RISKVUE ARCHIVE | RISK BITES

Class Action Wage and Hour Claims—
Here We Come...

By Don Phin

In case you haven’t noticed yet, class action lawsuits claiming wage and hour violations have become fertile new hunting ground for savvy plaintiff’s lawyers. One of the most common claims in this area is the failure to pay overtime to what should have been treated as non-exempt employees.

According to a recent US Department of Labor press release, a California pool contractor had to pay $608,000 to settle charges that he knowingly failed to pay employee’s overtime and falsified records to conceal the illegal practice. “This settlement is important for the workers who were exploited and for the law-abiding local contractors who pay their employees fairly,” Secretary of Labor, Alexis M. Herman said “We will vigorously prosecute employers who gain an unfair advantage over their competitors at the expense of their own workers.” Apparently, the contractor routinely paid work crews a flat “piece rate” for each pool, regardless of the number of hours worked. The settlement included back payment of overtime to 66 employees, liquidated damages and interest.

Oklahoma Gas and Electric was sued for the non-payment of overtime pay for workers required to be “on-call” to respond to fire and security alarms after work and on weekends. They were paid for the time they spent responding to alarms, but not for their “on-call” time. In this case, the court ruled that the employees, who experienced three to five calls per “on-call” period between 4:30 p.m. and 7:30 p.m. were “on-call” during all of their off premises time.

I just read where another employer had to pay hundreds of thousands of dollars because he had non-exempt workers showing up for pre-work and after work meetings while off the clock. Another company was ordered to pay $836,000 in back wages for truck drivers paid on a per-trip basis.

Because overtime regulations are such a confusing area, and because so many employers are willing to try and get “something for nothing” out of their employees, this area is ripe for class action claims brought by attorneys and agencies. Obviously, the bigger the company, the bigger the exposure. The U.S. Department of Labor has targeted garment manufacturing, agriculture, health care, restaurants, janitorial services and similar low-wage earning industries.

Typically, what happens is one employee will complain about not getting paid overtime to an attorney who then after the interview realizes that he may have a six-figure class action claim on his hands. Employees who complain about wage and hour violations, and then are retaliated against can bring claims for retaliation or wrongful discharge in violation of public policy. The bottom line is that whether (a) you violate the law knowingly or (b) you didn’t realize you were in violation, these claims are a significant exposure.

There are a number of areas ripe for wage and hour claims. The first is overtime. Under the Federal Labor Standards Act (FLSA) an employer who requires or permits an employee to work overtime in excess of 40 hours a week is entitled to not less than time and a half of their regular pay. Certain states, such as California, also impose an eight-hour day limit. Typical problems include: (1) setting a fixed sum for varying amounts of overtime, (2) paying a salary to a non-exempt employee who works over 40 hours a week and (3) failing to include required offsite functions within the hours worked per week.

The issue of what is an “exempt” employee continues to cause employers huge headaches. Basically, there is an exemption for executive, administrative, professional and outside sales employees under the FLSA and most state guidelines. To be exempt, these employees must meet certain tests regarding job duties and responsibilities and be compensated “on a salary basis” at not less than stated amounts. According to the Department of Labor, typical problems include:

• Employers without a formal sick leave policy docking salaried exempt employees for time missed from work.
• Employees performing routine production-type duties that seem related to general business operations but which have no bearing on setting of management policies.
• Employees who hold degrees performing jobs which are not professional in nature or to which the degree they hold is not applicable.
• Employers confusing acquired job skills with the exercise of independent judgment and discretion.
• Employees being classified as exempt without regard to the percentage of time they spent in exempt duties (usually managing other employees).

One of the challenges employers face is what to do should they find they were in fact in violation. Do they pay off the one employee who complains without informing others so as to avoid an agency claim or lawsuit? Do they engage in “full disclosure” and seek some form of amnesty from the regulatory agencies? Should they just deny any violation regardless of who’s claiming they are at fault? Regardless of how you answer these questions, one thing is sure — get into compliance now.

I am also seeing a rise in sales commission type claims. These claims are often made along with claims for misrepresentation and breach of contract. Whatever you do, make sure you have a very strongly worded sales commission policy and a strong accounting function backing it up. Be very cautious when deducting refunds, returns and other offsets against a sales commission.

Lastly, the impact of bonus payments can also affect an employee’s wage. In general terms, if a bonus is “expected,” it ends up getting backed into their pay rate. Additional information about FLSA guidelines can be obtained by going to http://www.dol.gov/esa/regs/compliance/whd/hrg.htm or by calling their wage, hour toll-free information and help line at 1-866-4US-WAGE or (1-866-487-9243). The Department of Labor also has a directory to all state wage and hour agencies, which can be obtained by going to their web site. 

ABOUT THE AUTHOR

Don Phin is an attorney who for more than 16 years, has specialized in the litigation of employment and business cases. He has represented hundreds of employees, partners and companies in that time. Don has litigated wrongful termination, race and age discrimination, sexual harassment, whistle-blower, trade-secret theft, fraud, partnership dissolution and many other cases to a successful conclusion. In 1995, Don obtained the status of a Certified Professional Consultant to Management (CPCM). Since then, he spends a large part of his time consulting, writing, speaking and coaching.

Don’s seminars, workshops and reports have been delivered to such groups as the International Risk Management Institute, Insurance Marketing and Management Services, The Executive Committee, The CEO Club, The Society for Human Resource Management, Foundation of Enterprise Development, The National Human Resource Association and The National Association of Professional Consultants to Management.

Risk management is about possibilities and probabilities. It’s about assessing the 80/20 of exposure and then committing the strategies and tools needed to protect yourself. I hope these insights will help those of you battling on the front lines. If you have any questions regarding the trials and tribulations of managing in today’s high-risk environment, e-mail or give me a call at 800-234-3304.

riskVue | The webzine for risk management professionals
January 2001