News that some of the nation's preeminent homebuilders have received information demands from the U.S. Labor Department under the federal Fair Labor Standards Act has drawn a variety of unhappy reactions.  But whatever one thinks about the wisdom, appropriateness, timing, or manner of DOL's move, the fact is that the administration has had the construction industry in its FLSA sights for some time now.

As we reported in May 2010, even then DOL had identified construction as being among what it calls "fissured" industries.  Officials use this term to refer to business arrangements that in DOL's view cloud the realities of the employment relationship so as to dilute the responsibility for FLSA compliance.

It is therefore likely that one important purpose of DOL's homebuilder initiative is to develop a baseline of industry- and company-specific structural information that is relevant to FLSA compliance.  For instance, investigators will no doubt be looking into whether ostensibly-separate corporations, partnerships, sole-proprietorships, and the like serving as different components in or layers of construction projects are truly independent businesses, or whether they are instead so integrated with one another as to be a single, overall enterprise.

DOL will also be delving into the extent to which even truly distinct and separate entities nevertheless collaborate about or exercise control over the workers on construction projects.  It will be doing this to judge whether each such entity is a "joint employer" of some or all of those workers so as to share individual and collective responsibility for complying with the FLSA where those workers are concerned.  This can be the case if, for example, a worker's efforts simultaneously benefit those entities under circumstances in which:

◊   There is an arrangement between or among the entities to share or interchange the worker's services;

◊   One entity is acting directly or indirectly in the interests of one or more others in relation to the worker; or

◊   The entities "are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with" one or more others.

See 29 C.F.R. Part 791.  Courts tend to evaluate the joint-employment question under factors that mostly boil down to variations on these themes.

Obviously, DOL will also be investigating whether the targeted employers have been following the FLSA's minimum-wage, overtime, recordkeeping, and child-labor requirements and restrictions.  This will include evaluations of whether these employers have erroneously treated some employees as being exempt or have misclassified employees as being "independent contractors".

Construction contractors subject to federal prevailing-wage and fringe-benefits requirements should also assume that investigators will be alert for any non-compliance with the Davis-Bacon Act or the Contract Work Hours And Safety Standards Act.

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When U.S. Wage and Hour Division investigators conclude that back-wages are due under the federal Fair Labor Standards Act, at some point they present the employer with a completed Form WH-56, called a "Summary of Unpaid Wages".  This document reflects a variety of information, including the names of each individual the investigator believes should receive a payment and the amount of this payment.

The form also contains a signature line beneath a statement saying, "I agree to pay the listed employees the back wages shown due and to mail proof of payment to the Wage and Hour District Office shown above" by a date-certain.  With varying degrees of forcefulness, the investigator typically seeks to have a management official sign this statement.  Many employers do sign on-the-spot, even though at that stage management might well be unaware of valid legal defenses or might not realize that significant factual or legal questions or other errors or misconceptions must be resolved before it is possible to know whether, to whom, and to what extent any back-pay is actually owed.

Frequently, the employer learns about these issues only when it later consults counsel.  We have seen Division officials deflect a subsequent assertion of these defenses, questions, or challenges by saying that, because management signed the WH-56, the employer has committed to an enforceable debt, such that discussions are closed.

For this reason, management might resist signing a WH-56 until it has had the time, opportunity, and advice to evaluate thoroughly the legal and factual reasoning and assumptions underlying the sums presented.  If the circumstances are such that management feels compelled or pressured to sign the form even though it does not want to do so, then it should consider adding words to the signature block making clear that (i) it is signing under protest, and (ii) the employer's acquiescence is conditioned upon its reservation of the right to show, for example, that no back-wages are due, or that whatever back-wages are due are less than the amounts shown on the form.  The employer should make clear that it is not refusing to pay sums that might ultimately turn out to be owed, but that instead it is simply declining to commit to any figures or payments before having had a sufficient chance to analyze things.

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