Don’t know as much as you should about the Fair Labor Standards Act and how it affects overtime and minimum pay? Read this recent article from the Client Education section of the Gross & Romanick. If you find you need legal representation, don’t hesitate to contact Gross & Romanick’s Business Law Division. We’d be happy to discuss your case with you.
Overtime/Minimum Pay: What You Don't Know Could Be Expensive
You receive a call from a Department of Labor (DOL) investigator who wants to come to your office the next day to review your employee records. Should you panic? Maybe you should!
Very few employers understand the Fair Labor Standards Act (FLSA). Unfortunately, even inadvertent violations of the FLSA will result in an assessment by a DOL investigator, or a lawsuit by a disgruntled employee. Many employers mistakenly believe that proof of fair wages and the satisfaction of employees will succeed as defenses to an investigation or to a lawsuit. Another incorrect myth is that it is ok to the grant comp time in lieu of overtime (CPA's tell themselves this story during the tax season) Although commonly held, these beliefs evidence a fundamental misunderstanding of the purpose of the FLSA, and highlight why so many businesses unintentionally violate it.
History of Act
Adopted in 1938 during the Great Depression, the FLSA was an attempt to maximize the number of workers in the workforce through penalizing employers who work people over 40 hours rather then hiring someone else to work those extra hours. The requirement to pay overtime wages was the incentive. A minimum wage was set in order to provide a livable wage.
Exempt Employees
Most businesses are covered by the FLSA. A few very small retail or service enterprises, not engaged in any interstate commerce may be excluded; even then, some of their employees may still be covered if they engage in interstate commerce or produce goods for interstate commerce. Employers must classify each employee to determine who is exempt and who is covered. In addition, independent contractor status may not be honored by the DOL, which applies "economic reality" and a "right to control" tests along with other common law principles.
The major FLSA exemptions relate to executive and professional employees. Applying the "long test", the DOL will examine in detail the actual duties, responsibilities and obligations of an employee (job title will be ignored). The "short test", also applied by DOL, requires a high minimum salary (cannot be paid hourly). The professional exemption requires: (a) advanced learning at academic institutions (the "learned professions"); or (b) original or creative work, such as artists and inventors; or (c) teachers for schools and educational institutions.
The other exemptions are too numerous to discuss in this article. Perhaps the most common relate to the motor carrier exemption and to outside salespersons. If the employee is subject to regulation by the U.S. Department of Transportation (DOT) then the employee is exempt; DOT's jurisdiction broadly covers transportation of goods and passenger across state lines, as well as the safety of operation of motor vehicles engaged in interstate commerce.
The Investigation
Do not bother to ask the DOL investigator why they are picking on your company because the reason is completely confidential. However, with the shortage of personnel in the investigation department, you can almost assume it is a disgruntled current or former employee, or an industry-wide abuse. There is a real incentive for a former employee to complain, since they can receive the overtime pay assessed for them by the DOL without the expense of a suit, even if they received a very satisfactory wage while employed.
The investigator will inform you of the purpose of the visit and the records to be examined. These records must be made available. Either these records will be scrutinized by the investigator and/or you may be requested to compile summary data. The investigator will generally conduct interviews of employees and may send a questionnaire to past and present employees. The objective of the interviews is to test the adequacy and accuracy of employer records, to determine compliance, to give employees the opportunity to point out other violations and to examine the validity of claimed exemptions. Although these interviews are confidential, do not question or intimidate employees; in fact, it may be best not to discuss the DOL investigation with employees until after their interview.
At the conclusion of the investigation, a conference will be held with the employer. Bring your lawyer to all meetings with the investigator, especially the final conference. At this stage, the investigator will inform the employer of any violations and attempt to obtain an agreement for compliance. The amount of back pay to be paid will go to former and current employees, who were underpaid during the prior 2-year period. The agreement is subject to reasonable negotiation.
Cooperation at all times is the best rule, since the DOL has the power to assess liquidated (double) damages as well as back pay. Furthermore, a finding of a willful violation may result in a three-year assessment for back pay. Future non-compliance may now be considered willful.
Suits by Employees
Employees can sue in federal and state courts for violations of FLSA, or discrimination due to reporting or suing for an FLSA violation. The potential damage award is much harsher than generally imposed by the DOL; and, may include back pay and/or overtime, liquidated damages, prejudgment interest and attorney's fees.
An employee's right to sue ends once the DOL files suit. Additionally, employees who receive compensation from a DOL assessment, sign a release or may be considered to have waived their right to sue after cashing the check. A settlement outside a DOL-supervised settlement may not be valid, so be cautious if you try to make agreements on your own.
Summary
When the DOL investigator calls, do not hang up. If they call you at home, do not worry since live-in domestics do not have to be paid overtime, just minimum wages.
(This article was reviewed for accuracy by Cordelli & Associates, Inc., federal labor law consultants. Phone: 304-754-7294)
