I work in the back office at a high end industrial design staffing firm. If some company needs a specialized designer for a couple of months, we will fly our staff to their location to do a job and then its onto the next assignment. I primarily book and plan employees' travel although I have been branching out over the past year to help with HR and miscellaneous tasks. I have been with the company since we were a small startup and I feel committed to the success of the company.

Recently a client required an audit before we signed a large contract and our auditor privately raised some red flags and declined to provide a determination to the client. The auditor pointed out that we neglect a number of employment laws, including:

  • Not paying time-and-a-half overtime, only straight time. The boss and owner always maintained our employees were exempt but after reading the rules myself I agree with the auditor that they are non-exempt.
  • Long pay periods. Our state's laws clearly say that employees must be paid at minimum every two weeks. We only pay monthly, sometimes bi-monthly depending on the frequency the client pays.
  • Only pay employee if client pays. Its been policy that we will only pay our employees for jobs that the client pays out. In the event the client doesn't pay, the employee would not get paid for that project. This has only happened once and there was substance abuse involved so everyone involved thought it best if we quietly parted ways immediately. The boss maintains this is legal because its written into the employment contract.
  • Tax deductions. Usually any of the employees can just expense business items (like a new BYOD laptop) to the company and we take the cost out of their paycheck. The company gets a deduction and the employee effectively gets the equipment with their pre-tax pay. We don't rigorously check these items and the auditor found some "bold" claims, such as iPads and the like.

I laid all of the issues out for my boss and the owner as well as some reasonable solutions to move us into a more compliant state. The owner stated the current business model is the key to the company's success and it cannot be changed. He feels everyone is very highly compensated, we are very transparent, all the employees know up front what the terms are, and they agreed to them. He also stated that if the Department of Labor gets involved we will just plead ignorance. My boss is firmly on the owner's side and does not want the topic brought up again.

I feel the owner is putting his head in the sand and creating his own reality. This has really been bothering me because I am enabling a wayward business model, yet I doubt any of the employees would want to see anything changed because it works for them and they get paid an exorbitant amount. I have few questions:

  1. Am I legally culpable for working at this company?
  2. Is there a better way to approach this situation with my boss? Should I just give it more time for him to come around or drop it forever?
  3. Is it ethical to continue to work here given that everyone is consenting to the situation?

Additional details: This audit was a prerequisite to working with the potential client. They required us to get a letter from an audit firm stating our financial soundness as a company and provide a report upon request. We had to pay for it, I guess just a third party opinion from a reputable auditing firm was good enough for the the client's needs. Only the auditor, boss, owner, our accountant, and myself know about the audit. Since we paid for it, it is the property of our company. After the audit firm said they could not provide a letter, we simply told the client we weren't interested in pursuing the work at this time. I am involved because I helped organize the meetings and I was initially asked to go find out what the auditors concerns were when they left a vague voicemail and to report back. Like I said, I have been branching out to do a lot of miscellaneous tasks, like collating proposals, proofreading, faxing, running errands, and all the other random tasks that others don't have time for. My boss has been referring to me as his right hand man lately. The owner prides himself on keeping overhead costs as low as possible so he can pay staff a rate superior to any competitors, which is why we do have a reputation of having the best staff in a certain niche market.

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    By most country's laws, by knowing that what you're doing is wrong, but continuing to help your employer do it, you're an accomplice to their violations. Whether those may be the sort of crimes which can land you in jail, or simply end up costing the company tens of thousands of dollars in fines, only a lawyer may be able to tell you. – AndreiROM Dec 22 '16 at 22:09
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    Your company has put your in a tough situation. You would need to consult a lawyer to find out if you're culpable and what consequences you could face. – Chris G Dec 22 '16 at 22:37
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    If you are in the US, no employee can (legally) sign away their rights. Claiming ignorance will not get the employer very far unless they have a very lenient judge or magistrate overseeing claims against the company. You are less likely to be held accountable than the owners/partners/principles of the company. – Andieisme Dec 22 '16 at 22:37
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    "The boss maintains this is legal because its written into the employment contract." State law supersedes an employment contract. An employment contract can never offer worse conditions than the minimum given by law. If it does, those sections are illegal and the law applies to it. – Dulkan Dec 23 '16 at 11:11
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    OP, please edit your question to tag it with your country. – shoover Dec 23 '16 at 16:42

Your boss needs to talk to a lawyer ASAP and so do you even if he or she will not since you may have some culpability now that you have been informed of the illegalities. Since an audit found these discrepancies and there will no doubt be a written report, there is no way you can claim ignorance.

