Earlier this month, the United States Supreme Court issued a decision applicable to business regarding the right to sue under the Fair Labor Standards Act (FLSA). The FLSA, passed in 1938, requires, among other things, that all nonexempt employees be compensated a rate of time and a half of their regular rate of pay for all hours worked over 40 in a work week. Experts estimate that between 70 percent and 82 percent of employers are out of compliance with this highly antiquated law.
The employee in the case was a nurse who claimed that the employer violated the FLSA by automatically deducting 30 minutes of time worked per shift for meal breaks, even when employees worked through the lunch or dinner break. Assuming the employees were nonexempt, the employer would have violated the FLSA by deducting for compensable time when the employees worked through the meal break. If the employer indeed engaged in these illegal practices, it owes back pay, plus liquidated damages (two times what is owed) and attorney fees.
The employee filed suit on behalf of herself and “all other persons similarly situated.” The employee was filing a “collective action,” bringing in all other colleagues who were similarly denied compensation. Plaintiff attorneys would, understandably, rather have a single collective action involving multiple employees instead of taking a series of single cases to trial one by one.
When the employer answered the complaint, it made what is known in the law as an “offer of judgment,” where the employer essentially agrees to pay what is owed. The offer included $7,500 for alleged unpaid wages, plus attorney fees. The employee didn’t take the offer, but the employer sought dismissal of the collective action, arguing that the case was moot because the named plaintiff no longer had a personal stake in the litigation because she was offered full relief.
The district court agreed with the employer, but the appellate court did not, and the case was accepted by the United States Supreme Court for review. The U.S. Supreme Court ruled in a 5-4 decision that because no other individuals had joined the collective action, and the offer of judgment provided complete relief to the employee, the case could not proceed as a collective action. That was welcome news to the employer.
Some important observations regarding this case:
- Anyone who doesn’t think politics plays into precedent-setting court decisions hasn’t been paying attention to the Supreme Court. Like most decisions that involve employers, the four conservative justices ruled in favor of the employer, the four liberal judges dissented, and the swing vote was Justice Anthony Kennedy. When he retires, the entire landscape of these decisions may change depending on who is President at the time.
- Plaintiff lawyers are hungry for FLSA cases. They are lucrative and easy to prove. Employers must comply on the front end before an employee seeks to sue on the back end.
For example:Sally is terminated for poor performance at ABC Company . Like many disgruntled employees, she goes to a plaintiff attorney to complain about how she was treated, not even thinking about whether her employer violated the FLSA.
In the course of this, the lawyer asks how she was compensated. She says she was salaried and didn’t get overtime. She tells the lawyer her job was IT specialist, and the employer did not require her to keep track of her hours because she was exempt. She tells him she worked consistently long hours, during lunch and nights and weekends. She confirms there are at least 15 other employees in this same job classification.
Sally earned $43,000 per year and says she probably worked about 50 hours a week, as do her peers. If she wins on the issue of misclassification, Sally likely get 1.5 times her regular rate of pay times 10 hours a week for at least two years (maybe three), times two, plus attorney fees.
In addition, the attorney will sue for payment of overtime for those additional 15 employees still working there. This could add up to thousands (and in some cases for larger employers, millions) in back pay and attorney fees. Since the employer thought she was exempt, it has no evidence of her time worked, so it will have to rely on what the employee claims as hours worked.
Classify employees properly from the beginning. When in doubt, the employee should be nonexempt. I guarantee you have employees in your organization you think can be exempt from overtime, but the law would say otherwise.
For nonexempt employees, understand you must pay for all hours worked, not merely scheduled or expected. If an employee works through lunch or works after hours, you must pay for this time.
Employers need to get this right now – before you get the attorney's letter. Don’t wait until you are making offers of judgment in federal court to get it right on the back end.