Employers who do not take the time
to understand the requirements of
the Fair Labor Standards Act (FLSA) run the risk of Wage and Hour disputes
that can generate costly single plaintiff,
multiple plaintiff or class-action lawsuits
filed against them.
A wide range of companies in any industry, particularly those in the hospitality and
service areas, may become involved in
such disputes and lawsuits. The outcomes
of those lawsuits for defendants found
liable by the Department of Labor or courts
can involve severe financial penalties, significant back pay amounts, and hefty
lawyers’ fees.
Smart Business spoke with C. Dean
Herms of Porter & Hedges LLP to learn
how employers can protect themselves
from those possibilities and strengthen
their financial positions.
Why have Wage and Hour claims become so
prevalent recently?
Most of the employment law cases
being filed lately are violations of the
overtime regulations of FLSA. Due to the
2004 amendment to the FLSA regulations,
people who weren’t otherwise aware of
the fact that they can get overtime pay for
hours worked in excess of 40 hours if
they are non-exempt employees have
now become aware of their rights under
the law. That, combined with a fundamental misunderstanding by employers
of the requirements of FLSA, has led to an
increase in the number of cases. Finally,
the damages and penalties can be high,
which makes these types of lawsuits
attractive to plaintiffs and attorneys.
What types of misunderstandings might lead
to disputes and lawsuits?
Salary is a good example. Some employers will believe that their employees are
exempt simply because they are paid a
salary. That is not the case. They have to
satisfy two different standards under
FLSA to qualify an employee as exempt:
the salary basis and duties tests. If
employers do not satisfy both of these
standards — and it is their burden to prove compliance if called into question
— they run the risk of becoming involved
in disputes with their employees. That is
why it is imperative for employers to
understand the requirements of FLSA.
How significant are the damages and penalties associated with Wage and Hour cases?
The damages and penalties can be
extremely high. For an employer who is
found to have violated FLSA regulations,
back pay can be awarded going back two
years. If it is found to be a willful failure
to comply with the Act, the employer can
be liable for back pay going back three
years preceding the time of the plaintiff’s
complaint. In addition, the employer can
be assessed liquidated damages for non-compliance, which basically doubles the
amount to which the employee otherwise
would have been entitled. Add lawyers’
fees to these damages, and the costs can
be astounding, especially for smaller
companies. And the problem is compounded in some cases, because if one
employee at a company has not been paid
correctly, most of the rest of them probably haven’t been either.
Are there key indicators in how a business
operates that can lead to Wage and Hour
claims by employees?
One is the number of exempt employees. The larger the number, the more susceptible an employer might be to having
exemptions questioned. Also, employers
who know about and allow employees to
work off the clock are making themselves
susceptible to claims. Employing workers who travel extensively to and from
the worksite might raise some Wage and
Hour issues as well. Another example is
‘donning and docking’ cases, which
involve employees wearing uniforms. If
uniforms are required, and employees are
not paid for the time it takes to don them,
even if they are at work, that too can lead
to claims.
Are there steps employers can take to prevent Wage and Hour lawsuits and avoid crippling damages and penalties?
The key is ‘prevention.’ In this regard,
there are several steps that can be taken.
One is to classify employees correctly.
This requires an understanding of what
salary really means and when deductions
can be made from salaries. Understanding of these key concepts often
comes too late — after employers are
sued. Another step is for employers to
develop a thorough understanding of
FLSA and other employment laws before
disputes arise and stay on top of what is
required of them. They can do this in a
variety of ways, e.g., by attending seminars, subscribing to business publications, or consulting regularly with their
attorneys. Another step is to develop,
implement and make known to employees the company’s employment policies,
such as a ‘safe harbor’ policy, which
allows employers to address improper
deductions from salaries of exempt
employees that are isolated or inadvertent without having to pay damages. This
can be done with attorneys’ counsel —
and can help prevent devastating financial penalties and damages.
C. DEAN HERMS JR. is a partner with Porter & Hedges LLP in Houston. Reach him at (713) 226-6680 or [email protected].
