TIPS TO AVOID WAGE AND HOUR LIABILITY

Barry Freeman

Wage and hour claims, under the federal Fair Labor Standards Act (FLSA) and Ohio law, are among the most dangerous for employers. Wage and hour claims tend to be far more dangerous than discrimination or harassment claims, and they are proliferating quickly. The reasons wage and hour claims are so dangerous and proliferating are:

1. Wage and hour law is not intuitive like discrimination and harassment law. (You do not have to be a lawyer to know you cannot discriminate against or harass an employee because of the employee’s race, sex, age, disability, national origin, etc.) With wage and hour law, you either know the law or you don’t. As a result, the rate of success – in terms of meritorious claims and the settlement value of claims – is significantly higher for wage and hour claims than for discrimination and harassment claims.

2. The legal standard for a class action lawsuit (officially, an opt-in “collective action” lawsuit for wage and hour cases) is extremely low compared the class action standard for discrimination and harassment cases. Only a small percentage of discrimination and harassment cases are class actions, while many wage and hour cases (probably a majority) are class actions. That makes them far more valuable and more expensive to defend.

3. There is a presumption of double damages in wage and hour cases and an expectation employers must pay plaintiffs’ attorney fees on top of the settlement value.

4. The United States Department of Labor files numerous wage and hour lawsuits on behalf of employees, even if the stakes are not high. In contrast, the United States only tends to file a small number of discrimination and harassment cases on behalf of employees.

There is little employers can do about items 2-4. However, the more educated employers are about wage and hour law, the less likely they will be sued and, if sued, the less likely they will be liable and the settlement value of any suit should be less. With that in mind, here are some basic tips to reduce your risk of a wage and hours suit.

1. Be careful of treating people as independent contractors. Unless the individual is treated as someone else’s employee, the individual is likely to be considered an employee unless the individual can decide how and when to do the work, with her own equipment and tools. To be a true “independent contractor”, you should only control the end result. In addition, true independent contractors cannot be legally-covered by non-compete agreements. Finally, someone is unlikely to be an independent contractor if he makes the product or service you sell. For example, if you are a landscaping business, you cannot have independent contractors cut lawns for you.

2. Being paid a minimum, fixed salary is generally required to be exempt from minimum wage and overtime, but is not sufficient to be exempt. Being paid a minimum, fixed salary means you cannot dock an employee’s salary for poor productivity or because they decide to work less than a full day (except in limited circumstances, such as FMLA leave.) If you do, the employee is not really paid on a salary-basis and you must pay the employee minimum wage and overtime. In addition, employees cannot be exempt unless their salary is at least $455/week (gross pay). In 2016, the minimum salary for exemption is expected to nearly double to $970/week. Even assuming you correctly pay employees on a salary-basis, employees are still entitled to minimum wage and overtime unless their job duties are exempt. No matter how large a salary you pay, physical laborers are entitled to overtime. Likewise with receptionists, mailroom clerks and waiters/waitresses – just for a few examples. Exempt duties include being an executive (supervising at least 2 full-time employees – including significant influence in hiring and firing decisions); being a professional (doctor, lawyer, accountant, registered nurse, architect); being an influential administrative employee (exercising discretion and independent judgment – instead of following pre-conceived processes – on matters of significant importance, in a non-production capacity); and outside sales. There are other exemptions (such as retail sales and computer professionals, but they are more complicated.)

3. Ensure accurate timekeeping by using a system where the employees are responsible for recording their own time, and avoid modifying their recorded time unless absolutely necessary and unless absolutely certain the unmodified time was inaccurate (and even then, only if you can prove it.) In general, keeping time for employees or modifying their recorded time is very dangerous and is inviting a wage and hour suit.

4. Do not unfairly “round” recorded time. Maintaining time records with precise accuracy is the best idea. But, if you round, do it fairly so it does not prejudice employees. For example, if you round to the nearest 10 minutes, an employee who signs in 4 minutes late should be paid as if she was not late. If the employee is 6 minutes late, then you could dock her 10 minutes.

5. Pay employees for ALL their time worked. That includes things such as: (a) mandatory training or meetings; (b) business emails, texts and cell phone calls; (c) working during breaks; (d) uninterrupted break periods less than 20 minutes; and (e) travel time between the first job of the day and the last job of the day.

6. Unless you are a government employer, you cannot pay employees owed overtime with extra paid time off (“comp time”) rather than time-and-a-half wages for overtime hours.