Compensation Litigation: Low-Hanging Fruit for Plaintiffs’ Attorneys

Wage/hour litigation is heating up, partly because attorneys have figured out that even for small cases, in which the client-employee may get $1,000, the attorney can collect $15,000 in attorneys’ fees, says Attorney Deanna Brinkerhoff.

Fair Labor Standards Act (FLSA) litigation is heating up, and partly for that reason—it’s low-hanging fruit for plaintiffs’ attorneys. Brinkerhoff, who is an associate in the law firm Holland & Hart LLP in Las Vegas, offered tips on wage/hour compliance at the Advanced Employment Issues Symposium, held recently in Las Vegas.

To add insult to injury, she says, about 50 percent of FLSA cases are class or collective actions, and those suits are particularly expensive to defend.

Convincing Management

In one recent suit, Irizarry v. Catsimatidis, the court held that the president and CEO (and owner) of a chain of grocery stores was an “employer” under the FLSA, and thus personally liable for FLSA violations. If one of your higher-ups doesn’t want to follow the wage/hour rules, says Brinkerhoff, just introduce him or her to this case.

Misclassification is a very hot issue these days, says Brinkerhoff. First, there’s the issue of exempt and nonexempt. Apply the salary basis test and the duties tests to double-check your decisions about exemptions.

The other problem under misclassification is the independent contractor vs. employee problem. This is coming up a lot recently, Brinkerhoff says.

The U.S. Supreme Court has, on a number of occasions, indicated that there is no single rule or test for determining whether an individual is an independent contractor or an employee for purposes of the FLSA. The Court has held that it is the total activity or situation that controls, Brinkerhoff says. Among the factors which the Court has considered significant are:

• The extent to which the services rendered are an integral part of the principal’s business;
• The permanency of the relationship;
• The amount of the alleged contractor’s investment in facilities and equipment;
• The nature and degree of control by the principal;
• The alleged contractor’s opportunities for profit and loss;
• The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and
• The degree of independent business organization and operation.

In 2012 and 2013, federal wage and hour lawsuits filed under the FLSA reached a new record high. What can you do? Read this free 12-page best practices report from Kronos, and learn 4 steps to follow. Download Now.

The Department of Labor (DOL) lists the following factors as immaterial in determining whether there is an employment relationship:

• The place where work is performed,
• The absence of a formal employment agreement,
• Whether an alleged independent contractor is licensed by state/local government, and
• The time or mode of pay.

Some other factors from Brinkerhoff that suggest an independent contractor relationship are:

• The person works for others.
• The person hires his or her own staff. (If you do the hiring, it doesn’t sound like an independent contractor relationship.)
• The person pays his or her own business expenses.
• The person is given a project, not detailed how-to instructions. (For example, “The computer is broken; please fix it.”)

Since 2004, federal FLSA cases have more than doubled. Is your organization handling wage and hour compliance correctly? Find out in this free report: Raising the Stakes on FLSA Compliance from Kronos.

Misclassification Example—Exempt Status

Kadden v. VisuaLex LLC. An employee with a law degree was hired by a litigation support services firm as a graphics consultant. Her duties included reading pleadings and case documents and then creating exhibits and other visual materials to be used in court.

She was treated as exempt and sued, saying she was not exempt and should be paid overtime. The court agreed and found that she was not exempt.

The firm had claimed exemption under either the creative professional exemption (The court said she wasn’t using enough creativity.), the learned professional exemption (She had a law degree, but the court noted that the job description said an art degree was “preferred.”), or the administrative exemption (But the court said she didn’t analyze, and there was not enough discretion required in her decisions.).

If you want to go with the learned professional exemption, Brinkerhoff says, it’s important to require a specific degree and that it is specifically “required,” not “preferred.”

And note the importance of the job description. It’s always going to be difficult to argue that your job description doesn’t describe the job.

In tomorrow’s Advisor, can an early settlement eliminate collective actions? Plus the availability of a free special report from Kronos—Raising the Stakes on FMLA Compliance.