Employers Continue to Face Increased Risks of Being the Target of Costly Wage-Hour Class Actions in 2008
September 03, 2008
by Bruce J. Douglas
The number of wage-hour class actions filed in the federal courts has increased dramatically every year for the last four years and far outpaced other employment class action filings. This trend is expected to continue for the remainder of 2008 and through 2009. Today, suits alleging various violations of the Fair Labor Standards Act of 1938 (FLSA) and state wage-hour and wage-payment statutes comprise the largest and fastest-growing segment of all new cases filed in U.S. district courts. Your Company may be next.
As an employer, your risk of being the target of a wage-hour suit involving a group of employees has increased dramatically – regardless of the size of your organization – and the costs of defending or settling these cases can be enormous. Employees may recover not only the amount of unpaid wages, but an additional amount – “liquidated damages” – equal to the amount of the unpaid wages and their attorney’s fees. In addition, such claims are generally excluded from liability insurance policies, leaving employers with little protection.
The typical wage-hour suit alleges one or more of the following types of claims:
· “Off the clock” claims – this is essentially a claim that employees were instructed or permitted to perform work without recording their actual hours and that the employer’s management knew or were aware of the situation.
· “Donning and doffing” cases – these cases are becoming more prevalent. Essentially, this is a claim that employees were required to put on protective clothing or other work-related gear before the start of their work shift and to remove the gear after the shift ended and were not compensated for that time.
· “Misclassification cases” – these cases attack the employer’s classification of employees as “exempt” under the FLSA. In these cases, the employees claim to have worked more than 40 hours in a workweek without being paid at the appropriate overtime rate.
· “Preliminary and postliminary work” – these cases involve claims that the employees were required to spend time going through security systems, walking to their work stations, engaging in hand-off discussions with employees on the outgoing shift, preparing reports at the end of their shift, or a variety of other activities (including donning and doffing clothing or gear) that they may perform without being compensated for that time.
· “Faulty time record cases” – these cases involve claims that the time for which the employee was paid does not reflect the actual time worked due to errors in the time capture system, for example, problems with a time clock or other recording device, data entry errors, improper rounding of time, and a variety of other situations that may cause the time shown as paid time on an employee’s payroll check to be incorrect.
These violations of the FLSA can have serious and costly consequences for employers. In 2007, a Philadelphia judge awarded $62 million dollars in liquidated damages to employees of Wal-Mart who were not properly compensated for off-the-clock work and missed rest breaks. This award of liquidated damages was in addition to the $78.5 million in damages a jury awarded to the employees of Wal-Mart. Similar cases are currently pending in courts across the country.
In addition, there has been an increase in class actions filed in state courts under states’ labor laws. In July 2008, a Minnesota state court determined that Wal-Mart required employees to work “off the clock” and through their lunch and rest breaks in violation of Minnesota’s Fair Labor Standard’s Act. The damages and fines awarded to the class of plaintiffs has not yet been specifically determined, but according to the judge’s order, Wal-Mart may be forced to pay up to $2 billion to the plaintiffs.
Some companies elect to resolve the FLSA class action filed against them in the hope of avoiding greater financial exposure. In 2007, the aggregate settlement of FLSA class actions reached $319.3. million. In 2006, companies settled such actions for significant sums, including Citigroup ($98 million), UBS Financial Services ($33 million), RadioShack ($8.8 million), IBM Corp. ($65 million), and Kaiser HMO ($9 million).
The one bright spot in these lawsuits is that they provide insight to other companies who wish to avoid exposure to such actions. Employers have the opportunity to minimize or avoid entirely a lawsuit involving these types of claims. Almost all of these problems can be corrected, and if corrective action is taken before a claim arises, the potential liability can be mitigated significantly or avoided altogether.
The best way to avoid wage-hour problems is through a legal audit of your payroll and time recording systems and practices. We have provided this type of service to employers for more than 20 years. Identifying, addressing and minimizing class action exposure should be at the top of any company’s list of action items for 2008 and 2009.
We are currently defending employers in several FLSA collective actions and have an experienced team of attorneys devoted to these cases. We would welcome your inquiries and would be pleased to meet with you to discuss how we can help you avoid or minimize the risk of huge overtime or other wage and hour claims.
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