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Commentary: The Wage and Hour Issue Can Be a Nightmare for Employers

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It will come as no surprise that the poor economy, which has resulted in massive layoffs and terminations, has caused increases in employment-related claims and lawsuits in general. Wage-and-hour litigation seems to be increasing the fastest; the Department of Labor estimates that wage and hour complaints increased 15% from 2009 to 2010.

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That is not surprising when you consider the complexity of the laws applying to who is exempt and who isn’t, and how to calculate overtime for those employees who are non-exempt. Even the most diligent employer has difficulty sorting through the morass of rules and regulations, let alone enforcing them.

Another reason for the growth of wage-and-hour claims is the ease with which one may establish a class action suit under the Fair Labor Standards Act (FLSA). While not everyone may be harassed or discriminated against, everyone gets a paycheck and may be easily incorporated into a group.

Attorneys don’t need to consult an “expert,” and class-action status can usually be certified pretty quickly. In addition, unlike a harassment or discrimination lawsuit that must first be presented to the Equal Employment Opportunity Commission, a plaintiff attorney can go straight to litigation when working on a wage-and-hour issue.


Two Main Reasons

There are two main reasons for wage-and-hour lawsuits. The first is misclassification. The exempt vs. non-exempt issue and the resulting improper accounting of overtime wages opens the door for claims by employees. The second is the failure to properly provide and account for rest and meal breaks. An employer needs to understand if someone is in fact non-exempt. Clear policies and procedures as well as information related to when breaks and meal periods are to be taken need to be incorporated into the employee handbook.

A corollary issue to misclassification is whether or not someone is an “independent contractor.” State and federal governments are cracking down on employers seeking to avoid payroll taxes by incorrectly classifying someone as an independent contractor versus an employee.

Tracking rest and meal breaks is another challenge. Many employers don’t want to monitor all their employees all the time; they don’t want to be the “wage and hour cop.” Making certain that employees are taking their breaks is a challenge; additionally, many employers are not good about providing these breaks. Did they take their breaks in the morning and afternoon? Did they take their obligatory 30-minute lunch break? How do they know if or when employees are working from home?

California has some of the most stringent and confusing laws. So many specific wage-and-hour rules and regulations exist that it is all but impossible for an employer to comply with all the technicalities. Unfortunately, insurance coverage is not a good answer for wage-and-hour claims. Many insurers flat out exclude this type of claim, and those that do provide coverage generally provide “defense” only, subject to a relatively modest sub-limit: $50,000-100,000 is common.

Best Practices

To avoid trouble in these areas, employers should:

• Stay current with the rules and regulations dealing with wage and hour.

• Carefully determine the correct classification of every position and inform each employee, before hiring, whether their position is classified as exempt or non-exempt.

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