Violating the Fair Labor Standards Act

 

Violations of the wage and hour provisions of the Fair Labor Standards Act (FLSA) and analogous state statutes are the single largest liability exposure for employers.  Since 1997 wage and hour litigation has tripled.  Wage and hour laws regulate when, where, and how much an employee must be paid.  Both state and federal wage-and-hour laws impose regulations on the employment relationship.  As a general rule, federal wage and hour laws do not preempt state laws.  Thus, an employer must determine whether the FLSA or state law imposes a more stringent minimum wage or overtime obligation and, if so, apply the more stringent of the two standards.  If an employee is exempt from either federal or state law, but not both, then the employee must be paid in accordance with whichever law applies.

 

The FLSA regulates minimum wage, overtime pay, equal pay, and child labor.  Its overtime requirements are the most significant contributor to wage and hour violations and litigation.

 

Under the FLSA, plaintiffs can recover double the amount of actual damages plus attorneys’ fees, which often times exceed the amount of the award of damages to the employee.  If a willful violation of the FLSA is found, a three-year statute of limitations applies to all plaintiff claims.  Since FLSA litigation often involves large groups of employees, liability exposure is often in the millions of dollars.  Employers are often unaware that most insurance (EPLI) policies exclude coverage for FLSA claims.

 

The most common wage and hour violations are:

 

1. Misclassifying employees as “exempt” and failing to pay them overtime.  The requirements for “exempt” status are set forth in the DOL rules and are extremely complicated and often misapplied.

 

2. Failing to pay non-exempt employees for overtime, including overtime not approved in advance.  Employees are required to pay employees for all hours worked.  Work not requested, but suffered or permitted to be performed is work time that must be paid by the Employer.  For example, allowing time worked “off the clock,” such as requiring employees to arrive early to perform necessary preparations for work or stay late to perform duties such as “closing up” after punching out, and not paying employees for donning and doffing (putting on or taking off specialized work clothes and equipment).

 

3. Failing to keep accurate records.  An employer has an obligation under the FLSA to maintain accurate records of employees’ hours of work and compensation.  The obligation to maintain accurate records is the employer’s and cannot be delegated to employees.  An employer’s failure to maintain accurate records will present an often insurmountable burden to disprove what an employee claims to have been his or her actual hours of work.  All basic earning records should be kept for three years.  Time cards should be kept for two years.

 

4. Granting compensatory time off to non-exempt employees in lieu of overtime pay.

 

5. Making automatic wage deductions, such as from exempt employees’ salaries for part-day absences, or from non-exempt employees’ pay for meal breaks when they do not clock in or out for those breaks.

 

6. Failing to pay overtime to independent contractors when they qualify for “employee” status under the law.  An independent contractor is normally one who accomplishes a specified task for a specified price and retains the right to control the manner in which the work is accomplished.  Employers tend to use an expansive view of who is an independent contractor and find themselves liable for not only FLSA violations but often times end up liable for workers compensation claims and violations of various tax laws.

 

To minimize liability employers should:

 

1. Perform an internal audit of the company’s wage and hour practices with the assistance of an outside expert.  Having someone from the outside eliminates the possibility of internal pressure put on the person handling the audit to make a determination that someone is exempt when they should be non-exempt.  The audit should review all employee classifications, records, and policies, and document the conclusions.  Having the audit performed by an outside expert helps establish a “good faith” defense to “double damages” under the FLSA and can decrease the statute-of-limitations period to two years.

 

2. Keep an accurate record of non-exempt employees’ work time.  Have both employers and employees approve timesheets/hours records.

 

3. Pay for all “hours worked.”  Require non-exempt employees to “clock-in” and “clock-out” at the beginning and end of the workday and before and after unpaid lunch periods.

 

4. Create a plan of action and contact your outside expert in the event of a Department of Labor wage and hour investigation.

 

5. Create accurate job descriptions and update them frequently.  For exempt positions, ensure the descriptions themselves satisfy the applicable-exemption test.

 

6. Train managers on the FLSA and state wage and hour laws.

 

Taking these steps will help decrease your exposure to wage and hour violations.

 

If you have any questions regarding FLSA or State Wage and Hour Laws, HR-OneSource can provide help.  Please contact David L. Hansen, SPHR, CCP, hansend@hr-onesource.com or Jack Lipovac, SPHR, lipovacj@hr-onesource.com at (515) 221-1718.

 

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