The Wage And Hour Minefield: Some Words Of Wisdom For Employers

Thursday, November 1, 2007 - 01:00

Editor: Would you tell our readers something about your professional experience?

Colombo: I work in Cozen O'Connor's Miami office, and I am a member of the labor & employment practice group. My practice includes the representation of employers in various types of federal and state employment matters, including discrimination, harassment, retaliation, non-compete and similar claims.

Schmidt: I reside in the firm's New York office, also with considerable experience representing employers in diverse employment matters. This includes wage and hour issues; employment, non-compete and severance contracts; discrimination and harassment cases; and transactional work. In addition to drafting employee manuals and policies, I've also conducted training for employers on a variety of issues ranging from sexual harassment to employee leave issues.

Voegele: I am a member of the labor & employment practice group in the firm's Philadelphia office. Over the course of my career, I have represented employers in all aspects of labor and employment law, focusing on traditional labor issues such as union/employer negotiations, the litigation of discrimination claims, arbitration under collective bargaining agreements, and counseling on all types of compliance issues under federal, state, and local labor and employment statutes. I have done a considerable amount of work under the Fair Labor Standards Act (FLSA).

Editor: Would you give us an overview of the firm's labor & employment practice?

Colombo: Cozen O'Connor's labor & employment practice includes lawyers from very diverse backgrounds and from the firm's various offices.

Voegele: And, given our national network of offices, the firm has the ability to service its clients in all aspects of their labor/employment needs, including traditional labor, employment-related discrimination, harassment, and other federal and state law actions.

Schmidt: The important thing to note, I think, is that each of Cozen O'Connor's offices is able to draw upon the experience and expertise of all of the firm's offices in meeting client needs. In a highly technical area of the law, requiring very specific expertise, it is important to be able to call upon the resources of the entire firm, wherever a client is located or the case is being heard.

Editor: I understand companies are continuing, and increasingly so, to face overtime litigation. What factors are contributing to this upswing?

Colombo: I am seeing a flood of lawsuits in the Southern District of Florida, and at least half of them are overtime-related cases. I attribute this to the attorney fee provision in the FLSA, which is certainly an incentive for lawyers to bring these types of claims, even if the amounts at issue are small. If there is any sort of liability finding or settlement, the plaintiff's attorney is entitled to seek a reasonable attorney's fee as the prevailing party. Another contributing factor is the complexity of the FLSA.

Editor: Tell us about some of the recent decisions favoring plaintiffs.

Voegele: Here, in Philadelphia, we recently saw a decision against Wal-Mart - the largest private sector employer in the country - for alleged overtime violations to the tune of $130.5 million.

And, we are seeing many cases involving municipal employees. The FLSA did not apply to municipalities until 1986, but, since that time, there has been a great deal of activity. Municipalities employ large numbers of police, firefighters and paramedics. These are individuals who work non-traditional hours and have unique pay structures. This is a fertile ground for wage and hour litigation.

Editor: Beyond the municipal arena, are specific industries particularly vulnerable to overtime litigation?

Schmidt: In the financial services industry, where people make a lot of money and work in non-traditional types of positions, companies can also run afoul of the FLSA, even unintentionally. There is a great deal of uncertainty and risk of liability that derives from the way in which the statute is written, and this leads employers to be pressed into thinking that an early settlement may be preferable to litigation. That, of course, only encourages the plaintiffs' bar to bring more actions.

Voegele: As a general proposition, employers who typically rely on commission-based compensation systems, as opposed to salary-based ones, have been the target of recent challenges from the plaintiffs' bar concerning the proper classification of their employees. Also, the question of who is an independent contractor, as opposed to an employee, is one that has drawn a great deal of attention from the plaintiffs' bar.

In addition, we have seen a substantial amount of litigation arising from the retail sector. Many employees are classified as exempt salespeople by their employers but don't meet the specific criteria required for exemption. And, in the insurance sector, a hot issue, up until recently, was whether or not claims representatives were properly classified as exempt.

Editor: What are some of the pitfalls for companies facing such suits?

Voegele: One of the principal challenges facing an employer is how to respond to a particular claim once it comes through the door. Is it an individual claim or brought as a collective action? Is it restricted to one location or many? Sometimes a manager simply made a bad decision or did not follow advice. On review, it may turn out that the human resources professionals recommended that a particular position should be non-exempt, but management failed to act on the recommendation. That might result in a willful violation of the FLSA.

Another major pitfall - which occurs in many large organizations - is permitting wage and hour decisions to be made at the local level. That almost always leads to inconsistent decisions and classifications within the organization, and invites litigation.

