Twelve Common Employer Mistakes That Make Plaintiffs’ Attorneys Happy

Below is a list of twelve things that employers do (or fail to do) that create work for plaintiffs’ employment lawyers and unnecessary legal exposure.

1. Failing to properly characterize employees as non-exempt. Wage hour claims, and particularly claims based upon violations of the Fair Labor Standards Act (FLSA) or analogous state statutes, are being filed at what seems like epidemic levels. At the core of this litigation explosion are claims based upon an employer’s designation of certain categories of employees as exempt from the overtime requirements when, in fact, they are not (or may not be).  In many instances, this comes from a basic misunderstanding of the requirements for exempt status. The three most common exemptions to the overtime requirements are the administrative, professional, and executive exemptions. Job duties alone never determine exempt status. Employers often fail to create or, as the case may be, fail to update job descriptions to make sure that they accurately reflect the work being performed by employees. As a result, they make dangerous mistakes in characterizing employees as exempt when in fact they are non-exempt (i.e., eligible for overtime). The stakes are enormous. The mischaracterization of employees can lead to the filing of collective actions, significant money judgments, liquidated damages, and substantial attorney’s fees.

Perhaps the most common mistake that employers make in this regard is failing to appreciate the distinction between a salaried employee and an exempt employee. As a general matter, the salary requirement is only the first step in a two-step analysis. The second step that must be satisfied is the substantive duties test associated with each of these major exemptions (i.e., administrative, professional, executive). There is a computer exemption as well, but it is generally reserved for high end software design positions.

A second common mistake that employers make is docking the pay of exempt employees for partial day absences. This can destroy the exemption. Employers can deduct partial day absences from the PTO leave banks of exempt employees but not reduce their salary for partial day absences. 

2. Failing to update job descriptions. Proper job descriptions can serve as a useful road map for employees, and a guide for conducting performance evaluations and making recommendations for promotion. Employers can prevent many wage hour claims by making sure that the job descriptions accurately reflect the work being performed by employees and by appropriately incorporating the requirements set forth in the applicable overtime regulations.

3. Borrowing employee handbooks. Unfortunately, many employers believe that employee handbooks are a commodity that can be borrowed from friends or lifted from the internet, and then distributed to employees without a professional review by competent counsel.  They fail to understand that agencies investigating discrimination and harassment claims routinely inquire whether organizations have legally sound handbooks, whether they accurately reflect the current state of the various employment laws, and whether the handbook is being applied consistently.

4. Assuming that mid-level managers know how to manage employees. The silent danger in many organizations is that mid-level managers, despite generally being substantively knowledgeable about their job, are not trained in how to effectively manage employees, how to interact effectively with the Human Resources Department, and how to request timely assistance from senior management concerning personnel issues. The costs (financial and otherwise) of this lack of communication and failure to act can be devastating. Poor communication at management levels and a failure to act allow employment problems — which could be remedied relatively easily and with little drama — to fester and become far more serious. Organizations are well advised to address this issue proactively by training managers on how to interview legally, conduct effective performance evaluations, and effectively work with the human resources department and senior management.

5. Failing to understand the scope of the at-will doctrine. Many employers believe, erroneously, that if an employee is at-will that she can be terminated for any reason – good or bad, lawful or unlawful. This is a dangerous misunderstanding. Employers, as a general matter, can terminate employees for any lawful reason so long as the reason is not discriminatory, does not violate an express or implied contract, and is not done for a retaliatory reason. A good rule of thumb to remember is that when an employer terminates an employee within 2-3 months of a complaint made by an employee based upon unlawful conduct (i.e., harassment, discrimination), a prima facie case of retaliation exists. Employers, of course, can rebut this presumption by establishing that a legitimate business reason exists for the decision.

6. Failing to understand why employees file claims. Many employment claims are preventable. In my experience, many if not most employment claims are filed because of the perception that an employee has been mistreated and/or disrespected. Plaintiffs’ attorneys find a label or legal theory to attach to this level of unhappiness, but at the core of the claim is an abiding sense that individuals have been mistreated. Often, this is a function of employers (i) failing to follow their own policies and procedures; (ii) failing to properly define and communicate expectations at the outset of employment; (iii) failing to spend the necessary time to determine why certain employees have been successful in their organizations and others have not; and (iv) failing to treat employees consistently.

7. Failing to terminate employees respectfully. Perhaps nothing is as upsetting to employees as being terminated (i) under circumstances where they had no idea that the termination would be forthcoming and (ii) in a manner which they consider to be disrespectful. It is essential to properly document personnel issues and adequately communicate performance problems in a respectful fashion early on. As for the second issue, terminating employees in a public manner, or “taking the bait” and engaging in destructive discussions with employees, is a prescription for a lawsuit. Employees who believe that they have been publicly humiliated are more likely to file claims, or use social media to express their frustrations.

