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Business Insurance: Explosion of class action lawsuits focus on wage and hour violations: Certifying class easy under Fair Labor Standards Act

by SALLY ROBERTS
Published on November 05, 2007

When an employer is sued for employment practices violations today, the suit likely doesn't allege discrimination or sexual harassment, but rather violations of state and federal wage and hour laws.

The ease by which plaintiff attorneys can certify a class or collective action under the federal Fair Labor Standards Act, coupled with worker-friendly state statutes and the lack of accurate time recording and reporting by employers, has resulted in an explosion of class action overtime lawsuits around the United States in the past several years, labor attorneys say.

Allegations of misclassifying employees as exempt from overtime and not paying for off-the-clock work hours continues to result in multimillion-dollar settlements and verdicts against employers (see chart).

Most recently, Coral Gables, Fla.-based specialty contractor MasTec Inc. said it would pay $12.6 million to settle the unpaid overtime claims of current and former service technicians in 10 states around the country, who sued the company in federal court in Florida in 2005.

Because such claims are generally excluded from employment practices liability insurance policies, employers are left with little protection (see story, page 24).

As a result, vigilant due diligence of payroll practices and protocols as well as education and training are keys to mitigating exposure, attorneys say.

Under the FLSA, created in 1938 to protect industrial workers from exploitation, employees are guaranteed time-and-a-half pay for hours worked beyond a 40-hour work week, unless they are salaried and fall into one of three main exempt categories: professional, executive or administrative.

In 2004 the U.S. Department of Labor modernized the FLSA by making it easier for employers to determine overtime exemptions and by raising the salary threshold, below which workers automatically qualify for overtime pay.

Rather than decreasing the amount of overtime lawsuits as the Labor Department had hoped, the changes added "a lot more fuel to the fire because people started talking about it more," said Paul Siegel, head of the wage and hour practice for Jackson Lewis L.L.P. in Melville, New York.

In 2005 there were 4,039 federal wage and hour suits filed, 10% more than the 3,671 filed in 2004, according to the Administrative Office of the U.S. Courts. In 2006, the number of federal wage and hour cases filed jumped another 4.2% to 4,207, and attorneys say the pace is not slowing.

"It's probably the leading exposure right now for employers in the U.S., even more than employment discrimination," said Gerald L. Maatman Jr., a labor attorney with Seyfarth Shaw L.L.P. in Chicago, who estimates that five to seven wage and hour class action lawsuits are brought every day in Cook County, Ill.

"We currently have 211 pending class actions we're handling firmwide and at least 90% of them are wage and hour class actions," said Brian T. McMillan, an attorney with employment law firm Littler Mendelson P.C. in San Jose, Calif. "It's just absolutely incredible the increase in wage and hour class actions that we've seen."

Attorney say part of the reason for the proliferation of wage and hour suits is that—unlike federal employment discrimination cases that are difficult to certify as a class under Title VII of the Civil Rights Act—certifying a class is much easier under the FLSA and legal action can be launched by a single person.

The FLSA "makes it really way too easy to certify a class and lump these matters together where there are so many individualized differences," said Robin Conrad, executive vp of the National Chamber Litigation Center in Washington, who, on behalf of the U.S. Chamber of Commerce, has filed a number of amicus briefs in support of employers in wage and hour lawsuits. "ThereIn addition, various worker-friendly state statutes have contributed to the proliferation of wage and hour claims, attorneys say.

In California for example, the state Supreme Court ruled unanimously in April that the premiums owed to employees for missed meals and/or rest periods are "wages" subject to a three-year statute of limitations rather than a "penalty" subject to a one-year statute of limitations.

That has resulted in a "dramatic increase" in the number of cases alleging missed meals and rest periods against California employers, Mr. McMillan said.

"Aggressive plaintiff attorneys find it not too difficult to come across employers not keeping accurate records of the meal breaks," he said. "It's like open hunting season because its easy for employees to say `I generally worked through my meal period or didn't take it or perhaps took a 20-minute meal break rather than 30 minutes, three days a week for the last three years," he said. "Add that up and it's an enormous liability for employers," which have the burden of keeping accurate records of meal breaks and what hours employees worked, he said.

Accurate record keeping is one of several steps employers can take to minimize their exposure to wage and hour claims, experts say.

Clear policies and procedures that detail the company's payroll practices and time-reporting obligations also are key, they say. These policies should not only be included in the employee handbook, but also should be spelled out through various education and training programs, they say.

Employers also should require employees to look at their paychecks and either confirm that their time worked was recorded accurately or be given a toll-free phone number to call if they notice improper deductions or time not paid, Jackson Lewis' Ms. Siegel said.

Indeed, just as in discrimination and harassment cases, courts today care about whether employees know how to complain if they think they're being underpaid or misclassified, said Shanti Atkins, president and chief executive officer of ELT, Inc., a San Francisco-based online compliance training provider that recently rolled out a new wage and hour online training program for employees and managers.

"You have these companies that have invested a ton of money and thinking into their compliance mechanisms in the area of harassment and discrimination, yet it hasn't been transferred over to this other area, which is actually a bigger liability," she said.

An internal audit of payroll practices also is a smart move, especially when it comes to potentially misclassifying a nonexempt employee, attorneys say.

"One of the biggest areas of liability is employees who are misclassified as exempt rather than nonexempt," said Mr. McMillan. "That's a factually specific analysis because you need to look at what that employee is actually doing. While job title might give a clue, you have to actually see what that employee is doing each day and how much time they are spending each day performing those tasks."

A copy of this article is available online at:
http://www.businessinsurance.com/cgi-bin/article.pl?articleId=23350&a=a&bt=Explosion+of+class