Misclassification of employees continues to bring a lot of headaches to employers.   I have worked with a wide variety of businesses on this issue – from Fortune 500 to “mom and pop” companies.  Each has its own way of doing things in this area and monitoring classification compliance is pretty low on the to-do list.  Nevertheless, this is an area of law that is not going away, and remains a high priority for the Department of Labor and provides big pay days for Plaintiff’s counsel.  Two recent settlements caught my eye and further demonstrate that employers of all sizes need to worry about proper classification and paying overtime.

On April 27, the review site Yelp agreed to pay $1.25 million to settle class allegations that it failed to pay overtime to nearly 1,000 account executives.  Yelp is an on-line start-up that allows individuals to review various service providers – ranging from doctors to restaurants.  According to the Complaint, these representatives make calls to potential sales leads and are paid a base salary, as well as additional pay for performance.  Plaintiffs claimed that they were misclassified as exempt and owed overtime.  Out of this settlement amount, $312,500 goes toward attorneys’ fees, $10,000 toward costs and $25,000 to the settlement administrator.  As a result, a big chunk of the settlement amount Yelp agreed to pay does not even go to the alleged victims. 

On May 1, the DOL announced that Wal-Mart agreed to pay $5.29 million to resolve overtime violations affecting current and former vision center managers and asset protection coordinators who were misclassified as exempt.  This amount includes $4,673,837 in overtime owed from June 2004 - March 2007 and $463,816 in civil monetary damages.  Despite Wal-Mart correcting the classification error in 2007, the DOL said it assessed civil monetary damages because of Wal-Mart’s repeated violations of various wage and hour laws.  Over the last couple of years, Wal-Mart had agreed to pay hundreds of millions of dollars to resolve numerous wage and hour suits.  The DOL wanted to put Wal-Mart and other employers on notice that they cannot avoid their obligations by improperly classifying workers as exempt.

Insight for Employers:

These recent settlements serve as a reminder that misclassification of employees can affect employers of all sizes and result in considerable monetary payments.  One thing to remember is that the cost of misclassification is more than just overtime owed.  Employers who misclassify workers as exempt can find themselves on the hook for attorneys’ fees, penalties, administration fees, etc. – all of which add up quickly.