Fair Labor Standards Act: Department of Labor Needs a More Systematic Approach to Developing Its Guidance
Published: 2014-07-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The FLSA sets federal minimum wage and overtime pay requirements applicable to millions of U.S. workers and allows workers to sue employers for violating these requirements. Questions have been raised about the effect of FLSA lawsuits on employers and workers and about WHD's enforcement and compliance assistance efforts as the number of lawsuits has increased.
This statement examines what is known about the number of FLSA lawsuits filed and how WHD plans its FLSA enforcement and compliance assistance efforts. It is based on the results of a previous GAO report issued in December 2013. In conducting the earlier work, GAO analyzed federal district court data from fiscal years 1991 to 2012 and reviewed selected documents from a representative sample of lawsuits filed in federal district court in fiscal year 2012. GAO also reviewed DOL's planning and performance documents, interviewed DOL officials, as well as stakeholders, including federal judges, plaintiff and defense attorneys who specialize in FLSA cases, officials from organizations representing workers and employers, and academics.
section_title: What GAO Found
paragraphs: Substantial increases occurred over the last decade in the number of civil lawsuits filed in federal district court alleging violations of the Fair Labor Standards Act of 1938, as amended (FLSA). Federal courts in most states experienced increases in the number of FLSA lawsuits filed, but large increases were concentrated in a few states, including Florida and New York. Many factors may contribute to this general trend; however, the factor cited most often by stakeholders GAO interviewed—including attorneys and judges—was attorneys' increased willingness to take on such cases. In fiscal year 2012, an estimated 97 percent of FLSA lawsuits were filed against private sector employers, often from the accommodations and food services industry, and 95 percent of the lawsuits filed included allegations of overtime violations.
The Department of Labor's Wage and Hour Division (WHD) has an annual process for planning how it will target its enforcement and compliance assistance resources to help prevent and identify potential FLSA violations. In planning its enforcement efforts, WHD targets industries that, according to its recent enforcement data, have a higher likelihood of FLSA violations. WHD, however, does not have a systematic approach that includes analyzing relevant data, such as the number of requests for assistance it receives from employers and workers, to develop its guidance, as recommended by best practices previously identified by GAO. In addition, WHD does not have a routine, data-based process for assessing the adequacy of its guidance. For example, WHD does not analyze trends in the types of FLSA-related questions it receives from employers or workers. According to plaintiff and defense attorneys GAO interviewed, more FLSA guidance from WHD would be helpful, such as guidance on how to determine whether certain types of workers are exempt from the overtime pay and other requirements of the FLSA.
section_title: What GAO Recommends
paragraphs: In its December 2013 report, GAO recommended that the Secretary of Labor direct the WHD Administrator to develop a systematic approach for identifying and considering areas of confusion that contribute to possible FLSA violations to help inform the development and assessment of its guidance. WHD agreed with the recommendation and described its plans to address it.

section_title: Letter
paragraphs: I am pleased to be here today to discuss our work on the recent increase  in the number of lawsuits filed by individuals or groups alleging violations  of the Fair Labor Standards Act (FLSA). The FLSA sets minimum wage  and overtime pay standards applicable to most U.S. workers. The  Department of Labor’s (DOL) Wage and Hour Division (WHD) is  responsible for ensuring that employers comply with the FLSA, and  workers may also file private lawsuits to recover wages they claim they  are owed because of a violation of the act, such as an employer’s failure  to pay overtime compensation to workers who are entitled to it. In recent  years, the number of FLSA lawsuits has increased and questions have  been raised about the effect of FLSA litigation on employers and workers  and about WHD’s enforcement and compliance assistance efforts.
WHD enforces the FLSA by conducting investigations, assessing  penalties, supervising payment of back wages, and bringing suit in court  on behalf of employees. In addition to responding to complaints of alleged  FLSA violations it receives from workers or their representatives, WHD  also initiates enforcement actions in an effort to target employers likely to  violate the FLSA and where workers may be particularly vulnerable.  However, WHD cannot investigate all of the thousands of complaints it  receives each year because of its limited capacity. Therefore, the agency  informs workers whose complaints of FLSA violations are not investigated  or otherwise resolved by WHD of their right to file a lawsuit. Workers filing  an FLSA lawsuit may file in one of the 94 federal district courts, which are  divided into 12 regional circuits across the country.
