What You Need to Know About FLSA Wage and Hour Lawsuits
Advice from the experts about how to navigate the worst case scenario
Lawsuits Are On The Rise
FLSA cases are up 456% since 1995
What Triggers a Lawsuit?
Expert advice on how to avoid common mistakes
Industry Experts Discuss the Facts.
What you need to know plus, 8 common triggers for lawsuits.
Meet Our Experts
Maria O. Hart
Parsons, Behle & Latimer
Brown Rudnick LLP
Lawsuits on the Rise
FLSA wage and hours suits are up 456% since 1995, with several notable spikes including a jump in 2004.
Why? Our experts explain below.
Attractive Attorney Fees
According to Lee Schreter of Littler Mendelson, one of the biggest reasons we’ve seen a dramatic increase in the number of FLSA suits is that there’s a lot of monetary incentive for plaintiffs lawyers (lawyers who represent employees) to aggressively pursue and draw out wage and hour suits.
“I sometimes joke that the Fair Labor Standards Act really stands for ‘Fees Lawyers Slobber About.’ But in all seriousness, it’s a huge driving force in the numbers we’re seeing. Plaintiff lawyers have realized that these cases are where the money is.”
Why are the fees so attractive?
“If an employer is found liable in a wage and hour suit, not only are they responsible for paying any back wages due and their own legal fees—they’re required to pay the employee’s legal fees as well.”
“There’s really not a proportionality test built into any of this either. To really put it into perspective, in theory you could have an employee who only recovers 10 dollars in back wages, and maybe 10 dollars in liquidated damages. That employee’s lawyer would still recover all their attorneys fees, to be paid by the employer.”
Low Barriers to Entry
The second reason FLSA wage and hour suits are on the rise has to do with the low barrier to entry in bringing a case to the courts.
“The judges have applied a very lenient standard for these cases to proceed as collective actions, or class actions. Certain districts have actually become magnets for wage and hour class actions, New York City being one of them, because of how readily courts certify or approve them. And once a case is certified as a collective action, a notice goes out to everyone who might have been impacted, individuals are invited to join the case, they do join the case, and that obviously ups the ante in terms of the settlement value.”
Interplay of Federal, State, and Local Laws
According to Maria O. Hart, another reason we’re seeing the number of lawsuits increase is the complicated interplay of state, federal, and local regulations when it comes to wage and hours.
“It’s a dance of sorts, you have a number of different municipalities imposing high standards of compliance on employers. It becomes a complex minefield, and as more regulations are layered on, lawsuits naturally increase.”
And it’s not just the laws and regulations themselves that are causing the number of lawsuits to rise. The nuance and interpretation of those laws is as important as the laws themselves.
“About 20 years ago, we saw wage and hours cases being filed for pretty straightforward compliance issues that employers had simply missed. Over the past 20 years, that has changed dramatically. Now we find that even very sophisticated employers are the targets of successful suits.”
“The law is changing all the time. For example, 20 years ago very few people would dispute the idea that an assistant manager in a retail store was an exempt position. In fact, it was well settled at that point and even specified in the regulations. Today, this situation is a very open question. The answer might vary considerably depending on the size of the store, the responsibilities performed by that particular manager, the hours worked, and so forth. And that’s just one of many examples of how the law is morphing. The no brainer cases of “What was that employer thinking?” are gone. Plaintiffs’ lawyers are now challenging well settled notions under the FLSA and arguing that past interpretations aren’t correct.”
“I think part of the upward trend we’re seeing is a result of technology allowing employees to do more work off site and off the clock. As telecommuting becomes more common and after-hours email or texting becomes more prevalent, you complicate the way time is tracked and accounted for.”
Employers don’t always consider employee classification when sending emails or texts after working hours, but it can make all the difference in avoiding a potential lawsuit. The ease with which communication takes place online and through text can lead to misguided expectations and the same standard of responsiveness after hours for exempt and nonexempt employees alike.
“In the modern age, the workplace increasingly intrudes on our personal lives. Employers fail to understand the difference between exempt and nonexempt employees, and they get themselves in trouble mostly out of a lack of sophistication in assuming they can call nonexempt workers or ask them to check their email or respond to texts outside of normal working hours. That’s a significant emerging area of liability and difficulty.”
