Employment Brief: In Wage and Hour, Threat High

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Plaintiffs' lawyers are filing Fair Labor Standards Act (FLSA) claims in record numbers. According to Business Week, cases more than doubled in the federal courts from 2001 to 2006. Plaintiffs' lawyers have hit several large Minnesota employers recently with "collective" action claims in Minnesota federal court, while suits invoking state wage and hour laws have also been brought against well known Minnesota companies in state court.

Wage and hour lawsuits are completely different than other types of employment suits, such as discrimination cases. The burden of proof for an unpaid overtime claim is relatively low; plaintiffs need not prove that an employer intended to violate the law. Even worse for employers, plaintiffs' counsel are in hot pursuit of available damage enhancements, such as an extra year of liability, liquidated damages, attorneys' fees and civil penalties.

If you are concerned about FLSA collective actions or wage and hour lawsuits, please contact your Briggs and Morgan attorney or a member of our Labor and Employment Group.

Classification:  A Fine Line

One prominent issue in FLSA litigation is whether the employer has properly classified its employees. Under the FLSA, nonexempt employees are entitled to overtime pay and exempt are not. With a few exceptions, an exempt employee is one who meets an annual salary threshold and performs exempt job duties. Defining job duties as "exempt," however, is fact intensive. The two most common exempt categories include:

  • Executive:  Applies if the employee (i) regularly supervises two or more employees, (ii) manages as the primary duty, and (iii) has some genuine input into the job status of other employees (ie. hiring, firing, promotions or assignments).
  • Administrative:  Includes office or non-manual work that is directly related to management or general business operations of the employer or its customers, a primary component of which involves the exercise of independent judgment and discretion about matters of significance.

Minnesota wage and hour law follows different salary thresholds and duty requirements than federal law for "exempt" classification. Thus, Minnesota employers must examine both federal and state regulations to make their classification determinations.

As recent rulings in Minnesota federal court have highlighted, employers rarely obtain summary judgment in cases where the distinction between exempt and nonexempt employees is being examined. Classification determinations are case specific and generally involve issues of fact.

Recordkeeping

The FLSA requires that employers maintain certain records for at least three years and others for at least two. In litigation, inadequate recordkeeping can improve a plaintiff's chances of victory. Failure to keep accurate time records gives a suing employee a lighter initial burden of proving that his work time was not adequately compensated. In response, an employer might have to conduct an expensive and detailed "accounting" of the plaintiff's hours and wages.

The Financial Impact of Wage and Hour

One key reason wage and hour litigation is on the rise is that plaintiffs' lawyers can obtain damage enhancements under the FLSA and Minnesota wage and hour law, which may include:

  • Compensatory damages:  For FLSA cases, usually limited to unpaid overtime. All time over 40 hours per week must be paid at overtime rate of 1.5 times regular rate of pay (which includes supplements such as bonuses). In Minnesota, overtime kicks in at 48 hours per week.
  • Third year of liability for willfulness:  Under both Minnesota law and the FLSA, the limitations period is two years, except that a cause of action arising out of a willful violation may be commenced within three years.
  • Attorneys' fees:  Under both Minnesota law and the FLSA, plaintiffs' attorneys can be awarded their fees and costs, which often exceed the compensatory damages awarded to their clients.
  • Civil penalties:  Under the FLSA, civil penalties are not available. But under the Minnesota wage and hour statute, civil penalties for a willful violation may be available, depending on the outcome of Milner v. Farmers Insurance Exchange (pending before the Minnesota Supreme Court).
  • Liquidated damages:  The FLSA and Minnesota state law allow a court to award a plaintiff liquidated damages in an amount equal to unpaid wages; discretion is left up to the court. An employer may be able to escape these damages if it can show that its actions or omissions were in good faith or based on reasonable grounds for believing it did not violate federal law.

Collective and Class Action Issues

Yet another reason wage and hour cases are attractive to plaintiffs' lawyers is that they can be brought as representative actions on behalf of a large group. Fortunately for employers, to participate as a plaintiff in an FLSA collective action, an individual must opt in. The opt-in mechanism tends to reduce the number of plaintiffs (when compared to a Rule 23 class), limiting the employer’s overall exposure. Some courts have noted that Congress created this opt-in mechanism to protect employers from being crushed by an avalanche of FLSA claims.

For an FLSA collective action to be certified, plaintiffs must be "similarly situated." Resolving this issue requires a fact-intensive inquiry weighing a number of factors. Courts often use a two-stage certification process, where the plaintiffs' burden is initially quite low. When one of the parties makes a stage-two certification motion, a more stringent "similarly situated" showing must be made. The stage-two certification decision can be as important to employers as the liability determination. And employers can benefit when plaintiffs' lawyers have over-reached with their collective action allegations by attempting to bring too many disparately situated employees into the class.

State wage and hour statutes (including Minnesota’s) generally do not include FLSA-style "collective action" provisions, and thus certification of claims alleging state law wage and hour violations is done according to the usual Rule 23 "class action" process. Rule 23 does not use the FLSA's "similarly situated" test. Some plaintiffs' lawyers prefer to avoid FLSA certification issues and the "opt-in" mechanism by bringing state wage and hour claims.

In recent years, plaintiffs' attorneys have learned to use the FLSA and state wage and hour laws to bring damaging lawsuits and extract large judgments from employers. In this environment, every employer must understand the wage and hour laws, and take steps to reduce the likelihood that plaintiffs' lawyers will find employees willing to sue, or to minimize liability if a suit is filed.