GAO-09-458T Department of Labor: Wage and Hour Division's

GAO

United States Government Accountabilit

Office

Testimony

Before the Committee on Education and

Labor, House of Representatives

DEPARTMENT OF LABOR

Wage and Hour Division’s

Complaint Intake and

Investigative Processes

Leave Low Wage Workers

Vulnerable to Wage Theft

Statement of Gregory D. Kutz, Managing Director

Forensic Audits and Special Investigations

Jonathan T. Meyer, Assistant Director

Forensic Audits and Special Investigations

For Release on Delivery

Expected at 10:00 a.m. EST

Wednesday, March 25, 2009

GAO-09-458T

What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 25, 2009

DEPARTMENT OF LABOR

Wage and Hour Division’s Complaint Intake and

Investigative Processes Leave Low Wage Workers

Vulnerable to Wage Theft

Highlights of

GAO-09-458T, a testimony

before the Committee on Education and

Labor, House of Representatives

The mission of the Department of

Labor’s Wage and Hour Division

(WHD) includes enforcing

provisions of the Fair Labor

Standards Act, which is designed to

ensure that millions of workers are

paid the federal minimum wage

and overtime. Conducting

investigations based on worker

complaints is WHD’s priority.

According to WHD, investigations

range from comprehensive

investigations to conciliations,

which consist primarily of phone

calls to a complainant’s employer.

In July 2008, GAO testified on 15

case studies where WHD failed to

investigate complaints. This

testimony highlights the findings of

a follow-up investigation

performed at the Committee’s

request. Specifically, GAO was

asked to (1) test WHD’s complaint

intake process in an undercover

capacity, (2) provide additional

case study examples of inadequate

WHD responses to complaints, and

(3) assess the effectiveness of

WHD’s complaint intake process,

conciliations, and other

investigative tools.

To test WHD’s complaint intake

process, GAO posed as

complainants and employers in 10

different scenarios. To provide

case study examples and assess

effectiveness of investigations,

GAO used data mining and

statistical sampling of closed case

data for fiscal year 2007. GAO

plans to issue a follow-up report

with recommendations concerning

resource needs and the recording

of complaints. GAO also confirmed

key findings with WHD officials.

GAO found that WHD frequently responded inadequately to complaints,

leaving low wage workers vulnerable to wage theft. Posing as fictitious

complainants, GAO filed 10 common complaints with WHD district offices

across the country. The undercover tests revealed sluggish response times, a

poor complaint intake process, and failed conciliation attempts, among other

problems. In one case, a WHD investigator lied about investigative work

performed and did not investigate GAO’s fictitious complaint. At the end of

the undercover tests, GAO was still waiting for WHD to begin investigating

three cases—a delay of nearly 5, 4, and 2 months, respectively. The table

below provides additional examples of inadequate WHD responses to GAO’s

fictitious complaints.

WHD Response to Fictitious Complaints Submitted by GAO

Employee/

location Complaint Result

Receptionist/

Virginia

Employee

was not

paid

minimum

wage.

• GAO’s fictitious employer agreed that she had failed to pay the

minimum wage but refused to pay back wages due.

• WHD investigator accepted the refusal without question and

informed the fictitious employee of his right to file a lawsuit.

• When the fictitious employee asked why WHD could not offer more

help, the investigator told the employee to contact his Congressman

to request more resources for WHD.

Meat Packer/

California

Children

using

heavy

machinery.

• WHD claims that among complaints, child labor complaints are its

top priority, but 4 months after GAO left an anonymous child labor

complaint, WHD had not conducted any investigative work.

• Complaint was never recorded in WHD’s database.

House

Painter/

Texas

Employee

did not

receive last

paycheck.

• GAO’s fictitious employer told the WHD investigator he would pay,

but failed to fax proof of payment to WHD as requested. Investigator

never confirmed payment and closed the case as “agreed to pay.”

• After 3 weeks, GAO’s fictitious employee called back and reported

that he hadn’t been paid. The WHD investigator contacted the

employer and, when asked, stated “there is no penalty” for failure to

pay. The fictitious employer refused to pay, and WHD informed the

fictitious employee of his right to take private action.

• Complaint was recorded as “agreed to pay” in WHD’s database.

Source: GAO.

Similar to the 10 fictitious scenarios, GAO identified 20 cases affecting at least

1,160 real employees whose employers were inadequately investigated. For

example, GAO found cases where it took over a year for WHD to respond to a

complaint, cases closed based on unverified information provided by the

employer, and cases dropped when the employer did not return phone calls.

GAO’s overall assessment of the WHD complaint intake, conciliation, and

investigation processes found an ineffective system that discourages wage

theft complaints. With respect to conciliations, GAO found that WHD does not

fully investigate these types of complaints or compel employers to pay. In

addition, a WHD policy instructed many offices not to record unsuccessful

conciliations in its database, making WHD appear better at resolving

conciliations than it actually is. WHD’s investigations were frequently delayed

by months or years, but once complaints were recorded in WHD’s database

and assigned as a case to an investigator, they were often adequately

investigated.

To view the full product, including the scope

and methodology, click on

GAO-09-458T.

For more information, contact Gregory D.

Kutz at (202) 512-6722 or kut[email protected].

Mr. Chairman and Members of the Committee:

Thank you for the opportunity to discuss findings related to our

investigation of the Department of Labor’s (Labor) Wage and Hour

Division (WHD) processes for investigating and resolving wage theft

complaints. In a hearing held in July 2008 before this committee, we

testified that WHD had inadequately responded to complaints from low

wage workers who alleged that employers failed to pay the federal

minimum wage and required overtime

. Specifically, we found cases where

WHD inappropriately rejected complaints based on incorrect information

provided by employers, failed to make adequate attempts to locate

employers, did not thoroughly investigate and resolve complaints, and

delayed the initiation of investigations for over a year. We also reported

that WHD’s investigation database contained thousands of cases with

characteristics similar to cases identified in our testimony. At the request

of this committee, subsequent to the hearing, we performed additional

audit and investigative work to determine the magnitude of these issues.

This testimony reflects findings from the work we have performed since

July 2008. We plan to issue a report containing recommendations to Labor

to improve their complaint intake and investigation processes.

As we previously reported, over 100 million workers are covered under

labor laws enforced by WHD, including the Fair Labor Standards Act

(FLSA), the Migrant and Seasonal Agricultural Worker Protection Act

(MSPA), the Family and Medical Leave Act (FMLA), the Davis Bacon and

Related Acts (DBRA), and other federal labor laws. By law, WHD

investigators and technicians

enforce labor laws governing issues such as

minimum wage, overtime pay, child labor, and family medical leave. WHD

uses a number of strategies including investigations and partnerships with

external groups – such as states, foreign consulates, and employee and

employer associations. However, conducting investigations based on

complaints is WHD’s first priority.

GAO, Department of Labor: Case Studies from Ongoing Work Show Examples in Which

Wage and Hour Division Did Not Adequately Pursue Labor Violations

, GAO-08-973T,

(Washington, D.C.: July 15, 2008).

In general, technicians focus primarily on conciliations but may also work on self-audits

and limited investigations in some offices. Investigators work on non-conciliations,

including full and limited investigations and self-audits, but may also work on conciliations

in some offices. Unlike law enforcement officers, WHD investigators do not have arrest

authority. In this report, we use the term investigator to refer to both investigators and

technicians.

Page 1 GAO-09-458T

WHD investigators can take actions ranging from making phone calls to

the complainant’s employer (known as conciliations) to taking other, more

resource-intensive actions such as interviewing the employer and related

witnesses, reviewing employer payroll records, and requesting copies of

self audits

conducted by the employer. In this report, we refer to these

more in-depth investigations collectively as non-conciliations.

