If you underpaid an employee by $608, how much should you have to pay to rectify the mistake? $608? $1,216 to punish you for making the error? Both those things seem somewhat reasonable, and, indeed, Precision Demolition paid the defendant twice his actual lost wages. But it also had to fork over $41,333.70 in attorney's fees. 

This was actually not what the attorneys asked for--they asked for $141,236.50 in attorney's fees, $1,272.30 in nontaxable expenses, and $10,568.82 in taxable costs, and the court cut it down by doing some calculations based on what an attorney should be paid in the local area.

Is this fair?

Some of you may say yes, evil horrible businesses try to steal wages from unsuspecting and naive employees. Wage theft is the idea that businesses purposely underpay employees, often by labeling them as exempt from overtime when the law says the employee qualifies for overtime pay. 

However, the law that lays out who is eligible for overtime pay is an 80-year-old law called the Fair Labor Standards Act (FLSA) that is complex and doesn't apply to today's workplaces. Most companies, especially small-business owners, are trying to comply with the laws but make mistakes. 

When attorney's fees are so high, it makes sense for businesses to settle almost immediately, regardless of whether they broke the law. Taking it to court means not only do businesses have the guaranteed cost of their own legal bills, but if they lose, they'll be handed a big bill. (Of course, if the business wins, the employee who brought the claim doesn't have to pay the company's legal bills. It only goes one way.)

This system might make sense if these cases were routinely caused by evil employers, but they aren't. 

Employment attorney Jon Hyman writes:

No small business can afford the six to seven figures these cases end up costing.
I can see the counterargument coming from a mile away. "But Jon, we need to force employers to pay the employee's attorneys' fees as a deterrent to force compliance with the FLSA and to stop them from stealing wages."
This argument, however, rests on two huge assumptions with which I strongly disagree:

  1. That employers are stealing wages from their employees.
  2. That employers are intentionally violating the FLSA.

As I've written before, the idea of "wage theft" is a fraud. Employers aren't intentionally stealing wages from their employees. They are struggling to comply with an 80-year-old law that is too complex for any employer to fully understand.

I agree with Hyman. The FLSA was written in a day when you either worked as a laborer or a manager. There were very few creative or knowledge workers. And you were either at work or you weren't. Now, you can be sitting in the hot tub and taking a business call or typing an email. You can be outlining your next presentation in the shower. It's hard to quantify the number of hours a knowledge worker puts in.

There are several categories of people who are exempt from overtime pay, but the lines aren't always clear. A manager of two or more people is  exempt from overtime--but is that person spending most of their time doing managerial tasks or doing actual work? A CPA is exempt, but a bookkeeper isn't. Where exactly is the line for someone who is more than a bookkeeper and less than a CPA? What about an office manager? Some office managers are exempt and others aren't, and it depends on the exact nature of the job.

We can take away non-exempt employees' laptops and phones to keep them from "working" off the clock, but when their job is knowledge based, they can be "working" without lifting a finger. Heaven knows, I've outlined many an article in my head while in the shower, driving, or listening to my son explain some intricate detail in Minecraft. I'm not the only one.

This law needs to be updated to reflect today's workforce, or companies will continue to get hit with huge punishments for small errors. 

Tony Hsieh: 'Hiring Mistakes Cost Zappos.com $100 Million'
Published on: Feb 26, 2018