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DOL Audits Part One - A Proactive Approach - Bingo

by Alan Tafapolsky

The corporate world knows that on any given day it's better to be "proactive" than "reactive." While "being proactive," for some, may appear to be an empty business mantra reserved for a game of "corporate bingo,"[1] for those companies who are subject to a Department of Labor ("DOL") Wage Hour Administrator ("WHA") audit,[2] the words are a sacred religious philosophy. A proactive approach to DOL H-1B audits includes: fastidious maintenance of Labor Condition Application ("LCA") public access files;[3] a system of regularly scheduled self-audits;[4] the assemblage of a well-prepared audit team; an assessment of initial exposure and, if necessary, an effort at self-correction. Seizing the initiative before the WHA auditor's letter arrives is a "heads up" approach toward being adequately prepared for an audit. It is, however, only the beginning.

Once the initial audit letter[5] is received by a company, a proactive approach to the DOL investigation includes anticipating the target of the investigation and preparing answers to initial and follow up questions for the first meeting. Timely and efficient production of documents required by the WHA investigator will also help the company create a positive impression at the beginning of the investigation.[6] During the investigation, a cooperative, controlled approach to providing information required to move the investigation along creates a positive synergy between the company and the investigator. Putting the investigator in a positive mindset about the process of the investigation can be as important as the actual substantive compliance of the company on wage-hour issues. Finally, a company's employees, both U.S. workers and H-1B workers, should be educated[7] about the process of the investigation including potential interviews conducted by an investigator.

Taking a proactive approach to LCA compliance for WHA audits, both before an investigation occurs, and after one begins, accomplishes two important overall goals. Being in substantial compliance before a complaint is filed affords a company the confidence to deal directly and efficiently with the WHA investigator after the investigation begins. Providing relevant information to the WHA investigator in a timely manner is a "win-win." It fast tracks the audit process while allowing the WHA investigator to obtain the information necessary to fully resolve any complaint. Additionally, self-correcting areas of non-compliance during the investigative process shifts the burden of implementing "remedies"[8] from the WHA investigator to the company. Leveraging the audit process to self-remediate makes the auditor's job simpler and easier and, at the same time, demonstrates the commitment of the employer toward future compliance.[9]

Why Be Proactive?

The bottom line is that a WHA H-1B audit can result in serious damage to your company or the company you represent. The list of enforcement mechanisms is diverse in scope and impressive in magnitude. If you "run the numbers" they include: the "super-penalty" of $35,000.00[10] for certain displacement violations; criminal penalties of up to $10,000.00 and/or five years of imprisonment for misrepresentation of a material fact on a filed LCA;[11] civil money penalties from $1000.00 up to $5000.00 per count;[12] debarment from the H-1B nonimmigrant program for a period of from one to three years;[13] the assessment of back wages;[14] and injunctions and other civil remedies as the WHA determines to be appropriate.[15] Legal penalties are not the end of the havoc a WHA investigation can wreak. Investigations can last from two months to several years and their impact can seriously impede business operations and injure workplace morale. The length and the extent of the investigation can also hit a company's legal budget with expenditures running into the tens of thousands of dollars in legal costs. Finally, if the press or the media get wind of the allegations alleged in the WHA investigation, regardless of the company's culpability, it creates a "lose-lose" scenario.

Who Is Vulnerable?

Almost all WHA investigations are complaint driven these days.[16] Complaints can be made by either "aggrieved parties" or "non-aggrieved" parties who possess facts of sufficient detail to allow the Secretary of Labor to make a determination that there is "reasonable cause" of the violations of regulations found at 20 C.F.R. §655.805. Any company that hires H-1B workers is therefore vulnerable. Those H-1B companies who are especially susceptible to the complaint are those who: have had recent lay-offs; are under investigation of other agencies of the Federal Government related to employment conditions; or are being sued by individuals or a class of company employees. Most companies either fit this profile at present, or will sometime in the future.

