• Potentially Devastating Claims for Overtime Pay are Increasing
  • October 23, 2003 | Author: Laura A. Candris
  • Law Firm: Meyer, Unkovic + Scott llp - Pittsburgh Office
  • Employers are increasingly facing lawsuits, often class or collective lawsuits, by current and former employees for overtime pay. With alarming frequency, lawsuits filed by plaintiffs' lawyers result in multi-million dollar judgments or settlements, and recent litigation filed by the United States Department of Labor ("DOL") has produced settlements in the hundreds of thousands of dollars. Recent verdicts and settlements include:

    • In July, 2001, a California jury awarded roughly $90 million in unpaid overtime to a class of about 2,400 claims adjusters employed by Farmers Insurance Exchange in California who had been classified as exempt administrative employees. Later, an additional $34.5 million in prejudgment interest was added to the award;

    • Bank of America Corp. settled claims by approximately 6,000 personal banking assistants for $22 million;

    • Radio Shack agreed to pay nearly $30 million to settle a suit brought by about 1,300 store managers and Rite Aid Corp. paid $25 million to about 3,000 managers and assistant managers;

    • SBC Pacific Bell paid $35 million to settle a suit by about 1,500 engineers;

    • Aydin Corporation, a Pennsylvania communications company, agreed to pay $4.1 million in a court-approved settlement of a class action lawsuit by executive and management employees who claimed that their pay was docked for partial day absences;

    • Dollar Tree Stores, Inc. agreed, in a settlement with the DOL, to pay more than $500,000 to about 3,650 current and former employees, including merchandise managers and managers-in-training who had been classified as exempt;

    • Einstein Brothers Bagels' parent corporation paid nearly $500,000 in overtime, pursuant to a DOL settlement, to over 400 assistant managers misclassified as exempt; and

    • Sapient Corporation, a business and technology consulting firm, agreed to resolve a DOL lawsuit by paying more than $300,000 in back wages to about 170 current and former employees, most of whom were classified as exempt administrative personnel.

    These verdicts and settlements resulted from lawsuits filed under the Fair Labor Standards Act ("FLSA") -- the federal minimum wage and overtime pay law applicable to most employers -- or under similar state laws which sometimes impose greater requirements on employers. Unlike claims for employment discrimination, harassment or retaliation, which typically are covered by employment practices liability insurance, claims for failure to pay employees in compliance with the FLSA or similar state laws normally are expressly excluded from such insurance coverage. Additionally, employees cannot waive their rights or claims under the FLSA through private release agreements. Consequently, two of the strategies employers frequently utilize to minimize risks of liability to current or former employees are unavailable in dealing with claims or liability under the FLSA.

    Although the FLSA was first enacted in 1938, employer misconceptions about the law are still common. For example, many employers mistakenly believe that no employee who is paid a salary is entitled to overtime pay. In fact, the requirements for most overtime pay exemptions are far more complicated and typically depend on a fact-intensive analysis of the type of work the employee is engaged to perform and actually does, as well as how and what the employee is paid. As another example, many employers incorrectly believe that they do not have to pay for unauthorized overtime. Employers also sometimes fail to add commissions and other incentive compensation to their employees' hourly rates in computing overtime. Additionally, employers frequently are confused about what time and activities constitute compensable "time worked." Compounding the problem, most of the legislative regulations, such as those setting the standards for determining which employees are exempt from overtime pay, have not been revised in many years and fail to reflect the realities of the 21st-century workplace.

    To limit exposure to this type of uninsured liability, employers need to educate themselves and their supervisors about the FLSA and applicable state laws and take appropriate action to ensure compliance. At minimum, employers should review their exempt employee classifications to determine whether any personnel who are classified as exempt have been incorrectly so classified and that they are not subject to docking. Employers should also review their practices regarding work time record-keeping and overtime pay for non-exempt employees to ensure that non-exempt personnel are compensated for all time worked in accordance with the law. Furthermore, it is critical for employers to ensure that supervisors do not require or permit employees to work "off the clock" or improperly adjust employees' time records to achieve financial objectives.