10 Sure-Fire Ways to Get Your Company Sued Under the FLSA
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Law Office of Bert N. Bisgyer ATTORNEYS AT LAW SUITE 525 EAST 1025 THOMAS JEFFERSON STREET, NW WASHINGTON, D.C. 20007 ____________ Telephone 202-338-2172 Facsimile 202-338-2447 E-mail: [email protected] www.bisgyerlaw.com November 16, 2010 10 Sure-Fire Ways to Get Your Company Sued Under the FLSA Background: The Obama Administration is Committed to Identify and Sue Employers Who Violate the FLSA. The Obama Administration is committed to the aggressive enforcement of federal labor and employment laws, including particularly, the Fair Labor Standards Act (“FLSA”). President Obama’s federal budget dedicates $25 million to task the United States Department of Labor (“DOL”) to combat purported misclassification in two principal contexts: (1) employees who are wrongly deemed to be exempt from overtime; and (2) “independent contractors” who, in fact, are “employees.” This funding also will be used to finance State DOL efforts to combat misclassification. DOL’s New Misclassification Initiative. President Obama’s DOL Solicitor, Patricia Smith, has announced a “Misclassification Initiative” to obtain for misclassified employees the overtime pay that is available to a company’s non- exempt employees. To that end, DOL has promised to identify and litigate against employers who misclassify as exempt from overtime those employees who do not meet the requirements of the “white collar” exemptions, set forth in Part 541 of DOL’s Wage and Hour regulations, which implement the FLSA. In a recent (October 2, 2010) speech, Solicitor Smith declared that the Obama Administration would reverse the existing “culture of non-compliance.” She announced that DOL’s new tactics for enhanced enforcement would include increases in criminal prosecutions, enterprise-wide and industry-wide enforcement actions, and liquidated damages in misclassification cases. DOL’s Wage & Hour Division (“WHD”), which enforces the FLSA, has hired hundreds of investigators and other enforcement operatives to implement that initiative. WHD’s enforcement staff has been increased by 28% in 2010. In short, DOL has greatly expanded its ability to investigate complaints and conduct audits of employers, and is aggressively pursuing that agenda. 1 Consequences of Misclassification. The consequences of misclassifying non-exempt employees as being exempt from overtime can be severe for employers. In addition to the costs entailed in defending DOL investigations, individual and collective actions covering misclassification are rapidly proliferating in the current environment. Enormous settlements have become the rule, and substantial judgments adverse to employers have become commonplace. At a recent conference held on October 19, 2010, DOL emphasized that it is supporting the proposed Employee Misclassification Prevention Act (HR.5107; S.3254), which would make misclassification a free-standing violation of federal law, while establishing a legal presumption favoring “employee” status. FLSA Collective Actions Are Now the Most Common of All Federal Employment-Related Class Actions, and the Failure to Pay Overtime is the Most Common FLSA Complaint. In addition to the employer’s enhanced exposure to the likelihood of DOL audits and litigation under FLSA, the cost to employers and statutory penalties for failing to pay overtime that is due can be immense. For this reason, misclassification cases are particularly attractive to plaintiff’s lawyers. As indicated, misclassifying employees may even subject repeat offenders to criminal penalties. Unions seize on misclassifications as evidence of the employer’s purported mistreatment of employees to promote their organizational efforts. The Overtime Standard. Under the FLSA, employers are required to pay overtime compensation to all covered employees, for all hours worked in excess of 40 hours in a “workweek” (consisting of seven consecutive 24-hour periods), unless the employee is exempt from overtime. The overtime rate is one and one-half times the employee’s “regular rate” of pay. Highly Paid Employees Have Joined the Ranks of FLSA Plaintiffs. A recent development of note is that employers are increasingly being targeted in individual and collective actions by employees holding traditional “white collar” positions. The financial services industry is a case in point in which highly compensated loan officers, financial advisors, stockbrokers, traders, and similarly situated personnel have brought collective actions against their firms claiming to have been misclassified as exempt administrative personnel or exempt “highly compensated employees.” These new plaintiffs frequently maintain that they are not exempt from overtime, claiming that they merely perform production-type duties for the employer. They emphasize their lack of (or infrequent performance of) management duties or involvement in strategic decision-making or analysis. They assert that their work is performed under strict guidelines that limit their discretion. Last year alone, massive settlements of such claims were agreed to by Morgan Stanley ($50 Million), Wachovia ($39 Million), and Prudential Financial ($11 Million), each lawsuit involving allegedly misclassified financial advisors, brokers, and other industry personnel. 