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Multi-Plaintiff FLSA Lawsuits Can Prove Extremely Costly To The Non-Vigilant Employer

David K. Montgomery
The CBA Report
August 1, 2003

Until recently, overtime litigation under the Fair Labor Standards Act (FLSA) was comparable to a basketball team’s last man off the bench, rarely seen and of little consequence. Typically, a single disgruntled (and in most cases terminated) employee claimed he was misclassified as “exempt” or denied a modest amount of overtime. These cases usually were resolved for a relatively small amount of back pay that often was exceeded by the plaintiff’s own attorneys fees. Bringing and defending the cases had become a rare specialty.

Things recently have changed as a result of some very high profile verdicts and settlements. For example:

  • Purdue Farms, Inc. agreed to pay $10 million to chicken processing workers.
  • United Parcel Service agreed to pay $18 million to workers who had been improperly classified as exempt.
  • Radio Shack agreed to pay $29.9 million to current and former store managers who challenged their exempt status.
  • Pacific Bell agreed to pay $35 million to current and former engineers who alleged they had been misclassified as exempt.

The startling size of these verdicts and settlements has caused many attorneys and employees to refocus on federal and state wage and hour laws. Multi-plaintiff overtime suits are now being filed across the country by attorneys who previously had no interest in wage and hour issues. These attorneys see multi-plaintiff actions as a way to overcome the economic inefficiency of seeking to recover relatively small amounts on behalf of numerous, arguably similarly situated, plaintiffs. As a result, management lawyers with wage and hour experience suddenly are in high demand.

How Multi-Plaintiff Cases Are Initiated

Most overtime cases arise when an employer has misclassified its employees as exempt from overtime when, in fact, they are not. These cases generally involve two central issues: whether an employee designated as exempt is being paid on a salary basis or whether his duties fall under one of the act’s exemptions.

The statute of limitations for federal claims is two years for ordinary claims and three years for “willful” violations. Unlike some other highly litigated areas of employment law, such as discrimination cases brought under Title VII, employees are not required to exhaust administrative remedies before filing suit under the FLSA. Pursuing federal overtime claims through the U.S. Department of Labor is an alternative, not a prerequisite, to private litigation.

Technically, there are no class actions with respect to federal overtime claims. A multi-party claim for violation of the FLSA must be certified by the court as a “collective action.” Typically, this is done in two stages. Conditional certification allows the plaintiffs counsel to notify a targeted employee, and invite them to opt in, thereby tolling their statute of limitations. After discovery, the court will entertain the employer’s motion to decertify. At this stage, the burden on the plaintiffs is higher. And while different federal circuits apply the standard differently, the plaintiffs generally must demonstrate that they and the members of the prospective FLSA class are similarly situated.

If a federal overtime case proceeds as a “collective action,” only the employees who opted in will be bound. Remedies may include unpaid overtime, double damages and attorneys fees and costs.

Overtime cases also may be brought under state law. The viability of state law claims depends on several factors, as state law does not necessarily mirror federal law. Indeed, Federal law specifically allows the states to enact wage and hour laws that are more (but not less) favorable to employees.

Class action standards and procedures also differ significantly from state to state. Most utilize some variation of the Federal Rule of Civil Procedure 23. However, subtle differences in application of these standards can determine whether an overtime claim will be certified as a class action. Remedies and statute of limitations also vary from state to state. Some states require employees to exhaust administrative remedies before they pursue state overtime claims in court.

Two Types of Multi-Party Overtime Cases

Whether brought under state or federal law, most multi–plaintiff overtime claims can be categorized as either misclassification or “suffered or permitted” cases. In a misclassification case, the plaintiffs claim that they were improperly classified by their employer as “exempt” from state and/or federal overtime requirements. The most common federal exemptions are the executive, administrative, professional, outside salesperson and computer programmer exemptions. Describing the exemptions in detail would require more space than has been allotted here. What is important to know is that the exemptions are not black and white. Moreover, they were created decades ago when jobs were structured far differently than they are today. There is plenty of room for interpretation and therefore litigation. If a court disagrees with an employer’s classification the overtime liability can be huge. As was the case with Farmers’ Insurance, whole categories of employees may be entitled to overtime for any and all hours worked in excess of 40 per week. Since employers typically do not track the work hours of exempt employees, the burden usually will be on the employer to dispute whatever quantity of excess hours is alleged.

“Suffered or permitted” cases are brought by employees who were classified as non- exempt but claim they were not paid for all of the overtime they worked. “Suffered or permitted” is the legal standard which describes when an employee’s efforts must be treated as time worked. Basically, the standard requires that a non-exempt worker be paid for any work that the employer is aware of or allows, even if the work is not specifically authorized. For example, if a supervisor knows that a shipping clerk is showing up and working a half hour before his or her scheduled start each day, that half hour must be treated as time worked. Similarly, a violation has occurred if a slow word processor is permitted to complete his work at home, off the clock. This is true even if the clerk and word processor are disregarding their supervisor’s specific instructions. “Suffered or permitted” violations occur regularly because supervisors do not understand the standard or are reluctant to discipline an employee who is giving extra effort.

Employers Need To Be Proactive In Order To Shield Themselves From Liability

Although paying overtime can be costly, failing to pay overtime can be even costlier, as the above settlements demonstrate. The staggering amounts awarded in some recent cases demonstrate clearly that employers cannot afford to be complacent or inattentive in their compensation practices. It is essential that employers be proactive and plan ahead to protect themselves from potential liability. Here are a few examples of steps that should be taken by employers to ensure proper compliance with overtime laws:

  1. Perform an internal audit to figure out exactly who is exempt - Employers should take the time to look at each and every one of its job classifications to determine exactly who is exempt. Simply assuming that a particular employee or group of employees is exempt because they are salaried or because as part of their job description they are required to perform a particular kind of work can lead to trouble down the road. Because the wage and hour laws are complicated and often difficult to understand, employers should not be hesitant to seek the assistance of counsel in determining the exempt status of its employees.
  2. Keep accurate records of hours worked - In the absence of accurate time records, courts have placed the burden of proof of showing exactly how many hours the employees worked on the employer. Thus, not keeping accurate time records can give plaintiffs the upper hand in litigation.
  3. Be careful when making deductions from an exempt employee’s salary – Generally, exempt employees must be paid their salary for each week that they perform work, regardless of the quantity of work performed or availability of work. With a few limited exceptions, an employer cannot take deductions from an exempt worker’s pay because of partial day absences. Making improper deductions from an exempt employee’s salary can destroy the exemption thus requiring the payment of overtime.
  4. Do not permit non-exempt employees to work overtime unless prepared to pay those employees for that overtime - This point may seem obvious, but many employers operate under the misguided belief that they are not required to pay time-and-a-half unless they “require” the employee to work overtime. As is explained above, however, a non-exempt worker has to be paid for any overtime that the employer is aware of or allows, even if the overtime is not specifically authorized. Therefore, it is meaningless for an employer to have a policy requiring managerial approval before overtime is worked if that policy is not strictly enforced.

Of course, because the FLSA and its accompanying regulations are vague in many respects, the possibility always exists that an employer might find itself in a multi-plaintiff lawsuit no matter what protective measures it takes. However, by taking the time to look closely at their workforce and time-record keeping practices, employers can at least take positive steps towards limiting their potential liability.