Conciliations are generally limited to a single, minor violation, such as a

missed paycheck, or an issue affecting a single worker. A conciliation is

used to resolve a complaint quickly and with minimal resources on the

part of WHD. Investigative work for conciliations is generally limited to a

telephone conversation in which the WHD investigator explains the

specific complaint against the employer, describes applicable laws, and

requests that the employer comply with the law and pay any back wages

due. WHD staff generally do not visit the employer’s establishment or

verify information provided by the employer. When WHD determines that

violations have occurred and computes back wages owed to workers, it

can assess back wages to be paid to the employees and can impose civil

money penalties against employers with repeated or willful violations. If

an employer signs an agreement to pay back wages and/or civil money

penalties but reneges on their commitment, WHD can refer the case to the

Department of Treasury for debt collection or to Labor’s Office of the

Solicitor for litigation. If the employer has not agreed to pay, WHD can

only refer the case to the Solicitor for litigation. According to the

Solicitor’s office, it considers various factors including the merits of the

case, number of employees affected, difficulties of proof and whether the

employer is in current compliance, when deciding whether to litigate a

case.

Today’s testimony summarizes the results of our forensic audit and

investigative work reviewing investigations conducted by WHD. As

requested, this testimony will highlight our findings related to (1)

undercover testing of WHD’s complaint intake and conciliation processes,

(2) additional case study examples of inadequate WHD responses to

complaints, and (3) the effectiveness of WHD’s complaint intake process,

conciliations, and other investigative tools.

In a self-audit, WHD determines which violations may exist and allows the employer

under investigation to conduct its own review of records and calculate the back wages due

to employees.

Page 2 GAO-09-458T

To test the effectiveness of WHD’s complaint intake process and

conciliations, undercover GAO investigators posed both as complainants

and employers. Using 10 fictitious scenarios including minimum wage, last

paycheck, and overtime violations, investigators called WHD offices in

Alabama, California, Florida, Maryland, and Texas posing as complainants.

These field offices handled 13 percent of all cases investigated by WHD in

fiscal year 2007. When WHD investigators attempted to follow up on the

complaints, different undercover investigators posed as the employers and

followed a variety of scripted scenarios to test how WHD investigators

would respond. Complaints and employer responses to the WHD

investigations were based on actual situations we encountered in our

work. For more information, see

http://www.gao.gov/media/video/gao-09-

458t/

To identify case studies of inadequate investigations conducted in

response to actual employees’ allegations of wage theft, we obtained

Labor’s Wage and Hour Investigative Support and Reporting Database

(WHISARD) and data-mined for closed cases in which it took WHD more

than one year to complete an investigation, an employer could not be

located, or the case was dropped when an employer refused to pay. We

analyzed WHD’s WHISARD database and determined it was sufficiently

reliable for purposes of our audit and investigative work. We also obtained

and analyzed WHD case files, interviewed WHD officials, and reviewed

publicly available data to gather additional information about these cases.

To determine the effectiveness of WHD’s complaint intake process,

conciliations, and other investigative tools, we used the results of our

undercover tests, case studies, interviews and walk-throughs of the

processes with management, and two statistical samples. We selected a

random statistical sample of 115 cases from 10,855 conciliations and 115

cases from 21,468 non-conciliations recorded by WHD in WHISARD that

were concluded between October 1, 2006 and September 30, 2007. We

obtained and reviewed WHD’s case files for the selected cases and

performed tests to determine whether the investigations conducted were

adequate. Inadequate cases were those in which WHD did not initiate an

investigation within 6 months, did not complete investigative work within

one year, did not contact the employer, did not correctly determine

coverage under federal law, did not review employer records, did not

assess back wages when violations were identified, or did not refer cases

to Labor’s Office of the Solicitor, when appropriate. We subsequently

determined through our interviews that the population of conciliations

sampled was substantially incomplete. Therefore, we were only able to

Page 3 GAO-09-458T

project sample results to conciliations that WHD chose to enter into their

database rather than the entire population of conciliations.

We conducted our forensic audit and related investigations from July 2008

through March 2009. We conducted our audit work 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 that the evidence obtained

provides a reasonable basis for our findings and conclusions based on our

audit objectives. We conducted our investigative work in accordance with

the standards prescribed by the President’s Council on Integrity and

Efficiency.

The results of our undercover tests illustrate flaws in WHD’s responses to

wage theft complaints, including delays in investigating complaints,

complaints not recorded in the WHD database, failure to use all available

enforcement tools because of a lack of resources, failure to follow up on

employers who agreed to pay, and a poor complaint intake process. For

example, WHD failed to investigate a child labor complaint alleging that

underage children were operating hazardous machinery and working

during school hours. In another case, a WHD investigator lied to our

undercover investigator about confirming the fictitious businesses’ sales

volume with the Internal Revenue Service (IRS), and did not investigate

our complaint any further. WHD successfully investigated 1 of our 10

fictitious cases, correctly identifying and investigating a business that had

multiple complaints filed against it by our fictitious complainants. Five of

our 10 complaints were not recorded in WHD’s database and 2 of 10 were

recorded as successfully paid when in fact the fictitious complainants

reported to WHD they had not been paid. To hear selected audio clips of

these undercover calls, go to

http://www.gao.gov/media/video/gao-09-458t/.

Table 1 provides a summary of the 10 complaints that we filed or

attempted to file with WHD.

Undercover Tests

Reveal Inadequate

Investigations and

Poor Complaint

Intake Process

Page 4 GAO-09-458T

Table 1: Results of Undercover Testing

Complainant Location Complaint Result

1 Dry Cleaners Clerk

Birmingham, AL Employee did not receive

last paycheck.

Fictitious employer refused to pay and WHD did not

record the failed conciliation in the database.

• WHD attempted to conciliate the case, but never

recorded the work done in the database.

• WHD did not inform the employee of the result of

the conciliation.

2 Meat Packer

Modesto, CA Underage children

working during school

hours on heavy

machinery.

WHD failed to investigate a complaint alleging that

children were working too many hours under hazardous

conditions.

• WHD claims that child labor complaints are its top

priority, but 4 months after we left an anonymous

child labor complaint, WHD had not conducted any

investigative work.

• Complaint was never recorded in the database.

3 Siding Installer

Montebello, CA Two separate complaints

filed by employees who

did not receive their last

paycheck.

WHD successfully identified our fictitious employer with

repeat violations and attempted to make a site visit to

the fictitious employer when he failed to return phone

calls.

• WHD accepted two complaints about the same

business. One investigator working on the first

complaint took 5 weeks to contact the fictitious

employer but another investigator working on the

second complaint contacted the fictitious employer

immediately.

• When our fictitious employer refused to pay in both

cases, WHD correctly determined that the problem

affected multiple employees and opened an

investigation.

• Investigator made multiple attempts to contact the

fictitious employer after he stopped returning phone

calls, including making a site visit to the bogus

address. The case was appropriately closed when

the fictitious employer could not be located.

4 Laundromat Clerk

Monterey Park, CA Employee was a Spanish-

speaking, illegal immigrant

paid less than minimum

wage for over a year.

WHD delayed investigating the complaint and

inaccurately recorded that the fictitious employee

received back wages.

• Two weeks after we first contacted WHD, a

Spanish-speaking investigator called our fictitious

employee.

• 5 weeks after the complaint was faxed to WHD, an

investigator contacted our fictitious employer, who

eventually agreed to pay.

• The fictitious employee called WHD to report that

she hadn’t been paid, but the complaint was

recorded as “agreed to pay” in WHD’s database.

Page 5 GAO-09-458T

Complainant Location Complaint Result

5 Convenience Store

Clerk

Miami, FL Employee did not receive

last paycheck.

WHD did not return phone calls and failed to record our

complaint in their database.

• WHD failed to return seven messages from our

fictitious employee attempting to file a complaint.

• In two cases during regular business hours, calls

were routed to a voicemail message stating that the

office was closed.

• Complaint was never recorded in the database.

6 Dishwasher

Miami, FL Employee did not receive

overtime for an average of

4 hours per week for 19

weeks.

The WHD office’s large backlog prevented it from

investigating our case in a timely manner.

• Investigator told our fictitious employee that it

would take “8 to 10 months” to begin investigating

his complaint.

• WHD failed to return four calls over 4 consecutive

months from our fictitious employee attempting to

determine the status of his complaint.

• Complaint was never recorded in the database.

7 Janitor

Frederick, MD Employee was not paid

minimum wage.

WHD failed to record initial complaint and never

returned calls from our fictitious employer.

