oversight

Review of Constituent's Complaint on Investigation by the Department of Labor for Compliance with the Fair Labor Standards Act of 1938

Published by the Government Accountability Office on 1977-10-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DCCUMENT FESUME

03764 -   B28541013

Review of Constituent's Complaint on Investigation by the
Department of Labor for Cowpliance with the Fair Labor Standards
Act of 1938. HRD-77-153; B-133182. October 11, 1977. Released
October 13, 1977. 9 pp.
Report to Sen. Russell B. Long; by Gregcry J. Ahart, Director,
Human Resourcer Div.
Issue Area: Income Security Programs: Programs to Protect
    Workers' Income (1306).
Contact: Human Resources Div.
Budget Function: Education, Manpower, and Social Services: Other
    Labor Services (505).
Organizaticn Concerned: Department of Labor: Wage and Hour Div.,
    New Orleans, LA.
Congressional Relevarce: Sen. Russell B. Long.
Authority: Fair Labor Standards Act, as amended (29 U.S.C. 201
    et seq.). Wage and Hour Publication 1282. age and Hour
    Publication 1308.
         The Department of Labor's Wage and Hour Division
investigated A. Leonard Soeller's establishment in Slidell,
Louisiana, to determine compliance with minimum wage and
overtime provisions of the Fair Lator Standerds Act. Mr. Soeller
alleged that area office personnel: used a method of determining
his coverage by the act which was different from that explained
in publications; incorrectly computed the date his establishment
became subject to the act; incorrectly calculated back wages
resulting from violations; became hostile when errors were
pointed out; and threatened him with a court suit if he did not
pay back wages. Findings/Conclusicns: The compliance officers'
determination that an establishment became subect to the act on
January 1, 1976 was in error, possibly because of the method
used by Mr. Soeller to record sales and layaway receipts.
However, there was no evidence of attempts by officers to obtain
explanations. A secord analysis of date of coverage was found to
be accurate. Two of three summaries of baci wages due employees
contained er-ors in computation. Although a publication did not
explain the method used to calculate the period of coverage for
the act, it was only intended as a guide. Another publication
provided an adequate explanation of the method used in computing
sales volume, but Mr. Soeller was not provided with this
publication until after the investigation. He was advised that
court suit could be filed tc recover back wages but there was no
evidence that officers were hostile or uncooperative. Some
problems could have been avoided if matters of concern were
discussed more fully with r. Soeller, (HTI)
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                             UNITED STATES GENERAL ACCOUNTING OFFICE
                                          WASHINGTON, D.C.           20

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            The Honorable Russell            . Long
            United States Senate
            Dear Senator Long:

                 In response to your request dated April 11, 1977, and
            subsequent discussions with your office we have examined
            into allegations made by Mr. A. Leonard ioeller of Slidell,
            Louisiana, about the Department of Labor's investigation
            of his establishment for compliance with the minimum wage
            and overtime provisions of the Fair Labor Standards Act,
            a* amended (29 U.S.C. 201 et seq.). The investigation was
            made in March 1977 by Labor's Wage and Hour Division area
            office in New Orleans, Louisiana. In his letter to you
            dated April 2, 1977, Mr. Soeller alleges that the area
            office personnel
                   -- used a method of determining how and when his
                      establishment was covered by the act which was
                      different from that explained in the Wage and
                      Hour Division publications provided to him,
                   -- incorrectly computed the date his establishment
                      first became subject .to the act,
                   -- incorrectly calculated the back wages he owed his
                      employees as a result of apparent v-laSions to
                      the act,
                   -- became uncooperative and hostile when he pointed
                      out errors in the computations and calculations of
                      the underpayments, and

                         f       l   him with a court suit if he did not pay
                                     ges determined to be due his employees.




                                                                                          HRD-77-153
                                                                                          (990516)
B-133182


     The Fair abor Standards Act establishes minimum wage,
overtime pay, equal pay, and child labor standards for certain
employees in the private and public sectors. The act ccvers
any employee in a retail or service enterprise which has
(1) an annual gross volume of sales made, or business done,
of at least $250,000 exclusive of excise taxes) and (2) some
employees engaged in commerce or in the production of goods
for commerce or employees handling, selling, or otherwise
working on goods or materials that have been moved in or
produced for commerce.

     The 1974 amendments to the act set rinimum wage rates
for covered employees at $1.90 an hour beginning May 1, 1974.
These rates increased to $2.00 an hour or lanuary 1, 1975, to
$2.20 an hour on January 1, 1976, and to 2.30 an hour on
January 1, 1977. The act also provides that covered employees
are entitled to one and a half times their regular wage rates
for all hours worked over 40 in a workweek.