WHD encourages compliance with the FLSA by providing training for  employers and workers and creating online tools and fact sheets that  explain the requirements of the law and related regulations, among other  efforts. The agency refers to these efforts collectively as compliance  assistance. One form of FLSA compliance assistance WHD provides is  written interpretive guidance that attempts to clarify the agency’s  interpretation of a statutory or regulatory provision. WHD disseminates  this guidance to those who request it—such as employers and workers— and posts it on the WHD website for public use. WHD’s interpretive  guidance includes opinion letters which apply to a specific situation. In  2010, WHD stopped issuing opinion letters and indicated that it would  instead provide administrator interpretations, which are more broadly  applicable.
My statement today examines what is known about the number of FLSA  lawsuits filed and how WHD plans its enforcement and compliance  assistance efforts. The statement is based on a report we issued in  December 2013. To conduct our prior work, we analyzed federal district  court data compiled by the Federal Judicial Center—the research and  education agency of the federal judicial system— from fiscal years 1991  to 2012. To assess the reliability of the data we obtained from the Federal  Judicial Center, we reviewed documentation related to the collection and  processing of the data, interviewed officials at the Administrative Office of  the U.S. Courts and the Federal Judicial Center, and performed electronic  testing to identify any missing data, outliers, and obvious errors. We  determined that the data included in our report were sufficiently reliable  for our purposes. In addition, we reviewed selected documents from a  nationally representative sample of 97 FLSA lawsuits filed in federal   All estimates from our sample had a 95  district court in fiscal year 2012.percent confidence interval of within plus or minus 10 percentage points.  We also reviewed DOL’s planning and performance documents and  interviewed DOL officials, as well as stakeholders, including federal  judges, plaintiff and defense attorneys who specialize in FLSA cases,  officials from organizations representing workers and employers, and  academics about FLSA litigation trends and WHD’s enforcement and  compliance assistance efforts. Further details on our scope and  methodology are available in the previously published report.
We conducted the work on which this statement is based in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe the evidence obtained provides  a reasonable basis for our findings and conclusions based on our audit  objectives.
subsections: section_title: FLSA Lawsuits Have Increased Substantially over the Last Decade and Most FLSA Lawsuits Filed in Fiscal Year 2012 Alleged Overtime Pay Violations
subsections: section_title: FLSA Lawsuits Increased Substantially Over the Last Decade, and Most Were Filed in a Few States
paragraphs: Over the past two decades—from 1991 through 2012—there was a  substantial increase in the number of FLSA lawsuits filed, with most of the  increase occurring in the period from fiscal year 2001 through 2012. As  shown in figure 1, in 1991, 1,327 lawsuits were filed; in 2012, that number  had increased over 500 percent to 8,148.
FLSA lawsuits can be filed by DOL on behalf of employees or by private  individuals. Private FLSA lawsuits can either be filed by individuals or on  behalf of a group of individuals in a type of lawsuit known as a “collective  action”. The court will generally certify whether a lawsuit meets the  requirements to proceed as a collective action. The court may deny  certification to a proposed collective action or decertify an existing  collective action if the court determines that the plaintiffs are not “similarly  situated” with respect to the factual and legal issues to be decided. In  such cases, the court may permit the members to individually file private  FLSA lawsuits.
Collective actions can serve to reduce the burden on courts and protect  plaintiffs by reducing costs for individuals and incentivizing attorneys to  represent workers in pursuit of claims under the law. They may also  protect employers from facing the burden of many individual lawsuits;  however, they can also be costly to employers because they may result in  large amounts of damages. For fiscal year 2012, we found that an  estimated 58 percent of the FLSA lawsuits filed in federal district court  were filed individually, and 40 percent were filed as collective actions. An  estimated 16 percent of the FLSA lawsuits filed in fiscal year 2012 (about  a quarter of all individually-filed lawsuits), however, were originally part of  a collective action that was decertified (see fig. 2).
