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Wage-and-Hour Litigation Takes Off
By Carrie Hoffman
Retailers
take note. Wage-and-hour litigation has risen
dramatically over the past few years, with the number of
suits filed under the Fair Labor Standards Act (FLSA)
increasing by almost 25 percent, from 1,562 to 1,935
suits, between 1998 and 2000, according to the
Administrative Office of the U.S. Courts. Specifically,
the incidence of wage-and-hour collective or class
actions has grown tremendously, doubling in a two-year
period.
Enacted in 1938 to govern minimum
wage, overtime and child labor in the public and private
sectors, the FLSA is clearly being put to the test with
the advent of the new millenniums virtual
workplace.
The FLSA has not been amended to
deal with the complexities of the 21st century
workplace. Telecommuting employees and flexible
scheduling arrangements are just a few of the changes to
which employers must attempt to fit within a rigid,
antiquated 1938 statute. The unprecedented increase in
wage-and-hour class and collective actions and the
immense verdicts resulting from these suits is a further
example of the FLSAs emergence into the 21st
century.
The suits being filed allege a
variety of wage-and-hour law violations. Retailers
are especially vulnerable to these types of claims,
which often involve allegations of off-the-clock
work. Retailers should create and enforce policies
to avoid the mistakes typically made, including failing
to accurately identify and pay for all time worked,
improperly classifying managerial or other employers as
exempt from the requirement of overtime pay and
requiring hourly, nonexempt employees to work off the
clock.
Retailers should also keep in
mind that the improper classification of employees as
executive or administrative is the most common and
costly mistake made by employers. And, when you consider
that some so-called exempt employees earn upwards of
$40,000 annually, the unpaid overtime costs are
high.
The FLSA requires that employees
working more than 40 hours per week be compensated at a
rate of one and one-half times their regular wage.
However, executive, administrative and professional
employees are exempt from the FLSAs overtime
provisions. To be exempt, an employees duties must fit
the FLSAs test and he or she must be paid on a salary
basis, earning at least $455 a week. Additionally, there
are other exemptions that are industry- or
job-specific.
Retailers should be aware that
there is an exception for certain retail
employees. Employees who earn at least 1.5 times
minimum wage (currently $5.85) and earn at least half of
their income in commissions are not required to be paid
overtime. Implementation of this exemption should
be done in consultation with Human Resources and/or
legal counsel.
While individual employees
generally have relatively small claims for unpaid
overtime and/or other wages, the effect of these
plaintiffs forming nationwide class actions is
disastrous for most employers.
Given the large verdicts and
settlements, employers should expect and prepare their
companies for a continued increase in wage-and-hour
collective and class actions at federal and state
levels. Many retailers have paid millions of
dollars in settlement and/or judgments resulting from
these types of claims. Retailers should be
concerned as wage-and-hour class and collective actions
result in multi-million dollar verdicts, which include
back pay, interest, penalties and attorneys fees. Media
coverage of these multi-million dollar verdicts has
triggered an onslaught of cases against every type of
employer by employees discovering their rights or
potential rights.
The penalties are staggering, as
an employee earning $10 an hour who worked 50 hours a
week for three years a mere 10 hours of overtime per
week will be due $45,000 if a court finds a willful
violation of the law and doubles the unpaid
overtime.
It takes only one employee to
file a complaint with the U.S. Department of Labor or
his or her states Department of Labor and initiate an
investigation. Multiplying that employees claim by 20,
500 or even 1,500 workers (in some cases) could lead to
an employers financial devastation.
Wage-and-hour class actions
filed under the FLSA, 29 U.S.C. Section 216(b), are
technically called collective actions, while true
class actions are those filed under state labor laws.
Under 216(b), similarly situated plaintiffs can join
together in a collective action to recover back pay and
liquidated damages. In a collective action, plaintiffs
are required to opt in, or affirmatively indicate
their intent to participate in the action, whereas the
true class action under Federal Rule of Civil Procedure
23 has no such requirement.
While misclassification and
subsequent failure to properly pay overtime is the most
common pitfall, there are a variety of ways in which
employers can find themselves lost in the FLSAs
wage-and-hour quagmire.
Retailers should make sure their
companies take vigilant and proactive approaches to
their pay structures and overtime pay issues to avoid
falling prey to class actions. Employing an attorney
specializing in labor and employment issues to conduct a
private audit of workplace and payroll practices to
ensure compliance with both federal and state
wage-and-hour laws is vital to avoid liability for
class-wide unpaid wages and penalties.
While the auditing process may
seem burdensome or expensive, these costs are minimal
when compared to the substantial financial risks
associated with litigation or agency action. Employers
who have completed audits of their workforce are less
likely to have Department of Labor audits and/or
lawsuits that uncover violations and lead to costly
damages.
Carrie Hoffman is a partner at
Gardere and a member of the Retail Industry Team where
her practice focuses on representation of retail
companies in employment matters. Please email
Carrie if you have questions or would like more
information about this article.
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