If your organization hasn’t yet been hit with a pay-related lawsuit, consider yourself lucky. A new report shows the onslaught of wage-and-hour lawsuits continues to rise at a record pace.
Even worse, experts predict the new federal overtime regulations coming in 2016 will spark a fresh round of confusion about (and attention on) employee pay issues. The result: more lawsuits.
In fiscal year 2015 (which ended on Sept. 30), U.S. employees filed more than 8,700 lawsuits in federal court related to wage-and-hour issues, says an annual study by the Seyfarth Shaw law firm. Since 2000, wage-and-hour federal court filings have skyrocketed 450%. This year’s total of 8,781 cases is more than any two pre-2005 years combined.
Why the higher risk? An intense new focus on independent contractor classification, unpaid internships, joint employer status and the fight for minimum wage hikes has created a perfect storm for Fair Labor Standards Act (FLSA) lawsuits. Plus, the DOL’s plan to revise white-collar exemptions has put the spotlight on the overtime issues in the general media.
The good news: There are ways for employers to reduce the risk of wage-and-hour suits, and strengthen their defenses if one is filed. Here are six do’s and don’ts:
√ 1. DO audit nonemployee workers. Some employers use workers who are classified as independent contractors, interns or volunteers. Regularly review the classification of such workers to ensure your compliance.
√ 2. DO audit exempt employees. Employers often wrongly classify managers as exempt from overtime. Regularly review their duties to ensure they truly satisfy the requirements for such exemptions.
√ 3. DON’T permit “off the clock” work. If employees work beyond their scheduled hours, pay them. Then counsel them not to do it again and discipline if they do (but don’t dock their pay). Consider requiring employees to certify the accuracy of their time records at the end of the day or week.
√ 4. DO consider arbitration agreements. Instead of slugging it out in court with employees, have them sign agreements that send disputes to arbitration. It will make you a much less attractive wage-and-hour target for plaintiffs’ attorneys.
√ 5. DO ensure proper calculation of overtime rates. Overtime rates for nonexempt employees must be calculated based on one and one-half times the employee’s “regular rate.” The regular rate might not be the employee’s base hourly rate. Instead, it often must take into account commissions, bonuses and other incentives.
√ 6. DO comply with federal and state laws that require posting wage-and-hour notices and maintaining payroll-related records. Also, adopt a payroll/overtime policy that confirms your commitment to comply with wage-and-hour obligations. Train managers about it.
Cheating on OT pay could lead to jail time
As wage-and-hour lawsuits explode, more courts are forcing employers to shell out back pay for unpaid overtime. But some courts are taking overtime punishments all the way to the jailhouse door.
In New York, the owner of several Papa John’s pizza franchises was sent to jail for 60 days last month and was ordered to pay back workers $230,000. His crime: failing to pay employees time-and-a-half pay for their overtime work (beyond 40 hours in a week) and then covering it up by creating fictitious employees in his books and recording the extra work under those names.
Failure to pay proper wages is a misdemeanor in the state, but falsifying business records is a felony.
On the federal level, employers could face double the financial damages for willful violations. U.S. Department of Labor investigators look at company time records for signs the employer is cheating employees. Questionable records raise a red flag that makes investigators dig deeper.
Tip: Review your overtime practices with your attorney to ensure they comply with state and federal laws. Implement any changes your attorney recommends.
