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Sound Measures Employers Can Take To Understand And Meaningfully Address Wage Hour Issues And Claims

For many employers, wage hour issues/claims are almost as inevitable as death and taxes. Experienced human resource (HR) professionals would argue that the Fair Labor Standards Act (FLSA) (1) is a relic of the Depression; (2) has never been fully modernized to account for business realities; and (3) is painfully unforgiving and punitive in its application to employers. In many, if not most, respects, they would be correct. Does this mean that employers are confined to endless handwringing? Absolutely not. Set forth below is a list of ten measures that employers can take to improve their understanding of how and why wage hour claims are filed, and appropriate measures that they can take to reduce the likelihood of such claims.

  1. Understand the basics. The extent of misinformation concerning the common exemptions to the overtime laws (the executive, administrative, and professional exemptions) is alarming to say the least. For example, time and again I hear employers’ representatives defend the decision to designate an employee as exempt with the off-hand comment that they are salaried. Being salaried is a necessary condition for the core exemptions to the overtime laws, but it is not a sufficient one. While the nuances of the FLSA are tricky and often convoluted, the core principles can be understood--at least in their basic framework.
  2. Make sure perception meets reality. Too often, employers, if they even have job descriptions, fail to review them to make sure that they accurately reflect the actual duties being performed by employees. Employers reflexively trot out job descriptions in order to defend wage hour claims only to learn through discovery and during the course of depositions that employees believe that they did not perform the work set forth in the job descriptions themselves. It is not enough to take the managers’ or the owners’ word for it--a prudent evaluation of the duties and responsibilities of an employee needs to be tested by interviews with the employees themselves.
  3. Work with a professional to update job descriptions. Experienced employment attorneys and HR professionals understand the importance of including in the job descriptions themselves certain of the applicable criteria set forth in the FLSA regulations which determine whether and to what extent employees will be exempt. Baking these criteria into the job descriptions themselves can be an effective way to negate claims of non exempt status.
  4. Accurately track hours worked by employees. The old baseball adage that “the tie goes to the runner” is never more true than when it comes to FLSA claims. This means that in situations where there is a dispute between employers and employees with respect to the actual number of hours worked, in the absence of documentation, courts and judges will tend to believe the employee.
  5. Appreciate the danger of deductions to the salaries of exempt employees. In many instances, deductions to salaries (often referred to as “docking”) of otherwise exempt employees can destroy the exemption not only for that particular employee, but for an entire class of employees. There are, however, seven recognized exceptions to the “no docking” rule which the FLSA regulations recognize for full-day absences from work.
  6. Build a FLSA “safe harbor” into employee handbooks. Congress, when it revised the FLSA, included certain safe harbor language that allows employers to correct mistakes made under the act provided that the employer has a clearly communicated policy that prohibits improper deductions and has a complaint mechanism; acts promptly to remedy mistakes; and makes a good faith commitment to comply with the FLSA. To this end, employers are well advised to include in their handbooks language comparable to the safe harbor language found in certain anti-discrimination statutes to the effect that employees should immediately bring to the attention of their supervisors, the human resources department, or others in management concerns that they may have regarding the characterization of their status as exempt, as well as concerns they have about the amount of their compensation or the manner in which they are compensated.
  7. Commit to training managers to identify wage hour issues and problems. Simply stated, there is no substitute for educating managers about the basic contours of the FSLA and to the dangers associated when an employee is mischaracterized as exempt and works extensive overtime. Among other things, managers need to be able to identify when the nature of an employee’s work has arguably changed from exempt to non-exempt (or is at least different than the work described in the job description) and when excessive overtime is being worked (particularly without the requisite authorization). More fundamentally, employers (and, in particular, their managers) need to appreciate that wage hour claims are often filed by employees who perceive that they have been treated improperly by their employer (even if the alleged mistreatment is not directly related to the non-payment for overtime).
  8. The evils of the FLSA can be mitigated. Employers who violate the FLSA expose themselves not only to damages for unpaid overtime, but also to liquidated (that is, double) damages and attorneys’ fees. The so called “good faith” defense available under the FLSA is relatively narrow and can include reliance upon a court decision or an opinion from the Department of Labor as a basis for avoiding the application of liquidated damages and/or a certain amount of attorneys’ fees. Employers are well advised to position themselves so that they can credibly argue that they took all appropriate reasonable steps to comply with the FSLA including, among other things (i) reviewing the applicable overtime regulations every time a new position is either created or updated to ensure that the characterization of exempt versus non-exempt is accurate; (ii) consulting with experienced employment counsel (or experienced HR professionals) before making these determinations; and (iii) regularly attending seminars that address the application of the FLSA and the circumstances where exemptions apply. Employers who take these proactive measures can not only minimize the likelihood that wage hour claims will be filed in the first instance, but also increase the likelihood that such claims if made (formally or informally) can be resolved amicably and without the need for expensive and time consuming litigation.
  9. Consider minimizing potential overtime problems by hiring additional employees. Although it may sound counterintuitive to advocate such a position particularly in tough economic conditions, employers should consider whether it makes sense to hire several more employees, rather than allow current employees to work 50, 60, and sometimes 70 hours a week. Keep in mind that the overtime laws are activated only when individuals work more than 40 hours a week. Other benefits associated with employees not working so many hours include the minimization of the “burnout” factor; improved morale; and improved productivity, to name a few.
  10. Evaluate with an experienced insurance agent/broker the possibility of insurance coverage. Employment Practices Liability Insurance (EPLI) was designed to provide employers with insurance for employment claims that were often not covered by many standard insurance policies. Today, EPLI policies often cover claims of discrimination and harassment prohibited by the various anti-discrimination statutes as well as certain other employment claims. Employers should consult with experienced insurance agents/brokers to determine the availability of insurance for wage hour claims (even if such coverage only extends to the legal costs associated with defending such claims).

Conclusion: Looking Forward

There can be little doubt that as long as the FLSA remains essentially in its current form, plaintiffs’ employment lawyers will continue to look for opportunities to exploit the actual or seeming mischaracterization of individuals as exempt employees as well as the actual or seeming violation of other provisions of this unforgiving statute. Employers who wish to stay profitable, viable, and competitive can (and must) adopt a proactive approach to wage hour claims and issues. The measures described above, while by no means exhaustive, can provide an important and meaningful start to minimizing the risk of wage hour claims and best positioning employers to defend them if they are filed. Employers who ignore these warning signs do so at their peril.

Michael J. Neary assisted with this article.

Marc Engel is an employment attorney at Lerch, Early & Brewer in Bethesda, Maryland. He advises employers of all types of employment issues, performs human resource audits, and conducts training on a variety of employment issues, including strategies for improving hiring, performance management, retention and avoiding discrimination and harassment claims. He also litigates and mediates employment and business disputes and counsels clients on litigation avoidance strategies. For more information about human resource audits or the employment practice, please contact Marc at (301) 657-0184 or mrengel@lerchearly.com.

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