     The Wage and Hour Division in Labor's Employment Standards
Administration is responsible for enforcing tht minimum wage
and other provisions of the act. Enforcement is carried out
by compliance officers in area officec and field sations
located throughout the United States.

     The compliance officers conduct investigations at
establishments and gather data on wages, hours, and other
employment conditions in order to determine compliance with
the act. When violations of minimum or overtime wage rates
are found, the Wage and Hour Division personnel supervise the
establishment's payment of back wages to employees. If the
establishment refuses or fails to pay back wages found to be
due during an investigation, the act authorizes the Secretary
of Labor or the employee to institue court action against the
establishment for recovery of the back wages.

     The Wage and Hour Division's New Orleans area office is
responsible for making investigations in Louisiana where
Mr. Soeller's establishment is located.   Mr. Soeiler's establish-
ment consists of two stores engaged in retailing the electronic
items handled by franchises of the Radio Shack chain (a subsidiary
of the Tandy Corporation).   The first store opened in 1971 and the
second in November 1976.   Both stores are located in Slidell,
Louisiana.




                              2 -
B-133182


RESULTS OF THF WAGE AND HOUR
DIVIStON' S INVESTIGATION

     In December 1976, the New Orleans Area Office received a
complaint that Mr. Soeller's employees were being paid below
the minimum wage rates. As a result, the area office conducted
an investigation of Mr. Soeller's stores in March 1977.  The
investigation was made by a complicnce officer and a trainee.

Initial determinations of violations

     To determine whether Mr. Soeller's stores were covered
under the act, the compliance officers computed the first
store's arnual sales for calendar years 1974, 1975, and 1976.
The compliance officers' analysis showed gross receipts for
the sto.e of $254,390 from Jarruary l to December 31, 1975.
The grJss receipts included total sales, labor, and layaway
r--iptcs, less excise taxes. Thus, the compliance officers
cotcluded that the store became subject to the act effecutive
January 1, 1976. Mr. Soeller was allowed a 1-month grace
period and coverage of the store started February 1, 1976.
     The compliance officers determined that Mr. Soe]ler's
second store became subject to the act effective January 1,
1977. Under the act, after January 1, 1977, the econd store
did not have to meet the $250,000 annual sales volume require-
ment to be covered since it was part of an enterprise already
subject t the act.
     After determining that Mr.-Soeller's stores were covered,
the compliance officers reviewed the wages paid to his 18
employees from February 1, 1976 to February 25, 1977, the
cutoff date for the investigation. The review showed that 15
of the 18 employees were paid rates which were below the minimum
required by the Fair Labor Standards Act, as amended. Also,
eight of the employees ere paid straight time for hours worked
above their 40 hour workweek, rather than overtime, as required
by the act. The compliance officers calculated that the 18
employees were due $3,776.17 in back wages.
     At the conclusion of the investigation, Mr. Soeller was
given a summary showing the back wages due his 18 employees.
After reviewing the summary, Mr. and Mrs. Soeller pointed out
that at times, several employees had worked exclusively in the
second store, which was exempt from coverage until January 1,
1977. As!; a result, the compliance officers had to prepare a
second summary, which showed that only 16 employees were due
back wages totaling $3,084.91, from February 1, 1976 to
February 25, 1977.
                               --3-
B-133182


     The revised summary was resented to Mr. Soeller, who
took exception to the alleged minimum wage violations for
certain employees as well as the method used in determining
when his stores were covered by the act. Mr. Soeller request-
ed that a conference with area ffice officials be held to
discuss hiL objections.

Final determinations
of violations

     On April 1, 1977, the conference was held at the New
Orleans Area Office, and during the conference Mr. Soeller
presented evidence which showed that the compliance officers
had counted layaw , receipts twice in computing the annual
gross receipts at is first store. Consequently, the compli-
ance officers had t recompute the dollar volume of business.
They found that Mr. Soeller's first store was covered effective
April 1, 1976, rather than January 1, 1976, as they had origi-
nally calculated. The compliance officers alsn had to prepare
a third summary of minimum and overtime violations based on
the new coverage date.  Thi- summary reduced the back wages
due the 16 employees from $3,084.91 to $2,733.31.

     On April 4, 1977, Mr. Soeller agreed to pay the back wages
to the 16 employees shown on the third summary.      Payments were
to be made in three installments,  the first  to  10  employees was
to be paid on April 10, 1977, the second  to  4  employees  on
May 10, 1977, and the third to the  remaining   2 employees  on
June 10, 1977. At the time of our field work     in  August 1977,
data in the case file showed that the back wages had been paid
to only nine employees.  The New Orleans Area Director told us
cn September 9, 1977, that he would follow up to determine
whether Mr. Soeller paid the back wages to the remaining seven
employees when the case file (which is in Washington for review)
is returned.

