Do You Have A FLSA Claim Just Waiting To Happen?

February 14th, 2008

The Fair Labor Standard Act (“FLSA”) is an extremely complex law, and, as such, it can be very difficult to ensure that your company’s overtime policies are in compliance with its requirements.  Even minor violations of the FLSA can be costly to companies as the statute contains a penalty provision that can allow for employee-plaintiffs to recover twice the actual back wages, as well as automatically awarding successful employee-plaintiffs their attorneys’ fees.

There are several common errors that a large number of employers are guilty of making, but which should be avoided (or corrected quickly) at all costs:

  • Automatically exempting salaried employees from overtime pay – Numerous employers make the incorrect assumption that if an employee is “salaried” rather than “hourly”, s/he is not eligible for overtime, but not all “salaried” employees are exempt.  In order to be exempt from overtime pay under FLSA, each individual must be evaluated to determine whether one of the statutorily allowed exemptions is applicable.
  • Incorrectly applying the executive exemption to assistant manager positions – In order to qualify for the executive exemption allowed under FLSA, an employee: must be paid a minimum salary amount, must regularly and routinely direct the work of at least 2 full-time employees, must either have the authority for or have input into the hiring, firing and promoting of other employees, and must have the primary duty of management of the department.  Just having a “manager” title and being salaried rather than hourly isn’t enough; the job description must meet the statute’s requirements for the exemption to apply.
  • Making automatic deductions from hourly employees for meal breaks – While this practice is not illegal, it can create problems for employers.  In both lawsuits brought by employees and in Department of Labor audits, an employer has the burden of proving the actual hours worked by hourly employees.  Employers will most likely have a very difficult time in proving that an employee took a full meal break each and every workday if the deduction was made pursuant to an automatic deduction policy.
  • Refusing to pay overtime that was not “pre-approved” per the company’s internal procedures – An extremely large amount of employer’s have a policy that overtime must be pre-approved by the employee’s manager.  The problems with such a policy begin when employers refuse to compensate an employee for overtime worked without that approval.  Under the FLSA, employers are required to pay for overtime worked with or without prior approval.  Any violation of this policy would need to be handled through an employer’s usual disciplinary process.
  • Accepting an employee’s waiver of overtime pay and/or allowing an employee to “bank” hours –  employers cannot agree to let employees earn extra money by working additional hours at regular pay, even if the employee requests the hours and agrees not to get overtime for those hours.  On the reverse side of this situation, employees cannot work overtime hours (e.g. over 40 hours in 1 week) and have those “extra” hours credited to a subsequent pay period in which s/he will not work their full 40 hours.  Although the FLSA doesn’t use this phrase, “nice guys finish last”, and an employer cannot use the employee’s request and agreement as a defense against an FLSA claim.

These VERY common mistakes can be potentially devastating to employers as these types of overtime actions have the potential to become class actions, depending on the number of affected employees.  To limit their potential exposure, employers should have their legal counsel review their pay and overtime policies and procedures to ensure that those policies and procedures fully comply with FLSA’s requirements.

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