Attorneys Offer Tips to Avoid Fair Labor Standards Act (FLSA) Lawsuits

Leading attorneys say you can stay dry in a rising tide of FLSA lawsuits by auditing your exempt/nonexempt classifications and maintaining a strict policy against improper deductions from pay.

If you’d like your company to join the ranks of Wal-Mart, Starbucks, Radio Shack, and IBM, that’s easy to do. No, not in making stratospheric levels of revenue and profit, but in finding yourself sued for improper pay practices under the Fair Labor Standards Act (FLSA.)

Since it was considerably toughened in 2004, FLSA, which mandates overtime payments to qualifying, or “nonexempt” employees, has been a legal battleground in the employment world.

Suits filed under the law have doubled or tripled since the 1990s, depending on whose reporting you consult. And in fiscal year 2005, more than $166 million in back wages were recovered by the Labor Department, representing nearly a quarter-million workers.

Private plaintiff’s attorneys have set up shop on this issue as well, and it’s easy to see why. Judgments and settlements are setting records. Farmer’s Insurance reportedly paid $210 million for misclassification of employees. “Statutory attorneys’ fees are powerful motivation,” declares Attorney Jonathan Kane of the law firm Pepper Hamilton, LLP.

Kane, writing for HR.com, offered several ways companies can avoid becoming embroiled in an FLSA suit:

–Carry out an internal audit of jobs versus their descriptions. One of the biggest FLSA pitfalls is classifying employees as exempt, and thus ineligible for overtime, when they are really nonexempt. The rules are complex, but some generalizations can be made. First, anyone making under $23,660 annually is automatically nonexempt, whatever their title or responsibilities. Then, managers with discretionary authority and certain “learned professionals” may be exempt, depending on their duties.

The key is to (1) understand the classification criteria in detail (see BLR’s FLSA Self-Audit Guide for this) and follow them. And (2) audit your organization to be sure that workers are classified against those criteria as exempt or nonexempt based on what they do, not what they’re called.

–Be careful when new positions are added, especially as a result of mergers or acquisitions. If the company joining yours misclassified its employees, you are responsible even though the merged or acquired entity may no longer legally exist.

–Be especially vigilant about classifying as exempt employees making between $23,661 and $100,000 a year. The vast majority of suits, says Kane, emanate from this strata of compensation.

–Note the results of exit interviews. If employees are leaving because they claim they should have been paid overtime, and weren’t, it could be a sign of trouble. “This should set off a red flag that the employer may have a potential problem,” says Attorney Kane.

Safe Harbor from a Storm of Improper Deductions

A second area of FLSA vulnerability is improper deductions from an exempt worker’s pay. With a few exceptions, exempts are supposed to be paid a full weekly wage, regardless of how many hours they work. Not doing so can cost the employer its right to declare an entire class of workers as exempt.

This area was addressed by Attorneys Larry Hosey and Carol Clark at a recent conference of the Association of Corporate Counsel, as reported by CCH Business & Corporate Compliance.

Hosey and Clark explained that if your firm has been guilty of inadvertently making such deductions, there’s no need to immediately dive for the storm cellar. That’s because FLSA contains a “safe harbor” provision, added in 2004. It allows you to keep your current exempt employee structure, if:

–You have a clearly communicated policy against improper deductions
–The policy contains a complaint mechanism
–You reimburse the affected employees
–You make a good-faith commitment not to violate the law again.

Hosey and Clark offered another insight into avoiding FLSA problems. Most of the lawsuits, they said, are not “close calls.” Instead, they are generated by blatant violations caused by apathy or neglect, and that would likely have been caught if only the employer had done a proper audit.

Find and Correct FLSA Problems … the Easy Way!
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