On a Friday afternoon in October 1988, the telephone rang at Pierce Processing, a small engineering consulting company near Cincinnati. On the other end was an attorney with the U.S. Department of Labor.
At the time, company owner William Pierce had built his five-year-old firm into an organization of 40 engineers and designers earning up to $70,000 a year. The company had offices in Louisville and Detroit as well as Cincinnati, contracts with Procter & Gamble and other Fortune 500 companies, and annual revenue of $1.7 million. Pierce was planning to buy the building where his company was headquartered.
Today, Pierce has been out of business since 1993, the same year he and his wife lost their $375,000 home to foreclosure. He's more than $100,000 in debt, owns no property to speak of, and has no bank account, lest the federal government or unpaid business creditors seize any money he puts into it. He has surrendered several patents because he could not pay the maintenance fees.
Pierce, his wife, Janet, and their three children live in a small home owned by his mother. He drives a 1988 automobile with 190,000 miles on its odometer. He can't get a job as an engineer, so he teaches math at a private high school for about one-fifth of what he once made. He is constantly getting phone calls from creditors, and he worries that his 17-year-old daughter will not get a college education because his credit rating is so bad that he can't co-sign for a student loan.
All due to events set in motion by that phone call. What crime did Bill Pierce commit to bring upon himself such punishment? He let his employees take a few hours off from work to play golf, go fishing, or tend to personal chores. If they did not claim the hours as vacation time or make them up later in the two-week pay period, he made deductions from their paychecks.
Although experts in employment law and personnel managers at big companies today know that docking salaried employees in such situations is a no-no, it was not widely known in 1988, because the DOL had not yet disseminated information about this interpretation of the law. Pierce had no way of knowing his policy violated DOL regulations. He assumed that arranging for time off was a matter to be resolved between him and his employees. It was a dangerous assumption.
On the phone that day was Kenneth Walton, a DOL attorney who asked Pierce if he was "ready to negotiate." Puzzled, Pierce asked, "What do you mean?"
Four months earlier in May, a DOL compliance officer named Sara Cazel had conducted a three-day audit of company records covering a two-year period. Cazel later testified that the audit was prompted by a complaint, a fact she had not disclosed to Pierce. After Cazel completed her audit, Pierce received no notice from the department about audit filings until Walton's phone call.
"Well, if you're not willing to negotiate," said Walton, "we'll just file a lawsuit."
"Don't I have a right to know what I did wrong?" Pierce asked.
"Well, can't you tell me?"
"Not if you're not willing to negotiate," said Walton. "I'll let the court system tell you what you did wrong."
Walton finally let Pierce have 10 days to arrange a meeting with DOL officials in Cincinnati, and he promised to mail him a copy of the audit report. What Pierce received from Walton, however, was just a notice that he owed $21,254, with no details.
He soon learned from department officials that the DOL objected to his company's flextime policy for salaried employees. In court documents, Walton acknowledged that Pierce's employees voluntarily took time off for "golf, fishing and flying model airplanes, as well as family and personal needs." But DOL officials said that by deducting money from their paychecks when they did not make up the time, Pierce was treating them like hourly workers instead of salaried employees. The DOL said the illegal deductions totaled $3,100.