Yesterday, the Department of Labor (DOL) prevailed in summary judgment against an employer and its individual principal owner for violations of the minimum wage and recordkeeping provisions of the Fair Labor Standards Act (FLSA); total damages will exceed $1.5 million. The employer required employees to log-off their computer systems when taking breaks during the work day, and did not pay employees for breaks of 20 minutes or less.1 In granting the DOL’s motion for summary judgement, the court held that employers must compensate employees for breaks 20 minutes or less taken during the work day, even though employees had the option for longer breaks and even though employees had total discretion over breaks.

In September, the DOL made one of its largest recoveries of unpaid wages for failure to pay overtime when Halliburton paid $18.3 million for misclassifying 1,016 employees.2 Bank of America settled a case, in August, with 367 current and former residential real estate appraisers employed by one of its subsidiaries for $36 million in unpaid overtime after the appraisers were misclassified as exempt employees.3

What Missing Minutes Could Cost You:

  • Rounding down time, automatically deducting 30 minute meal breaks, and requesting employees work off the clock- $1.5million.4
  • Maintaining policies to prevent employees from accounting for all hours worked, and automatically deducting 45 minute lunch breaks from pay even when employees’ schedules prohibited them from taking a break- $4.4 million.5
  • Misclassifying employees as independent contractors rather than paying wages- $15 million.6
  • Miscalculating employees’ regular rate of pay and failing to pay full overtime- $30 million.7

Fast Facts about the DOL

In the 2014 fiscal year, the DOL Wage and Hour Division recovered more than $249 million in unpaid wages- which does not account for costs and expenses, including attorney fees. This number also does not take into account private FLSA lawsuits, and the damages, settlements, attorney fees and overall headaches of litigation.

Looking forward to 2016, the budget for the Wage and Hour Division will increase by nearly 20%, which means more funds to pursue FLSA non-compliant employers. Additionally, the DOL issued new proposed rules in June, which would more than double the current minimum salary for “white collar” exemptions. In a previous interview, we discussed the challenges employers will face in the methods of classifying employees and compensating for off the clock work.8

What You Can do to Prevent Paying Millions for FLSA Violations

While we cannot help employers who blatantly flout wage and hour requirements, we can work to avoid employer liability. There are many elements of the FLSA that are constantly open to new interpretation and application. Since its enactment in 1938, the FLSA has provided that an employer must compensate an employee for his or her work. Yet, the FLSA does not define what qualifies as work, and the definition has been evolving since its enactment. Even the interpretation of the first major amendment, the Portal-to-Portal Act of 1947, which established preliminary and postliminary compensation considerations, routinely changes with the times.

To help avoid major damages for FLSA liability, employers need to be able to answer two primary questions:

1. What employees are subject to FLSA requirements?

Comprehensive treatises are devoted to this question- the key factors are whether an employment relationship exists (i.e. the employee is not an independent contractor) and whether the employee is subject to one of the exemptions provided by the FLSA. If an employee is not exempt, then the employee is subject to FLSA requirements.

Keep in mind that the salary test for exemption will be changing at some point in 2016. Currently, an employee may be exempt if she earns $23,600 per year ($455 per week) or more on a salary basis. The DOL’s proposed regulations will increase the salary threshold to approximately $50,400 per year and $970 before consideration as a salaried exempt employee.

Courts are continually expanding the evaluation of “employees” and bringing former independent contractors under the auspices of the FLSA. Employers face significant liability issues when they mischaracterize employees as independent contractors. Rick’s Cabaret (“Rick’s”) in New York classified its exotic dancers as independent contractors and did not pay them a wage or overtime. The Southern District of New York determined that the dancers were in fact employees of Rick’s and subject to the FLSA. The case settled for $15 million.9

Employers cannot shield FLSA liability by bestowing seemingly exempt job titles on employees. The DOL constantly evaluates exempt duties and updates Regulations and Factsheets listing general duties that different exempt employees are expect to perform and can be a useful starting point for employers.10

2. What type of activities are compensable?

Activities an employee undertakes prior to commencing or on completion of his or her work day or shift (“preliminary” or “postliminary”) which are not “integral and indispensable” to the employee’s “principle activities” are not compensable.

This exclusion includes “walking, riding or traveling” to the place where the employee engages in the principal activity. However, excluded activities can become compensable if there is an “express provision” in a written or oral agreement, or the activity was compensable under a custom of the company.

Where changing clothing and preparing machinery are an integral part of the employee’s principal activities, they remain compensable under the FLSA. The putting on and taking off, or “donning and doffing,” of unique protective clothing is compensable as a “principal activity.”

Additionally, an employee must be compensated for “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer.” Even “wait time” or “idle time” may be compensable, if the employer requires the employee to wait to perform an activity or task.

The DOL has added to the evolution of the FLSA. For example, the “continuous work day rule” adopted by the Department of Labor, states that the “workday” is the time between the “commencement and completion on the same workday of an employee’s principal activities.” Activities that occur during the workday are not affected by the Portal-to-Portal Act, and any travel time between principal activities, which occurs during the “workday,” is compensable.

Additionally, the DOL has promulgated the “suffered or permitted” test. Even if an employer has not required an activity to be completed, yet he or she “knows or has reason to believe” that the employee is working off the clock, that time is compensable. Therefore, an employer may have to compensate an employee for work completed outside his or her normal shift, either in the work place or at home. Knowledge can be actual or imputed.

What Can Employers do to Minimize Risk of Liability?

The workplace is always changing because of technology, remote workspace, security, operational efficiency, robotics, and outsources processing. When employers cannot confidently answer the two primary questions, the threat of liability increases. Even minor violations of the FLSA can lead to civil penalties, liquidated damages, interest and fees.

It is critical for employers to audit their compliance with the FLSA. A FLSA audit is neither time consuming nor expensive when conducted on a regular basis. In the face of the increased investigatory and enforcement actions of the DOL, an FLSA compliance audit is mandatory.