Avoid the Wage-Hour Lawsuit Boom

You have excellent human resource and legal departments, sophisticated and well-publicized policies prohibiting discrimination and retaliation and effective internal complaint and mediation processes. You have eliminated or reduced the number of charges filed with the Equal Employment Opportunity Commission and lawsuits alleging discrimination. Are you in the clear?According to various sources, claims and lawsuits filed on behalf of groups of employees under the Fair Labor Standards Act (FLSA) have surpassed the number of race and gender class actions (the traditional front-runners in the employment arena) in recent years.

These actions have more than tripled since 1997, with Florida federal courts being particularly hard-hit. Statistics show that 63 percent of all collective actions were filed in Florida, primarily in South Florida. Why there? Plaintiffs’ attorneys have recognized that low-wage industries typically subject to these claims, such as construction, are prevalent there, particularly after the recent hurricanes that ballooned the number of construction companies and their employees.  

Lawyers pressing these claims advertise on television, the Internet and in other media outlets. They have websites devoted to a claim against a particular employer, seeking names and contact information of any employees who feel they were not compensated properly. Employees surf websites such as www.paymyovertime.com, which posts:  “Did you know that your boss may be driving around in a Lexus purchased with overtime pay that should have been given to you? That’s right, your employer or former employer may owe you enough overtime money to take a vacation, buy a car, or put a down payment on a home, and you don’t even know it!”

Employees who sue successfully under the FLSA are also entitled to an award of “a reasonable attorney’s fee to be paid by the defendant….” Their lawyers’ fees often substantially exceed the sometimes minimal amount obtained by each employee.

Spot the Problem Areas and Determine the Lawful Answers

Certain fundamental wage and hour questions can be answered in black and white terms. However, gray areas abound in determining whether, for example, an exemption from overtime might apply to a particular employee. Understanding the key issues raised in these lawsuits is the first step toward compliance. For example, some of the more prevalent issues in the construction industry are issues addressing:

• Whether a company is covered by the FLSA in the first instance
• Whether employees might still have individual coverage
• Whether employees work off-the-clock, such as before or after official shifts, during breaks or interrupted meal periods
• If hours are shorted during down time or rain delays
• Whether “working foremen” are really exempt from overtime
• Whether a company has joint employer coverage with a leasing agency or other temporary service provider of casual labor
• Whether teens employed in hazardous occupations is in violation of child labor provisions. 

Universal to all industries, FLSA issues tend to fall into one or more of the following areas:

• Has the employer accurately recorded and properly paid for all work time?
• Has the employer properly identified and computed the pay for all overtime worked? 
• Has the employer properly classified employees as exempt? 
• Has the employer incorrectly assumed or decided that someone is not an “employee” for wage-hour purposes?

Have you accurately recorded and properly paid for all time worked?

Construction companies, like other companies, must keep accurate records of all time a nonexempt employee works each workday and each workweek. This includes all time an employer knows about or has reason to know about. Common trouble spots for construction workers include work before the “official” workday begins or after it ends, work done during meal periods, meetings or training sessions and some kinds of travel. Among other things, construction business owners and/or managers should do the following:

• Evaluate employee’s activities and identify which activities are and are not work time.
• Analyze time records to determine whether they appear to be accurate. 
• Be certain that all managers, supervisors, and other employees understand, follow and enforce policies and procedures as to recording hours worked.
• Carefully evaluate any practice of “rounding” starting or stopping times or time totals.

Have you correctly identified all overtime worked and properly computed the overtime pay due?

The FLSA requires that nonexempt employees be paid overtime for all hours worked over forty hours in a workweek. Some jurisdictions have additional requirements construction employers should identify. With limited exceptions, including “prevailing wage rates” applicable to construction employers working on projects associated with federal government financing, the FLSA requires that a nonexempt employee’s overtime compensation be computed at a rate of at least 1.5 times his or her regular rate of pay. Employers should ensure that all payments for work (including bonuses and other incentives) either are being taken into account in computing FLSA overtime or may lawfully be excluded.

Have you properly classified employees as exempt?

Whenever an employer seeks to claim an exemption from any minimum wage, overtime, timekeeping and/or child-labor requirement, an employer must ensure that every such exemption is fully justified and is properly maintained. For example, an employee is not exempt from overtime because he or she is paid a salary rather than an hourly rate, the employee is paid on a commission basis, or he or she is paid under a day-rate or piece-rate plan. There are specific criteria that limit to whom exemptions apply, and it is the employer’s legal burden to show that each of the requirements is met.

The criteria for exemptions usually apply on an employee-by-employee basis. Exemption decisions should not be made simply based upon job descriptions or broad-brush generalizations about what employees do or how they are paid.

The FLSA’s “white collar” exemptions have been the subject of a great deal of litigation. These exemptions apply to bona fide executive, administrative, professional or outside-sales employees. As for these exemptions, any analysis must go beyond a review of duties and include a review of how the employees are paid, the amount of their pay and whether deductions are properly or improperly made from their pay.

Have you incorrectly assumed or decided that someone is not an “employee” for wage-hour purposes?

The FLSA says simply that the word “employee” means “any individual employed by an employer.” Construction owners or managers should identify everyone who is or might be an employee or a joint employee for wage-hour purposes, including independent contractors, casual labor, volunteers, and trainees.

What someone is called and how someone is paid do not necessarily determine whether the person is an “employee” for purposes of the FLSA and similar laws. The central issue the courts consider in deciding whether an individual is an employee is the “economic realities” of the situation. Where independent contractors are concerned, the answer under the FLSA requires consideration of various factors that review the relationship between the parties.

Finally, temporary employees and leased workers might be considered to be jointly employed by both the referring agency or leasing company and the business using their services. This can lead to joint liability for these “joint employers” if they are not paid in compliance with the FLSA or other laws. The parties to such an arrangement might consider agreeing as to whose responsibility wage-hour compliance is, as well as who will foot the bill if there is a problem.

Full Compliance Is a Must

The risks that a construction company will eventually be the target of a wage-hour lawsuit are now substantially higher. These lawsuits are typically expensive to defend, even if the employer ultimately “wins,” and the likelihood of a complete victory might be small in some situations. It is not unusual for an employer to face this unpleasant fact: The fight is not going to be about whether he must pay, but instead how much he will pay. Compliance is not that difficult if you understand the rules. The first step is a wage and hour compliance assessment, which, depending on the size of the company, is relatively painless and inexpensive when compared with the possible consequences of inaction. Make sure your wage and hour house is in order before the government or a lawyer representing your employees or former employees tells you it isn’t.

Construction Business Owner, May 2007