You almost certainly will lose the contract that required this audit. No sane company would do business with you after finding out how unethical your company is and what a financial edge they are on that they feel they need to do this. Your company is too risky to do business with. Further, this company may make sure that others contemplating using your company also know how risky it is.

Delaying payroll until a client pays is pretty serious stuff. The company is obligated to keep enough money on hand (or borrow money) to meet payroll. (In some states, salary owed even has a first claim in a bankruptcy.) They should be taking money out of every job to build up a reserve for when they don't get paid in a timely manner. Building this reserve should be factored into the amount they charge each client. I worked for a small business that had this exact problem because their clients were government agencies who could take a year or more to pay. They were not legally allowed to put off paying people for work performed until they were paid and neither is your employer.

At some point, someone who leaves the company in anger is going to sue for those back wages too. Especially now that there is an audit report detailing the illegalities that likely everyone has heard about. Failure to fix this problem has a strong possibility of eventually causing this company to go bankrupt as they might owe years of back wages at that point. And frankly they deserve to go under, since they are putting their business risk on the employees instead of themselves.

Personally I believe it would be foolish to continue to work in this place. Your best personal action is to find another job and then send a copy of the audit report to the Labor department yourself. When they implode, they may implode very publicly like ENRON did. Think about how hard it was for former ENRON employees to get work immediately after they all lost their jobs. (There are some books detailing what happened to ENRON, you should read one of them.) You want out before they implode.

  • Your second paragraph is now obsolete - see Additional details: in the question: we simply told the client we weren't interested in pursuing the work. The client may still have suspicions, though. – user8036 Dec 23 '16 at 9:42

If your company's business model is based on breaking the law, then you are going to have a bad time at some point. If you move into a more responsible position, you could be held liable.

Now, since this has been raised to the owner, you have done all you need to do here. You could raise the issue up as a whistleblower, but sadly most places don't have good protections for whistleblowers and you will be effectively blacklisted.

You will probably want to garner what experience you can without putting yourself at risk, then move on. Don't be a party to approving questionable expenses for example or get involved with payroll etc.


At this point, your firm has probably lost the large contract because the firm did not pass the client's audit. The existence of that audit is a smoking gun. The firm's pleading ignorance in the face of such an audit - well, I am enough of a poor liar to think, in my expert opinion as a poor liar, that it's not going to work.

Stay away from doing any accounting and bookkeeping at this company - you definitely don't want to be in contact with that kind of information let alone be seen as working with it on a daily basis as you fulfill your duties to the company. At this point, you are an uncomfortable witness. It is probably inadvisable to go from witness to active participant. In particular, look over your shoulder and watch out for any sign that the management has decided to scapegoat you.

You have some protection in that you are only the office manager and the owner's personal assistant. You are not the decision maker and in fact, not even a decision maker in this saga. As others have stated, you need to consult a lawyer to make an assessment of the extent of your legal exposure in this saga. At this point, the only one you can count on looking out for you is your lawyer. Don't negotiate anything with the Department of Labor without your lawyer's input.

Keep your resume up to date, float it and consider getting out. If law enforcement targets you in court, you will probably find that whatever compensation you get will be more than eaten up by your lawyer.


I don't see a problem. It's not up to you how the company operates. It's risks your owner and employer are willing to take. Business is full of calculated risks, but at the end of the day it's their problem to solve it it blows up in their face, and from experience small business's just ride it out exactly how your boss reckons he would with few major problems.

I've seen small companies fail serious govt financial AML/CFT audits 2 years in a row and still operate. It some situations it pays for them to just ride with the punches and act dumb until they absolutely are forced to comply because of frozen bank accounts etc,. The longer they can put it off the more revenue they can generate.

If you have a problem with the ethics of business (business and ethics are not synonymous by the way). Then you're probably better off leaving.

  • This is usually not true if the operation is illegal, as you'll be a knowing accomplice and might face legal issues along with the bosses. – Erik Dec 23 '16 at 9:39
  • @Erik I'm just talking about real life. Unless you're fabricating documents to cover up for the company, you're totally fine in real life. – Kilisi Dec 23 '16 at 10:06
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    There's a difference between "you'll be fine" and "technically you could be sued, but probably you won't be" though. This answer is missing that. It's the same as talking about software piracy: probably nothing will happen, technically you could be sued for millions. At least point that out if you want a good answer. – Erik Dec 23 '16 at 12:14
  • @Erik I live in the real World, technically anything you want, but in reality it won't happen if there is no paper trail. Prosecutors wouldn't waste their time on a case they cannot win, they may (also unlikely) go after the company, but not the OP. – Kilisi Dec 23 '16 at 14:55
  • The people who get sued for millions of dollars for downloading music off the web also live in the real world. – Erik Dec 23 '16 at 18:49

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