• WHD investigator accepted the complaint but did

not attempt to contact our fictitious employer to

initiate a conciliation.

• Between September 24, 2008 and January 12,

2009, WHD failed to return four calls from our

fictitious employee attempting to determine the

status of his complaint.

• When the fictitious employee reached the same

investigator, she had no record of his initial call and

suggested the employee look for another job before

filing a complaint against his employer.

• Investigator finally accepted the complaint and left

a message for the fictitious employer, but did not

return his two subsequent calls.

• Complaint was never recorded in the database.

Page 6 GAO-09-458T

Complainant Location Complaint Result

8 House Painter

Dallas, TX Employee did not receive

last paycheck.

WHD inaccurately recorded that our fictitious employee

received back wages.

• Our fictitious employer told the WHD investigator

he would pay, but failed to fax proof of payment to

WHD as requested. WHD investigator never

followed up to confirm payment and closed the

case as “agreed to pay.”

• After 3 weeks, our fictitious employee called back

and reported that he hadn’t been paid. The WHD

investigator contacted our fictitious employer and,

when asked, stated “there is no penalty” for failure

to pay.

• After our fictitious employer refused to pay, WHD

informed our fictitious employee of his right to take

private action.

• Complaint was still recorded as “agreed to pay” in

WHD’s database despite WHD’s knowledge that

the fictitious employer had failed to pay the back

wages.

9 Lawn Mower

Dallas, TX Employee was not paid

minimum wage.

Investigator lied to our fictitious employee about

investigative work performed and did not investigate the

complaint.

• Investigator told the fictitious employee that WHD

had no jurisdiction because the gross revenues of

the fictitious employer did not meet the minimum

standard for coverage, even though the fictitious

employee stated that his boss had told him the

company’s gross revenues were three times

greater than the minimum standard.

• Investigator claimed that he had obtained

information on the fictitious employer’s revenue

from an IRS database.

• However, our fictitious employer had never filed

taxes, WHD officials told us they do not have

access to IRS databases, and the case file shows

that no contact was made with the IRS.

• We referred information related to this case to

Labor’s Office of the Inspector General for further

investigation.

Page 7 GAO-09-458T

Complainant Location Complaint Result

10 Receptionist

Clifton, VA Employee was not paid

minimum wage.

WHD readily accepted our fictitious employer’s refusal

to pay and stated they could not assist the fictitious

employee further.

• WHD investigator accepted this complaint and

promptly called our fictitious employer.

• Our fictitious employer agreed that she had failed

to pay the minimum wage but refused to pay back

wages due.

• WHD investigator accepted the refusal without

question and informed our fictitious employee of his

right to file a lawsuit.

• When our fictitious employee asked why WHD

could not offer more help, the WHD investigator

said she was “bound by the laws I’m able to

enforce, the money the Congress gives us” and

told our fictitious employee to contact his

Congressman to request more resources for WHD.

Source: GAO.

We identified numerous problems with the WHD response to our

undercover wage theft complaints. Key areas where WHD failed to take

appropriate action include delays in investigating complaints, complaints

not recorded in the WHD database, failure to use available enforcement

tools, failure to follow up on employers who agreed to pay, and a poor

complaint intake process.

Delays Investigating Complaints. WHD took more than a month to

begin investigating five of our fictitious complaints, including three that

were never investigated. In one case, the fictitious complainant spoke to

an investigator who said she would contact the employer. During the next

4 months, the complainant left four messages asking about the status of

his case. When he reached the investigator, she had taken no action on the

complaint, did not recall speaking with him and had not entered the

complaint in the WHD database.

Complaints Not Recorded in Database. Five of our complaints were

never recorded in WHD’s database. These complaints were filed with four

different field offices and included three complaints in which WHD

performed no investigative work and two complaints in which WHD failed

to record the investigative work performed. For example, we left a

message at one WHD office alleging that underage children were working

at a meat packing plant during school hours and operating heavy

machinery, such as meat grinders and circular saws. With respect to

complaints, WHD policy states that those involving hazardous conditions

Page 8 GAO-09-458T

and child labor are its top priority, but a review of WHD records at the end

of our work showed that the case was not investigated or entered into

WHD’s database. In another case, an investigator spoke to the fictitious

employer, who refused to pay the complainant the back wages due. The

investigator closed the conciliation without entering the case information

or outcome into WHD’s database. This is consistent with the WHD

Southeast regional policy of not recording the investigative work

performed on unsuccessful conciliations. The effect of not recording

unsuccessful conciliations is to make the conciliation success rate for the

regional office appear better than it actually is. The number of complaints

that are not entered into WHD’s database is unknown, but this problem is

potentially significant since 5 out of our 10 bogus complaints were not

recorded in the database.

Failure to Use All Enforcement Tools. According to WHD staff, WHD

lacks the resources to use all enforcement tools in conciliations where the

employer refuses to pay. According to WHD policy, when an employer

refuses to pay, the investigator may recommend to WHD management that

the case be elevated to a full investigation. However, only one of our three

fictitious employers who refused to pay was placed under investigation. In

one case, our fictitious employer refused to pay and the investigator

accepted this refusal without question, informing the complainant that he

could file a private lawsuit to recover the $262 due to him. When the

complainant asked why WHD couldn’t provide him more assistance, the

investigator replied, “I’ve done what I can do, I’ve asked her to pay you

and she can’t…I can’t wring blood from a stone,” and then suggested the

complainant contact his Congressman to ask for more resources for WHD

to do their work. According to WHD policy and interviews with staff, WHD

doesn’t have the resources to conduct an investigation of every complaint

and prefers to investigate complaints affecting large numbers of

employees or resulting in large dollar amounts of back wages. One district

director told us that conciliations result from “a mistake” on the part of the

employer and he does not like his investigators spending time on them.

However, when WHD cannot obtain back wages in a conciliation and

decides not to pursue an investigation, the employee’s only recourse is to

file private litigation. Low wage workers may be unable to afford

attorney’s fees or may be unwilling to argue their own case in small claims

court, leaving them with no other options to obtain their back wages.

Failure to Follow Up on Employers Who Agree to Pay. In 2 of our

cases, the fictitious employer agreed to pay the back wages due and WHD

recorded the conciliation as successful, even when the complainant

notified the investigator that he had not been paid. In both cases, the

Page 9 GAO-09-458T

investigator told the employer he was required to submit proof of

payment, but only one of the investigators followed up when the employer

failed to provide the required proof. The complainant in both cases later

contacted the investigator to report he had not been paid. The investigator

attempted to negotiate with both fictitious employers, but did not update

the case entry in WHD’s database to indicate that the complainant never

received back wages, making it appear as though both cases were

successfully resolved. These two cases cast doubt on whether

complainants whose conciliations are marked “agreed to pay” in the WHD

database actually received their back wages.

Poor Complaint Intake Process. We found that WHD’s complaint intake

process is time-consuming and confusing, potentially discouraging

complainants from filing a complaint. Of the 115 phone calls we made

directly to WHD field offices, 87 (76 percent) went directly to voicemail.

While some offices have a policy of screening complainant calls using

voicemail, other offices have staff who answer the phone, but may not able

to respond to all incoming calls. In one case, WHD failed to respond to

seven messages from our fictitious complainant, including four messages

left in a single week. In other cases, WHD delayed over 2 weeks in

responding to phone calls or failed to return phone calls from one of our

fictitious employers. At least two WHD offices have no voice mailbox for

the office’s main phone number, preventing complainants from leaving a

message when the office is closed or investigators are unavailable to take

calls. One of our complainants received conflicting information about how

to file a complaint from two investigators in the same office, and one

investigator provided misinformation about the statute of limitations in

minimum wage cases. At one office, investigators told our fictitious

employee that they only accept complaints in writing by mail or fax, a

requirement that delays the start of a case and is potentially discouraging

to complainants. In addition, an investigator lied about contacting IRS to

determine the annual sales for our fictitious employer, and then told our

complainant that his employer was not covered by the FLSA. FLSA applies

to employees of enterprises that have at least $500,000 in annual sales or

Page 10 GAO-09-458T

business

. Our complainant in this case told the investigator that his

employer had sales of $1.5 million in 2007, but the investigator claimed

that he had obtained information about the business from an IRS database

showing that the fictitious business did not meet the gross revenue

threshold for coverage under federal law. Our fictitious business had not

filed tax returns and WHD officials told us that their investigators do not

have access to IRS databases. A review of the case file also shows that no

information from the IRS was reviewed by the investigator. Information

related to this case was referred to Labor’s Office of the Inspector General

for further investigation.

