The Legal Landscape—Why Employers Should be Concerned
The number of wage and hour lawsuits filed by current and former employees under the Fair Labor Standards Act (FLSA) continues to increase. According to one source, collective actions brought under the FLSA alleging wage and hour violations have risen over 400% since 2000.
The increase in FLSA cases can, at least in part, be attributed to the FLSA’s attractive damages remedies. Because FLSA litigation often involves large groups of employees, liability exposure can be astronomical. Under the FLSA, plaintiffs can recover liquidated damages double the amount of actual damages and attorneys’ fees. In many instances, the attorneys’ fees reach several hundred thousand dollars and even more. Moreover, most insurance policies exclude coverage for FLSA claims.
FLSA collective actions are time-consuming, burdensome, and expensive for employers to defend. There are various steps, however, that employers can take to substantially reduce their chances of being targeted for a collective action. Tips for Avoiding FLSA Actions
1. Conduct Audits of Job Positions and Pay Procedures
Periodically perform a self-audit of the exempt/non-exempt classification of jobs to ensure that these classifications accurately reflect the job duties performed by employees. Additionally, ensure that written job descriptions accurately reflect the duties of each position as job duties may evolve over time. Identify and focus on problem job positions, including administrative positions, IT and computer professional positions, and first-line supervision positions. The classification analysis tends to become difficult when evaluating the threshold jobs that are on the border of being “non-exempt” or “exempt.”
Conduct regular payroll audits to ensure that only proper deductions are being made from exempt employees’ salaries. Failure to comply with regulations regarding deductions can result in loss of exempt status for employees.
2. Be Aware of Relevant Records and Data
Make sure that your non-exempt employees are properly recording all hours worked. “Off the clock” work allegations, in which employees claim they were made—or even encouraged—to work off the clock are a major source of potential liability. Supervisors should be trained to monitor employees closely to ensure that all time worked is reported.
Additionally, it is critical to have in place procedures for the identification and retention of relevant documents and information if litigation is anticipated. Employers generally are aware of requirements to retain time and pay records but may not be aware of all sources of potentially relevant information or the implications of how such information is stored. There may be systems other than traditional time records, such as alarm records or computer logs, that could be potential evidence of an employee’s time worked. The increased focus on the discovery of electronically-stored information (ESI) and the potential danger in failing to retain relevant ESI makes it critically important for companies to understand what systems and programs exist and how such information is maintained.
3. Ensure Overtime Is Properly Calculated
The FLSA requires payment for overtime at one-and-one-half times an employee’s “regular rate” of pay. This does not necessarily mean merely one-and-one-half times the base hourly rate of pay. Many other forms of compensation may have to be included in the calculation, such as bonuses, incentive payments, etc. Employers very commonly commit errors in this area without knowing it.
4. Make Sure Employee Breaks Are Treated Properly
Ensure employee breaks are treated properly. Meal periods must be at least a half hour long—and uninterrupted—or they must be paid. Ensuring meal breaks are taken in a break room or kitchen helps ensure that they are uninterrupted and that work is not being done during the break. Rest breaks must be longer than 20 minutes or they too must be paid. Supervisors who are not trained in the rules can unintentionally create liability for the company by calling employees off of unpaid breaks early (even a few minutes), inserting breaks not taken in employee time records, or failing to allow scheduled breaks.
5. Train All Employees on Wage and Hour Laws
Training managers can reduce the exorbitant costs associated with defending an FLSA action. Managers who are trained properly are less likely to commit FLSA violations, which means that your company is less likely to be targeted. Further, the FLSA treats honest mistakes differently than it treats willful disregard for the law, and training may be considered by courts to be an attempt to comply in good faith with the law. Under the FLSA, liquidated damages may be denied or reduced, and the period for which employees may recover back wages may be shortened if the court determines that the employer’s violations were in good faith and not willful.
Non-managerial employees should also be trained on the basics of the FLSA to learn about their responsibilities and where to go with questions. Providing training for all employees can ensure that problems are brought to the company’s attention early before problematic practices become engrained.