Public Access Files And Self-Audits

Most companies believe that if their public access files are complete, and the company is paying the wage stated on the LCA, they have nothing to worry about in an audit. Nothing could be further from the truth. Compliance with the paperwork and record keeping provisions of the regulations found at 20 C.F.R. §655.760 is a required element of a WHA audit, but it is not by any means the entire scope of the investigation. In order to be completely prepared for a WHA investigation, a self-audit should accompany a review and remediation of public access files. It is worth revisiting an article entitled "Skeletons In The Closet" authored by Angelo Paparelli and Ira Burkemper in 1996, to fully appreciate the benefits of a self-audit[17]. Self-audits that mirror the process of a real WHA audit allow a company to assess its complete legal exposure of a company. Additionally, by stepping on the base of true liability, a game plan for remediation[18] can be leveraged long before the DOL has stepped foot in the door. "Skeletons in the Closet" suggests that self-audits be performed with the assistance of an objective observer such as outside immigration counsel or a professional consulting organization.[19] This author agrees with that advice from the simple perspective that is more difficult to detect one's own imperfections than it is to identify the weaknesses of others. "Skeletons in the Closet" uses the term "voluntary audit" rather than "self-audit" to emphasize the importance of bringing in a neutral third-party professional into the process as a strategic fit. Using an outside auditor to pull wage-hour skeletons out of the closet - and help bury them - can help a company prepare completely for a real WHA audit. A total quality self-audit, therefore, employs an impartial, independent professional to prepare for the real thing.

Create The Team

The outsourced auditing professional should be matched with in-house immigration specialists, human resource managers, payroll and benefits specialists, and in-house legal personnel to create the perfect audit team. Many companies also retain outside employment counsel to preemptively resolve WHA issues that do not involve H-1B immigrants.[20] Finally, a criminal lawyer should be consulted if the company has been "out of the loop" in its compliance with wage-hour law.

Gap Analysis

Any confident player of corporate bingo knows that "gap analysis"[21] is a euphemism for comparing company performance against an ideal standard, and then assessing the "gaps" or "shortcomings." Self-audits are the perfect opportunity for gap analysis. The company simply goes down a list of real-world wage-hour compliance standards and matches the company's performance against those standards. An abbreviated list of items follows:

  • Are H-1B workers paid what similarly situated U.S. workers are paid? Are H-1B workers making at least 95% of the prevailing wage?
  • [22]
  • Are H-1Bs in same job occupation doing something other than U.S. workers are in the same position?
  • Prevailing wages: are surveys valid?;[23] Explain why different surveys might be used for different positions. Does it match LCA?
  • Are H-1B workers provided a copy of their LCA?[24] When?
  • Postings? How many? Where posted? Is there a collective bargaining agreement in place? If so, are union notifications effected?[25]
  • Are all of the contents of the public access file prepared and identifiable for each employee: signed certified LCA , documentation of wage rate, actual wage memo, prevailing wage, evidence of postings/notice, summary of benefits, sworn statement for employers utilizing Sec. 401, lists of exempt employees and evidence of recruitment of U.S. workers for dependent companies.[26]
  • Are documents retained for the appropriate period?[27]
  • Has there been any parking or benching of H-1B employees?
  • [28]
  • Are business expenses for H-1B employees paid by employer?
  • [29]
  • How are H-1B employees paid when they are away from LCA listed work-site?; Per diem versus actual expenses? [30]
  • Are H-1Bs placed at secondary sites?[31]
  • What deductions are made from paychecks other than statutory deductions?[32] [33]
  • Are the fringe benefits H-1B employees receive the same as those of other employees?[34]
  • What is the pay period?[35]
  • Is there a penalty/liquidated damages provision when an H-1B terminates before the end of his/her contract?[36]
  • If dependent, is company complying with recruitment and non-displacement provisions?[37]
  • Are LCAs overloaded?[38]
  • Are H-1Bs/LCAs withdrawn?[39]
The above list of regulatory compliance issues requires the production and preparation of certain records in order to complete the self-audit process. Those should include:
  • Preparation of public access files.
  • Preparation of payroll records.
  • Preparation of list of similarly situated workers.
  • Preparation of employee count and H-1B count.
  • H-1B materials: I-129 petitions and letters of support.
  • Preparation of benefits materials.
  • Location listing of H-1B employees.
Using these materials and focusing on the above listed regulatory compliance issues, it is suggested that the audit take place from one week to one month from the time the decision to conduct the self-audit takes place. This period mirrors the amount of time the company will have to react and prepare for a real WHA audit. Best practices require that company compliance is benchmarked against perfect compliance to fully assess legal exposure.

