Red Tape: Are You Cheating Your Employees?
Litigation from wage-and-hour disputes is skyrocketing. And you may be breaking the law without even knowing it.
Published February 2003
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You've seen the posters, the ones that say "It's the Law!" and then go on about child labor and the minimum wage in tiny type. Chances are, you've put one up in your own office, since federal law requires that you hang such signs in a conspicuous place. But tacking up those posters is about the only employment-law requirement that's easy to comply with.
One particularly troublesome piece of legislation is the Fair Labor Standards Act (FLSA), which sets the minimum wage, restricts the employment of minors, and -- most significantly of late -- requires overtime pay for certain workers who put in more than 40 hours a week. Enacted in 1938, the FLSA was intended to help get depression-era Americans back to work. (The thinking was that rather than pay overtime, businesses would hire more people.)
A lot of things have changed in the workplace since 1938. Unfortunately, the FLSA isn't one of them. It's been amended over the years, but it hasn't been significantly revised since the 1970s. And when you combine an antiquated and arcane law with a shaky economic environment, what you get is an expensive recipe for unbridled litigation.
Ask any lawyer who specializes in labor cases, and you'll hear the same thing: FLSA lawsuits, particularly those claiming unpaid overtime, have skyrocketed during the past few years. Before then, says Robert Turk, a partner at Gunster Yoakley & Stewart in Miami, lawyers looked upon the FLSA as a bit of a backwater. "It wasn't particularly sexy when you could sue for harassment or discrimination, which was where the big money was," he says. "But as the economy turned and you had large group layoffs, it became harder to say that you were fired because you were part of a protected category, when there were lots of other laid-off people who weren't." In 2001, FLSA suits overtook discrimination suits in the number of collective actions filed.
How do you know who's eligible for overtime pay? U.S. Department of Labor (DOL) guidelines divide all workers into two classifications, exempt and nonexempt. Nonexempt workers are entitled to overtime pay if they work more than 40 hours in a week. That's the simple part. But determining which employees fall under that classification is far more complicated.
What's more, an unpaid-overtime suit is relatively easy for an aggrieved employee to initiate. "All employees have to do is pick up the phone, and the DOL takes the ball," says Dyana Tull, a lawyer at Schwartz Hannum, in Andover, Mass. "In certain states, the labor agency almost functions as the employee's attorney."
The rules that describe exactly who is entitled to overtime take up some 60 pages of small-print text in the Code of Federal Regulations. The standard guideline: To be classified as exempt, employees must be executives who spend at least 80% of their time (or in retail and service companies, 60% of their time) doing management tasks. They also must supervise at least two people and have discretionary authority over how they accomplish their work. However, certain types of administrators whose work is deemed related to management policies or general business operations, and who regularly exercise independent judgment, are also classified as exempt. So are professionals whose positions require advanced educational study or whose work is considered creative, original, or artistic, and whose jobs require consistent discretion and independent judgment.
Clear as mud, right? But wait, that's just for starters. Which is why, "over and over I hear the same expression, 'I had no idea I was violating the law,'" says Turk. "Unfortunately, that doesn't work as an excuse."
One area in which growing companies are likely to get into trouble is the "administrative" exemption. According to Glenn Dowd, a labor lawyer at Day, Berry & Howard in Hartford, too often employers figure that if they pay someone a salary, that person is automatically exempt. "People tend to place a lot of importance on titles and salary, but in reality the Department of Labor couldn't care less," Dowd says. "They look at what a person is actually doing."
Take an employee who starts as a secretary to a person who gets promoted as the company grows. The secretary takes on a lot more responsibility, with a commensurately higher salary, and everyone assumes that the employee is no longer entitled to overtime. In fact, unless the person is actually exercising discretion and independent judgment, he or she is probably not exempt. According to Camille A. Olson, a partner at the Chicago office of Seyfarth Shaw, that is an exceedingly common scenario. "The CEO's assistant is usually treated as exempt," she says. "They figure this person has a lot of power, has access to someone important, and is highly compensated. But it doesn't matter if the person's getting $75,000. She is only exempt if she can sit in for the CEO or if she's dictating where and when the exec will appear."
