Although recent years have shown a large increase in Fair Labor Standards Act litigation, complaints about the rules' complexity regarding overtime pay are not new. In fact, each administration since Jimmy Carter's has tried -- and failed -- to change the overtime-exemption rules. But the current administration seems poised to succeed. If the proposed regulations become final, employers should re-examine their classification of all employees.
By David K. Haase and Ross H. Friedman|April 14, 2004 at 12:00 AM
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In July 2001, a jury awarded claims adjusters for Farmers Insurance Exchange more than $90 million. There was no finding that Farmers engaged in any malicious conduct or intentional wrongdoing. Rather, the massive verdict came as a result of Farmers’ incorrect classification of the claims adjusters as “exempt” employees, and its resulting obligation to pay them overtime. Last month, a California court of appeal upheld all but about $1.2 million of the award. Bell v. Farmers Ins. Exchange, 115 Cal. App. 4th 715 (Calif. Ct. App. Feb. 9, 2004). Since the Farmers case, wage-and-hour class actions have skyrocketed. According to the Department of Labor, the number of federal wage-and-hour class actions filed per year now exceeds the number of employment discrimination class actions filed under all the federal discrimination statutes combined. Recently, Wal-Mart Stores Inc. had 40 class action cases pending against it for failure to pay overtime. In 2002, the DOL alone collected $212 million in back wages and overtime for employees, a 60% increase from 2000. Why are employers so vulnerable to wage-and-hour class actions? Most agree that the imprecision as to what constitutes an “exempt” position is an important factor. Further, once an error is made, it can be susceptible to class treatment. Presumably, once Farmers decided that “claims adjuster” is an exempt position, all such positions were so classified. When that classification was held to be incorrect, all the claims adjusters became entitled to overtime. How much overtime did they work? In such a situation, the employee generally may testify as to his or her own recollection. It can be difficult for the employer to disprove the employee’s claim-particularly since the employer often is in a position where it should have been keeping time records, which generally are required for nonexempt employees. The employees often can recover double damages and attorney fees as well. The Fair Labor Standards Act generally requires that employees be paid overtime at 1 1/2 times their regular rate of pay for any hours worked above 40 per week. The “white collar” exemptions exclude certain executive, administrative, professional, computer and outside sales employees from this requirement. Generally, to be considered exempt under the white-collar exemptions, employees must meet certain minimum tests related to their job duties and be paid on a salaried basis at not less than a specified minimum amount. The “duties” tests have remained essentially unchanged since 1949. The salary levels required for the exemption have not been changed since 1975. Although the last few years have shown a large increase in FLSA litigation, complaints about the complexity of the rules and litigation regarding overtime pay are not new. Each administration since Jimmy Carter’s has attempted to change the overtime-exemption rules. Each has failed to date, but the current administration seems poised to succeed. In March 2003, the DOL issued proposed new regulations regarding FLSA overtime requirements. The proposed regulations have generated significant controversy and have elicited more than 80,000 comments to the DOL. The DOL has indicated that by the end of March it expects to issue the new regulations in their final form. The DOL has also said that, in an attempt to address some of the comments, there likely will be changes from the proposed rules. If the final rules are issued, employers will have 90 days to comply. The proposed regulations generated a substantial fight in Congress, with disagreement about the effect the regulations would have. The DOL says that 1.3 million additional low-wage workers would gain overtime protection, and that about 644,000 employees would lose their right to overtime. Opponents claim that more than 8 million workers would lose the right to overtime pay. Democrats have attempted to block the changes from going into effect, and some recently said that they will continue to seek to block them. The major proposed changes include:
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