WHD successfully investigated a business that had multiple complaints

filed against it by our fictitious complainants. WHD identified two separate

conciliations ongoing against the same fictitious business, both originating

from complaints filed by our fictitious complainants. These conciliations

were combined into an investigation, the correct procedure for handling

complaints affecting multiple employees. The investigator continued the

investigation after the fictitious employer claimed that the business had

filed for bankruptcy and attempted to visit the business when the

employer stopped returning phone calls. The investigator did not use

public records to verify that the employer had filed for bankruptcy, but

otherwise made reasonable efforts to locate and investigate the business.

Similar to our 10 fictitious scenarios, we identified 20 cases affecting at

least 1,160 workers whose employers were inadequately investigated by

WHD. We performed data mining on the WHISARD database to identify 20

inadequate cases closed during fiscal year 2007. For several of these cases,

WHD (1) did not respond to a complainant for over a year, (2) did not

verify information provided by the employer, (3) did not fully investigate

businesses with repeat violations, and (4) dropped cases because the

employer did not return telephone calls. Ten of these case studies are

Case Studies Show

That WHD

Inadequately

Investigated

Complaints

The protections of the Fair Labor Standards Act apply to employees engaged in interstate

commerce or in the production of goods for interstate commerce. The act also applies to

all employees of an enterprise that has at least $500,000 in annual sales or business and has

employees engaged in interstate commerce or in the production of goods for interstate

commerce, or that has employees handling, selling, or otherwise working on goods or

materials that have been moved in or produced for interstate commerce by any person. 29

U.S.C. § 203. Even though an enterprise may have separate locations, it is considered a

single enterprise for the $500,000 coverage determination if related activities are performed

through unified operation or common control by any person or persons for a common

business purpose.

Page 11 GAO-09-458T

presented in appendix II. Table 2 provides a summary of 10 case studies

closed by WHD between October 1, 2006 and September 31, 2007.

Table 2: Case Studies of Inadequate WHD Investigations

Case

Type of business/

complainant occupation

Type of alleged

violation(s)

Employer location

WHD actions, conclusions, and additional

details

1 Garment

Manufacturer/Garment

Workers

Minimum Wage and

Overtime (FLSA)

Whittier, CA

• Two former employees alleged that the firm

was not paying minimum wage and overtime to

employees.

• One WHD investigator visited establishment

and took surveillance photographs but did not

speak with the employer.

• Almost 2 months later, another WHD

investigator visited the establishment and

found that the employer had vacated the

premises. A realty broker informed WHD that

he believed the employer had closed, not

relocated, causing WHD to close the case.

• Using public data, we confirmed that the

employer was still active as of January 2009

and made contact with an employee of the firm

who told us that the employer had moved from

the location WHD visited.

2 Fuel Tank /Mechanic Overtime (FLSA) Fort Lauderdale, FL

• Complainant alleged he was due over $525 in

overtime back wages, but commented to WHD

that he thought his employer was filing for

bankruptcy.

• WHD dropped the case stating that the

employer declared bankruptcy.

• The employee was informed of his right to file

a private lawsuit to recover back wages.

• WHD received a fax from this employer after

the case had been concluded stating that the

employee had been paid $245 in per diem,

however the documentation did not support

that the overtime back wages were paid; no

further investigative action was taken.

• Bankruptcy court records show that the

employer had not filed for bankruptcy and we

confirmed that the employer was still in

business in December 2008.

3 Restaurant/ Waitress Minimum Wage

(FLSA)

Hollywood, FL

• Employee alleged she was owed minimum

wage for 145 hours of work.

• Employer stated that wages were due by the

previous owner, but did provide proof to

substantiate or return subsequent telephone

calls.

• WHD dropped the case and advised the

employee of her right to file private litigation.

Page 12 GAO-09-458T

Case

Type of business/

complainant occupation

Type of alleged

violation(s)

Employer location

WHD actions, conclusions, and additional

details

County Sheriff’s Office

/Corrections Officer

Minimum Wage

(FLSA)

Key West, FL

• WHD attempted to contact the employer two

times over a period of 2 days to discuss

allegations.

• Case was dropped when no one from the

employer, which was a Sheriff’s office,

returned WHD’s telephone calls.

• WHD informed the complainant that private

litigation could be filed in order to recover back

wages.

5 Construction Contractor

/Day Laborer

Minimum Wage and

Overtime(FLSA)

Miami, FL

• Employer denied knowing employee and

stated that the employee worked for a

subcontractor, but refused to provide name of

the company.

• WHD closed the case, recorded that the

employer was in compliance with labor laws,

and informed the individual who filed the

complaint on behalf of the employee of his

right to file a civil lawsuit.

• Employee filed a civil suit, during which the

employer agreed he owed back wages.

• The court ruled that the employee was due

$1,500, the same amount cited in the original

complaint to WHD.

6 Construction/ Anonymous Child Labor/ Minimum

Wage (FLSA)

Baltimore, MD

• The complainant alleged that the company

employed 15 year old children, failed to pay its

employees minimum wage, and did not

properly report income to the Internal Revenue

Service.

• The employer alleged that the company did not

meet the income requirement to be covered

under federal labor law, but did not provide

documentary evidence.

• The employer failed to return WHD’s telephone

calls or attend the site of the initial conference.

• WHD concluded this case with no further

investigative action.

Page 13 GAO-09-458T

Case

Type of business/

complainant occupation

Type of alleged

violation(s)

Employer location

WHD actions, conclusions, and additional

details

7 Lawn Care Service/

Laborer

Minimum Wage and

Overtime (FLSA)

Lakeview, MI

• WHD attempted to set up a meeting with the

company, but it was postponed so the owner

could go deer hunting. Subsequent calls from

WHD were not answered.

• Almost 8 months later, WHD conducted an

announced site visit and closed the case, citing

that the employer appeared to be out of

business because no employees were on site

during the visit and phone calls were

unanswered.

• Public records show that the employer later

signed and submitted an annual statement 2

months after the case was closed and we

successfully contacted the employer in

November 2008, who confirmed they were

located at the same address visited by WHD.

8 Boarding School / Teen

Counselor

Overtime

(FLSA)

Thompson Falls,

• Investigator assigned to case over 9 months

after complaint was received.

• Complaint handled as a self audit, allowing the

employer to review its own records for the

alleged violations.

• WHD determined that the employer had begun

paying correct overtime based on the

employer’s verbal statements; no updated

records were reviewed.

• The employer found that it owed over

$200,000 to 93 employees, but delayed until

the statute of limitations had almost expired

before offering to pay a total of only $1,000 in

back wages.

• WHD did not accept this amount, closed the

case, and informed the complainant of the

outcome.

Page 14 GAO-09-458T

Case

Type of business/

complainant occupation

Type of alleged

violation(s)

Employer location

WHD actions, conclusions, and additional

details

9 Ambulance Service

Company / Paramedic

Overtime (FLSA) Pawhuska, OK

• Employer refused to comply with the law

throughout WHD’s investigation and took

months to produce payroll records.

• WHD determined that over $66,000 in back

wages was due to 21 employees and stated in

the case file that this estimate was “probably

low.”

• The employer generally agreed with WHD’s

findings and agreed to pay back wages, but

then later refused to respond to WHD or

change payroll practices.

• Over one year after the employer’s agreement

to pay, WHD decided not to pursue litigation in

part, because the case was considered

“significantly old.”

• Employees were notified of their right to file

private litigation in order to recover back

wages.

10 Restaurant/ Waitress Child Labor/Minimum

Wage/Overtime

(FLSA)

Lawrenceburg, TN

• Case assigned to an investigator over 22

months after the complaint was received.

