Facts About Fair Labor Standards Act


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Facts About Fair Labor Standards Act

  1. 1. The Fair Labor Standards Act Some Things a Manager Has to Know The Fair Labor Standards Act (FLSA) is a federal law that employers often get wrong. Sometimes the errors are innocent mistakes, and sometimes they are blatant violations. Regardless of the employer’s intentions, in recent years more employees have been seizing opportunities to challenge their employers for nonpayment of wages or overtime. Court cases reveal that certain employer errors are common, including the following: miscalculating overtime payments or not paying overtime at all, misclassifying non-exempt employees as exempt, not understanding what is time worked, and expecting that employees will work off-the-clock.This article will examine some of the basic requirements of the FLSA, sum up some big cases, and provide suggestions for how these mistakes can be avoided. According to the Department of Labor, 2007 was a record year for recovering wages for workers who brought claims under the FLSA. More than 3.4 million workers recovered a total of $220.6 million in back wages. Indicators point to more litigation under this law in the future and more class action lawsuits. In fact, from 2006 to 2007, FLSA claims filed in U.S. district courts increased by 73%. Compared to 2003 to 2007, this represents a 165% increase in claims. Let’s take a look at some of the basic requirements of the law and where employers are repeatedly making the same mistakes. Recordkeeping and Notice Requirements Employers must keep accurate records of all time worked for all non-exempt employees.The FLSA provides a detailed list of records that must be kept and rules for how long these records must be maintained. For example, payroll records must be kept for at least three years. However, records that are used to compute wages, such as timesheets, must be retained for at least two years. In addition, all employers covered by the FLSA must post a notice that explains the law in a conspicuous place. More information about recordkeeping and posting requirements can be found at: http://www.dol.gov/compliance/laws/comp-flsa.htm#recordkeeping In 1997, the U.S. Court of Appeals affirmed a $9.6 million judgment against Southern New England Telecommunications (SNET).This money was awarded to 1,500 outside craft workers because they weren’t compensated for work done during their meal periods. SNET argued that the employees were relieved from duty during lunch so they did not have to pay the craft workers during meal periods.The court found that since the employees could not leave the work site and had to secure the area, they were not relieved from duty and were actually working.Accordingly, they had to be paid. 2675 Paces Ferry Road Suite 470 Atlanta, Georgia 30339 Tel: 800.497.7654 Fax: 770.319.7905 www.eliinc.com Does your learning make a difference?® 1 Copyright © January 2009 • Employment Learning Innovations, Inc. • All Rights Reserved
  2. 2. Recordkeeping and Notice Requirements (continued) SNET had not required the craft workers to include their lunch period on timesheets, so there was some question as to how much time had not been compensated. SNET argued the $9.6 million award was too large because the tally of unpaid time worked was too large.The court responded by saying, “It is well settled that when an employer fails to keep adequate records of its employees’ compensable work periods, as required by the FLSA, employees seeking recovery for overdue wages will not be penalized due to their employer’s recordkeeping default.” In other words, since SNET did not maintain adequate records of hours worked, the employees got what they asked for. Exempt or Non-Exempt To understand which employees are entitled to minimum wage and overtime, an employer must properly classify their employees as exempt or non-exempt.This is sometimes tricky. Basically, all employees are covered by the FLSA requirements unless they are exempt.To be exempt, certain requirements must be met. Employees may be exempt as executive, administrative, professional, computer, outside sales, or highly compensated employees. Classification mistakes can be costly. For example, in 2006, Merrill Lynch settled a claim brought by 3,250 stockbrokers in California for $37 million. Merrill Lynch had not paid the stockbrokers overtime because it treated them as exempt administrative employees.The brokers argued, however, that they did not meet the requirements of the exemption because the law provides that employees “whose primary duty is selling financial products does not qualify for the administrative exemption.”This was a costly mistake for Merrill because the brokers claimed they regularly worked in excess of 40 hours per week and were not properly compensated for the overtime. Caribou Coffee made a similar mistake when it classified its store managers as exempt executives and did not pay them overtime, but instead paid them a salary.Three former store managers from Minnesota sued the company in 2005, claiming they regularly worked in excess of 40 hours a week and should have been paid overtime.The lawsuit became a class action, including hundreds of store managers.Their claim to overtime was based on the fact that their primary duties were non-exempt functions, such as making coffee and waiting on customers.Therefore, they argued they were really non-exempt employees rather than exempt executives. Caribou agreed to settle in 2008 for $2.7 million. Minimum Wage As of July 2008, the federal minimum wage is $6.55 per hour; it is scheduled to increase to $7.25 per hour in July 2009.All non-exempt employees must be paid at least the minimum wage for all hours worked.While this sounds simple, employers often make mistakes based on confusion about what is an hour worked.Also, employers can mess up when they make deductions from an employee’s pay and that deduction results in 2675 Paces Ferry Road the employee earning less than minimum wage. Suite 470 Atlanta, Georgia 30339 Tel: 800.497.7654 Fax: 770.319.7905 www.eliinc.com Does your learning make a difference?® 2 Copyright © January 2009 • Employment Learning Innovations, Inc. • All Rights Reserved