My Company Doesn't Have The Bandwith

If your company can't conduct an audit on each of the issues listed above because it lacks the resources - "think outside the box" - a different game plan is required. The bottom line is that if the WHA investigator decides to play hardball and implement enforcement measures against a company, he or she will focus on the following big five:

  • Pay issues: Are H-1B workers being paid prevailing wage or what similarly situated U.S. workers are being paid?
  • Are H-1B employees and U.S. workers being similarly treated?
  • LCA specificity - Are areas of employment, start dates and job titles accurate?
  • Are there displacement issues?
  • Are Public Access Files being kept in substantial compliance?
A limited self-audit would benchmark the above areas of compliance and provide a reasonable measure of the company's overall liability should a real WHA audit occur.

What Next -- Remediation The Mr. Rogers Approach

A proactive approach to WHA audits doesn't stop when areas of non-compliance are revealed. The areas of noncompliance should be remediated. But how? There are no regulations on correcting areas of noncompliance. This author suggests the Mr. Rogers approach… "make believe."[40] Mr. Rogers has a land of "make believe" where children watch the behavior of puppets and people, and morality lessons are learned. Though the land of "make believe" is not the real world, the author suggests that the company go there, and make believe it is setting up a perfect wage and hour world. If public access files are missing postings, they should be reposted at the appropriate place, for the appropriate time. If an H-1B worker is not being paid the "required wage,"[41] back wages should be paid until the H-1B wages are "on line." If an H-1B worker is not working at a geographic location that is covered by an existing LCA, a new LCA and H-1B petition should be filed, and back wages, if appropriate, should be assessed. Though an initial act of non-compliance cannot be cured, remediating the defect once it is discovered is the appropriate action to take.[42] The alternative, "the hide your head in the sand" approach, is a recipe for disaster. In Mr. Roger's terms, "Can you say 'willful violator'"?

Tomorrow's Issue will feature DOL Audits Part Two - How To Handle A WHA Audit.