8. Failing to pay employees all monies that are owed. Generally, employers are required to pay employees all sums which they are owed through the last day of employment regardless of the reason for termination. Too many employers operate under the mistaken belief that they can withhold a final paycheck unless and until the employee returns all information, documents, uniforms, etc. belonging to the employer. Similarly, employers need to be careful that they are properly compensating employees for commissions and bonuses which have been earned and not conditioning payment upon the employee being employed on a date certain — provided the employee has otherwise satisfied all of the obligations associated with the commission/bonus.

Perhaps the most common mistake that employers make in this regard is failing to pay employees unused, accrued PTO upon the conclusion of employment. Generally, employers can decide not to pay for accrued PTO upon termination provided that the employer communicates to the employee at the inception of employment any restrictions on the payment of PTO upon the conclusion of employment.

9. Failing to take employee complaints seriously and failing to train managers how to identify personnel issues. The timely investigation of claims of harassment and discrimination, in particular, is critical in order to preserve important employer defenses to such claims if they are actually filed. Employees who believe that their complaints are consistently ignored will have little hesitation in contacting an attorney to evaluate their case, make a demand for payment, voice their displeasure on social media, and/or file a claim.

10. Failing to manage leave of absences properly. Perhaps the most difficult issue an employer faces is managing situations where employees may be covered by one or more of the Family and Medical Leave Act (or some analogous state statute), the Americans With Disabilities Act, and/or the workers’ compensation laws. Employers that fail to designate leave as FMLA may inadvertently extend the job protection provided by that statute to employees eligible for protection. Furthermore, employers that mistakenly believe that once employees have completed their FMLA leave, they no longer have any legal protections may very well run afoul of the ADA which, among other things, generally provides that one form of accommodation can be an extended leave of absence (although one circuit court has recently held otherwise). The challenge is even greater for Montgomery County employers who must navigate the sick and safe leave law.

11. Failing to appreciate that the employment laws apply to “small” employers. Where the employment laws are concerned, there is no such thing as a “small” employer. In order to be subject to certain federal employment laws, employers must have a certain number of employees (i.e., employers must have at least 50 employees to be subject to the Family Medical Leave Act). That said, there are numerous analogous state and local laws to which small employers are subject. For this reason, there is no safe haven for small employers to discriminate or to fail to compensate employees appropriately.

One of the anomalies of the employment laws is that often small employers face disproportionately greater liability than do larger employers. For example, large employers are subject to Title VII, where there are caps are on compensatory damages based upon the size of the employer. Under certain state and local statutes, there are no similar caps or ceilings on compensatory damages for “smaller” employers that are not subject to Title VII.

12. Failing to appreciate that the employment laws apply to non-profits. A second prevalent myth is that the employment laws do not apply to non-profits. In my experience, many employees work for non-profits not only because they believe in the mission of the organization, but because they believe that non-profits provide a greater level of job security. In other words, they believe that they are not ordinary at-will employees, and that even if they are, the organization will only terminate them for “cause.”

By the same token, many non-profits believe that the anti-discrimination laws do not apply to them. For example, non-profits often believe that they are not subject to the overtime requirements of the Fair Labor Standards Act. As a general matter, non-profit organizations are not covered “enterprises” under the FLSA unless they engage in ordinary commercial activities that result in sales made or business done that meet a $500,000 threshold. Ordinary commercial activities include, for example, operating a business, like a gift shop. However, activities that are charitable in nature are not considered ordinary commercial activities, and do not establish what is known as enterprise coverage under the FLSA. Examples of activities that are charitable in nature and normally provided free of charge include the following:

• Providing clothing or food to homeless persons;
• Providing temporary shelter;
• Providing sexual assault, domestic violence, or other hotline counseling services; and
• Providing disaster relief provisions.

Non-profits that are not covered on an enterprise basis likely still have some employees who are covered individually and are, therefore, entitled to the protections of the FLSA. Individual employee coverage is based on the nature of the particular employee’s work activities. An employee who engages in interstate commerce or in the production of goods for interstate commerce is covered by the FLSA. Employees whose work involves or relates to the movement of things or persons across state lines are also considered engaged in interstate commerce. Such activities include:

• Receiving/sending interstate mail or electronic communications;
• Making out-of-state phone calls;
• Ordering or receiving goods from an out-of-state supplier; and
• Handling credit card transactions or performing the accounting or bookkeeping for such activities.

According to the Wage and Hour Division of the DOL, the DOL, however, will not assert that an employee, who on isolated occasions spends an insubstantial amount of time performing such work, is covered individually by the FLSA. Additionally, even where an employee regularly engages in interstate commerce and is covered individually, the DOL generally focuses its enforcement efforts on situations where it can have a more dramatic impact on compliance, which generally is where there is enterprise coverage.

In addition to this list, I’ve compiled a list of items that every employer should do. Read more at “7 Things Employers Should Do Regardless of Size.”

Marc Engel is an employment attorney experienced in providing successful strategies for managing employees and preventing employment claims. For more information, contact Marc at (301) 657-0184 or [email protected].