  3. 3. Minimum Wage (continued) All time worked must be paid no less than the minimum wage.The Supreme Court has said that “work” is “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business.” Based on this definition, there are rules and regulations to help determine what is time worked. For example, breaks of less than 20 minutes are considered to be working time.A meal period that does not fully release the employee from duty will be considered time worked.Also, some travel time must be compensated under the FLSA, depending on when the hours of travel occur.Time spent in training is generally considered work time. Regulations also address when time spent on-call is work time or not. Figuring out what is time worked can be problematic, but figuring out when an employee has actually worked poses problems for employers, too.There have been many cases where employees claim management knew they worked off the clock yet did not ask the employee to record their time. For example, if a non-exempt employee works through lunch, the manager should make sure the employee’s timesheet reflects that time worked. If the employee arrives to work early or leaves late, the employee must be compensated for the actual hours worked, not the scheduled hours, so long as management knew or should have known the employee worked those extra hours. Moreover, technology that provides round-the-clock opportunities for work-related communication also provides opportunity for claims that non-exempt employees were expected to work off the clock. For example, managers need to know that a non-exempt employee may incur additional work time when that employee sends the manager a work-related e-mail at night, outside of the employee’s regularly scheduled work hours. Employees also complain regularly that they were required to work during meal and break times and should have been paid.Wal-Mart settled such a case in January 2009 for $54.3 million.The lawsuit, raised under Minnesota law, alleged that non-exempt employees were not paid for time during training and were denied breaks required by state law. In 2006,Wal-Mart suffered a $78 million jury verdict in Pennsylvania when workers there also claimed they were not paid for compensable break periods. Overtime Overtime is another requirement of the FLSA where opportunity for mistakes by employers is ripe.Again, the rule seems fairly simple. If a non-exempt employee works more than 40 hours in a workweek, the employee must be paid at a rate of 1.5 times the regular rate of pay for all hours worked over 40 in the workweek. However, employers have made mistakes by not calculating the “regular rate” correctly, not adding the hours worked correctly, requiring off-the-clock work, or not noticing that employees were working more hours than they were recording on their timesheets. In 2003,T-Mobile settled a case under a state law similar to the FLSA when its customer care representatives sued them in Washington.According to the customer care representatives, they were told they could not clock in while they performed activities that were necessary to prepare for the start of their shifts, such as booting 2675 Paces Ferry Road Suite 470 up their computers.The Department of Labor computed back wages for all the call centers over a three-year Atlanta, Georgia 30339 period, and the parties settled for $4.7 million. Tel: 800.497.7654 Fax: 770.319.7905 www.eliinc.com Does your learning make a difference?® 3 Copyright © January 2009 • Employment Learning Innovations, Inc. • All Rights Reserved
  4. 4. ELI’s Solution ELI® believes that training managers on basic legal and policy requirements is critical.Whether talking about discrimination, labor law, or wage and hour law, managers need to know certain basics.The very best Human Resources and payroll department does not have the direct, daily access to employees to detect risky behaviors that managers have. Moreover, when concerns about possible legal violations are raised, managers could be the first to hear about these concerns. ELI believes that lecturing to managers about the law or having them go through a check-the-box course will not change their behaviors.With regard to key FLSA issues, ELI has developed an experiential course that teaches managers the basics of the FLSA and shows them how to avoid common mistakes that lead to distrust, lowered productivity, and lawsuits. The course, Communicating Standards, places managers in a variety of wage and hour situations.They are taught not only the legal basics but also how to identify potentially risky situations.They learn how to monitor their employees, how to intervene and communicate if they see situations that might be off-the-clock work, the importance of welcoming concerns, and when to coach employees if their employees are violating the rules.The course emphasized organizational policy so that managers leave the class with a clearer understanding of the policies and the necessity of communicating expectations to employees. Moreover, managers are taught that they are not expected to solve FLSA issues on their own, but they do have a responsibility to get help. While the FLSA provides guidance on specific records that must be maintained, it is silent as to another type of documentation that is critical. ELI believes managers should understand the importance of documenting all conversations they have with employees regarding FLSA issues.Whether the manager is reminding employees about the importance of accurately recording all time worked on timesheets or counseling a non- exempt employee who worked through lunch without advanced approval, these conversations should be documented.The FLSA allows for increased damages when an employee can show that an FLSA violation was willful and allows for double damages if the employee shows the employer made no good faith attempt to comply with the law.This additional documentation may not be legally required, but it is just as important in terms of being able to establish credibility and good intent when legal challenges arise. 2675 Paces Ferry Road Suite 470 Atlanta, Georgia 30339 Tel: 800.497.7654 Fax: 770.319.7905 www.eliinc.com Does your learning make a difference?® 4 Copyright © January 2009 • Employment Learning Innovations, Inc. • All Rights Reserved