Wage and Hour claims Featured

8:00pm EDT March 26, 2008

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 dherms@porterhedges.com.