• WHD determined that the restaurant and

related enterprises owed approximately

$230,000 to 438 employees for minimum wage

and overtime violations, and for depositing a

percentage of employee tips into a business

account.

• Employer agreed to pay back wages for

minimum wage and overtime violations, but did

not agree to pay back the collected tips.

• WHD did not accept partial back wage offer

and closed the case with no collection of back

wages.

Source: GAO analysis.

• Case Study 1: Two garment factory workers filed complaints alleging that

their former employer did not pay minimum wage and overtime to its

workers. In early August 2006, an employee of the company informed

WHD that the company was forcing employees to sign a document stating

that they had been paid in compliance with the law before they could

receive their paychecks. One of the complainants also confirmed to the

WHD investigator that the employer was distributing this document. The

next day, an investigator traveled to the establishment to conduct

surveillance. The investigator took pictures of the establishment and did

not speak with anyone from the company. No additional investigative

work was done on this case until almost 2 months later when another

investigator visited the establishment and found that the company had

vacated the premises. A realty broker at the site informed the investigator

Page 15 GAO-09-458T

that he did not believe the firm had relocated. As a result, WHD closed the

investigation. Using publicly available information, we found that the

business was active as of January 2009 and located at a different address

approximately 3 miles away from its old location. We contacted the

factory and spoke with an employee, who told us that the business had

moved from the address WHD visited.

• Case Study 4: In July 2007, WHD received a complaint from a former

corrections officer who alleged that a county Sheriff’s office did not pay

$766 in minimum wage. The WHD investigator assigned to work on this

case made two calls to the Sheriff’s office over a period of 2 days. Two

days after the second call, WHD dropped this case because no one from

the employer had returned the calls. WHD did not make additional efforts

to contact the employer or validate the allegations. WHD informed the

complainant that private litigation could be filed in order to recover back

wages. We successfully contacted the Sheriff’s office in November 2008.

• Case Study 5: In May 2007, a non-profit community worker center

contacted WHD on behalf of a day laborer alleging that his employer owed

him $1,500 for the previous three pay periods. WHD contacted the

employer, who stated that the complainant was actually an employee of a

subcontractor, but refused to provide the name of the subcontractor. WHD

closed the case without verifying the employer’s statements and informed

the community worker center of the employee’s right to file private

litigation. WHD’s case file indicates that no violations were found and the

employer was in compliance with applicable labor laws. According to the

Executive Director of the worker center, approximately 2 weeks later,

WHD contacted him and claimed that the employer in the complaint had

agreed to pay the back wages. When the employer did not pay, the

complainant sued the employer in small claims court. During the course of

the lawsuit the employer admitted that he owed the employee back wages.

The court ruled that the employer owed the employee $1,500 for unpaid

wages, the same amount in the original complaint to WHD.

• Case Study 8: In November 2005, WHD’s Salt Lake City District Office

received a complaint alleging that a boarding school in Montana was not

paying its employees proper overtime. Over 9 months after the complaint

was received, the case was assigned to an investigator and conducted as

an over the phone self-audit

. According to the investigator assigned to the

case, WHD was unable to conduct a full investigation because the

boarding school was located over 600 miles from Salt Lake City and WHD

did not have the resources to conduct an on-site investigation. The

employer’s self-audit found that 93 employees were due over $200,000 in

Self-audits allow the employers under investigation to conduct their own review of

records and calculate the back wages due to employees.

Page 16 GAO-09-458T

overtime back wages for hours worked between September 2004 and June

2005. WHD determined that the firm began paying overtime correctly in

June 2006 based on statements made by the employer, but did not verify

the statements through document review. After the employer’s attorney

initially indicated that they would agree to pay the over $200,000 in back

wages, WHD was unable to make contact with the business for over 5

months. WHD records indicate that the investigator believed that the firm

was trying to find a loop hole to avoid paying back wages. In June 2007,

one week before the 2-year statute of limitations on the entire back wage

amount was to expire, the employer agreed to pay $1,000 out of the

$10,800 that had not yet expired. The investigator refused to accept the

$1,000 saying that it would have been “like settling the case.” WHD

recorded the back wages computed as over $10,800 rather than $200,000,

greatly understating the true amount owed to employees. WHD noted in

the case file that the firm refused to pay the more than $10,800 in back

wages, but did not recommend assessing penalties because they felt the

firm was not a repeat offender and there were no child labor violations. No

further investigative action was taken and the complainant was informed

of the outcome of the case.

• Case Study 10: In June 2003 and early 2005, WHD received complaints

against two restaurants owned by the same enterprise. One complaint

alleged that employees were working “off the clock” and servers were

being forced to give 2.25 percent of their tips to the employer. The other

complaint alleged off the clock work, illegal deductions, and minimum

wage violations. This case was not assigned to an investigator until May

2005, over 22 months after the 2003 complaint was received. The WHD

investigator assigned to this case stated that the delay in the case

assignment was because of a backlog at the Nashville District Office that

has since been resolved. WHD conducted a full investigation and found

that 438 employees were due approximately $230,000 in back wages for

minimum wage and overtime violations and the required tip pool.

Although tip pools are not illegal, WHD determined that the employer’s tip

pool was illegal because the company deposited the money into its

business account. Further, the firm violated child labor laws by allowing a

minor under 16 years old to work more than 3 hours on school days. The

employer disagreed that the tip pool was illegal and stated that a previous

WHD investigator had told him that it was acceptable. The employer

agreed to pay back wages due for the minimum wage and overtime

violations, but not the wages that were collected for the tip pool. WHD

informed the employer that partial back wages would not be accepted and

this case was closed.

Information on 10 additional case studies can be found in appendix II.

Page 17 GAO-09-458T

WHD’s complaint intake processes, conciliations, and other investigative

tools are ineffective and often prevent WHD from responding to wage theft

complaints in a timely and thorough manner, leaving thousands of low

wage workers vulnerable to wage theft. Specifically, we found that WHD

often fails to record complaints in its database and its poor complaint-

intake process potentially discourages employees from filing complaints.

For example, 5 of our 10 undercover wage theft complaints submitted to

WHD were never recorded in the database, including a complaint alleging

that underage children were operating hazardous machinery during school

hours. WHD’s conciliation process is ineffective because in many cases, if

the employer does not immediately agree to pay, WHD does not

investigate complaints further or compel payment. In addition, WHD’s

poor record-keeping makes WHD appear better at resolving conciliations

than it actually is. For example, WHD’s southeast region, which handled 57

percent of conciliations recorded by the agency in fiscal year 2007, has a

policy of not recording unsuccessful conciliations in the WHD database.

Finally, we found WHD’s processes for handling investigations and other

non-conciliations were frequently ineffective because of significant delays.

Once complaints were recorded in WHD’s database and assigned as a case

to an investigator, they were often adequately investigated.

WHD’s complaint intake process is seriously flawed, with both customer

service and record-keeping issues. With respect to customer service, wage

theft victims may file complaints with WHD in writing, over the phone, or

in person. However, our undercover tests showed that wage theft victims

can be discouraged to the extent that WHD never even accepts their

complaints. We found that in their efforts to screen complaints some WHD

staff actually deter callers from filing a complaint by encouraging

employees to resolve the issue themselves, directing most calls to

voicemail, not returning phone calls to both employees and employers,

accepting only written complaints at some offices, and providing

conflicting or misleading information about how to file a complaint. For

example, the pre-recorded voice message at one office gives callers

information on the laws WHD enforces, but when the message ends there

are 23 seconds of silence before the call is directed to the voice message

system that allows callers to file complaints, creating the impression that

the phone call has been disconnected. WHD requires an investigator to

speak with the employee before an investigation can be initiated, but a real

low wage worker may not have the time to make multiple phone calls to

WHD just to file a complaint and may give up when call after call is

directed to voicemail and not returned. It is impossible to know how many

WHD’s Complaint

Intake Process,

Conciliations, and

Other Investigative

Tools Do Not Provide

Assurance of a Timely

and Thorough

Response to Wage

Theft Complaints

WHD’s Complaint-Intake

Process Is Ineffective

Page 18 GAO-09-458T

complainants attempt to file a complaint but are discouraged by WHD’s

complaint intake process and eventually give up.

