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The papers have been filled for the past few weeks with bad news for retailers. First there were predictions of a bad Christmas season and then reports that the predictions had come true. For Wal-Mart, the weeks leading up to Christmas were especially bad. On Dec. 19, a federal jury in Portland, Ore., found that Wal-Mart had forced more than 400 employees at 18 stores to work unpaid overtime between 1994 and 1998. Sobering news for the world’s largest retailer. But even more distressing for the company is the knowledge that this lawsuit was among the first of roughly 40 such lawsuits across the nation that will come to trial in the coming years. The Oregon lawsuit was originally filed by Carolyn Thiebes, a former personnel manager at two of the stores at issue. According to news reports, Thiebes joined Wal-Mart in 1992 and quickly found that she had so much work that it was impossible to complete it all in a 40-hour workweek. The clear expectation from her managers, however, was that she would do her job without overtime. She told one reporter that if her department failed to meet its production goals, she was presented with a trophy in the shape of a donkey’s backside. She told the jury that in the culture of Wal-Mart, requesting overtime would have made her look incompetent. THE OVER-40 CLUB Thiebes, apparently, was not the only Wal-Mart employee to feel this pressure, both in regards to performance and overtime. She testified that a number of employees in her store formed the “Over-40 Club.” These employees worked more than 40 hours in a week and then requested their managers to subtract time from their cards so that only 40 hours would be recorded. She also told how she used her own computer to erase hours from employees’ time records to keep them under the 40-hour per week threshold for overtime. The trial lasted four weeks. The jury heard dozens of Wal-Mart employees telling of management pressure to get paid for 40 hours per week, no matter how long the employees were at the store. Store managers testified that they had not seen employees working off the clock and that Wal-Mart policy expressly forbids the type of behavior described by Thiebes and the other plaintiffs. The jury deliberated for four days before reaching its verdict. DAMAGES TO BE DETERMINED The court will now hold a separate trial to determine damages. Because the case in Oregon was not certified as a class action, each of the plaintiffs will be required to prove his or her damages independently. Although this may be a daunting task, the damages from this one case alone could easily vault into the millions of dollars. While the Oregon case was not a class action, attorneys for plaintiffs in the other Wal-Mart lawsuits pending across the nation are seeking the class certification that was denied the Oregon plaintiffs. If certification is granted, it would be easier for attorneys to prove that a pattern of behavior affected the entire class, rather than proving damages on a case-by-case basis. FLSA RECOVERIES UP ALMOST 30 PERCENT The Wal-Mart case typifies the growth in litigation under the Fair Labor Standards Act. Earlier this month, the Department of Labor reported that it had collected more than $140 million in back wages under the FLSA during the year. This is almost a 30 percent increase in the amount the Department collected in 2001. The economy, with almost daily reports of layoffs and store closings, along with the need, ironically, to compete with mega-retailers like Wal-Mart, has increased the pressure on retailers and other employers to reduce costs as profit margins continue to shrink. The pressure to work longer hours does not always come from management. As Thiebes testified in the Wal-Mart case, she did not want to appear incompetent and, perhaps even worse, inefficient. However, the law does not require proof that an employer specifically request that work be done “off the clock.” Rather, the standard is whether the employer “suffered or permitted” the work to be done. For example, if the employer knows that an employee routinely comes to work an hour before the store opens, thus working a 45-hour week, overtime must be paid, despite the fact that the employer did not demand the extra hours. Even if the employee disclaims payment for the additional hours, she still must be paid. VIGILANCE REQUIRED Although the FLSA’s definitions of who is exempt or non-exempt from overtime can be murky, the law regarding payment of overtime is mostly black and white. Daily vigilance from the on-site managers is the best protection against the type of lawsuits now plaguing Wal-Mart. Because the site managers may be caught in the vise between compliance with the law and shrinking profit margins, it is really the company’s culture that sends the message that any hours over 40 must be properly compensated. Sidney R. Steinberg is a partner in Post & Schell’s ( www.postschell.com) business law and litigation department. He concentrates his national litigation and consulting practice in the field of employment and employee relations law. Steinberg has lectured extensively on all aspects of employment law, including Title VII, the FMLA and the ADA.

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