Learning & Development

FLSA Exemptions: Avoiding Legal Pitfalls

Yesterday we heard advice from expert Kara Shea concerning Fair Labor Standards Act (FLSA) exemptions and audits. Today, more from Shea on how to stay out of legal hot water when it comes to these tricky matters.

By Holly Jones, JD, Senior Legal Editor

Putting the Attorney Hat Back On

Now, with all of this fantastic practical advice in your back pocket, there are a few legal caveats to keep in mind. If we’re going to embark on a truly informed risk assessment, we have to keep these principles in mind.
Willful violations. First, note that the FLSA does assess additional damages if it finds “willful violations.” Employees who lost overtime wages as a result of a willful violation are entitled to compensatory damages of 3 years’ of back wages (rather than 2) and may also be entitled to liquidated damages (typically, this will double the back wages paid).
So you can’t simply go into your workplace, classify everyone as exempt, then dare the U.S. Department of Labor (DOL) to come get you. This is not a good strategy.
Similarly, if your attorney tells you, “I have absolutely no doubt—this employee is flipping hamburgers and there is no way he or she is exempt,” your failure to reclassify that employee is going to be a willful violation if you are sued or audited. You can’t claim you acted in good faith if you deliberately ignored the advice of your attorney.
Good faith. As with most employment laws, we savvy, sophisticated employers really can’t argue, “Well, I didn’t know that was the law,” and expect an undercompensated employee to walk away empty-handed.
Fortunately, the FLSA does provide a bit of relief to employers to help balance the subjective nature of the exemptions. If an employer can show good faith and reasonable grounds for its actions—in this case, its classification of an employee as exempt—damages may be limited only to the back wages and attorneys’ fees (29 U.S.C. §260).
So, just as acting willfully will subject you to more risk. If you (and your attorney) can build a strong case of good faith and reasonable compliance with the spirit of the law, you may be able to limit the risk to a couple years’ worth of back wages you would have paid anyway (plus attorneys’ fees). This is where feeling “pretty sure” may still be good enough.

Bottom Line

Shea said it best when she noted, “Sometimes risk is acceptable if it helps your business thrive.”
While considering the coming regulations, don’t immediately assume that your only option is spending thousands of dollars on billable hours and duties audits while also frustrating previously exempt workers with timekeeping requirements and strict prohibitions against checking e-mail during off-hours.
Instead:

  • Take a practical, business-minded approach to your classifications.
  • Keep the audit process internal as much and for as long as possible. Find the known exempt and nonexempt workers, and get them in order first.
  • Don’t mistakenly rely on job descriptions alone, especially if those descriptions aren’t quite accurate. Actual duties matter.
  • Identify “gray area” classifications, then recruit legal assistance with those as needed.
  • When assessing risk, consider supplemental data such as turnover, number of employees in the same role, hours of overtime an employee is likely to work, back wage estimates, etc.
  • Don’t forget “hidden” costs that may arise with reclassification: loss of morale, lost productivity, interruption of business continuity and efficiency by limiting employee availability, changes to benefits eligibility, etc.