Trends in Wage and Hours Suits
While there have been relatively few sweeping changes handed down from the DOL itself, Lee is quick to point out that the letter of the law is only one small part of the trend in FLSA wage and hour suits.
“One of the trends today that wasn’t apparent 20 years ago with the FLSA is how much the interpretation of the law factors into these cases. The law is literally morphing as new cases are tried and the law is interpreted. So if you are complacent as an employer and you don’t monitor developments in case law, what’s happening in your industry and elsewhere, you do so at your peril.”
And, as Lee and Daniel mentioned above, there’s more interest than ever from plaintiffs lawyers when it comes to wage and hour suits.
“We now have a new salary threshold—it’s double from the old threshold. That puts 4.2 million workers back into play. In the eyes of many plaintiffs’ attorneys, that’s fresh meat entering the marketplace who for the first time are going to explore their hours of work, their exempt duties, their salary compensation. You can bet the plaintiffs’ bar is busy monitoring this and looking for new cases.”
Common Lawsuit Triggers
What are the most common triggers when it comes to wage and hour suits? Let’s put one of the most pervasive myths to rest right from the start.
Daniel Abrahams of Brown Rudnick LLP says,
“Other than the IRS, the FLSA is about the most regulated area of American jurisprudence. A dispute with the DOL or a group of employees doesn’t mean you’re a bad employer. It just means that you ran afoul of some very complicated rules. There’s no shame to be had in not knowing all the rules offhand, or running into trouble with these requirements.”
In other words, everyone is at risk for wage and hour suits. If you find yourself facing a lawsuit, it’s not necessarily an indictment of what kind of employer you are. On the flip side, it also means that the notion of “I’m a good employer. My employees love me. I don’t need to worry about a wage and hours suit” doesn’t hold water either.
According Maria O. Hart of Parsons, Behle & Latimer, these are eight common triggers that lead to the majority of FLSA suits:
Poor planning. Do you know what steps to take if you find a lawsuit at your doorstep? Most companies aren’t sure. Timing is of the essence, particularly in the initial stages of a suit, and can mean the difference between settling quickly and entering a prolonged, ongoing situation.
Lightweight policy. If you don’t have a comprehensive policy that covers comp time, overtime, and other issues touching wages and hours, you leave the door wide open for lawsuits for noncompliance.
Policy enforcement. The most airtight, comprehensive policy in the world isn’t going to do you any good if it’s applied haphazardly. Only applying the policy when it’s convenient won’t cut it.
Off-the-clock work. Are you tacitly or explicitly encouraging nonexempt employees to respond to emails or texts after hours? “Work” has been broadly defined, and even something as innocuous as texting about work matters after hours can get you in trouble, if that time isn’t compensated.
Overtime. Are you calculating overtime correctly? For example, are you including non-discretionary bonuses in an employee’s pay rate to determine how much overtime is owed? This area in particular is ripe for lawsuits.
Employee misclassification. Employees can be misclassified as exempt or nonexempt based primarily on job duties and salary. Things can change quickly in a growing company, so be sure to revisit job descriptions and classification often.
Meal and rest periods. Federal, state, and local laws may dictate specific requirements for rest and meal periods. Make sure you’re following through, and allowing employees the opportunity to take their legally allotted lunches and breaks.
Sloppy record keeping. An organized, complete paper trail of labor hours and HR documents is important should disputes arise. Not having one leads to a “he said/she said” situation, which isn’t a strong position in a wage and hours suit.
Because of the complicated wage and hours provisions of the FLSA, Daniel urges employers to, “Consult frequently with HR and professional legal counsel to make sure what you’re doing is correct.”
Not only is there no shame in asking for help, but it’s strongly recommended. It’s all too easy to coast on outdated policies and assumed employee goodwill—until you find yourself facing a pending lawsuit. It’s also highly likely that your industry and unique business carries its own set of common triggers for lawsuits. Consulting with HR and legal counsel regularly will keep you informed and prepared should trouble arise.
Not having the mandatory workplace posters hanging in a common area can trigger or make a lawsuit worse.
“Unfortunately, under the FLSA, if you don’t have the poster up you give the plaintiff’s lawyer the argument that the statute of limitations is effectively void. And so one of the things I recommend to my clients is that they create a compliance file. And have somebody at every one of their facilities take a time-stamped photo of the poster hanging up in the workplace. They can then produce it if it ever comes up in litigation.”
