Increase the current-law penalty of double damages for violations of the minimum wage or overtime laws to triple damages for violations of wage (greater of FLSA-required or contractually agreed compensation) or overtime laws.
  • Increase the penalty for retaliation to four times the amount of lost wages.
  • Delete the provision under which an employee does not become a party to a class action lawsuit seeking to recover lost wages or unpaid overtime premiums until providing written consent to become a party.
  • Prohibit a waiver by an employee of a right to bring an action, including a collective action, in court as a condition of employment or in a pre-dispute arbitration agreement.
  • Increase the current civil penalty for FLSA violations from an amount not to exceed $1,100 for each repeated or willful violation of the minimum wage or overtime law, to a penalty not to exceed $2,000 per employee for an initial violation of the wage or overtime law – regardless of whether the violation was willful or repeated, and increasing the penalty to $10,000 per employee for repeated or willful violations.
  • Create a new civil penalty for recordkeeping violations defined as of up to $1,000 per employee affected for a first violation, and increasing to $5,000 for each subsequent violation.
  • Increase the criminal penalty for willful violations of the FLSA from $10,000 to $10,000 per employee affected.
  • Require the Secretary of Labor to refer to the Department of Justice for prosecution any employer that willfully falsifies records, violates wage or overtime payment requirements or engages in retaliation.

Recordkeeping

  • Require an employer to provide an employee, within 21 days of a request, with wage-related records for up to five years. A violation of this requirement (regardless of whether the employer or employee is responsible for maintaining the wage records) would create a rebuttable presumption, in the case of an employee’s claim that an employer violated the FLSA’s wage or overtime requirements, that hours the employee claims to have worked are correct. An employer could overcome the presumption by providing clear and convincing evidence that the employee’s evidence is inaccurate.

Amendments to the Portal-To-Portal Act

  • Increase the two-year statute of limitation under the FLSA to four years; and increase the three-year statute of limitations to five years.
  • Suspend the running of the FLSA’s statute of limitations during a period beginning when the Secretary of Labor commences an investigation of a violation of the FLSA and ending when the investigation is concluded.

Wage Theft Prevention and Wage Recovery Grant Program

  • Permit the Labor Secretary to distribute $50 million to local entities – both public and private – to participate in the enforcement of any Federal law enforced by the DOL Wage and Hour Division. The following types of entities would be eligible to receive a grant:
    • Nonprofit organization, including a community-based organization, faith-based organization, or labor organization, that provides services and support to employees, including assisting such employees in recovering unpaid wages;
    • Employer;
    • Business association;
    • Institution of higher education; and
    • Partnership between any of the entities described above.
  • Grants would be awarded on a competitive basis, but a priority would be given to applicants able to demonstrate past and ongoing work to prevent wage and hour violations or to recover unpaid wages.
    • The grants would be designed to establish and support activities, including, but not limited to, the following:
      • Disseminating information and conducting outreach and training to educate employees about their rights under wage and hour laws;
      • Providing assistance to employees in filing claims of wage and hour violations;
      • Assisting enforcement agencies in conducting investigations, including in the collection of evidence and recovering back pay;
      • Monitoring compliance with wage and hour laws; and
      • Performing joint visitations to worksites that violate wage and hour laws with officials from the DOL Wage and Hour Division.
    • Another purpose of the grants would be to develop “community partnerships” to expand and improve cooperation between enforcement agencies and members of the community to (i) prevent and reduce wage and hour violations; and (ii) assist employees in recovering back pay for any such violations. A “community partnership” means a partnership between the DOL and a working group consisting of any of the following community partners:
      • State department of labor;
      • Attorney general of a State, or other similar authorized official of a political subdivision thereof;
      • Law enforcement agency;
      • Consulate;
      • Employee or advocate of employees, including a labor organization, community and faith-based organization, business association, or nonprofit legal aid organization;
      • Academic institution that plans, coordinates, and implements programs and activities to prevent wage and hour violations and recover unpaid wages, damages, and penalties; and
      • Any municipal agency responsible for the enforcement of local wage and hour laws.

Within 60 days following a grant, the DOL’s Wage and Hour Division would enter into a memorandum of understanding with the grant recipient setting forth specific goals, objectives, strategies, and activities to be accomplished under the grant.

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