Tammy McCutchen understands that something needs to be done. McCutchen is administrator of the DOL's Wage and Hour Division, and she's painfully aware of the abstruse nature of the FLSA. "Even our investigators have trouble applying the rules," she says. "So you can imagine what it's like for small companies without corporate legal staff or even human-resources departments." And when you add in state wage-and-hour statutes, things can get even more complex. Some things that may not be actionable under the FLSA may violate a state statute. For example, while federal law requires overtime pay for anything over 40 hours in a given workweek, some states -- like California, Colorado, and Alaska -- have daily overtime-payment requirements.
What you're left with is an area of the law in which "nothing is categorical, nothing is clear, and everything is arguable and intensely fact specific," says Richard Alfred, a partner in the Boston office of Seyfarth Shaw. "These cases are difficult to predict and expensive to litigate." How expensive? Starbucks recently paid $18 million to settle an overtime case. RadioShack and SBC Pacific Bell settled two similar collective-action cases for $30 million and $35 million.
For a small company, even an individual lawsuit can be debilitating. Take the hypothetical case of a midlevel employee making $75,000 who has worked some 60 hours a week for about three years. If that employee were to successfully file suit, the back-pay liability of time and a half alone would run north of $160,000. And that figure doesn't include any attendant liabilities such as "liquidated damages," which you might have to pay if your company is found to have knowingly broken the law. (Liquidated damages are comparable to punitive damages, except that the amount -- equal to the back pay owed -- is predetermined.) You might also have to ante up interest on back pay, as well as court costs and lawyers' fees.
McCutchen promises that change is imminent. She's set a goal for her staff to draft new regulations that anyone can understand. A small-business owner, she says, "shouldn't have to call a lawyer to comply with this law." She hopes to publicize the proposed changes early this year, although it would be at least another year before they could take effect.
Of course, not everyone would be happy with such a change. McCutchen says she's met with dozens of advocacy groups for both employers and employees, and that employee advocacy groups will likely decry any action that decreases the number of people eligible for overtime pay. Kim Bobo, executive director of the National Interfaith Committee for Worker Justice in Chicago, says that her group is advocating updating the salary threshold below which workers are automatically covered. "If you translated the dollar figures from 1975 to today's figures, we wouldn't have to worry about job titles," she says. "Low-wage earners would automatically earn overtime, regardless of their title. But clearly, employer groups don't want to do that."
"It's a controversial issue," says McCutchen. "Business groups and employee groups think very differently about it." Still, she ultimately wants to prevent the debilitating financial judgments against employers who were acting in good faith but unwittingly went afoul of the law. "People shouldn't have to guess," she says. "They should be able to read the regulations and know they're doing it right."
Are You Too Flexible?
By their very entrepreneurial nature, small companies are especially vulnerable to Fair Labor Standards Act violations. When it comes to employment law, entrepreneurs' hallmark flexibility could be a liability, especially if it leads to playing fast and loose with workers' schedules or asking people to put in long hours and then promising them "comp time." As long as everyone's happy with the situation, there shouldn't be any problem, right? "People think they can make up rules as they go along as long as the employee agrees," says Camille A. Olson of Seyfarth Shaw in Chicago. "But it doesn't work that way. Employees cannot waive their rights under federal law." Keep in mind these potential trouble spots:
Comp time. According to Glenn Dowd of Day, Berry & Howard, the concept of "compensatory time" isn't recognized under the FLSA. Say your people are working like crazy to make a customer's deadline, so you tell them you'll make it up to them with extra time off during the summer months or when things get slow. It's a fairly common practice, but it violates federal wage-and-hour laws, which state that all wages must be paid in the payroll period in which the work occurred.
Telecommuting. Another feature of the modern workforce that the creaky old FLSA wasn't quite prepared for is working from home. When employees are not under your direct watch, determining the number of hours that they actually work can be a challenge. It gets especially tricky when you provide remote access to your computer system. According to Dowd, it doesn't matter whether you're asking them to work; you're permitting them to work. "If you have an extremely conscientious employee, they might be working all kinds of crazy hours," he says. "If you don't take steps to stop them from incurring overtime, you could be liable."
Independent contractors. Just because you employ people on a contract basis doesn't mean that you're immune to wage-and-hour violations for those workers. If the Department of Labor decides that those "independent contractors" are actually employees, the next question is, Are they exempt? If not, you may be obligated to pay overtime. And hiring through a temp agency doesn't protect you from litigation. "The agency may be where the DOL goes first," says Richard Alfred, a partner in Seyfarth Shaw's Boston office. "But they may look to the company that contracted them for additional payment. There can be joint liability."
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