Incentives Not to Settle
As an employer who has recently learned of a wage and hour suit, your first inclination may be to think, “This seems simple enough. We can resolve this quickly.”
Maria, Daniel, and Lee were all quick to caution that unfortunately, no matter how simple an issue appears, this may not be the case.
“While the typical wage and hours case will result in settlement, the employee’s attorney fees are a significant if not the predominant component of the settlement. Unfortunately, this often makes it quite difficult to settle these cases quickly, because the plaintiffs’ lawyers have a vested interest—at least economically—in running up their fees and incurring certain costs prior to settling the case. It can be extremely hard to get a resolution of these cases right at the beginning.”
Case in point of why having a plan in place for quick action is critical. The more time you spend deciding on a course of action, seeking out legal counsel, and gathering necessary documentation and paperwork, the more expensive the entire ordeal can become in terms of the employee’s legal fees, if you are found liable and required to pay them.
Biggest Mistakes Employers Make
Keep an eye out for these mistakes when it comes to wage and hours issues. Taking the time to respond as early and thoroughly as possible can mean the difference between minor bumps in the road and a major detour.
Avoid these mistakes, and you’ll avoid going from bad to worse in many situations:
Daniel is quick to point out that the first error most employers make happens very early on in the process, when employee complaints or feedback is ignored.
“It might sound obvious, but the initial mistake is failing to listen carefully to your workers and respond appropriately to their complaints. The very best thing you can do is to listen to complaints, hear what your workers have to tell you, and then provide them with evidence that you’re complying with the law or make adjustments where adjustments are appropriate to compensation, hours of work, or classification.”
Assuming You’re Correct
“When it comes to wage and hours complaints, a good offense is not necessarily an appropriate response to a wage and hours complaint. The first appropriate response is to figure out if the worker is legally correct and whether you ought to be taking some kind of corrective action.”
In other words, don’t be so quick to dismiss complaints or feedback. Really take the time to explore the issue that’s being raised. If you believe you may be at fault or that the employee’s complaint could be backed up legally, seek legal counsel and counsel from HR on how to proceed, rectify the situation, and minimize liability.
Hostility Toward the DOL or Plaintiffs’ Counsel
If a wage and hour lawsuit does proceed, don’t make the mistake of behaving in an antagonistic manner toward the DOL or your employees’ legal counsel. Not only does it make things worse for everyone, but it can delay settlement.
“Act deferentially to the Department of Labor in any investigation. You’ll want to be respectful of the wage and hours investigators, with a goal of conciliating, settling, and resolving these issues short of litigation if you can, or joining litigation as soon as you’re able.”
Not Responding Quickly
“One of the biggest mistakes you can make is failing to plead what’s called ‘affirmative defenses’ quickly enough. The very first thing you’re required to do if a wage and hours claim is brought against you is to answer the complaint. You have a very short period of time to figure out what the facts are and determine your answer. Failing to respond within the time frame allotted can mean that the statute of limitations is void in the case (there’s typically a two-year statute of limitations under the FLSA, three years for willful), and that you’re liable for damages dating even further back.”
Not Making an Early Case Assessment
The theme here is clear: Time is of the essence, and failing to make a quick assessment of your liability and the factors at play in a brewing case is a big mistake. Lee says, “An early case assessment is crucial. You’ll want to ask yourself what you’re likely liable for, and look for ways to cap that liability. This puts you in a much better position to have settlement negotiations as quickly as possible.”
Not Taking Corrective Action
Failing to take corrective action once you’ve done a case assessment and have pinpointed where you may be liable for damages is another problem many employers run into.
“To some degree, you’re stuck with your facts. But you do have the opportunity to cut off your damages by correcting the error moving forward. If you continue to accrue liability in an FLSA case, most confident plaintiffs’ counsel are going to bring the case as a continuing violation. So it’s not only a case that looks backwards (potentially three years) but it’s a case that moves forward every day. And as you move forward you pick up liability and you pick up additional plaintiffs.”
“Have a good conversation with your attorney. What is it going to take, what’s your liability, what’s your exposure? Have a conversation with your finance department too. Just get your arms all the way around the issue quickly and don’t assume that if you put it off or you’re really nice it will go away. Take it seriously, contact your attorney, and do it quickly. Time is ticking.”
