Labor & Employment Law Articles

The Wage and Hour Law Epidemic

If you are paying any of your employees a flat salary per week for a work week of more than forty hours per week, the chances are very good that you will be sued for violating state and federal wage and hour laws. At our firm, we are getting these cases at the rate of more than one per week. They are affecting businesses of every size from small mom and pop operations to the largest Fortune 500 companies.

Under federal and state law, an employer must pay time and one half the regular hourly rate of pay for all hours worked over 40 per week unless an employee qualifies for an exemption under the wage and hour laws. There are three main exemptions under the law: the executive exemption, the professional exemption and the administrative exemption. There are very specific criteria for these exemptions. Unless an employee meets all the criteria for these exemptions, the employer must pay time and one-half for all hours worked over 40 per week. (A complete explanation of the criteria for exemptions is set forth on our website, here.)

Companies which fail to properly pay overtime can face enormous exposure. Take the example of a company with fifty employees, who are not exempt. They are paid $500 per week for a fifty hour week. There are no complaints from any of the employees about this arrangement until one employee is fired for good cause. The angered employee goes to a lawyer to find out what his rights are. The lawyer finds no basis for a discrimination lawsuit concluding that there was just cause for the termination; but discovers that the employee was not paid at an overtime rate of pay for the hours worked above 40 per week. The lawyer files suit alleging violations of New York State Labor Law and the federal Fair Labor Standards Act and seeking to sue on a class action basis. Since the employee was paid $500 per week for a 50 hour week, that means there was a $10.00 per hour regular wage rate. Under state and federal law, the employee should have been paid an additional $5.00 per hour for the ten hours above 40. That employee is entitled to an additional $50.00 per week which adds up to $2600 per year. Under New York State law, there is a six year statute of limitations; under federal law there is a three year statute of limitations. That means he can recover $15,600 in unpaid wages. However, if class action status is granted, all fifty employees could recover that amount for a total of $780,000. But that is not all. Under federal law, plaintiffs can recover liquidated damages in the amount of double the amount of unpaid wages for the three year period and under state law, 25% of the unpaid wages for the prior three years. That would mean the employer would be liable for an additional $390,000 for federal liquidated damages and $195,000 in state liquidated damages for a total of $1,365,000. But that is not all. Employers are also liable for the attorneys’ fees of the plaintiffs in a wage and hour case on top of the fees you have to pay your own attorney.

Very often in these cases, companies do not keep time records of the hours worked by the employees since they are paid the same amount week in and week out. As a result, there is nothing to preclude these employees from claiming they are working sixty and even seventy hours per week, even though they may only be working fifty hours per week. If a jury were to accept such a claim, the total damages could be double or triple the amount.

Clearly, it makes absolutely no sense for any company to risk this kind of exposure.

Employers should take the following steps to make sure they are protected from wage and hour lawsuits:

1.         Make sure that all employees who are treated as exempt are really exempt under the wage and hour regulations. This means going through all the criteria and making sure that they apply to every employee who is treated as exempt. When in doubt, treat them as non-exempt employees.

2.         Establish an hourly pay rate for all non-exempt employees. In our example above where the employees were paid $500 per week for a 50 hour work week, the same employees could have been paid an hourly wage rate of $9.10 per hour and paid overtime for ten hours at the rate of $13.65 per hour for a total weekly salary of $500.50 per week.

3.         Pay one and one-half times the normal hourly wage for all hours worked over 40 by non-exempt employees. In the alternative, eliminate overtime work.

4.         Keep accurate, contemporaneous time records which show time reporting to work, time in and out for lunch and time leaving for all non-exempt employees. Time records which show the same time in and out every day have little value and can be easily challenged. Employees do not report and leave at the exact same time every day.

By following the above steps, employers can vastly improve their chances for avoiding the tremendous exposure of a wage and hour lawsuit. If you have any questions about wage and hour law, please do not hesitate to contact us.