Federal courts in most states experienced increases in the number of  FLSA lawsuits filed between 1991 and 2012, but large increases were  concentrated in a few states, including Florida, New York, and Alabama.  Of all FLSA lawsuits filed since 2001, more than half were filed in these  three states, and in 2012, about 43 percent of all FLSA lawsuits were filed  in Florida (33 percent) or New York (10 percent). In both Florida and New  York, growth in the number of FLSA lawsuits filed was generally steady,  while changes in Alabama involved sharp increases in fiscal years 2007  and 2012 with far fewer lawsuits filed in other years (see fig. 3). Each  spike in Alabama coincided with the decertification of at least one large  collective action, which likely resulted in multiple individual lawsuits. For  example, in fiscal year 2007, 2,496 FLSA lawsuits (about one-third of all  FLSA lawsuits) were filed in Alabama, up from 48 FLSA lawsuits filed in  Alabama in fiscal year 2006. In August 2006, a federal district court in  Alabama decertified a collective action filed by managers of Dollar  General stores. In its motion to decertify, the defendant estimated the  collective to contain approximately 2,470 plaintiffs.
section_title: FLSA Lawsuits Filed in 2012 Were Concentrated in a Few Industries and Most Alleged Overtime Violations
paragraphs: In fiscal year 2012, an estimated 97 percent of FLSA lawsuits were filed  against private sector employers, and an estimated 57 percent of FLSA  lawsuits were filed against employers in four industry areas:  accommodations and food services; manufacturing; construction; and  “other services”, which includes services such as laundry services,  domestic work, and nail salons. Almost one-quarter of all FLSA lawsuits  filed in fiscal year 2012 (an estimated 23 percent) were filed by workers in  the accommodations and food service industry, which includes hotels,  restaurants, and bars. At the same time, almost 20 percent of FLSA  lawsuits filed in fiscal year 2012 were filed by workers in the  manufacturing industry. In our sample, most of the lawsuits involving the  manufacturing industry were filed by workers in the automobile  manufacturing industry in Alabama, and most were individual lawsuits  filed by workers who were originally part of one of two collective actions  that had been decertified.
FLSA lawsuits filed in fiscal year 2012 included a variety of different types  of alleged FLSA violations and many included allegations of more than  one type of violation. An estimated 95 percent of the FLSA lawsuits filed  in fiscal year 2012 alleged violations of the FLSA’s overtime provision,  which requires certain types of workers to be paid at one and a half times  their regular rate for any hours worked over 40 during a workweek.  Almost one-third of the lawsuits contained allegations that the worker or  workers were not paid the federal minimum wage. We also identified  more specific allegations about how workers claimed their employers  violated the FLSA. For example, nearly 30 percent of the lawsuits  contained allegations that workers were required to work “off-the-clock”  so that they would not need to be paid for that time. In addition, the  majority of lawsuits contained other FLSA allegations, such as that the  employer failed to keep proper records of hours worked by the  employees, failed to post or provide information about the FLSA, as  required, or violated requirements pertaining to tipped workers such as  restaurant wait staff (see fig. 4).
section_title: Stakeholders Cited Several Reasons for the Rise in FLSA Litigation
paragraphs: An estimated 14 percent of FLSA lawsuits filed in federal district court in fiscal year  2012 included an allegation of retaliation. limitations for filing an FLSA claim is 2 years (3 years if the violation is  “willful”), New York state law provides a 6-year statute of limitations  for filing state wage and hour lawsuits. A longer statute of limitations  may increase potential financial damages in such cases because  more pay periods are involved and because more workers may be  involved. Adding a New York state wage and hour claim to an FLSA  lawsuit in federal court could expand the potential damages, which,  according to several stakeholders, may influence decisions about  where and whether to file a lawsuit. In addition, according to multiple  stakeholders we interviewed, because Florida lacks a state overtime  law, those who wish to file a lawsuit seeking overtime compensation  generally must do so under the FLSA.
