Earlier this week, the U.S. Department of Labor’s Wage and Hour Division announced the upcoming launch of a “new” pilot program called the Payroll Audit Independent Determination program (“PAID”).  Under PAID, employers can come forward voluntarily to disclose wage and hour violations to the DOL, the DOL will supervise a settlement of any monetary claims arising from such violations with any affected employees, and employers won’t have to pay liquidated damages or civil monetary penalties.

Sound familiar?  That’s because the DOL has been supervising settlements since the 1950s.  Section 16(c) of the Fair Labor Standards Act (29 U.S.C. § 216(c)), added to the statute in the 1949 amendments, provides that “the [DOL] is authorized to supervise the payment of the unpaid minimum wages or the unpaid overtime compensation owing to any employee … and the agreement of any employee to accept such payment shall upon payment in full constitute a waiver by such employee of any right he may have under [the FLSA] to such unpaid minimum wages or unpaid overtime compensation and an additional equal amount as liquidated damages.”

Sound attractive?  No liquidated damages, no penalties, the blessing of the DOL, no lawsuit … not so fast.  If you happen to run a business in one of the states that have longer statutes of limitations on wage claims than the FLSA—like, say, New York—your DOL-supervised settlement doesn’t necessarily prevent state law wage claims for periods prior to the FLSA’s statute of limitations (and possibly even for additional damages or penalties for the time period covered by the DOL settlement).  Indeed, the “release” form often used by the DOL in supervised settlements or investigations—the Form WH-58—has employees acknowledge that their “acceptance of this payment of wages and/or other compensation due under the [FLSA] … means that you have given up the right you have to bring suit on your own behalf for the payment of such unpaid minimum wages or unpaid overtime compensation … under … the FLSA.”  The PAID program further limits the scope of a potential release of FLSA claims by providing that the release must be “tailored to only the identified violations and time period for which the employer is paying the back wages.”

And what if one or more of the affected employees doesn’t want to participate in the DOL-supervised settlement, and instead decides to seek back pay, liquidated damages, and attorneys’ fees in court?  What if one or more of the affected employees files a lawsuit without even knowing that you’ve initiated settlement discussions with the DOL?  Those lawsuits won’t go away simply because you’re in negotiations with the DOL.

And if you haven’t received any employee complaints about a wage and hour violation and the violation can be corrected on a going forward basis—perhaps with some voluntary remedial back payment to the affected employees—are you doing more harm than good by taking your internal problem to the government agency whose very mission it is to investigate that issue (and any related or other potential violations)?  You don’t see many employers going to court on their own initiative to seek a declaratory judgment against themselves when they have breached a contract.  Many businesses would rather deal with any private claims if and when they arise, and in the meantime, benefit from the daily dwindling of the statute of limitations.

The PAID program may have some surface appeal, but its benefit to employers is murky at best.