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RISK MANAGEMENT

Avoid these 5 common but costly wage and hour violations

What is the most significant – and also uninsured – risk every employer lives with?

Wage and hour litigation.

That’s the one employment law area that EPLI, employment practices liability insurance, will not cover, says attorney Joseph M. Sokolowski, who heads the wage and hour practice group of Fredrikson & Byron in Minneapolis.

Most EPLI policies specifically exclude wage and hour violations, especially those that become class actions.

And insurance companies do it for good reason. “Wage and hour violations can be expensive,” Sokolowski says, pointing out that an employee can win as much as three years’ back wages plus double damages plus attorney’s fees.

Worse, wage and hour litigation is an attractive class action, he says, “because the numbers get big really quick.” An office with 30 employees may have had as many as 50 employees during the past three years, and the plaintiff’s attorney can cast a net over that entire group of people.

Even the smallest of those actions, Sokolowski says, “comes with a seven-figure damage claim.”

High turnover brings high risk

Who’s most at risk?

Any office that has had high turnover for the past three years, Sokolowski says. One employee gets fired or laid off or maybe just quits and goes to an employment attorney with an unrelated claim of wrongful termination or harassment or whatever. The attorney, however, looks beyond that to the dollar signs of a large class action and starts searching for wage and hour violations.

The attorney then contacts all the employees for the past three years and asks them to join in, and even those with no axe to grind say “sure, why not?” There’s free money to be had and not much effort required to get it.

It’s those hidden hours

Overtime violations most commonly occur because people don’t report the hours they work, Sokolowski says. And there’s a great temptation on both sides not to report them. “The employee wants to be seen as a star performer,” he explains. And the employer wants to take advantage of the additional work and so makes no effort to track who is and isn’t working extra hours.

Much of the danger, he says, comes from the fact that technology is available and easy to use and people don’t give a second thought to finishing up work at night from home. They don’t document it on the time card, so the manager never knows about it.

But know it or not, the office has to pay for the time. If a claim arises, the Department of Labor can come in and say the manager was supposed to be tracking everybody’s hours and therefore should have known about the overtime.

And then the office’s own system turns out to be the smoking gun. It has a record of who did what when, proving the office had every reason to know the employee worked overtime and didn’t get paid.

Be vigilant and get a policy

To stay safe from overtime claims, do two things, Sokolowski says.

Be vigilant about the hours staff work, and set up a policy to deal with unauthorized and unseen overtime. A lot of employers don’t do either, he says, “and they are getting called on the carpet for it.”

Vigilance means making an effort to track everybody’s work and capture all the time worked outside regular hours.

Some employers, for example, restrict or even deny remote computer access to hourly employees. Others require staff to log in when they work after hours.

But whatever steps the office takes to prevent unauthorized overtime, be aware that there is software that tracks each person’s computer hours, which means any office can audit each staffer’s computer work time, including the time spent checking emails after hours. And if a claim arises, the Department of Labor is going to point to that and say “you had the ability to track the time, so there’s no excuse.”

As for the policy, that will depend on how the office decides to allow overtime. Some, for example, prohibit it without written authorization; others allow it as needed and without approval. Either way, the policy should include a provision that staff have to record their overtime hours and the work done.

Especially at risk are offices that allow flexible hours and telecommuting, he notes. According to Sokolowski, those offices “need to be scrupulous” about requiring staff to report the actual hours they work.

The policy also needs teeth. It should say that disciplinary action will be taken if somebody works overtime without authorization. And it should lay out the disciplinary measures. “Employees need to know what the consequences will be for violations,” Sokolowski says.

No room for leeway

He points to two wage and hour provisions that warrant especially close attention.

One is that an employer cannot refuse to pay some one who works overtime, even if the overtime is done in violation of a policy. The manager can treat the violation as a discipline issue and can even fire the staffer, but the office still has to pay for the time the staffer has worked.

The other is that an employer cannot expect a policy to stand as a defense in a lawsuit or a Department of Labor audit. “It’s not the piece of paper that provides the defense,” Sokolowski explains. It’s the compliance. The office has to show that it monitors the hours worked and that is makes an effort to ensure that each staffer is paid properly.

Exempt yesterday but not today

Also causing trouble is the categorizing of employees as exempt or nonexempt from overtime.

That’s not a new problem, according to Sokolowski. “It’s a classic one that continues to dog employers,” he says. But today the risk is especially high, because employers have reduced their workforces and consolidated positions. As a result, they are being forced, he says, “to squeeze more performance out of fewer employees.”

As a result, many previously exempt employees have had their duties changed to the point that they no longer have exempt status.

It doesn’t matter what a job description says, he cautions. “It’s what people actually do” that makes them exempt or non-exempt. And what an employee is doing today may be far different from what the original job description called for.

He gives the example of a supervisor or manager in an office that experiences layoffs. With fewer staff to rely on, the supervisor winds up taking over secretarial or other nonexempt duties to the extent that management is no longer the primary duty.

That situation happens often in small offices where people have to wear many hats to keep the business going, he says. And when it happens, the job is no longer overtime-exempt.

Failing to reclassify the job may be “an innocent violation,” he points out. The employee may be trying to do the best job possible and the employer may be trying to maximize output. But when the DOL takes a look at it, it’s a violation.

A new protection: arbitration

On the good news side, however, is that the office may be able to protect itself against having one person’s complaint turn into a class action claim.

A Supreme Court decision says employers can enforce agreements that require employees to arbitrate employment claims individually.

Employers can use that type of agreement to avoid getting hit with class or collective actions, because anybody who signs it can’t participate in one.

The office can require job applicants to sign such an agreement as a condition of employment, Sokolowski says.

For existing employees, however, there needs to be some type of exchange for the signing. In exchange for giving up the right to participate in a class action, the employee needs to receive something of value, such as a bonus. Without that, the agreement is open to challenge.

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