Texas employers should beware. If they haven’t been subject to a Department of Labor audit and/or a lawsuit alleging that employees were denied or improperly paid overtime, then it is only a matter of time. Wage and hour lawsuits (claims asserting violations of the Fair Labor Standards Act) are ever increasing. Why is that?
Since “tort reform” in Texas, lawyers who previously prosecuted tort claims have found solace in the FLSA, and there has been an uptick in lawsuits alleging violations of the FLSA in Texas. Tort claims are ever more difficult to establish based on continual revisions to legal standards. FLSA claims, however, place the burden on employers to establish that they paid in compliance with its provisions. Moreover, the FLSA became law in 1938 and has undergone very limited changes. Therefore, this statute treats today’s workers much like the workforce has remained unchanged since that time. In reality, workers are performing jobs that did not exist—and were not even on the horizon—in 1938. With that background, despite a law that has remained relatively unchanged for 80 years, employers appear as mystified as ever.
Common FLSA mistakes that remain today include:
- Employees paid on a salaried basis do not have to be paid overtime
- Employees can opt out of being paid overtime
- Employees only have to be paid overtime for the time they record versus the time they actually work
- Employers can average hours paid to employees over the pay period (versus on a workweek basis).
These missteps can create significant liability. The statute of limitations under the FLSA is two years, and three years if the failure to comply was willful. Employers are liable therefore for up to three years of unpaid overtime, and under certain circumstances, these damages are subject to doubling. Finally, a prevailing plaintiff will also be entitled to attorneys’ fees.
Employers should take heed and consider how to avoid these claims. The best way to avoid exposure is conduct an audit before a disgruntled current or former employee seeks legal counsel concerning these claims.
To ensure that the audit results are protected from discovery by any claimant and/or the Department of Labor, employers should have their payroll audited. This audit should be conducted by either in house or outside counsel to protect the process and results as privileged. Any audit starts with a review of the most recent payroll, a listing of positions treated as exempt by job title and the hours worked, pay rate, and overtime paid (if any).
The analysis of exemptions involves an analysis of job duties. Job titles are not an adequate substitute for an analysis of the job duties of an individual classified as exempt from overtime. Simply giving an employee a title of supervisor/manager will not qualify them as an exempt supervisor, unless that employee actually supervises/manages employees as his primary duty. This analysis may involve employee interviews to ensure that job descriptions are accurate. Next, employers must ensure that exempt employees were paid a guaranteed weekly salary of at least $455 a week without regard to the number of hours worked or the quality of the work performed. Deductions of the wages of exempt employee can only occur in limited circumstances. Leave bank deductions are permissible, however, if an exempt employee is absent from work.
For nonexempt employees, employers must ensure that employees are paid at least minimum wage ($7.25 per hour) for every hour worked and 1.5 times the employee’s regular rate for hours worked in a workweek in excess of forty. Another complicating factor is that regular rate is not the employee’s assigned hourly rate. The regular rate is all compensation paid to an employee (hourly rate, bonuses, commissions, shift differential, etc.) divided by total hours worked in a workweek. Again, while employers can provide employees paid time off for illness or vacation, employers cannot avoid overtime by promising the employee time off in a subsequent workweek. All hours worked in a given workweek must be paid in that workweek. Supervisors should be interviewed to ensure that they are not providing employees so called “compensatory time off.”
Once the audit has been completed, employers need to review any areas of noncompliance with counsel. Implementation of changes to ensure compliance can also lead to potential claims by employees and must be handled carefully. A review of payroll practices and HR policies can assist in avoiding these claims and ensuring future compliance.
Carrie Hoffman is a Dallas-based partner with Foley Gardere. She counsels major employers nationwide in all areas of labor and employment law across a wide range of industries.