14 Steps To Avoid Catastrophic Wage and Hour Class Actions

February 15, 2011

Employees are filing claims against their employers under federal and state wage and hour laws in alarming numbers. And they are using class-and collective-action procedures to file claims on behalf of hundreds and sometimes thousands of current and former employees. The value of class claims is often in the hundreds of thousands to millions of dollars. The major types of claims against employers include

  1. Not paying for off-the-clock work,
  2. Improperly compensating workers for their lunch hours,
  3. Misclassifying employees, and
  4. Retaliating against employees who make wage and hour claims.

The good news is that you can take preventive strategies to reduce your liability and exposure to large damages awards.

Wage and Hour Basics 
Both federal and Wisconsin law lay out a patchwork of regulations governing payment of wages for hours worked by employees. The primary areas covered by wage and hour law are payment of minimum wage and overtime compensation. Generally, the federal and Wisconsin minimum wage is $7.25 per hour, except for certain workers like tipped employees. When the minimum hourly wage applies, you must pay at least $7.25 per hour whether your compensation system is based on hourly, piece-rate, or another method of payment.

In addition to minimum wage requirements, federal and state wage and hour law controls payment of overtime. Generally, nonexempt employees must be paid time and one-half their regular rate of pay for all hours worked over 40 in a workweek. Hours worked do not include days off during the workweek for vacation, sick leave, personal days, holidays, and similar leaves. There are a number of methods, based on federal regulations, for determining an employee’s regular rate of pay and overtime for hours worked in excess of 40 in a workweek.

Under federal and state law, there are approximately 60 exemptions from payment of overtime. Many employers are familiar with the more popular exemptions, including the executive, administrative, and professional exemptions, the outside sales exemption, and the exemption for certain computer professionals. There are also a number of less well-known exemptions that may be applicable to parts of your workforce, such as the motor carrier exemption. Your legal counsel can help you analyze whether one or more of the many exemptions to payment of overtime may be applicable to you.

Primary Types of Wage and Hour Violations
Off-the-clock work claims are among the most frequently claimed wage and hour violations. Generally, you must pay employees for all hours that you knew or should have known they worked. An employer cannot accept the benefits of work but not pay its employees simply because the work was done outside normal work hours. Off-the-clock work typically refers to work-related activities that occur before the beginning or after the end of a shift.

If the work performed is a principal work activity or necessary to perform a principal work activity and provides a benefit to the employer, then the employer must pay the employee for hours worked. For example, I cannot give my legal assistant a 25-page brief at 5:00 p.m., when she is about to leave for the day, tell her I need the brief proofread by 8:00 a.m. the following morning, when she starts work, and not pay her for the time spent at home on this work-related activity.

In these difficult economic times, supervisors and managers are increasingly permitting employees to perform work off the clock without payment. This has become a hot-button topic for the U.S. Department of Labor under President Barack Obama and for employees’ attorneys.

Allowing off-the-clock work at home can negatively affect your company in unforeseen ways. Federal and state wage and hour law requires payment of wages from the start of the first principal work activity of the day through completion of the last principal work activity of the day. Normally, employees’ travel time from home to the work site and from the work site back home isn’t compensable. However, if an employee is doing work at home at the start of the workday, his travel time may become compensable. Payment for this additional travel time can significantly increase your financial exposure in wage and hour litigation.

Prework activities that are required by policy can also result in the need to pay wages. Because full-time employees may already be working 40 hours, additional hours must be paid at time and one-half. Examples of potentially compensable prework activities include policies requiring employees to perform vehicle inspections at the start of the day or load and unload tools and equipment from their vehicles to prevent theft. In this age of smartphones, iPads, and similar devices, supervisors and managers routinely send e-mails and electronic documents to employees before and after normal work hours. Employees who are reviewing and responding to these e-mails outside normal work hours may have a claim for compensation.

Lunch break wage payment infractions are another hot area in wage and hour litigation. Neither federal nor Wisconsin law requires an employer to provide a lunch break to employees, unless they’re minors. If you provide an unpaid lunch break for your employees, it must be at least 30 minutes long. Under Wisconsin law, an employee must be allowed to leave the work premises; otherwise, the lunch break must be paid.

It’s becoming common for employers to use automatic mealtime deduction procedures. Under such procedures, employees automatically have 30 minutes deducted for a lunch break unless they take some action to alert the employer that they didn’t take a lunch break. Although automatic mealtime deductions aren’t per se illegal, they typically result in liability for employers because they’re difficult to administer in a way that avoids violations of wage and hour law.

Retaliation claims under the wage and hour laws are also a potential source of concern for employers. If an employee files a complaint claiming you didn’t pay her properly (e.g., she wasn’t paid for certain off-the-clock time), the law prohibits you from taking any negative employment action against her. An employee can ultimately be wrong about the lawfulness of your pay practices and still have a meritorious retaliation claim.

The U.S. Supreme Court currently is reviewing a retaliation case out of Wisconsin in which the trial court concluded that employees’ informal internal complaints are protected as long as they are in writing. Several federal laws provide protection to employees against retaliation, even for oral complaints to their employers. The Supreme Court’s decision should be issued sometime this spring. We predict the Court will agree that informal wage and hour complaints must be in writing.

How Do I Protect Myself?
Here are the key ways to protect your company from a wage and hour class action:

  • Have written policies prohibiting off-the-clock work and requiring employees to record all time worked.
  • Provide training on wage and hour issues to all supervisors and managers.
  • Review your policies to make certain they don’t permit or encourage off-the-clock work.
  • Review your policies and practices regarding use of e-mail, smartphones, and cell phones to prevent off-the-clock work.
  • Audit your employee classifications to make certain that all employees who are classified as exempt meet the applicable tests.
  • Perform an audit to determine whether certain employees who are currently being treated as nonexempt may appropriately be classified as exempt.
  • Review company policies and practices to make certain that you aren’t making improper deductions from exempt employees’ compensation.
  • Include the appropriate safe-harbor language in your wage and hour policies.
  • Make sure that if you are providing an unpaid lunch break, it’s at least 30 minutes long, it is uninterrupted, and employees aren’t restricted from leaving the premises during their lunch break.
  • Avoid automatic mealtime deductions or implement a highly structured system to protect against automatic deductions when employees work during lunch.
  • Be certain to discipline employees and supervisors who violate your timekeeping and record-keeping policies and procedures.
  • Establish a procedure for investigating and resolving internal wage complaints.
  • Perform random audits to verify that your timekeeping and record-keeping policies and procedures are being complied with.
  • Review all individuals who are classified as independent contractors to make certain they haven’t been misclassified.

Bottom Line 
Many employers are finding themselves involved in extremely costly wage and hour litigation. Court and agency statistics show that these types of claims are increasing. Employers have difficulty defending them because wage and hour laws are more technical than other areas of employment law. For example, you most likely know and understand the laws that prohibit discrimination because of race, gender, or age, and you generally have no problem applying these prohibitions in the workplace. Wage and hour laws, on the other hand, are far more detailed and technical than discrimination laws, and it’s far easier to make compliance mistakes. The consequences for such mistakes can be devastating, particularly because of the amenability of wage and hour claims to class-based treatment. Consider undertaking an audit of your wage and hour policies and procedures as a preventive measure.

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For more information about "14 Steps To Avoid Catastrophic Wage and Hour Class Actions," contact Michael J. Modl at mmodl@axley.com or 608.283.6702.