Ambiguity in applying the law and regulations. Ambiguity in  applying the FLSA statute or regulations—particularly the exemption  for executive, administrative, and professional workers—was cited as  a factor by a number of stakeholders. In 2004, DOL issued a final rule  updating and revising its regulations in an attempt to clarify this  exemption and provided guidance about the changes, but a few  stakeholders told us there is still significant confusion among  employers about which workers should be classified as exempt under  these categories.  Industry trends. As mentioned previously, about one-quarter of  FLSA lawsuits filed in fiscal year 2012 were filed by workers in the  accommodations and food service industry. Nationally, service jobs,  including those in the leisure and hospitality industry, increased from  2000 to 2010, while most other industries lost jobs during that  period. Federal judges in New York and Florida attributed some of the concentration of such litigation in their districts to the large number  of restaurants and other service industry jobs in which wage and hour  violations are more common than in some other industries. An  academic who focuses on labor and employment relations told us that  changes in the management structure in the retail and restaurant  industry may have contributed to the rise in FLSA lawsuits. For  example, frontline managers who were once exempt have become  nonexempt as their nonmanagerial duties have increased as a portion  of their overall duties.
section_title: WHD Uses a Data- based Approach to Target Its FLSA Enforcement Efforts but Does Not Analyze Data on Requests for Assistance to Improve Its Guidance
paragraphs: We also reviewed DOL’s annual process for determining how to target its  enforcement and compliance assistance resources. The agency targets  industries for enforcement that, according to its recent enforcement data,  have a higher likelihood of FLSA violations, along with other factors. In  addition, according to WHD internal guidance, the agency’s annual  enforcement plans should contain strategies to engage related  stakeholders in preventing such violations. For example, if a WHD office  plans to investigate restaurants to identify potential violations of the  FLSA, it should also develop strategies to engage restaurant trade  associations about FLSA-related issues so that these stakeholders can  help bring about compliance in the industry.
However, DOL does not compile and analyze relevant data, such as  information on the subjects or the number of requests for assistance it  receives from employers and workers, to help determine what additional  or revised guidance employers may need to help them comply with the   In developing its guidance on the FLSA, WHD does not use a  FLSA.systematic approach that includes analyzing this type of data. In addition,  WHD does not have a routine, data-based process for assessing the  adequacy of its guidance. For example, WHD does not analyze trends in  the types of FLSA-related questions it receives. This type of information  could be used to develop new guidance or improve the guidance WHD  provides to employers and workers on the requirements of the FLSA.
Because of these issues, we recommended that WHD develop a  systematic approach for identifying areas of confusion about the  requirements of the FLSA that contribute to possible violations and  improving the guidance it provides to employers and workers in those  areas. This approach could include compiling and analyzing data on  requests for guidance on issues related to the FLSA, and gathering and  using input from FLSA stakeholders or other users of existing guidance  through an advisory panel or other means.
While improved DOL guidance on the FLSA might not affect the number  of lawsuits filed, it could increase the efficiency and effectiveness of its  efforts to help employers voluntarily comply with the FLSA. A clearer  picture of the needs of employers and workers would allow WHD to more  efficiently design and target its compliance assistance efforts, which may,  in turn, result in fewer FLSA violations.
WHD agreed with our recommendation that the agency develop a  systematic approach for identifying and considering areas of confusion  that contribute to possible FLSA violations to help inform the development  and assessment of its guidance. WHD stated that it is in the process of  developing systems to further analyze trends in communications received  from stakeholders such as workers and employers and will include  findings from this analysis as part of its process for developing new or  revised guidance.
In closing, while there has been a significant increase in FLSA lawsuits  over the last decade, it is difficult to determine the reasons for the  increase. It could suggest that FLSA violations have become more  prevalent, that FLSA violations have been reported and pursued more  frequently than before, or a combination of the two. It is also difficult to  determine the effect that the increase in FLSA lawsuits has had on  employers and their ability to hire workers. However, the ability of workers  to bring such suits is an integral part of FLSA enforcement because of the  limits on DOL’s capacity to ensure that all employers are in compliance  with the FLSA.
Chairman Walberg, Ranking Member Courtney, and members of the  Committee, this completes my prepared statement. I would be happy to  respond to any questions you may have.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information regarding this statement, please contact Andrew  Sherrill at (202) 512-7215 or sherrilla@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this statement. GAO staff who made key contributions to  this testimony include Betty Ward-Zukerman (Assistant Director),  Catherine Roark (Analyst in Charge), David Barish, James Bennett,  Sarah Cornetto, Joel Green, Kathy Leslie, Ying Long, Sheila McCoy,  Jean McSween, and Amber Yancey-Carroll.
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