Exemption Misteps? ‘Damages Can Be Huge’

Fentin, who is a partner in the Springfield, MA offices of labor and employment firm of Skoler, Abbot & Presser, P.C., is Associate Editor of the Massachusetts Employment Law Letter. She was joined in her presentation by attorney John S. Gannon, an associate at her firm.

“Damages Can Be Huge”

Damages in wage and hour and misclassification suits can add up dramatically. Consider what you might end up paying, says Fentin:

• Back pay for straight time
• Back pay for overtime or unpaid minimum wages (Staples’ misclassification of Assistant Store Managers as exempt resulted in a $2.48 million award to 343 Assistant Store Managers, Fentin notes)
• Post-judgment interest
• Back pay typically owed back 2 years from the date the lawsuit was filed (this may differ under state law) and 3 years for “willful” violations
• Liquidated damages. Double damages are likely under the FLSA, subject to a “good faith” defense. The burden is on the employer to demonstrate that it had reasonable grounds for believing it was not in violation of FLSA. Two typical reasons employers advance are:
• It is industry practice to consider job title as exempt
• We had a legal opinion from our attorney
• Attorney’s fees are generally awarded to successful plaintiffs
• Plus, in some states, additional damages are possible

Furthermore, says Fentin, willful and/or repeat violators are subject to civil penalties and criminal prosecution.

Finally, there’s another potentially expensive twist, says Gannon. There’s an initial burden on the employee to establish overtime hours worked, but mathematical certainty is not required. For example, the employee’s own informal records may suffice. Then the burden shifts to the employer to show that employee did not work those hours. Without accurate records, this is nearly impossible to accomplish.

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Risks of Misclassification

• Prevalence of FLSA lawsuits. There’s a recent uptick in FLSA cases, and particularly those for overtime, Fentin says. Some of it is due to outside attorneys, and some due to DOL’s stepped up enforcement.
• Class Action. FLSA claims frequently turn into expensive class actions (a recent $12 million decision against ATT was based on misclassifications in seven different job categories, many of which were in the IT department. Winning employees got about $10,500 each, and there were millions in attorneys’ fees, Fentin says.)
• Planned new regulatory enforcement strategy. DOL is very likely to issue regulations that require employers create Compliance Action Plans (CAPs) to address employment law compliance. Covered employers would have to notify workers of their exemption status and perform a classification analysis on workers classified as exempt.  
• Individual liability. FLSA provides for individual liability for officers or agents with supervisory control. Under FLSA, all “employers” are jointly liable for FLSA damages. “Employer” is defined broadly, and includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.” That might include HR professionals, Fentin notes.
• Coverage of EPLI. Many employers have Employment Practices Liability Insurance, and may be comforted by that fact, but typically these policies don’t cover wage and hour issues, so managers could end up paying out of their own pockets, Fentin warns.

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‘Salaried’ and ‘Hourly’

Many HR managers think that “salaried” and “hourly” are synonymous with “exempt” and “nonexempt” but that is not accurate, Fentin says, because some employees may be paid on a salary basis and still be nonexempt.

In tomorrow’s Advisor, the toughest of the exemptions, plus an introduction to a unique checklist-based FLSA audit program..