Telamon Top 5 - Ways to Avoid the Hottest Legal Battle of the Decade

 

Wage and hour claims are a like a far-reaching, fast-growing kudzu vine, to the point where some Florida judges won’t let law firms bring forth any more cases because they are clogging up the courts. Recent high profile, multimillion dollar awards to employees of companies like Staples and Albertson’s have helped turn up the heat. While 80% of all claims against businesses involve employment issues, from 2001-2006, the number of wage and hour class action law suits more than doubled, outnumbering suits for race, sex, national origin, religion and age in fed courts, combined. The US Department of Labor estimates that about 70% of US businesses are out of compliance with FLSA (Fair Labor Standards Act) guidelines for overtime pay, and finding companies liable, according to some law firms is as easy as “shooting fish in a barrel.” With the next big claim potentially as close as the nearest administrative assistant, failing to fend off risk in this economy could be catastrophic.

 

The first step in protecting your organization is to understand the FLSA, and to understand how rules in your state may differ. (See Spotlight on MA laws). The FLSA guides minimum wage, overtime pay, recordkeeping, and child labor standards affecting fulltime and part time workers in the private sector and in federal, state and local governments. Under its rules, covered, non exempt workers are entitled to minimum wage of not less than $6.55 per hour as of July 24, 2008, and overtime pay of not less than 1-1/2 times regular pay after 40 hours per week. However, there are exemptions for both minimum wage and overtime pay for employees who are bona fide executives, administrators, or fall within certain other categories. To qualify for being exempt from overtime pay, employees must meet certain tests regarding job duties, and must be paid on salary and not less than $455 per week. To be classified as exempt, an employee may be required to have direct oversight of the management of business operations, to exercise discretion and independent judgment, and to oversee the work of other employees. More information on the FLSA guidelines, including compliance assistance materials, downloadable on-line training seminars and fact sheets offering exemption guidelines for various positions are available at the United States Department of Labor website. Other ways of staying informed include attending seminars through SHRM (Society for Human Resource Management), or aligning with your local Chamber of Commerce to arrange a meeting with Department of Labor representatives, where you could ask questions and receive expert advice on classifying positions. You can also call the local office of the DOL Wage and Hour Division, although you should avoid asking questions that identify your company.

 

Collective claims of employee misclassification have increased a full 77% during the first half of the decade. Properly classifying your employees as either exempt or non exempt is one of the most critical steps in compliance. If your company has not reviewed its employee classifications lately, it should perform an audit. But making these classifications can be a fuzzy and complex process. A 24/7 work culture can blur the lines between regular time and overtime – and employees who transition from being full-time; to outsourced; to rehired as independent contractors can result in inadvertent misclassifications. This is also true if a reduction in force has occurred, which may alter classifications. But companies able to make systematic, well-considered decisions will be viewed more favorably should they end up in court. When reviewing the classifications of exempt employees, employers should do more than simply review the job description. Many job descriptions are aspirational; there’s often a real difference between what the employee is actually doing and what’s on paper. Courts will look beyond job titles to the nature and character of the work. An employer should gather complete and accurate data about employees’ responsibilities, from both the employee and the supervisor.   “We can’t simply put ‘administrative’ into someone’s title and think that makes them exempt,” says Greg Susco of Telamon. “To be exempt, a person has to have decision-making authority that affects the organization financially.” It’s helpful to consider bringing in outside experts to help with the reviews, and to remove any pressure the internal person doing the audit may feel to justify existing practices. At Telamon, we can help with Employment Practices Liability Insurance (EPLI) to protect against wage and hour claims as well as help you set up your approach to classification. For more information, contact Telamon.

 

Although your company may be determined to establish and follow good, safe policies, they’ll go nowhere if the managers needed to implement them can’t follow them. Some past wage-and-hour class action cases were the result of untrained managers who required employees to continue working after they clocked out. Many managers are unaware they have a duty to make sure their employees accurately report their hours. Both managers and employees must understand how to make sure that time is accurately reported. Further, companies should set up compliance programs that help educate and involve employees. Employers often have sophisticated compliance programs for Title VII, and should have them for FLSA, also, using similar procedures – especially now that FLSA actions are way outstripping Title VII actions in federal courts. A compliance program can include: a toll-free number for employee questions and complaints; a process for investigating complaints; and clear policies on overtime work. Some companies, for example, instruct non exempt employees to keep track of and report the time they spend on their BlackBerrys. And other companies, like ABC News, won’t even provide them to reporters. Telamon’s Risk Management Team  can help you establish, communicate, and train employees on the policies that are right for your organization.

 

There’s another very important reason to stay up to date on your practices and training: Just the act of doing so – in good faith – could save you staggering amounts of money if you ever do wind up in court. (See Spotlight for new, tougher MA FLSA laws enacted in ’08.) Employers who are found to be in willful violation of the FLSA, for example, can be subject to substantially higher liability. Currently, a uniform federal statute of limitations gives plaintiffs two years to file claims for unpaid wages, overtime, or liquidated damages. However – if a plaintiff can prove that an employer acted willfully – the statute of limitations expands to three years, meaning an additional year of back pay. Further, a number of courts now hold that employers who willfully violate FLSA are liable for double damages – on top of the liability for back pay. Thus, an employer’s potential costs for damages could soar 3-fold. What can employers do to show that they are acting in good faith? Make sure employees understand payroll rules and procedures; implement a reporting mechanism that employees can use to anonymously report violations; train managers and employees on time-keeping obligations; audit exempt and non exempt jobs; stay informed on FLSA developments; bring in experts on compensation or employment related issues. In many past cases, employers have avoided willful violations and damage awards by establishing that they consulted with an expert. At Telamon, our experts in Employment Practices Liability and Risk Management can guide you.

 

If your business operates in Massachusetts, you’d better make triple sure you are following the FLSA rules to the letter, or the costs could be astronomical.  Learn about this new law and how it affects you.

 

If your business operates in Massachusetts, you’d better make triple sure you are following the FLSA rules to the letter, or the costs could be astronomical. The Bay State is standing more solidly behind employees who have been taken advantage of by wage and hour indiscretions than any other state. 

In July 2008, Massachusetts enacted tough new wage and hour laws holding that all violators are subject to mandatory triple damages – even when the employers have acted in good faith and took reasonable steps to comply with wage payment laws.  According to the new law, “…An employee so aggrieved who prevails in such an action shall be awarded triple damages, as liquidated damages, for lost overtime compensation and shall also be awarded the costs of the litigation and reasonable attorneys' fees.”  These state laws are much tougher than the country’s federal FLSA (Fair Labor Standards Act) which provides for just double damages and allows companies to what amounts to a free pass if they can show they made a good faith attempt to comply with the law. Areas subject to claims in Massachusetts include overtime pay, minimum wage, vacation pay, pay to independent contractors, prompt payment of wages for current and terminated employees, Sunday and holiday pay, and tip pooling. In addition to this month’s Top 5 Tips, there are additional risks Massachusetts businesses should pay attention to. These include: failure to pay salaried employees properly, (which can lead to their loss of exempt status); failure to pay a discharged employee on their last day of work; postponing compensation; inconsistencies in pay period frequency and timing; required work during meal breaks; misclassification of independent contractors; restriction of work and time and a half on Sundays and holidays; and proper dispersal of pooled tips. To read the amended law in full, click here.

 

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