Wage and hour claims under federal and state law continue to grow at alarming rates. From 2004 to 2007, Fair Labor Standards Act lawsuits against employers grew over 40 percent each year, and FLSA class actions were up 98 percent during the same period. Preliminary statistics indicate this trend continued in 2008, and in 2009 adverse economic conditions will only fuel the fire. Violations result in liability not only for back wages due, but also for liquidated penalty damages, interest, attorney fees and costs. Systemic violations can result in catastrophically expensive collective or class action litigation. Opportunities for violations are numerous, but employers can take specific actions to limit or eliminate risk.
- Audit exempt classifications. The most common - and most expensive - FLSA claims involve misclassification of workers as exempt from overtime. Routinely and periodically (at least every two years) perform a self-audit of exempt/non-exempt classification. Jobs change; make sure written job descriptions keep up and accurately reflect the duties of the position. Consult counsel for positions in the "gray" area to ensure appropriate classification.
- Review pay deductions. Detailed regulations limit the type of deductions that can be taken from an exempt employee's pay. Failure to comply can result in loss of exempt status for that employee - and for others. State wage and hour laws often supplement federal rules with additional restrictions on deductions that may be taken from any employee's pay, whether exempt or non-exempt. Know the rules and check your company's payroll practices to be sure you are in compliance.
- Do the math properly in determining overtime due to non-exempt employees. The FLSA requires payment for overtime at one and one half times the "regular rate" of pay. This is not necessarily one and a half times the base hourly rate, and many other forms of compensation may have to be included in the calculation. Employers very commonly commit errors in this area without knowing it - but plaintiffs' counsel are now well-versed in these rules and target the unwary.
- Take a break and make sure employee breaks are being treated properly. Meal periods must be at least a half hour long - and uninterrupted - or they must be paid. Rest breaks must be longer than 20 minutes or they too must be paid. Supervisors who are not trained in the rules can create liability by calling employees off of unpaid breaks early (even for a few minutes), inserting breaks not taken in employee time records, or failing to permit scheduled breaks.
- Take the time to make sure your non-exempt employees are properly recording all hours worked. "Off the clock" work allegations, in which employees claim they were made - or allowed with employer knowledge - to work when not clocked in are a source of huge potential liability. Train supervisors to monitor employees closely to be sure all time worked is reported. A little unrecorded time here and there may actually reduce employer costs in the short term, but when a claim is asserted in litigation the savings will be dwarfed by the resulting litigation costs and liability.