2 These gigantic settlements, coupled with enormous litigation defense costs, underscore the dilemma facing employers when the FLSA - - a law which was created during the Great Depression - - is applied to employees in industries whose positions, duties, and responsibilities did not exist and were not contemplated when the FLSA was enacted. The anomalous result is that employees making hundreds of thousands of dollars annually in a variety of industries are now demanding unpaid back overtime and statutory penalties. The emergence of these new plaintiff groups, encouraged by activist plaintiff’s class counsel, requires the careful attention of all employers. It is the Employer’s Burden to Prove Exempt Status It is the employer’s burden to prove that an employee is exempt from overtime. Mere declarations that track the language of a particular exemption will not be sufficient to disprove the assertions of a well-coached plaintiff-employee. Further, it should be anticipated that complaining employees will describe their duties and responsibilities in a manner that both minimizes both their managerial nature and the employee’s discretion. Convincing evidence and documentation will be necessary to support the employer’s contrary position. Note: Keep in mind that, under the law, exemptions from the FLSA’s requirements are to be “narrowly construed,” in view of the FLSA’s broad remedial purpose. 10 Sure-Fire Ways to Get Your Company Sued Under the FLSA - - Rely on the Following “Myths” Regarding the FLSA Overtime Obligation Consider the following sampling of commonly-held “myths” that regularly appear in FLSA litigation against employers for unpaid overtime. Introductory Myth: Since our Company has carefully evaluated the exempt status of its personnel, relying on official “Opinion Letters” issued by DOL’s Wage & Hour Division, our determinations are lawful. FACT: In 2004, the FLSA’s interpretive regulations governing “white collar” workers were revised for the first time in a half-century. This development was followed by DOL’s issuance of “Opinion Letters” that were intended to clarify exempt duties in various industries, among other issues. Their purpose was to provide better guidance to employers. That guidance has now been eliminated by the Obama Administration’s WHD, which, since January 2009, has formally withdrawn 18 Opinion Letters that were issued or proposed by the Bush Administration. The WHD has further announced that it will no longer issue fact-specific Opinion Letters in response to requests from employers. Instead, DOL’s WHD states that it will issue “Administrator Interpretations,” which reportedly will have broader applicability. In its first Administrator Interpretation, the WHD reversed a 2006 Bush Administration Opinion Letter by holding that mortgage brokers were not eligible for the Administrative exemption. That Interpretation concluded that that exemption did not apply, because the brokers’ work was too closely related to the mortgage firms “products” and, consequently, was not “administrative” in nature. 3 In its second Administrator Interpretation, issued on June 10, 2010, the WHD ruled that time spent “donning and doffing” personal protective (safety) equipment (as opposed to clothing), prior to the start of working time, was compensable working time. Bottom line: Employers should anticipate that the Administrator Interpretations issued by the Obama Administration will narrowly construe exemptions or make them broadly inapplicable to particular employee classifications, while expanding the concept of compensable “working time.” Further, while reviewing courts are not bound by the WHD’s Administrator Interpretations, employers who ignore Administrator Interpretations enhance their risk of legal exposure under the FLSA and state law. Myth #1: Since all Company managers are paid a “salary,” they do not qualify for overtime pay. FACT: Being paid on a salary basis does not suggest that the employee qualifies for exemption from overtime under the FLSA. “Blue Collar” workers, for example, can never qualify for exemption, no matter how highly paid they may be, and regardless whether they are paid on a “salary basis.” More fundamentally, being paid on a salary basis is but one aspect of the tests to qualify for exemption. An employer must