Regarding WHD’s record-keeping failures, we found that WHD does not

have a consistent process for documenting and tracking complaints. This

has resulted in situations where WHD investigators lose track of the

complaints they have received. According to WHD policies, investigators

should enter complaints into WHD’s database and either handle them

immediately as conciliations or refer them to management for possible

investigation. However, several of our undercover complaints were not

recorded in the database, even after the employee had spoken to an

investigator or filed a written complaint. This is particularly troubling in

the case of our child labor complaint, because it raises the possibility that

WHD is not recording or investigating complaints concerning the well-

being and safety of the most vulnerable employees. Employees may

believe that WHD is investigating their case, when in fact the information

they provided over the phone or even in writing was never recorded. Since

there is no record of these cases in WHD’s database, it is impossible to

know how many complaints are reported but never investigated.

According to several WHD District Directors, in conciliations where the

employer refuses to pay, their offices lack the resources to investigate

further or compel payment, contributing to the failures we identified in

our undercover tests, case studies, and statistical sample. When an

employer refuses to pay, investigators may recommend that the case be

elevated to a full investigation, but several WHD District Directors and

field staff told us WHD lacks the resources to conduct an investigation of

every complaint and focuses resources on investigating complaints

affecting large numbers of employees or resulting in large dollar amounts

of back wage collections. Conducting a full investigation allows WHD to

identify other violations or other affected employees, attempt to negotiate

back wage payment with the employer and, if the employer continues to

refuse, refer the case to the Solicitor’s Office for litigation. However, in

some conciliations, the employer is able to avoid paying back wages

simply by refusing. While WHD informs complainants of their right to file a

lawsuit against their employers to recover back wages, it is unlikely that

most low wage workers have the means to hire an attorney, leaving them

with little recourse to obtain their back wages.

WHD’s conciliation policy also limits the actions staff may take to resolve

these cases. For example, WHD staff told us that complaints handled as

conciliations must be completed in under 15 days from the time the

WHD’s Conciliation

Process Is Ineffective

Page 19 GAO-09-458T

complaint is assigned to an investigator, and at least one office allows

investigators only 10 days to resolve conciliations, which may not allow

time for additional follow-up work to be performed. WHD staff in one field

office told us they are limited to three unanswered telephone calls to the

employer before they are required to drop the case and advise the

complainant of his right to file a lawsuit to recover back wages. Staff in

several field offices told us that they are not permitted to make site visits

to employers for conciliations. WHD investigators are allowed to drop

conciliations when the employer denies the allegations and WHD policy

does not require that investigators review employer records in

conciliations. In one case study, the employee stated that he thought the

business was going bankrupt. WHD dropped the case stating that the

employer declared bankruptcy and informed the employee of his right to

file a private lawsuit to recover back wages. Bankruptcy court records

show that the employer had not filed for bankruptcy, and we confirmed

that the employer was still in business in December 2008. One WHD

investigator told us that it is not necessary to verify bankruptcy records

because conciliations are dropped when the employer refuses to pay,

regardless of the reason for the refusal.

Our undercover tests and interviews with field staff also identified serious

record-keeping flaws in which make WHD appear better at resolving

conciliations than it actually is. For example, WHD’s southeast region,

which handled 57 percent of conciliations recorded by WHD in fiscal year

2007, has a policy of not recording investigative work performed on

unsuccessful conciliations in the database. WHD staff told us that if

employers do not agree to pay back wages, cannot be located, or do not

answer the telephone, the conciliation work performed will not be

recorded in the database

, making it appear as though these offices are

able to resolve nearly all conciliations successfully. Inflated conciliation

success rates are problematic for WHD management, which uses this

information to determine the effectiveness of WHD’s investigative efforts.

Our undercover tests and interviews with WHD staff also raise questions

about the reliability of conciliation information recorded in WHD’s

database. As illustrated by our undercover tests, when an employer

In some offices with this policy, the complaint that the conciliation was based on would

be recorded in WHD’s database. However, the complaint would appear as though it had

never been investigated, because the investigative work and the outcome of the

conciliation would not be recorded in the database. Other offices do not enter the

complaint into the database.

Page 20 GAO-09-458T

initially agrees to pay in a conciliation but reneges on his promise, WHD

investigators did not change the outcome of the closed case in WHISARD

to show that the employee did not receive back wages. While some

investigators wait for proof of payment before closing the conciliation,

others told us that they close conciliations as soon as the employer agrees

to pay. Even if the employee later tells the investigator that he has not

been paid, investigators told us they do not change the outcome of a

closed case in the WHD database. WHD publicly reports on the total back

wages collected and the number of employees receiving back wages, but

these statistics are overstated because an unknown number of

conciliations recorded as successfully resolved in the WHD database did

not actually result in the complainant receiving the back wages due.

These poor record-keeping practices represent a significant limitation of

the population we used to select our statistical sample because the

number of conciliations actually performed by WHD cannot be determined

and conciliations recorded as successfully resolved may not have resulted

in back wages for the employees. As a result, the percentage of inadequate

conciliations is likely higher than the failure rate estimated in our sample.

We found that 5.2 percent

of conciliations in our sample were

inadequately conciliated because WHD failed to verify the employer’s

claim that no violation occurred, closed the case after the employer did

not return phone calls, or closed the case after the employer refused to

pay back wages. However, we found that many of the conciliations

recorded in WHD’s database were adequately investigated. One example of

a successful conciliation involved a complaint alleging that a firm was not

paying minimum wage. The complaint was assigned to an investigator the

same day it was filed in September 2007. The WHD investigator contacted

the owner, who admitted the violation and agreed to pay back wages of

$1,500. The case was concluded the same day when the investigator

obtained a copy of the complainant’s check from the employer and spoke

to the complainant, confirming that he was able to cash the check and had

received his back wages.

Because we followed a probability procedure based on random selections, our sample is

only one of a large number of samples that we might have drawn. Since each sample could

have provided different estimates, we express our confidence in the precision of our

particular sample’s results as a 95 percent confidence interval (e.g., plus or minus 5

percentage points). This is the interval that would contain the actual population value for

95 percent of the samples we could have drawn. The 95 percent confidence interval

surrounding our sample of inadequate investigations ranges from 206 to 1,195 failures in

the population.

Page 21 GAO-09-458T

We found WHD’s process for handling investigations and other non-

conciliations was frequently ineffective because of significant delays.

However, once complaints were recorded in WHD’s database and assigned

as a case to an investigator, they were often successfully investigated.

Almost 19 percent

of non-conciliations in our sample were inadequately

investigated, including cases that were not initiated until more than 6

months after the complaint was received, cases closed after an employer

refused to pay, and cases that took over one year to complete. In addition,

seven cases failed two of our tests.

Table 4: Number of Failures by Test for Sample of Non-conciliations

WHD’s Investigation and

Other Non-conciliation

Processes Were Often

Ineffective, but Complaints

Investigated Quickly Were

Usually Resolved

Successfully

Reason why non-conciliation was inadequate

Percent

Point

Estimate

95%

Confidence

Interval

Cases not initiated within 6 months of complaint 5.2 [1.9, 11.1]

Case closed due to employer’s refusal to pay 6.2 [2.5, 12.3]

Cases with violations found that were not referred to Labor’s

Office of the Solicitor for litigation

4.6 [1.5, 10.5]

Cases taking more than one year to complete 6.6 [2.8, 12.7]

Cases where WHD failed to review employer records 3.1 [.75, 8.1]

Estimate of Inadequate Non-Conciliations 18.8 [12.1, 27.1]

Source: GAO.

Six of the cases in our sample failed because they were not initiated until

over 6 months after the complaint was received. According to WHD

officials, non-conciliations should be initiated within 6 months of the date

the complaint is filed. Timely completion of investigations by WHD is

important because the statute of limitations for recovery of wages under

the FLSA is 2 years from the date of the employer’s failure to pay the

Because we followed a probability procedure based on random selections, our sample is

only one of a large number of samples that we might have drawn. Since each sample could

have provided different estimates, we express our confidence in the precision of our

particular sample’s results as a 95 percent confidence interval (e.g., plus or minus 5

percentage points). This is the interval that would contain the actual population value for

95 percent of the samples we could have drawn. The 95 percent confidence interval

surrounding our sample of inadequate investigations ranges from 2,595 to 5,827 failures in

the population.