On this point it’s important that you seek legal counsel before making any changes, since changes can be seen as an admission of liability. Deciding when, how, and what changes to make are important strategically.
What About Arbitration Agreements?
Most employers ask their employees to sign arbitration agreements—a document stating that if an employee wishes to bring any legal complaint against the employer, the matter will be settled outside the court, with an arbitrator who is chosen by both parties. Are these agreements enforceable when it comes to wage and hours matters, though?
“The 7th Circuit has just come out with what I think is an unfortunate decision about whether employers’ pre-dispute arbitration agreements are enforceable. The 7th Circuit has taken the position that such arbitration agreements run afoul of the national labor relations act.”
“The 5th Circuit has gone in the exact opposite direction, and has taken a position that mandatory arbitration agreements with a class or collective action waiver should be enforced. These cases from the 5th Circuit the 7th Circuit are destined to get to the supreme court, but unfortunately we don’t have a full complement of supreme court justices right now. The fact that Justice Scalia has passed away may end up calling into question what is pretty well established body of case law. The presidential election could play a really significant role in whether these types of agreements are enforceable in the future.”
Avoiding Surprises in a Wage and Hour Suit
Nobody likes surprises, especially when they’re related to lawsuits. Knowing what surprises many employers find as they navigate and wage and hour lawsuit can help you be more prepared and roll with the punches if you find yourself in this situation.
What surprises do employers find? Maria, Lee, and Daniel have some insight.
“The biggest surprise employers find is usually cost”
Most employers expect there to be costs involved with a potential lawsuits. However, the actual numbers still end up an unpleasant surprise to many. FLSA wage and hours suits are ripe for class actions, meaning more employees involved—and a higher settlement amount.
“The biggest surprise employers find is usually cost. Employers underestimate the cost of both noncompliance. Understanding just how high the costs can be should encourage employers to take a hard look at their business on the front end, rather than playing catch-up on the back end. It can be expensive to examine your policies and practices, and put procedures in place to comply with the FLSA. But it’s nothing compared to the cost of a lawsuit.”
No Good Deed Goes Unpunished
“Often you have employers who find themselves in legal trouble because they’ve done something they thought was actually ’employee friendly.”
Employers are often surprised to find out that they’re essentially being dinged for what they thought was a nice gesture.
“Often you have employers who find themselves in legal trouble because they’ve done something they thought was actually ’employee friendly.’ You have the classic case of an employer who allows a non-exempt employee to add comp time hours to his or her PTO bank instead of being paid overtime. (E.g., if Jim worked 42 hours, he’d get an extra 2 or 3 hours of PTO added to his PTO bank instead of being paid time and a half for those two extra hours.) However, comp time in lieu of overtime for nonexempt employees isn’t permitted under the Fair Labor Standards Act. On the one hand you did that employee a favor by allowing him or her additional time off, but now you still owe him or her extra money.”
“You also see a lot of issues come up with non-discretionary bonuses. The fact is that when somebody issues a bonus to their employees, they often create extra liability. It’s part of that “no good deed goes unpunished” idea. And they’re surprised to learn that even though they gave the employees something beyond what the law required, they now owe them an additional amount of money when it comes time to pay out any overtime, because those bonuses boost up the employee’s regular rate of pay, meaning they’re entitled to higher overtime premiums.”
Does this mean you shouldn’t go beyond the pale in providing a flexible, positive work environment for employees? Definitely not. Just make sure you’re acting deliberately and aware of the implications of a given decision.
Surprises in the Documents
“One thing employers are often surprised about in these cases are their own documents, including job descriptions and performance evaluations.”
“One thing employers are often surprised about in these cases are their own documents, including job descriptions and performance evaluations. I would urge employers to look critically at your documents. I can’t tell you how often employers are surprised, and sometimes horrified, by what their own documents say.”
“You need to ask yourself, ‘Do these documents—job descriptions, performance evaluations, etc.—do they tell our company’s story the way they should?’ A common example is that many job descriptions ask employers to list the most important duty first. I can’t tell you the number of job descriptions I’ve reviewed over the years where I’m looking at a description for a supervisor, and ‘managing employees’ isn’t the first item on that list. Look at your documents critically and often, or risk unpleasant surprises.”
