NASSAU/SUFFOLK

I write regularly about misclassification issues but it is important for clients to understand that cases take two pathways after audit.  A case which comes to the attention of the NYS Department of Labor as a result of an unemployment filing will head to the Unemployment Insurance Appeal Board.  However, an audit which does not involve an unemployed individual takes a different trajectory to the little known Board of Industrial Appeals.  The board consists of five gubernatorial appointees and its activities include:

• Hearing and adjudicating appeals concerning the reasonableness or validity of health and safety standards promulgated by the Commissioner of Labor

• Hearing and adjudicating petitions for review of Department of Labor compliance orders to enforce health and safety standards

• Hearing and adjudicating appeals for review of compliance, penalty and interest orders issued by the Commissioner of Labor pursuant to the Labor Law.

• Hearing and adjudicating appeals concerning the reasonableness of minimum wage orders.

When the Department of Labor audits an employer, finds liability and the employer disagrees with the finding or the amount, the case goes to the IBA.  Hearings are formalistic and there are pre-trial pleadings.  Along the way, there are opportunities for settlement or mediation.

It is important for employers to recognize that, statistically, it is quite rare for them to win at this level.  The overwhelming majority of cases go to settlement.  I am involved in one such matter now and, having been brought into the case very far down the road, recognize all the major mistakes that were made along the way.

If counsel recognizes that the basis of the audit is reasonable, employers should not put their heads in the sand and ignore the Department’s findings.   Statements such as “I am being singled out”, “No one in my industry pays statutory overtime”, etc. will do absolutely no good.  Neither the Department of Labor nor the state’s legal counsel has the power to play “Let’s Make A Deal” based on those assertions.  If you have failed to keep proper and necessary payroll records, don’t expect to escape by paying the wages due once a case has reached the Board.  Your conduct at the Department of Labor inquiry level is crucial to a resolution of the matter in a timely and efficacious manner.

As I often say, you should not go it alone.   If you insist that you are being charged improperly and do not begin to make payments under protest, the interest can be fatal.  The statutory rate is 16 percent!!!  When I got out of law school, that was called usury and I defy anyone to obtain that rate from any bank these days.  We are supposed to be grateful for anything over 1%!   In my current case, the interest and penalties exceed the base liability and, as a consequence ,a violation of less than $200,000 is now up to  $501,000.

The consequences are so serious that no audit should be conducted without the involvement of employment counsel.  Counsel should be brought it at the onset for consultation and recommendations, even if your accountant will take the lead during the actual audit visit.