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Past Mistakes Present Future Challenges

Today’s business climate presents more than a few challenges to your organization’s ethical practices. Safeguarding your company is your job. Take a stand for business ethics.

May 1, 1998
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Related Topics: Ethics, Wages and Hours
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Workforce presented Daniel M. Glasner with a hypothetical yet likely scenario. Although the issue is of a legal nature, how to address the issue is an ethical concern.

Dilemma: An HR manager, Julia, takes a new job and learns the company hasn’t been following the Fair Labor Standards Act (FLSA) or California labor law regarding the rules for classification of exempt workers and overtime. Correcting the situation for past mistakes might cost the company hundreds of thousands of dollars. An alternative would be to correct the situation for all future transactions and take the chance on an audit from the past mistakes, which could incur penalties and back payments. Neither option is ideal and either could be costly. The question then is, which option is most right?Julia must contemplate the company’s best interests, the legal ramifications and her own credibility.

Response: As an HR practitioner or consultant, this kind of issue is part of daily life in the United States today. From the Hay Group’s perspective, the answer is always the same: Understand the law and the current practice as specifically as possible. Then, if necessary, find a way to come into legal compliance with minimum cost and disruption, preferably with advantages for the organization. It’s not always easy to find solutions, and not necessarily easy to sell them. But that’s what being a business partner is about—finding ways for the organization to do what should be done and bringing functional and personal perspectives to bear on the needs of the business.

So, in this instance, Julia should be clear on the relevant laws. She needs to clarify exactly which jobs haven’t been classified properly and which time records haven’t been kept properly. How much overtime was unpaid and for how long? Also, were there prior decisions to ignore the law or was the issue simple ignorance of the law? Often, it turns out the problem was neither of those, but a faulty interpretation of laws. Anyway, Julia should embrace the problem. In doing so, she should recognize the potential penalties fully.

It would be nice to correct the problem retroactively, but that probably isn’t possible. A simple back payment won’t come to nearly as much as employees could get by making proper claims to the relevant Departments of Labor. That potential exposure would hang over the company for some time, but, as stated, claims and audits are generally unlikely without other stimuli. It would be nice if government agents would help us through safe harbors as we try to correct past errors, but it probably won’t happen.

An overall review of compliance with employment laws should be on Julia’s near-term agenda. That isn’t because HR is the company conscience. It’s because the constantly growing and changing body of employment regulation is reality, and sound management deals with reality.

After that, an alternative solution may be to change company practice from focusing on the legal exemptions to what’s better for employees likely to work scheduled overtime, whether their jobs are nonexempt or exempt.

In any event, if Julia doesn’t want to be part of the problem, she has to come forward with a solution. She won’t gain much by ignoring potential liabilities. She certainly won’t help anything by going around shouting that her business partners are stupid lawbreakers who take advantage of employees whenever they can. She will help by doing the tough job that she’s being paid to do—understanding what the company needs to do, from her special point of view, and finding and leading the execution of tactics to overcome obstacles.

Workforce, May 1998, Vol. 77, No. 5, p. 117.

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