How to Avoid Going From Bad to Worse
While dealing with a lawsuit is difficult enough on its own, there are always ways to take things from bad to worse in terms of time, money, and morale. Keep the following in mind in the event that you are hit with a lawsuit, to make the best of a difficult situation.
Identify the Knowns, the Unknowns, & Settle If Possible
“On the one hand, the FLSA has been around since 1938. There are things we KNOW. But on the other hand, there’s considerable confusion and gray areas. Focus on the known quantities, and call into question the unknowns. Plaintiffs should be made aware of the risk they run if they don’t succeed—they won’t get their backwages, and they may have legal fees and costs to deal with as well. You want make all of this clear to your opposing legal counsel prior to a trial and settle if at all possible. When you go to trial on these cases, essentially everybody is a loser. The cost the legal system imposes can be immense—nobody is a winner when these cases go to trial.”
Create a Paper Trail
Avoiding a he-said/she said situation, with a paper trail in place through HR documentation and an automated time tracking system, you’ll not only move lighter on your feet but you’ll have usable data to back you up.
“To the degree that you don’t have this in place, start creating a really good paper trail. That’s an attorney’s best friend—to have documents that show what you were doing, not doing, and so forth. Document, document, document.”
Make Changes Quickly, as Advised
“In order to cap damages, make changes quickly so that it’s not considered an ongoing violation.”
In the same vein, Daniel encourages business owners to work closely with their counsel as they implement any changes. “I advise my clients to take corrective action all the time, but I will note there’s a trade off in litigation that you should be aware of. The question is, will this action look like an admission of liability with respect to your past conduct or behavior? It’ll certainly come up in the course of any trial you have on your wage and hour case that you did something to change your business because you, according to the plaintiff, were worried about your liability. So work closely with counsel to determine how to communicate these changes, and when to make the changes.
“The first time you find out you’ve done something wrong, and before you consult your counsel, you shouldn’t just pay money to the workers, and certainly don’t ask them to sign releases where they waive their rights, because none of that is effective. You need to consult with your competent trial counsel and follow their advice about the nature, timing, and extent of the corrective action you’re going to take.”
Know Your Number
“Oftentimes you’re looking to settle—which means you need to know your number. What can you afford, what’s your value? Have a good conversation with your attorney to find out what it’s going to take, what’s your liability, what’s your exposure. Have a conversation with your finance department too.”
“Work with your counsel! I’ve had clients who simply don’t respond to my emails. Regardless of the justification and the rightness of your position, sometimes you need to take a cooperative approach, particularly when working with the investigator or the opposing counsel. We’re here to help you. Respond to our emails, give us the documents we need. Once you’re in a lawsuit, respond to your counsel. Help us help you!”
What You Can Do to Prepare TODAY
Whether you’ve previously been the target of a wage and hour suit or not, there are a few things you can today to prepare
Being proactive is the name of the game when it comes to the FLSA. Self-auditing is a critical step, and not just once. Take the initiative to audit your own company at least once a year.
“Employers need to do their own preventative self audits in advance of these things. Most critically, they need to look at their compensation, payroll, and docking practices, and their classification of workers. Self audits go a long way to avoiding these kinds of unpleasant surprises. Self auditing is what a proactive employer would do.”
Seek Counsel Now
It’s important to understand that many plaintiffs lawyers saw the FLSA overtime changes that were proposed in May 2016 as an excellent opportunity. If you are in any doubt about whether you are compliant with the FLSA then seeking counsel now and ensuring you have your affairs in order is the best defense.
“Based on conversations I’ve had with some plaintiffs lawyers, I’m told that a number of key law firms plan to run advertisements beginning in December of this year asking employees whose positions have been reclassified to non-exempt to contact them. I think the reason is that they believe, and rightly so, that many employers may use this as an opportunity to ‘clean up their house’ a little bit and address other underlying problems.”
“There’s so many cases under the FLSA—around 8,000 cases a year. You can’t read them all! I’ve been watching this area for 33 years, watching the cases and writing about them, and the fact is I only read a fraction of them. But I do think there are significant cases you should scrutinize very carefully, particularly in your jurisdiction. You need counsel who will alert you to those cases and keep tabs on the evolving nature of the law.”
Meet the Experts
Maria O. Hart
Please refer to a professional tax or legal advisor regarding specific requirements of FLSA and how they impact your business. TSheets does not recommend particular employee classifications or practices and leaves those decisions to the discretion of your organization.