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Fair Labor Standard Act Cases: A snowball rolling downhill

June 4, 2013

Article courtesy of SBAM Approved Partner ASE

By Joe DeSantis

A quick look at a bar graph showing the growth in employee-initiated Wage and Hour claims in the last 10 years makes startlingly obvious what HR professionals have long sensed—the numbers are not just increasing. Rather, they are more like the proverbial snowball—well on its way down the hill, rolling freely and gaining momentum.

According to the law firm Seyfarth Shaw, the number of claims for wages brought by individuals and groups jumped by another 10 percent in the year ending March 31, 2013 over the year ending on the same date in 2012. The count was 7,764 in 2013 vs. 7,064 in 2012.

Of greater concern is the long-term pattern. In the last 10 years the number of such cases has grown 126 percent.

Seyfarth attorney Noah Finkel breaks down the list of FLSA lawsuits into three categories:

  • Salaried employees who believe they should be getting overtime pay. As documented in everythingpeople.™ This Week! and elsewhere, there are more and more exempt employees who believe they should be classified as non-exempt and thus receive overtime pay. Long-time HR people can remember a time when Administrative exempt employees scorned the prospect of becoming non-exempt, seeing it as a step down from management to worker. That perception is apparently on the wane. The Administrative exemption was difficult to define then and still is now, even after being redefined in 2007; it has become the basis for many Wage and Hour cases. So have the Executive exemption (where often the problem is distinguishing conceptually between “lead operator” and “manager”) and the newly defined Computer exemption.
  • Hourly workers who believe they are not getting paid for all the hours they work. For many employees, the advent of the Internet and social media has erased, in practical terms, the distinction between being “at work” and “not at work.” An explosion in wage claims for hours worked outside the office is the result.
  • Restaurant and hospitality-industry workers who receive tips. Typically the claim is that even with tip income their de facto wage is below the federal or state minimum.

In broad terms, Mr. Finkel believes the problem is that the Fair Labor Standards Act, having been created in the 1930s, remains today the direct descendant of an obsolete economic model. In those days, more work was physical and occurred in physical worksites where all workers congregated at the same time. Today there is less physical work and more intellectual work, even for non-exempt positions, and more of it can be done remotely and outside traditional work hours. “So many regulations under the FLSA were written to cover an economy that we just don’t live in any more . . . complying with that is hard,” says Finkel.

Finkel also points out that small, entrepreneurial organizations always struggle with compliance issues more than larger, established organization. The proliferation of smaller start-ups has contributes to the increase.

Lastly, Finkel singles out his own profession for contributing to the increase. Today wage and hour claims are where the money is, and plaintiff’s attorneys know it. They market their services to potential claimants, and more claims are the result.

Parallel data for the state of Michigan is difficult to come by. But a look at the growth in the number of investigations of Michigan employers by the federal Wage and Hour Division through 2012 shows a pattern broadly parallel to the national pattern of FLSA cases: the 2011 number for Michigan is nearly three times that of 2003, with a fall-off in 2012 that still represents twice the 2003 number. More investigations inevitably produce more claims.

The takeaway for Michigan employers should be clear. Wage and Hour compliance may be more complex than ever for the average employer, but it is more critical than ever. The trend is clear: enforcement is up and showing no signs that it will reverse itself in any foreseeable future.

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