GAO REVIEW OF INVESTIGATION

     As agreed with your office, we reviewed the compliance
officers' investigation report and related documents, and
discussed the case with Wage and Hour Division officials at
the Washington headquarters. The review covered the compliance
officers' determination as to when Mr. Soeller's stores were
covered by the act, the computation of the back wages due his
employees; and Mr. Soeller's allegations regarding inadequate
publications provided him, the threat of a court suit, and
uncooperative behavior by the area office personnel.

                               4-
B-133182


Coveraae of stores under the act

     The compliance officers' two analyses to determine when
Mr. Soeller's storas became subject to the act were based on
sales records for calendar years 1974, 1975, and 1976, provided
by Mr. Soeller and his accountant. The sales and income records
for 1975 and 1916 (the only records available in the file) listed
total sales, receipts for labor, and layaway sales separately;
the compliance officers, in computing total receipts, added the
three fi4ures.
     Mr. Soeller's sales and income records did not include a
statement or notation that the layaway sales were included in
total sales figures. This factor may have been the cause for
the error by the compliance officers in including the layaway
receipts twice in their first computation, showing Mr. Soeller's
store as being covered effective January 1, 1976. The New
Orleans Area Director stated that Mr. Soeller's accountant was
present when the compliance officers were making their analysis,
but the accountant did not comment on the sales figures being
used in the analysis.  However, we found no evidence in the
case file that, during the investigation, the compliance
officers had requested from Mr. Soeller or nis accountant an
explanation of the method used in recording sales and layaway
receipts.

     We also reviewed the compliance officers' second analysis
which showed that Mr. Soeller's store was covered by the act
effective April 1, 1976.  The analysis and computations were
accurate, and the determination-of coverage was made in
accordance with Labor regulations and the act.

Computation of back wages

     The compliance officers provided Mr. Soeller three
separate summaries of back wages due his employees. On the
first two summaries, the compliance officers erred in comput-
ing the amount and number of employees due back wages.

     The first summary erroneously included employees who
worked in the second or exempt store. This error appeared
to be due to the firm's lack of adequate payroll and time
records. The compliance officers claimed that many records
had to be reconstructed from memory by Mrs. Soeller, and that
there were no indications on the payroll records that some
employees had worked at both stores.



                            -   5 -
B-133182


     Also, according to the New Orleans Area Office Director,
all of the employees were carried on one payroll so the compli-
ance officers included all as working in the first store, which
was subject to the act. The Area Office Director stated that
no one told the compliance officers during the investigation
that some employees were working exclusively at the second or
exempt store. We found no evidence in the case file to show
that during the investigation the compliance officers had
discussed this possibility with Mr. Soeller, or with
Mrs. Soeller, who helped reconstruct the payroll records.

     The errors on the second summary of back wages due were
caused by the compliance officers' mistake in computing the
period the first store was subject to the act.

     On the third summary provided to Mr. Soeller, the
compliance officers' computations showed that $2,733.31 in
minimum wage and overtime pay was due 16 employees. Our
review showed that the computations and determinations of
wages due were accurate and appeared to be related to the
period when the stores were covered under the act.

Adeauacy of publications
provided Mr. Soeller
     Mr. Soeller alleges that neither of the wage and hour
publications provided him contain an adequate explanation
of the annual dollar volume method used by the compliance
officers in calculating the period his stores were covered
under the act.  The publications were Wage and Hour (WH)
Publication 1282, entitled "Handy Reference   ide to the
Fair Labor Standards Act," and WH Publication 1308, entitled
"Retail and Service Establishments under the Fair Labor
Standards Act."

     Mr. Soeller is correct in asserting that WH Publicaion
1282 does not explain the method used to calculate the period
of cverage for the act. This publication had been provided
to M. Soeller several months before the investigation.
According to a note on the publication, it is a guide intended
to provide general information about the application of the act.

     We believe that WH Publication 1308 provides an adequate
explanation of the method used in computing an establishment's
annual gross volume of sales to determine whether it is covered
or exempt from the act. The method explained in the publication
is the method used by compliance officers in determining whether
Mr. Soeller's stores were covered.  We noted, however, that

                            - 6 -
B-i33182


Mr. Soeller was not provided a copy of WH Publication 1308
until after the investigation had been completed and the
conference held on March 24, 1977 at his store.