A unique set of issues arises when organizations merge. Say an employee works part-time at two different hospitals. If they merge, the surviving employer might not realize that it must aggregate that employee's time and that, if he or she is now working more than 40 hours a week, overtime pay may be required This particular problem comes up sometimes in bank and hospital mergers.

Colombo: I see a great number of record-keeping issues. Some employers fail to maintain the required records of employee work and break time. That can create real problems when the employer finds itself in court, and the records are demanded from plaintiff's counsel during discovery.

Editor: How is the changing face of the workforce/workplace - with more people working remotely and off-hours - contributing to these problems?

Schmidt: Current workplace/workforce trends make it essential for employers to be proactive and not merely respond defensively when litigation arises. And, it is absolutely essential that employers be in compliance with their own policies for off-site workers. Is, for example, such a worker actually "working" when on-call and waiting for an assignment? How does the off-site worker spend his or her time benefiting the employer? These are things that must be defined and spelled out in formal policy statements - and followed. It is also important, in this workplace environment where so many don't have traditional nine-to-five days, to track the hours that qualify as working hours.

With technology - cell phones, BlackBerries and the like - people are working all the time, at least in theory. How many of those hours need to be counted in determining overtime and premium pay? Many companies believe that they have a policy that overtime is not permitted, unless authorized in writing. However, an employer cannot refuse to pay overtime when earned, especially if the work has been beneficial to the company. All of these things are difficult for the employer to track, notwithstanding the wonders of technology, and also lead to the potential for greater "he said/she said" issues - which often survive the employer's early attempts to dispose of the case.

Editor: How can employers avoid encouraging overtime claims?

Schmidt: I think employers need to know their workforce, and they need to let their employees know that they are on top of compliance matters, particularly with respect to these wage and hour matters. Companies cannot continue to rely on the false idea that just because someone earns a significant amount of money or has a certain title he or she is exempt. It is what they do that determines whether they are exempt. And, both employees and the plaintiffs' bar are aware of this state of affairs. Employers need to be at least as aware.

Editor: What steps can employers take to ensure proper classification of employees?

Colombo: When classifying employees, employers need to ensure that they are following the FLSA. For example, with regard to the white-collar exemption, employees in those classifications must be paid a salary that satisfies the salary basis test, which is at least $455 a week.

The problem that often arises is with employees' primary duties. Sometimes employers give a management title to an employee, but when analyzing that employee's primary duties, he or she does not fall into the classification under the FLSA. An employer should conduct a thorough and continuous review of its job descriptions in order to determine whether positions classified as exempt fall under the allowed exemptions. For example, that would entail assessing the work done by the employee against the job description. If these do not match, the employer should modify the job description or change the employee's status from non-exempt to exempt.

Editor: If faced with a lawsuit, what factors should be evaluated in analyzing liability and determining the best scenario for resolving the case?

Voegele: A myriad of factors go into addressing a lawsuit. Does the claim involve a small group of employees, or is it a collective or class action suit that could bankrupt the company? Is there an existing EPLI - employment practices liability insurance - policy in place? Normally, EPLIs exclude wage and hour claims, but another claim in the action might be covered by the policy.

Editor: When is it appropriate to settle?

Colombo: It is appropriate to settle early in the litigation if there is potential liability. However, even when liability is clearly debatable, it is always worthwhile to very early in the case take a stringent view at not only potential liability, but also the risks associated with litigation. Unless you have a high-level employee bringing the action, or it is a collective action, the amounts at issue are usually quite modest and attorney's fees can quickly surpass the potential damages.

With regard to settlement agreements, if a private dispute exists between the employer and employee, the employee can accept an out-of-court payment for unpaid wages if it is supervised by the Secretary of Labor. On the other hand, if the employee brings a lawsuit against the employer under the FLSA and enters into a settlement agreement with the employer, the district court will enter a stipulated judgment after scrutinizing the settlement for fairness. Employees will be deemed not to have waived their FLSA rights, even after settlement with their employers, except under the above-described circumstances. It is also important to note that settlement agreements should include back wages and an amount for liquidated damages.

Editor: What is the ultimate advice you have for companies facing overtime claims?

Schmidt: Be proactive. Analyze the actual job duties and the compensation paid, and ensure that they conform to FLSA standards. And, enlist the employees in certifying that the company's records are accurate on an ongoing basis. An employee sign-off for 35 hours worked in a particular week is a good document to have when, two years down the road, he/she claims to have worked 60 hours.

Please email the interviewees at scolombo@cozen.com, mschmidt@cozen.com or gvoegele@cozen.com with questions about this interview.