Page 22 GAO-09-458T

correct wages.

Specifically, this means that every day that WHD delays an

investigation, the complainant’s risk of becoming ineligible to collect back

wages increases. In one of our sample cases, WHD sent a letter to a

complainant 6 months after his overtime complaint was filed stating that,

because of a backlog, no action had been taken on his behalf. The letter

requested that the complainant inform WHD within 2 business days of

whether he intended to take private action. The case file shows no

indication that the complainant responded to WHD. One month later,

WHD assigned the complaint to an investigator and sent the complainant

another letter stating that if he did not respond within 9 business days, the

case would be closed. WHD closed the case on the same day the letter was

sent.

Our case studies discussed above and in appendix II also include examples

of complaints not investigated for over a year, cases closed based on

unverified information provided by the employer, businesses with repeat

violations that were not fully investigated, and cases dropped because the

employer did not return telephone calls. For example, in one case study,

WHD found that 21 employees were due at least $66,000 in back wages for

overtime violations. Throughout the investigation, the employer was

uncooperative and resisted providing payroll records to WHD. At the end

of the investigation, the firm agreed with WHD’s findings and promised to

pay back wages, but then stopped responding to WHD. The employees

were never paid back wages and over a year later, the Solicitor’s Office

decided not to pursue litigation or any other action in part because the

case was considered “significantly old.”

The failures we identified resulted, in part, from the large backlog of cases

in several WHD offices, investigators’ failure to compel cooperation from

employers, and a lack of certain tools that would facilitate verification of

employer statements. In several district offices, a large backlog prevents

investigators from initiating cases within 6 months. One office we visited

has a backlog of 7 to 8 months, while another office has a backlog of 13

months. Additionally, our analysis of WHD’s database shows that one

district office did not initiate an investigation of 12 percent of complaints

The statute of limitations for recovery of wages under FLSA and the Davis Bacon Act is 2

years from the employer’s failure to pay the correct wages. 29 U.S.C. § 255. For willful

violations, in which the employer knew its actions were illegal or acted recklessly in

determining the legality of its actions, the statute of limitations is 3 years. Federal courts

have enforced the statute of limitations even if Labor is investigating a complaint.

Shandelman v. Schuman, 92 F. Supp. 334 (E.D.Pa. 1950).

Page 23 GAO-09-458T

until over one year after the complaint was received, including a child

labor complaint affecting over 50 minors. Because the statue of limitations

to collect back wages under FLSA is 2 years, WHD is placing complainants

at risk of collecting only a fraction of the back wages they would have

been able to collect at the time of the complaint. WHD also failed to

compel records and other information from employers. While WHD

Regional Administrators are legally able to issue subpoenas, WHD has not

extended this ability to individual investigators, who therefore depend on

employers to provide records and other documentation voluntarily. In

cases where public records are available to verify employer statements,

WHD investigators do not have certain tools that would facilitate access to

these documents. For example, we used a publicly-available online

database, Public Access to Court Electronic Records (PACER), to

determine that an employer who claimed to have filed for bankruptcy had

not actually done so. However, there is no evidence in the case file that the

WHD investigator performed this check. WHD officials told us that its

investigators do not receive training on how to use public document

searches and do not have access to databases containing this information

such as PACER.

We found that, once complaints were recorded in WHD’s database and

assigned as a case to an investigator in a timely manner, they were often

successfully investigated. As discussed above, WHD does not record all

complaints in its database and discourages employees from filing

complaints, some of which may be significant labor violations suitable for

investigation. In addition, many cases are delayed months before WHD

initiates an investigation. However, our sample identified many cases that

were adequately investigated once they were assigned to an investigator.

Specifically, 81.2 percent of the non-conciliations in our sample were

adequately investigated. One example of a successful investigation

involved a complaint alleging that a firm was not paying proper overtime

was assigned to an investigator the same day it was filed in April 2007. The

WHD investigator reviewed payroll records to determine that the firm

owed the complainant back wages. The case was concluded within 3

months when the investigator obtained a copy of the complainant’s cashed

check, proving that he had been paid his gross back wages of $184.

This investigation clearly shows that the Department of Labor has left

thousands of actual victims of wage theft who sought federal government

assistance with nowhere to turn. Our work has shown that when WHD

adequately investigates and follows through on cases they are often

successful; however, far too often many of America’s most vulnerable

Conclusions

Page 24 GAO-09-458T

workers find themselves dealing with an agency concerned about resource

limitations, with ineffective processes, and without certain tools necessary

to perform timely and effective investigations of wage theft complaints.

Unfortunately, far too often the result is unscrupulous employers taking

advantage of our country’s low wage workers.

Mr. Chairman and Members of the Committee, this concludes our

statement. We would be pleased to answer any questions that you or other

members of the committee may have at this time.

For further information about this testimony, please contact Gregory D.

Kutz at (202) 512-6722 or [email protected] or Jonathan Meyer at (214) 777-

5766 or [email protected]. Individuals making key contributions to this

testimony included Erika Axelson, Christopher Backley, Carl Barden,

Shafee Carnegie, Randall Cole, Merton Hill, Jennifer Huffman, Barbara

Lewis, Jeffery McDermott, Andrew McIntosh, Sandra Moore, Andrew

O’Connell, Gloria Proa, Robert Rodgers, Ramon Rodriguez, Sidney

Schwartz, Kira Self, and Daniel Silva. Contact points for our Offices of

Congressional Relations and Public Affairs may be found on the last page

of this testimony.

Contacts and

Acknowledgments

Page 25 GAO-09-458T

Page 26 GAO-09-458T

Appendix I: Scope and Methodology

To review the effectiveness of WHD’s complaint intake and conciliation

processes, GAO investigators attempted to file 11 complaints about 10

fictitious businesses to WHD district offices in Baltimore, Maryland;

Birmingham, Alabama; Dallas, Texas; Miami, Florida; San Jose, California;

and West Covina, California. These field offices handle 13 percent of all

cases investigated by WHD. The complaints we filed with WHD included

minimum wage, last paycheck, overtime, and child labor violations. GAO

investigators obtained undercover addresses and phone numbers to pose

as both complainants and employers in these scenarios.

As part of our overall assessment of the effectiveness of investigations

conducted by WHD, we obtained and analyzed WHD’s Wage and Hour

Investigative Support and Reporting Database (WHISARD), which

contained 32,323 cases concluded between October 1, 2006 and September

30, 2007. We analyzed WHD’s WHISARD database and determined it was

sufficiently reliable for purposes of our audit and investigative work. We

analyzed a random probability sample of 115 conciliations and 115 non-

conciliations to contribute to our overall assessment of whether WHD’s

processes for investigating complaints are effective. Because we followed

a probability procedure based on random selections, our samples are only

one of a large number of samples that we might have drawn. Since each

sample could have provided different estimates, we express our

confidence in the precision of the particular sample’s results as a 95

percent confidence interval (e.g., plus or minus 5 percentage points). This

is the interval that would contain the actual population value for 95

percent of the samples we could have drawn.

To determine whether an investigation was inadequate, we reviewed case

files and confirmed details of selected cases with the investigator or

technician assigned to the case. In our sample tests, conciliations were

determined to be inadequate if WHD did not successfully initiate

investigative work within 3 months or did not complete investigative work

within 6 months. Non-conciliations were determined to be inadequate if

WHD did not successfully initiate investigative work within 6 months, did

not complete investigative work within 1 year or did not refer cases in

which the employer refused to pay to Labor’s Office of the Solicitor. Both

conciliations and non-conciliations were determined to be inadequate if

WHD did not contact the employer, did not correctly determine coverage

under federal law, did not review employer records, or did not compute

and assess back wages when appropriate.

