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Employers face increased wage-and-hour litigation and regulatory scrutiny

Employers face increased wage-and-hour litigation and regulatory scrutiny

Employers face increased wage-and-hour litigation and greater regulatory scrutiny, although a recent U.S. Supreme Court ruling sided with businesses on one front in this increasingly contentious area.

Major factors behind the increase include the outdated 77-year-old Fair Labor Standards Act, more plaintiff attorneys specializing in the area, employees who are more aware of their rights, active state and federal regulators, and technology changes that allow employees to work remotely at any time of the day or night, experts say.

Wage and hour lawsuits typically allege that a worker's employer has failed to pay him or her wages due under the law. Often the suits allege that an hourly paid worker was misclassified under FLSA regulations as a salaried employee and was not paid for overtime work.

Other issues being considered by the courts include whether workers should be considered salaried employees or independent contractors; working off the clock; the time it takes workers to don or shed work clothes, boot up their computers or undergo security checks; and payment for meal and rest breaks.

Depending on the state, fines for violating wage-and-hour laws can be significant.

Amid already significant employer concern, experts say the issue is likely to become more complicated by a memo President Barack Obama sent to the U.S. Department of Labor last year calling for updating the FLSA's overtime rules, which is expected to happen sometime this year.

While insurance traditionally has not covered wage-and-hour risks, some insurers have begun offering stand-alone coverage.

Some 8,066 lawsuits alleging FLSA violations were filed in federal court in 2014, a 31.8% increase from 6,120 in 2009, Seyfarth Shaw L.L.P. said in a January analysis.

“You keep waiting for the crest of the wave, and we haven't seen it yet,” said Gerald L. Maatman Jr., a Chicago-based partner at the law firm.

Wage-and-hour suits began increasing in the late 1990s as “the plaintiffs' bar realized that there was money to be made,” said Michael S. Kun, a member of law firm Epstein Becker & Green P.C. in Los Angeles.

Wage-and-hour suits have low barriers to entry. Unlike employment discrimination cases, where plaintiff attorneys may hire expert statisticians or labor economists to obtain class certification, wage-and-hour cases may require just several affidavits, Mr. Maatman said.

Individual plaintiffs' recovery can be small, but “the legal fees can be enormous” for their attorneys, Mr. Kun said.

Part of the problem, observers say, is complex laws that even well-meaning employers may violate. The Labor Department has suggested that 70% of employers do not fully comply with the FLSA, they add.

“Knowing exactly what time does count as hours worked” is a major issue for employers, said Lawrence S. McGoldrick, of counsel at Fisher & Phillips L.L.P. in Atlanta. While commuting to work normally is not covered, “what if someone commutes from home to different locations every day? Employers struggle with that,” he said.

Modern technology also comes into play, such as whether employers are obligated to pay workers who answer email during off hours.

President Obama said in the memo sent to the Labor Department last year to update overtime rules under the FLSA, that rules originally intended to limit overtime for highly paid employees now cover workers “earning as little as $23,000 a year.”

Deb Horne, director of human resources at Goleta, California-based CMC Rescue Inc., which provides rescue equipment and training to a variety of industries, said the anticipated new rule will increase employer payroll costs.

Ms. Horne, who also is past director of the Alexandria, Virginia-based Society for Human Resource Management's California State Council, said it will cause employers to become stricter on allowing overtime and implement policies that require its preauthorization. Adding “greater wealth to the employee isn't necessarily going to happen if the employer can't afford to pay those increased payroll costs,” she said.

Eric H. Oppenheim, executive vice president and franchisee at Rockville, Maryland-based Republic Foods Inc., a Burger King franchisee, said that depending on the location, the new rule could result in salary disparities for workers with the same title based on their exempt status.

The new definitions “will make it tougher for employers to meet the test to prove somebody's exempt” from overtime, which Mr. McGoldrick said will generate its own new wave of litigation.

The Department of Labor's strategy is “going after a lot of large employers with very visible enforcement actions,” which are intended to serve as examples for others in the same industry, said Scott E. Hamilton, Lincolnshire, Illinois-based national managing director of human resources and compensation consulting at Arthur J. Gallagher & Co.

For instance, Mountain View, California-based LinkedIn Corp. agreed last August to pay $3.3 million in overtime and $2.5 million in liquidated damages to 359 current and former employees at company branches in California, Illinois, Nebraska and New York, according to the Labor Department.

The FLSA authorizes the Labor Department's Wage and Hour Division to assess employers penalties of up to $1,100 for each violation for repeated or willful violations of the minimum wage and overtime requirements of the act.

Fines also can be severe under state law.

In Massachusetts, employers may be fined triple damages for overtime violations, in addition to having to pay attorney fees, said Martha J. Zackin, a partner at Bello/Welsh L.LP. in Boston.

There is, however, a bright spot for employers.

In its December ruling in Integrity Staffing Solutions Inc. v. Jesse Busk et al., the Supreme Court ruled unanimously that the Wilmington, Delaware-based firm was not obligated under the FLSA to compensate workers for the roughly 25 minutes a day they spend waiting to undergo a security screening to leave warehouses in Las Vegas and Fenley, Nevada. Security checks were not a “principal activity” the workers were employed to perform, the high court ruled.

“It could have led to a parade of horribles if the Supreme Court had ruled otherwise,” Mr. Kun said.

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