Threats of cou.t suit

     Mr. Soeller alleges that during the investigation, Wage
and Hour Division Area Office officials threatened him with
a court suit if he did not pay his employees the back wages
and that the officials became hostile and uncooperative wnen
he pointed out errors in their calculations.

     Fr)m the data in the case file, it appears that the
issue of a court suit arose during the conference at the
New Orleans Area Office, when Mr. Soeller asked what would
happen if he refused to pay the back wages. He was advised
by the Assistant Area Office Director that he would refer the
case file to the Dallas egional Office with a recommendation
that a suit be filed to recover the back wages due his
employees.

     Also, a Wage and Hour Division headquarters official told
us that firms under investigation are usually told of the
possibility of court action by Labor or the employees if the
firms refuse to pay back wages due employees. He said that
compliance officers are required to do this as part of Wage
and Hour Division's enforcement policy and investigation
procedures.

     During our review of documents and data in the case file,
we found no evidence that the Wage and Hour Area Office com-
pliance officers and other officials were hostile when errors
were called to their attention by Mr. Soeller or were uncoop-
erative in making adjustments to the back wages as a result of
their errors.  Also, it appears that the compliance officers
followed Wage and Hou- Division procedures during the
investigation.
     However, from the documents and reports on the investigation
in the case file, it was readily apparent that Mr. Soeller was
concerned about the overall investigation, particularly about
not being given an adequate explanation of the method used by
the Wage and Four Division Area Office in determining when his
stores became subject to the act.  It appears that the New
Orleans Area Office Assistant Area Director and the compliance
officers could have more thoroughly discussed this and other
matters with Mr. Soeller during the investigation and some of
the problems might have been avoided.
                            -7-
5-l33182


COMMENTS AND ACTION BY THE
DALLAS REGIONAL OFFICE

     As agreed with your office, we referred Mr. Sceller's
allegations -:o tne Department of Labor and requested that
an investigation be made.   In his report on the investigation,
the Employment Standards Administration Regional Administrator
for the Dallas Region, wo has jurisdiction over the New Orleans
Area Office, acknowledged that there were problems in the hand-
ling of the investigation. The Regional Administrator's report
stated:

     "Based upon all the memorandum povided to my office,
     it is my conclusion there should ave been better
     communication between the employer and the compliance
     officers; thus, we could have avoided the issuing of
     th:ree different summaries of back wages due. One of
     these compliance officers was a trainee, however, one
     was a journeyman compliance officer.      Based upon the
     information  available to me,  a  complete  and thorough
     discussion with the employer   at  the  opening  conference
     should have eliminated  many  of  the  problems  which were
     encountered within this case. Part of the       problems
     centered around employees for two establishments being
     on a single payroll record.    This should have been
     explored fully by the compliance officers and they
     should not have issued a back wage summary that
     contained names of employees who at the time were
     working for an exempt retail establishment. There
     were also questions, two different times, concerning
     the annual dollar volume of the establishment.
     Contrary to Mr. Soeller's April 2, 1977 letter, the
     publication provided him, publication 1308 pertainihg
     to Retail and Service Establishments Under the Fair
     Labor Standards Act, does indeed explain fully how
     computations for the annual dollar volume are made.
     The computations as made, using the "rolling quarter"
     basis are correct and the interpretations contained
      in the publication given to Mr. Soeller are quite
     clear.

     "As new facts and new evidence were pointed out to
     the compliance officers and later on to the manage-
     ment staff at the Area Office, appropriate adjust-
     ments were made; in this case, in favor of Mr. Soeller.




                              - 8 -
B-133182

     These adjustments were quite proper as
     _nsufficient facts could lead to incorrect
     conclusions and we do not want an amployer
     paying back wages which are not justifiably
     due. Once an error is made, it is our
     responsibility to take appropriate action
     to see to it that corrections are made.
     This is the procedure we followed in this
     case."

     The egional Administrator stated further that he had
discussed this matter with both compliance officers involved
in this cse in order to see that such action does not take
place in te future. He said that the errors made on this
case do not support any other action. However, the Regional
Administrator said that he was taking regionwide actions to
see the area office management staff more carefully review
the findings and conclusions of subordinate stzff.


     The contents of this report were discussed with officials
of the Wage and Hour Division at the headquarters, and their
views were considered in preparing the report.
     As agreed with your office, unless you publicly announce
its contents earlier, w plan no further distribution of this
report until 7 days from the date of the report. At that time
we will send copies to interested parties and make copies
available to others upon request.
                              Sincerely yours,



                             Gregor~ J    hart
                             Direc t r




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