Why lenders should jump at new, easier fix for back pay disputes

For the better part of the last decade, lenders have been struggling (often in vain) to comply with the Fair Labor Standards Act. However, curing these problems has often gone hand-in-hand with acknowledging significant liabilities and the risk that well intentioned changes could spark litigation.

Now, the U.S. Department of Labor has announced the PAID (Payroll Audit Independent Determination) program: a six-month pilot program where employers can correct past wrongs without having to pay liquidated damages and attorneys’ fees. In essence, the PAID program allows employers to address and discharge existing liabilities without the threat of litigation or liquidated damages.

For lenders, PAID may provide a respite from the swarm of wage-hour litigation that has enveloped the industry. Because the FLSA provides plaintiffs lawyers easy paths toward conditional certification and notice, liquidated damages and attorneys’ fees, as well as employee friendly presumptions, lenders facing these cases are often in an unfavorable position from the inception. As such, millions have been recovered by loan officers against lenders under the FLSA for minimum wage and overtime.

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Despite this, lenders have continued to struggle in terms of FLSA compliance. There are many reasons for this. First, the job of loan officers is hard to contain to set hours because of its sales-related nature. In other words, is a loan officer working when during happy hour with friends they are introduced to someone who is looking to buy a house? Indeed, the never ending job of loan officers makes determining "work hours" a mere folly.

Additionally, the manner in which overtime is calculated — inclusive of commissions and nondiscretionary bonuses — renders payroll nearly impossible. On top of all this, loan officers see their position as a commissioned sales job and thus recording hours is at best not a priority and most often viewed as a nuisance they are reluctant to engage in. Yet, even with all of these challenges, one of the biggest reasons for FLSA liabilities is that lenders rarely understand the nuances of the FLSA and are other unaware of risks or believe there are few ways to manage them.

PAID gives lenders a chance to determine and eliminate their risks and correct problems moving forward. Under the program, employers who are not the subject of a pending investigation or FLSA lawsuit can calculate the wages owed and request participation in the program. If approved by the Department of Labor, all back wages would be paid subject to a settlement agreement for individual employees to sign. While employees are not required to do so and can essentially opt out of receiving the monies, most would likely accept the bird in hand, enabling the employer to avoid class-action lawsuits before they start and at a substantially lower cost.

The details of this program — which is slated to go into effect next month — are not yet fully known. Importantly, employers need to discern the effect on state law claims, and how and whether the DOL can use the information moving forward. Despite this, lenders — many of whom are sitting on substantial liability — should seriously consider re-evaluating their pay practices and curing past wrongs.

The PAID program is only slated to last six months. After it is over, the heightened attention it will bring to pay practices will likely lead to more lawsuits, as employees who begin receiving checks in the mail from one former employer may realize another did not pay them correctly.

Accordingly, correcting things moving forward is potentially more critical now than ever, even if an employer does not want to take advantage of this opportunity to fix the "sins of the past." While some believe ignorance is bliss, in this case what you decide not to know may prove costly if the chance to resolve a significant liability is missed at the same time its existence becomes far more transparent.


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Ari Karen

Ari Karen is a principal at Offit Kurman and CEO of Strategic Compliance Partners.

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