The Overtime Epidemic

By Jeffrey L. Rhodes, Managing Partner – Civil Division, ALBO & OBLON, L.L.P.

Data recently released by the Federal Judicial Center confirms that more wage and hour claims against companies have been filed in the past year than ever before. Companies throughout the country and in our area have all been affected by this pattern, which can have devastating effects upon businesses and their owners and managers. Even our federal judicial district (the Eastern District of Virginia) has experienced a palpable increase in wage and hour claims that should concern executives throughout our region. The danger to business is very real, as the laws governing payment to employees grow ever more complex and punitive (including recent changes to D.C. law), while the plaintiffs’ lawyers filing such claims grow ever more zealous.

Several factors contribute to the recent surge in wage and hour cases, including: 

• A slow and unsteady economy, with persistent unemployment and lower paying jobs; 
• Efforts to increase the minimum wage, both in the U.S. Senate and in states across the country;  
• President Obama’s recent order for the Department of Labor to review the regulations applying the Fair Labor Standards Act to increase the minimum salary and required duties necessary to exempt “white collar” employees from overtime compensation; and 
• Laws in the District of Columbia and other jurisdictions increasing the instances in which overtime compensation is due and the penalties for failure to pay wages and overtime. 

Unlike almost all other types of legal claims, suits for unpaid wages and overtime can be filed against business owners and managers personally, and collected from their personal assets. Typically, executives have protection against personal liability for work they perform because they serve a corporation or other limited-liability entity. When it comes to paying wages and overtime, however, the law allows employees to set aside the corporate form and sue responsible individuals personally.

Companies and executives sued for unpaid wages or overtime compensation are not just liable to repay those sums. Rather, in most instances, individuals and companies who knowingly fail to pay wages must pay double the amount under the federal wage law, the Fair Labor Standards Act (FLSA). Some local jurisdictions have actually increased this punishment, including the District of Columbia and State of Maryland. In 2013, the District of Columbia amended to its wage payment and collection law to impose damages of quadruple the amount of unpaid wages and overtime compensation owed. Additionally, responsible companies and executives must pay their employees’ attorneys’ fees and costs in addition to the multiplied sum of wages and overtime compensation described above.

What can businesses do to avoid this danger? Below are some important steps every business should take: 

• Do not assume any employees are exempt from overtime compensation – the default rule is that every employee should receive overtime compensation of one-and-one-half times their regular rate of pay for every hour worked over 40 in a workweek; 
• While employees may be exempt from overtime if they perform high-level duties and receive a salary of at least $455 per week ($23,660 on an annual basis), exemptions should be carefully scrutinized and discussed with employment law counsel; (Note that the Obama administration is currently seeking to increase the minimum salary necessary for the exemption to apply); 
• Keep track of employees’ hours of work, and do not merely assume that they only work normal business hours or when the business is officially open – many lawsuits claim that employees are working off hours or responding to calls, texts and emails outside of office hours, and wages are owed even if employees are only “suffered or permitted” to work off hours;
• For non-exempt employees, maintain policies concerning their work hours, reporting of hours worked, and eligibility to work overtime that ensures accurate recording of work hours (by punch clock if necessary), instructs them on when they should be working, and requires prior permission before working overtime to prevent unexpected liabilities; 
• For exempt employees, maintain policies concerning when deductions may be made from their salary for instances in which they do not work; these should be limited to full-day absences for personal leave, and allow for corrections if erroneously made; and 
• Consider implementing severance plans or policies to ameliorate the impact of job loss for employees and include a signed waiver that will verify and acknowledge that correct wages and overtime premiums were paid during the employee’s tenure. 

​Finally, anytime an employer receives any sort of complaint or issue raised about accurate payment of wages or overtime, the company should immediately contact legal counsel. A good employment lawyer can conduct an audit of the employer’s wage and hour practices and address the situation to help minimize or avoid any legal liability.