Since 2004, there has been a 77% increase in the number of lawsuits related to wage and hour disputes. In 2009, the top 10 private wage and hour settlements totaled $363 million, which is a 43.9% increase from the previous year. In June 2010 alone, approximately 150 Florida companies were sued for violations of the Fair Labor Standards Act (FLSA). Not only are FLSA lawsuits on the rise, but the plaintiff’s bar has a penchant for filing class action complaints, which leads to increased liability for employers. This past year, Wal-Mart settled a FLSA suit for $11 million; Lowe’s paid $29 million; and Wachovia paid $39 million.

Plaintiff’s attorneys are realizing that if sophisticated, large employers like Wal-Mart and Lowe’s do not understand the complexity of the FLSA, then small and medium-sized employers most likely are not in compliance either. Because the FLSA permits prevailing plaintiffs to recover attorney fees, it is lucrative for a plaintiffs’ attorney to file suit against a small or medium-sized employer. Plaintiffs’ lawyers realize that many small and medium sized employers do not utilize time clocks or keep accurate records of the hours that employees work, even though the employer in an FLSA suit bears the burden to document the employee’s hours worked. If an employee claims he or she worked in excess of 40 hours per week for the past year and half, the employer needs to have evidence to refute this. Unfortunately, not enough small-medium size employers have concrete evidence, which is why it is imperative to keep accurate records of the hours that all employees work.

Many people know the basics of the FLSA - the requirement to pay employees minimum wage and to pay non-exempt employees overtime - but what you do not know certainly can hurt you. That has never been truer. One judge referred to the explosion of FLSA lawsuits as “out of hand.” Plaintiffs’ lawyers are actively seeking wage and hour cases and will ask questions in order to reveal opportunities. For example, when a former employee approaches a lawyer about a potential case of discrimination, the lawyer will ask questions regarding how many hours the former employee worked per week, what his or her job duties were, and whether he or she was paid overtime. The lawyer is attempting to determine if the former employee worked overtime without overtime pay, and whether the employee was improperly classified as exempt.

Whether an employee is properly classified as exempt is typically a question of fact, which means the employer must spend significant time and money in litigation before there is even a chance the case may be dismissed. IBM was confident it had properly classified help desk employees as exempt computer professionals. This well-intentioned mistake cost IBM $64 million. Novartis Pharmaceutical Corp. had classified approximately 2,500 sales representatives as exempt under the outside sales exemption. The Second Circuit Court of Appeals disagreed.

Employers have tried other means to avoid class action FLSA claims, such as adding binding arbitration provisions in their employee handbooks. The U.S. Court of Appeals for the Second Circuit recently upheld an employer’s arbitration provision that successfully prevented an employee from bringing a class action. These provisions must be carefully drafted to ensure enforceability. It is well worth an employer’s time to make sure the company’s policies and procedures provide the maximum amount of protection against possible violations. For example, employers self-audit to ensure that their employees’ hours are accounted for accurately, and that any individual the employer deems independent contractors are not actually employees.

For employers who believe the explosion of FLSA lawsuits will end soon, the data suggests otherwise. In 2009, 1,252 FLSA cases were filed in the Southern District of Florida, the highest in the country, and the Middle District of Florida was second highest in the country with 776 filings. Some proactive plaintiffs’ law firms have reported a 300% increase in the number of wage and hour intakes. Other firms have added new offices across the country for the sole purpose of handling FLSA cases. Employers would be well served to ensure that proper protections are in place.