[1]Corporate Bingo is the game of Bingo using "corporate speak" instead of numbers to fill out the grid. Click here for the game which is provided as a "value added" benefit of this piece.
[2]The Wage Hour Administrator's authority to investigate and enforce the Labor Condition Application ("LCA") provisions of the H-1B program are found at 20 C.F.R. §655.800.
[3]The contents of the public access file are enumerated at 20 C.F.R. §655.760.
[4]For an excellent treatment of utilization of self-audits as a means of being proactive, See Angelo A. Paparelli and J. Ira Burkemper, "Skeletons in the Closet: LCA Audits in The Age of H-1B Uncertainty" in Interpreter Releases Vol 73., No. 22 June 3, 1996.
[5]Sometimes referred to as the "29 Question Letter"... because it usually contains 29 questions.
[6]Cooperation in the production of documents and records is mandated by the regulations at 20 C.F.R. §655.800(c) but expeditious production of documents is more of a "proactive strategy."
[7]The company and counsel should be careful to educate employees about the process of a WHA investigation but not to "coach" employees about the substance of their answers. "Coaching" potential interviewees will without question create antagonism between the WHA investigator and the company. Additionally, an employer should be extremely careful to not even give the WHA investigator reason to believe that it is trying to retaliate against complainants or coerce employees in violation of 20 C.F.R. §655.801.
As set forth at 20 C.F.R. §655.810.
[8]As set forth at 20 C.F.R. §655.810. [9]An employer's commitment to future compliance is a factor to be considered in determining the amount of civil money penalties to be assessed against an employer. 20 C.F.R. §655.810 (c)(6).
[10]As set forth in 20 C.F.R. §655.810(b)(3) for displacement of a U.S. worker 90 days before or after the filing of an H-1 peititon and a violation of 20 C.F.R. §655.805(a)(2) through (9).
[11]20 C.F.R. §655.805(a)(1); 18 U.S.C. 1001; see also 18. U.S.C. 1546.
[12]20 C.F.R. §655.810(b).
[13]20 C.F.R. §655.810(d).
[14]20 C.F.R. §655.810(a).
[15]20 C.F.R. §655.810(f).
[16]Unlike the mid 1990s when many random audits were conducted, most DOL WHA investigations occur as a result of a complaint of an aggrieved party. 20 C.F.R. § 655.715 and process 20 C.F.R. §655.806. There are also investigations of complaints of non-aggrieved parties.
[17]Id. at fn. 4.
[18]While taking steps to cure LCA and wage-hour defects does not technically cure violations, the WHA, as a matter of practice, has considered a company to be in substantial compliance and not assessed civil penalties for past deficiencies. See Paparelli and Burkemper, "Skeletons in the Closet" Id at fn. 4 fn 19-24 quoting DOL officials on the subject of self-remediation. Complete remediation in certain circumstances may include back pay to H-1B workers if they have not been paid the appropriate compensation under the regulations.
[19]Id at fn. 4 pp???Professional Immigration Consultants who are also legal professionals can impartially assist in conducting the audit. Salmon Consulting is one of the companies that supplies audit consultation by practicing lawyers in the San Francisco Bay Area. Salmon Consulting 1430 Francisco Street, Suite 4, San Francisco, CA 94123.
[20]This can include inter alia the payment of overtime wages when required, minimum wage compliance and the employment of minors. Outside employment counsel is also important in providing advice on how to maintain H-1B compliance but not run afoul of state and federal discrimination laws.
[21]Gap analysis has morphed from its initial applications in biological science and engineering to the more general definition provided above.
[22]20 C.F.R. §655.731(a)(1) and(2).
[23]Does the survey meet the independent authoritative source standard set forth in 20 C.F.R. §655.731(b)(3)(iii)(C)?
[24]20 C.F.R. §655.734(a)(3).
[25]20 C.F.R. §655.734(a)(1)(i) and (ii).
[26]Detailed requirements found in 20 C.F.R. §655.760 (a) (1)-(10).
[27]20 C.F.R. §655.760(c).
[28]20 C.F.R. §655.731(b)(7)(i).
[29]20 C.F.R. §655.731(c)(9)(iii)(C).
[30]20 C.F.R. §655.735(b)(3).
[31]20 C.F.R. §655.735.
[32]20 C.F.R. §655.731(c)(9).
[33]For an excellent detailed treatment on the question of authorized versus non-authorized deductions See Evans, "The Authorized Deductions Toolbox" 7-02 Immigration Briefings (July 2002).
[34]See 20 C.F.R §655. 731 and 20 C.F.R §655.732 and enforcement remedies under 20 C.F.R. §655.810(a).
[35]20 C.F.R. §655.731(b)(4).
[36]20 C.F.R. §655.731(c)(10).
[37]20 C.F.R. §655.738.
[38]A term the WHA investigators use when the list of people on Blanket LCAs exceeds the number of positions certified.
[39]20 C.F.R. §655.731(c)(7)(ii).
[40]Mr. Rogers, a/k/a Fred Rogers, is a children's television icon and his land of make believe is one of the author's favorite getaways.
[41]20 C.F.R. §655.715.
[42]The corrective measures taken may not exculpate the company but will certainly minimize their overall exposure in civil penalties. See 20 C.F.R. §655.810(c)(4) "efforts made by the employer to comply" can lower the amount of penalty assessed.
[43]20 C.F.R. §655.736(f).


About The Author

Alan Tafapolsky is a Partner in the San Francisco and Los Angeles based business immigration law firm of Tafapolsky & Smith LLP. He wishes to thank Terry Kelly, a true "team player," for editing this article.


The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.


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