We gathered additional information about WHD policies and procedures

by reviewing training materials and the WHD Field Operations Handbook,

conducting walk-throughs of investigative processes with management

and interviewing WHD officials. We gathered information about district

office policies and individual cases by conducting site visits at the Miami

and Tampa, Florida district offices, and conducting telephone interviews

with technicians, investigators and district directors in 23 field offices and

headquarters officials in Washington, D.C. We also spoke with Labor’s

Office of the Solicitor in Dallas, Texas and Washington, D.C. To identify

macro-level data on WHD complaints, we analyzed data for cases closed

between October 1, 2006 and September 30, 2007 by region, district office

and case outcome.

To identify case studies of inadequate WHD responses to complaints, we

data-mined WHISARD to identify closed cases in which a significant delay

occurred in responding to a complaint (cases taking more than 6 months

to initiate or 1 year to complete), an employer could not be located, or the

case was dropped when an employer refused to pay. We obtained and

analyzed WHD case files, interviewed WHD officials, and reviewed

publicly available data from online databases and the Department of

Treasury’s Financial Crimes Enforcement Network to gather additional

information about these cases. We also interviewed complainants who

contacted GAO directly or were referred to us by labor advocacy groups to

gather information about WHD’s investigation of their complaints.

Page 27 GAO-09-458T

Page 28 GAO-09-458T

Appendix II: Additional Case Studies of

Inadequate WHD Investigations

Table 5 provides a summary of ten additional case studies of inadequate

Wage and Hour Division (WHD) investigations. These case studies include

instances where WHD dropped cases after (1) employers refused to

cooperate with an investigation, (2) WHD identified a violation but failed

to force employers to pay employees their owed wages, and (3) an

employer alleged it was bankrupt when in fact the employer was not.

Table 5: Additional Case Studies of Inadequate WHD Investigations

Case

Type of

business/employee

occupation

Type of alleged

violation

Employer

location

WHD actions, conclusions, and additional details

11 Employment Agency/

Carpenter

Minimum Wage

(FLSA)

Hollywood, FL

•

Complainant alleged he was not paid minimum

wage.

•

WHD attempted to contact the employer to

substantiate the claim, but the employer did not

return WHD’s calls.

•

Case was closed and the employee was

informed of his right to file private litigation.

•

We were able to make contact with the

employer in February 2009.

12 Telemarketing /

Telemarketer

Minimum Wage

(FLSA)

Wellington, FL

•

Employer would not make a commitment to

WHD to pay $937 in back wages.

•

WHD closed the case and recorded that the

employer was in compliance with labor laws.

13 Plumbing/ Plumber Minimum Wage

(FLSA)

Alpharetta, GA

•

Employer admitted owing wages but refused to

pay because the employee had been involved

in a vehicular accident in a company vehicle.

•

WHD requested that employer comply with

labor laws in the future, but employer refused.

•

The WHD investigator stated that the case was

closed and the employee was informed of his

right to file a private lawsuit.

14 Drywall Sub-Contractor/

N/A

Failure to Overtime

(FLSA)

Biloxi, MS

•

Employer admitted to WHD that employees

were not paid overtime and he did not know

how much they were paid per hour.

•

One employee told the investigator that the

employees had been threatened and another

source informed the investigator that the

employer had threatened employees with a

machete so they would lie during WHD

interviews, but the investigator still determined

that the employer’s violations did not appear to

This case was a directed investigation into the business based on a tip received from a

competitor, not the complaint of a single worker.

Case

Type of

business/employee

occupation

Type of alleged

violation

Employer

location

WHD actions, conclusions, and additional details

be willful.

• Employer told WHD he did not keep payroll

records, but his attorney later said he had

reviewed employer payroll records.

• Through information from the employer’s pay

was due to 191 employees, but the employer’s

attorney stated that the firm would be put out of

business if the back wages were paid.

• WHD agreed to reduce back wages as an

administrative settlement to resolve the case

and the employer agreed to pay $78,228.

15 Trucking/ Truck Drivers Minimum Wage

(FLSA)

Doniphan, NE

• WHD received 4 complaints against a trucking

company over a 7 month period.

• The first three conciliations found that the

employee’s allegations were substantiated and

the employer agreed to pay back wages.

• WHD treated each complaint as a conciliation,

cases generally set up when a single employee

is affected, even after violations were found in

the first three cases.

16 Sewing Contractor/ Worker Minimum Wage

(FLSA)

Passaic, NJ

• Complainant alleged 10 employees were due

back wages for 3 to 7 weeks of work.

• Employer failed to provide WHD payroll records

for any of its employees.

• WHD found that the complainant was owed

over $800 in back wages, but did not calculate

back wages for any other employees.

• During the limited investigation, the employer

stated it had filed for Chapter 7 bankruptcy

three days earlier and was no longer in

business.

• WHD closed the case and the complainant was

notified of his right to file private litigation.

• Our review of bankruptcy court documents

showed no record of the employer filing for

Chapter 7 bankruptcy.

17 Construction/Anonymous

Complaint

Overtime (FLSA) Brooklyn, NY

• A 2006 complainant alleged that the firm did not

pay its employees overtime.

• The employer had annual sales of over $2

million in 2005.

• WHD visited the employer’s address and found

a residence, but did not speak with anyone.

• Complainant provided construction site

locations, but WHD did not visit these

addresses until almost 6 months after the

complaint was recorded by WHD.

Page 29 GAO-09-458T

Case

Type of

business/employee

occupation

Type of alleged

violation

Employer

location

WHD actions, conclusions, and additional details

• WHD’s case file states that the employer’s

accountant did not want WHD to visit the work

site and hung up on the investigator.

• WHD investigator closed the case because he

was not able to gather information.

18 Security Service/ Security

Guard

Overtime (FLSA) Del City, OK

• WHD was unable to determine coverage under

federal law on three previous self-audits of this

company.

• In the fourth case, it was determined that the

employer failed to pay over $47,000 in overtime

due to 98 employees.

• The employer agreed to pay the unpaid wages,

but did not submit back wage payment evidence

to WHD.

• The back wages due were submitted for debt

collection, however the case file contains no

information on whether any wages were

subsequently collected.

19 Gas Station/ Manager Overtime (FLSA) Ooltewah, TN

• Employee contacted WHD alleging that the

employer did not pay overtime.

• Employee was notified that WHD had a very

large backlog and was provided contact

information for three attorney referral services.

• No investigative actions were conducted until

over five months later, when WHD contacted

the complainant.

• The complainant stated that a new owner had

purchased the business approximately two

weeks earlier.

• WHD did not calculate the back wages due to

the complainant, recorded that the employer

was out of business, and recommended that the

case be closed with no further action.

20 Foundation Repair/ Foreman Overtime (FLSA)

Houston, TX

• Investigation took nearly 2 years to complete.

• WHD believed that overtime violations and

employees working off the clock were systemic

practices at over 20 of the firm’s locations.

• The employer disagreed with WHD and insisted

that he had not violated labor laws.

• WHD estimated that the enterprise owed over

$6 million in back wages; according to the

investigator assigned to this case, a precise

amount could not be computed because the

employer refused to provide required payroll

documentation.

• WHD rejected the employer’s offer to pay

$50,000 in back wages, but later attempted to

Page 30 GAO-09-458T

Case

Type of

business/employee

occupation

Type of alleged

violation

Employer

location

WHD actions, conclusions, and additional details

settle with the employer by reducing back

wages. No settlement was reached.

• WHD had found the same violations

approximately 20 months prior to this

investigation, but the employer would not agree

to pay back wages or comply with labor laws at

that time.

• WHD determined that the employer had a good

faith defense for continuing the same pay

practices because he had not been provided a

formal letter stating the outcome of the previous

investigation.

• WHD did not refer this case for litigation

because of the erosion of the 2-year statute of

limitations and did not recommend that the

employer pay penalties for its violations.

• WHD determined that the firm had come into

compliance at all locations nationwide based

solely on the employer’s verbal statements; no

supporting documentation was reviewed.

• WHD sent letters to the affected employees

informing them that the employer had refused to

pay and notifying them of their right to file

private litigation.

Source: GAO analysis.

(192314)

Page 31 GAO-09-458T

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