Employers, take note: In the last decade, we have seen a spike in overtime lawsuits.
As you know, the Fair Labor Standards Act sets federal minimum wage and overtime pay requirements for U.S. workers and allows both the Department of Labor and individual workers to sue employers for violating these requirements. Now more than ever, careful observance of the DOL’s overtime regulations is critical, as pressure increases from both of these fronts.
Private Party Lawsuits
A December 2013 report published by the nonpartisan Government Accountability Office showed a marked increase in FLSA lawsuits since 2001. In 2012 alone, 8,148 new FLSA lawsuits – many of them collective actions – were filed in federal courts across the country. Notably, the GAO made no effort to capture data regarding state court filings, which would increase these statistics even more.
Of those new cases, approximately 97 percent were filed against private¬ sector employers, and 95 percent included allegations of overtime violations. Not surprisingly, the primary reason cited for this increase was “attorneys’ increased willingness to take on such cases.” But this answer begs the question: Why?
Key factors influencing this trend include:
- Liquidated damages: The FLSA allows a prevailing employee to recover double the amount of unpaid overtime recovered in a FLSA action, if (s)he can demonstrate that the employer “knew or should have known” that overtime pay was owed.
- Attorney Fees: Prevailing employees are entitled to recover their attorneys’ fees, in addition to unpaid overtime and liquidated damages.
- Collective actions: The FLSA and its regulations allows an employee to file a collective action on behalf of other “similarly situated” employees with relative ease. If conditionally certified, even small claims quickly balloon into “bet the farm” lawsuits if hundreds, or even thousands, of potential claimants are invited to join the action.
- Ambiguity: The FLSA andrelated regulations contain ambiguities that plaintiff’s lawyers successfully exploit – particularly regarding exempt classifications, what forms of compensation to include for purposes of calculating overtime pay, who is or is not an “employee” and what constitutes “hours worked” for compensation purposes.
In other words, FLSA lawsuits are lucrative, attractive work for plaintiffs’ attorneys who, in the wake of both the recession and tort reform, are continuously searching for new opportunities to ply their trade.
Compounding this problem is the fact that the Wage Hour Division of the Department of Labor stopped issuing opinion letters in 2010, leaving employers with fewer reliable resources for compliance guidance. All of these factors caused the GAO to conclude in its report that the DOL “should adopt a more systematic approach” to developing and issuing employer guidance on FLSA issues. In the interim, however, private lawsuits will continue to climb.
Increased Government Enforcement Efforts
This already rocky terrain will only grow more hazardous with time, as the DOL continues to step up overtime enforcement.
Secretary of Labor Thomas Perez recently announced that an update to overtime pay regulations is a top Obama administration priority for 2014-2015. Putting the administration’s money where its mouth is, the President’s budget for the upcoming year includes over $11.8 billion in discretionary 2015 funding to the DOL, including a budget increase of more than $41 million for the Wage Hour Division.
Indeed, the budget specifically calls for the WHD to hire 300 new investigators across the country in order to assist in the WHD’s enforcement mandate. Given the DOL’s position on overtime enforcement and the prevalence of overtime claims, it’s certain that most of these new investigators will primarily pursue overtime enforcement.
Moving Forward Safely
A recent FLSA settlement entered into by LinkedIn provides insight into the future for employers under the FLSA. After WHD investigators identified FLSA overtime and records violations and 359 current and former employees brought suit, LinkedIn agreed to a $5.85 million settlement. Approximately $3.3 million of the settlement was actual back pay, while the remainder was liquidated damages – the doubled damages allowed by the FLSA.
But LinkedIn’s settlement involved more than simply paying its employees – the company also entered into an “enhanced compliance agreement” with the DOL in which it agreed, among other things, to provide FLSA compliance training to its managers, more proactively distribute its policy prohibiting off-the-clock work, and assure employees that they would not face retaliation for reporting FLSA violations.
Although painful to watch, much can be learned from LinkedIn’s experience. Rather than wait for a WHD compliance order, employers should do the following now:
- Adopt and distribute written policies concerning time keeping, overtime pay and off-the-clock work (including remote work)
- Train managers in FLSA compliance
- Adopt formal payroll complaint mechanisms and encourage employees to report concerns regarding their pay or payroll records
- Review record-keeping protocols to ensure technical compliance
- Audit any “independent contractor” arrangements to ensure they comply with both the FLSA and tax laws
- Do not assume that “salaried” is the legal equivalent of “exempt;” audit all exempt employees, to ensure that their actual duties performed match their written job descriptions and qualify for exemption under the FLSA
Avoid the Pitfalls of Enforcement
Despite recent increases in enforcement activity, the basic overtime requirements of the FLSA remain unchanged: employees must be paid 1.5 times their regular hourly rate for all hours worked over 40 in a week, unless they fit within a specific exemption under the Act.
Keeping adequate records to ensure that these criteria are met is the first step on the road to compliance. Terms such as “employee,” “regular hourly rate,” and “work week” are all explicitly defined by federal regulations, as are certain classes of exemption, such as administrative employees or computer professionals.
These definitions and related government regulations must be carefully and accurately followed to ensure compliance with the FLSA. The difference between an “employee” and an “independent contractor” or the calculation of “donning and doffing time” can make all the difference between FLSA compliance and a class action lawsuit.
In the end, a thorough and complete understanding of FLSA regulations is necessary to avoid the pitfalls of overtime enforcement.