Any entity with a sizable hourly workforce is a potential target for class action lawsuits, especially those that do business in California. Many in senior management have a horror story about an inadvertent failure to put the employer’s address on employee paychecks or an already-terminated one- or two-minute rounding practice or some other seemingly minor infraction that resulted in six-figure or greater liability. No one budgets for a class action and its associated attorneys’ fees and settlement payouts, so it’s always a very unhappy day when one of these actions materializes. For those who bear those scars, it appears that the future holds more of the same, as a number of recent surveys point to wage and hour as the fastest-growing area of class action activity. Given that reality, any prudent supply chain company or function is well advised to take stock of its employment practices and policies as it heads into 2018.
Class actions are often initiated against employers for the following kinds of employment-law-related violations, among others:
- Meal and rest period irregularities
- Non-neutral time-rounding practices
- Exempt/Non-exempt misclassification
- Auto-deduction from employee paychecks
- Vacation/PTO forfeiture
- Minimum wage noncompliance
- Background check violations (under FCRA)
With the continuing trend toward patchwork state and local minimum wage laws, the compliance challenges facing multistate employers become ever more complex, and minimum wage class action litigation is expected to increase dramatically as a result. Most employers are aware of the hourly wage thresholds established by these laws (although phased increases present additional timing risks), but there are numerous ways to run afoul of them even if the stated wage is at or above the prescribed level. For instance, how is the minimum wage requirement calculated per measurement period in a piece-rate environment? What happens if a paycheck deduction for safety shoes or uniform expense drops an employee’s pay below the applicable minimum wage rate? If the employer requires the employee to spend a few minutes pre- or post-shift going through a security check or walking to and from his work location, and does not pay the employee for all of his or her “working time,” has the employer violated the minimum wage (or the overtime) requirements if the employee’s pay divided by total “working time” falls below the threshold wage?
Here are some possible actions to consider as you attempt to manage risk in these wage and hour areas:
- Require all employees to accurately record all hours worked and sign off on their timesheets to attest to their completeness and accuracy, subject to discipline for failure to do so.
- Emphasize wage and hour compliance as an important part of supervisors’ job duties and closely monitor any manual adjustments made by supervisors to time records.
- Keep detailed and accurate employee and time records, and maintain as many employee records electronically as possible.
- Establish a user-friendly complaint procedure for employees to report any time inaccuracies.
- Assign an HR or legal professional to stay up to date with all of the minimum wage increases, “wage theft” legislation, and other changes in the laws affecting the jurisdictions in which your company operates.
- Maintain an internal dispute resolution procedure that provides for binding, individual arbitration (and prohibits class arbitration) as the exclusive mechanism for resolving employee wage disputes.
Regarding arbitration and class action waivers, please watch for the Supreme Court’s soon-to-be-issued decision in National Labor Relations Board v. Murphy Oil USA, Inc., in which the Court is considering whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice. For what it’s worth, the fantasyscotus.lexpredict.com website predicts that the Court will decide 5-4 that such agreements are not an unfair labor practice, with Justice Gorsuch casting the deciding vote.
As a postscript, employers with Illinois operations should note that a new class action risk has emerged over the last few months. The Illinois Biometrics Information Privacy Act, which focuses on the collection and use of various forms of biometric information, including retina scans and fingerprints, became effective in 2008, but only in the last 6 months or so have plaintiff’s attorneys begun to file class actions against employers and others for failing to fully comply with its policy and consent requirements. Specifically, the Act requires anyone collecting biometric information (including through time clocks using thumbprints) to (1) develop a written policy establishing a retention schedule and guidelines for permanently destroying biometric identifiers and information when the initial purpose for collecting or obtaining such identifiers or information has been satisfied and (2) inform the individual from whom biometric information is sought of the purpose of its collection and use and obtain a written release from the individual prior to its collection. Statutory penalties are $1,000 for each negligent violation and $5,000 for each intentional violation.
Dozens of lawsuits have been filed in Illinois over the past few months, including against supermarket chains, airlines, cargo handling companies, 3PLs and packaging companies. Texas and Washington have enacted similar statutes but do not provide for a private right of action, so compliance risk exists in those states for any entity using a thumbprint or other biometric timekeeping system, but not significant class action risk. This is perhaps just the latest example of a new trap that has been laid for supply chain companies and others, but rest assured these kinds of risks will continue to surface as plaintiffs’ attorneys become more and more creative and aggressive.