The Second Circuit’s opinions in Whalen and Reiseck reveal that employers who fail to take a considered approach when making exemption determinations under the FLSA’s intricate regulations and evolving caselaw will do so at their peril. But these decisions tell only half the story. Employers who misclassify their employees face significant exposure – a lesson Apple Inc. recently learned the hard way. On January 22, 2010, Apple agreed to pay almost $1 million to settle a wage-hour class action lawsuit alleging that the company improperly classified its network engineers as exempt Administrative employees and failed to pay them proper overtime. The technology giant is only one in a long line of companies forced to pay huge sums to litigate or settle wage-hour lawsuits. On January 29, 2010, it was announced that Staples, Inc. agreed to a $42 million dollar global settlement of 13 wage-hour lawsuits seeking overtime pay for its current and former assistant store managers, many of whom had been classified as exempt from overtime. On February 10, 2009, a federal judge granted final approval to a whopping $43.5 million settlement, including $10.9 million in legal fees, resolving 11 class and collective actions accusing Merrill Lynch of failing to properly compensate its financial advisors, in part, based on the Company’s misclassification of thousands of financial advisors as exempt from overtime pay under the FLSA. These recent wage-hour settlements follow on the heels of Wal-Mart’s historic agreement in 2009 to pay as much as $640 million dollars to settle over 63 pending wage-hour lawsuits.

With so much on the line, employers can pro-actively take steps to avoid being engulfed in the wave of wage-hour litigation by conducting payroll practices and classification audit reviews of their exempt job titles, employees, and pay policies and practices to determine (1) whether certain job functions and employees are properly classified as exempt from overtime in light of the 2004 regulations and recent caselaw and ( 2) whether their respective pay policies/practices comport with state law requirements as well as whether local managers, inadvertently, have encouraged “off-the-clock” work, such as working through meal periods, and failing to record all time worked. Proskauer’s Employment Law Counseling Practice Group has extensive experience partnering with Human Resources professionals and assisting employers in the conduct of such classification and payroll practice compliance audits under the FLSA and corollary state wage-hour laws. In addition, we can apply our experience representing employers in the defense of misclassification actions to help guide employers in resolving any problems that surface during a classification and/or payroll audit in a timely and discreet manner.